Microsoft Urges Court to Dismiss Government’s Breakup Proposal Immediately

REDMOND, Wash., May 10, 2000 — Microsoft Corp. today urged U.S. District Court Judge Thomas Penfield Jackson to dismiss the government’s unprecedented proposal to break up the company and outlined more appropriate remedies as well as a range of procedures designed to move the remedy phase forward as quickly as possible.

“We are working to try to resolve this case as quickly as possible, in a fair and reasonable manner. We believe there is no basis in this case for the government’s unprecedented breakup proposal, and we are hopeful that the Court will dismiss this excessive demand immediately so that the case can move forward much more rapidly,”
said Microsoft Chairman Bill Gates.

“Even without the extreme breakup proposal, many elements of the government’s proposed regulations are unwarranted, outside the scope of this case, and very damaging to consumers,”
Gates said.
“The government’s proposals would take away Microsoft’s property by forcing us to disclose the source code for our products, even though Microsoft spent hundreds of millions of dollars to develop these products. The government also seeks to interfere with the design of Microsoft’s products.”

The company is providing its initial legal and practical objections to the government’s wide-ranging remedy proposals, which were filed 12 days earlier on April 28 by the Department of Justice and the State Attorneys General involved in the case.

“The government’s so-called conduct and disclosure remedies are just as damaging to the company, and just as bad for consumers as their breakup demand. The government’s proposals really represent government regulation of software design and an unwarranted taking of Microsoft’s intellectual property,”
said Microsoft President and Chief Executive Officer Steve Ballmer.

The company’s summary critique of the government’s proposals points out that the government’s proposed relief relates to products, markets, channels of distribution and even claims (such as
) that were not considered at trial, much less found to relate directly to any violation of law. The company expects to file a more detailed response to the government’s proposals as the remedy process moves forward.

As requested by the Court, Microsoft also filed its recommendations for remedies that would address the violations identified by the Court’s April 3 decision, recognizing that the company disagrees with many of the Court’s rulings and plans to appeal.

“While we may disagree with the Court’s decision, our proposal shows that there are ways to address all of the violations the Court found, without resorting to the government’s excessive demands,”
Ballmer said.

“The government’s proposals should concern anyone who cares about the future of the American high-tech industry. The government’s proposals would regulate how Microsoft could design its products for consumers and restrict how Microsoft could work with other companies to develop new products or ensure that products work well together,”
Ballmer added.

Microsoft’s proposal would address the specific violations found by the Court, by imposing a number of requirements on the company, including the following:

  • OEM flexibility . Microsoft would be required to allow computer manufacturers to (a) delete the Internet Explorer icon from the Windows desktop and Start menu, (b) offer their own Internet sign-up process in the initial Windows boot sequence, (c) display icons for non-Microsoft platform software products on the Windows desktop, and (d) configure non-Microsoft Web browsing software as the default browser.

  • Contracts . Microsoft would be enjoined from entering into contracts to promote any product or service through Windows in exchange for the other party agreeing to limit distribution of non-Microsoft platform software.

  • Access to APIs . Microsoft would be enjoined from denying any independent software developer timely and complete access to the technical information Microsoft makes available to the software development community at large. The company would also be enjoined from conditioning the release of information on a developer’s agreement not to support a non-Microsoft platform.

  • Release of products for non-Microsoft platforms . Microsoft would be enjoined from withholding the release of any software product designed to run on a non-Microsoft platform that is ready for commercial release in order to urge the vendor of the platform to limit the development, manufacture, distribution or promotion of a platform software product that competes with Microsoft.

  • Predecessor operating systems . Whenever Microsoft releases a major Windows operating system such as Windows 95 or Windows 98, the company would be required to make the predecessor operating system available to computer manufacturers at a royalty no higher than the existing royalty.

Under Microsoft’s proposal, the company would pay the attorneys’ fees and other costs of the 19 plaintiff states that were party to the lawsuit. The decree would take effect 45 days after it was entered, and would remain in effect until July 1, 2004. Microsoft’s proposal includes provisions to ensure compliance, including providing the government with access to Microsoft’s records and documents, the authority to interview Microsoft personnel, and written reports by Microsoft on compliance. Obviously, Microsoft would maintain its rights to appeal the case, even if its recommended remedy was entered by the Court.

As directed by the Court’s April 5 order, Microsoft also filed its recommendations on the process and schedule for the remedy phase going forward. In an effort to move the case forward more quickly, the company suggests that the Court enter Microsoft’s proposed remedy immediately as the final judgment in the case. If the Court decides to consider relief beyond that proposed by Microsoft, the company suggests that the Court issue a preliminary injunction while proceeding with any remedies phase. Such a step would allow Microsoft to appeal the preliminary injunction, while preserving the Court’s ability to proceed with a remedies process and to consider additional remedies in the future depending on the outcome of the appeal.

In all, the company outlined five scheduling options for the Court, depending on which elements of the government’s proposal were under consideration:

  • If the Court wishes to enter final relief immediately based on the Findings and Conclusions already entered, the company proposes that the Court enter Microsoft’s draft final decree – including the remedies outlined above – without the need for any additional process.

  • If the Court decides to entertain any of the government’s remedy proposals but wants to enter some relief while the remedy process is ongoing, the company proposes that the Court enter Microsoft’s draft final decree as a preliminary injunction. Such a procedure could impose substantial temporary remedies while the appeals process moves forward immediately, and would reserve the Court’s authority to conduct an extensive remedies process and to impose any additional remedies in the future, depending on the outcome of the appellate review.

  • If the Court rejects both the government’s breakup proposal and the proposals that call for publication of the company’s enormously valuable intellectual property, the remaining
    relief requested by the government would still be severe and unwarranted. The company proposes roughly 10 weeks for preparation, with a brief remedy trial beginning Aug. 7.

  • If the Court dismisses the breakup demand but still plans to consider government proposals that Microsoft be required to disclose its intellectual property, the company requests approximately four months of discovery, depositions, preparation and pre-trial motions, leading up to a remedies trial beginning Oct. 2.
    “The need for deliberate procedures is especially strong because much of the intellectual property the government seeks to confiscate relates to products and technologies, such as Windows 2000, that were not even mentioned at trial,”
    the company’s brief notes.

  • If the Court plans to consider the government’s entire proposal, including the unprecedented breakup demand, the company requests six months of time for discovery, depositions, preparation and pre-trial motions, leading up to a remedies trial beginning Dec. 4.
    “The government has asked the Court to break Microsoft up and then actively regulate the two resulting companies, impairing their ability to develop new products for consumers in the highly competitive software industry,”
    the company’s brief notes.
    “Should the Court not summarily reject such draconian structural relief, then substantial discovery, adequate time for preparation and a lengthy evidentiary hearing will be required.”

“We want to see this case resolved as quickly as possible,”
said Bill Neukom, Microsoft executive vice president for Law and Corporate Affairs.
“We have proposed comprehensive relief that addresses all the violations found by the Court, and have invited the Court to accelerate the process by entering that relief without the need of a further hearing. But, if the Court is going to consider the government’s proposals – many of which go far beyond the scope of the case itself – then we want to ensure that Microsoft has a fair and reasonable opportunity to respond.”

For more information, print and online media only:

Rapid Response Team, Waggener Edstrom, (425) 450-5019, [email protected]

For more information, broadcast media only:

Michelle Fristachi, Global Communications and Television, (212) 339-9920

For more information, financial analysts only:

Carla Lewis, senior director, Microsoft Investor Relations, (425) 936-3703

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