Microsoft Assails Government Breakup Proposal One Last Time

Updated from 7:08 p.m. EDT

Microsoft (MSFT Quote), in its final response to a proposed breakup, said Wednesday that it would need 12 months to come up with a plan to split itself into two, instead of the four months that the government has offered.

The company also assailed the Justice Department's proposal to break it up as "vague" and "defective," and added in a legal brief filed to the federal judge overseeing the antitrust case against it that the plan was unlikely to stand up on appeal.

And Microsoft offered top executives of leading U.S. companies, such as Compaq (CPQ Quote), DreamWorks and J.D. Edwards, as potential witnesses to support its contention that a breakup with hurt the American economy.

But the newly named witnesses are unlikely to be called since U.S. District Judge Thomas Penfield Jackson has closed the hearings in the antitrust case. Microsoft's filing late Wednesday was the last step in the case before Jackson issues his final ruling, and a decision could come as early as this week.

"It will be interesting to see how long it takes him to issue a ruling, since Judge Jackson has already made it clear that he will accept the government proposal with minor changes," said James Lucier, a software industry analyst with Prudential Securities.

"Will he spend more than five minutes reading Microsoft's filing? Will he read it at all? It would be decent to wait at least 24 hours," Lucier added. "The timing will be a measure of the extent to which the judge is issuing a slap in the face to Microsoft."

In its filing Wednesday, Microsoft argued that "the timetable proposed for the divestiture is unrealistic." It said that federal regulators, including the Securities and Exchange Commission, would need to examine any breakup plan closely and that it would also need approvals from some foreign governments to split up its operations overseas.

The company again asserted that the proposed breakup was "extreme and unjust," and it assailed the plan as "defective in numerous respects, making the document vague and ambiguous."

In response, the Justice Department described Microsoft's latest filing as "another effort to posture for appeal."

"Much of Microsoft's submission is patently irrelevant to the question before the court," the department said in a statement late Wednesday. "The filing does not come to grips with the fact that Microsoft has been found to have repeatedly engaged in serious legal violations, and serious remedies are required to restore competition and prevent similar violations in the future."

The company has vowed to appeal every aspect of the ruling, from the judge's initial findings of fact to the remedy.

On Wednesday, Microsoft's shares closed down 7/8, or 1%, at 62 1/2, well off a 52-week high of 119 that was reached in February, before settlement talks between Microsoft and the Justice Department collapsed.

On May 24, Jackson abruptly closed the proceedings in the case, refusing Microsoft's repeated requests for more time. The company's lawyers filed an offer of proof just before Jackson ended the hearing, which also included a list of such new potential witnesses as William H. Gates, Microsoft's chairman, and Steve Ballmer, the chief executive, and described the testimony they could offer.

In a memorandum attached to their revised breakup proposal, filed May 26, prosecutors attacked the behavior of Microsoft lawyers. They said the company's lawyers knew all along that the government would seek a breakup, but delayed instead of specifying why more time was needed. The company said that it was taken by surprise by the trial's sudden end but that it brought the offer of proof to be prepared.

Microsoft had been given two business days to comment on the form of the revised Justice Department proposal.

Despite the seemingly expedited pace of the trial under Jackson's purview, the time required for appeals is still anybody's guess, and settlement talks could restart in the interim.

Jackson has ruled that Microsoft employed illegal business practices to extend a monopoly on computer operating systems to other markets.

The proposal from the Justice Department and 17 states calls for a two-way breakup. It would place the Windows operating system in one company and create a second business for everything else, including software applications, the Internet Explorer Web browser and the Microsoft Network Internet service provider and network of Web sites. Microsoft would have four months to submit a logistical plan for compliance.

Within 90 days of a ruling, the behavioral remedies outlined by 17 states and the Justice Department would take effect. These remedies include publishing the so-called source code used by programmers to design software applications for Windows. Other proposed behavioral remedies would regulate Microsoft's relations with computer makers and software companies.

The company could ask an appeals court to stay a portion of the remedies; Jackson himself could stay portions of his remedies.

Microsoft's remedies proposal, which it was required to file May 10, asked for a dismissal of the Justice Department's breakup proposal. The company filed additional documents to bolster the dismissal motion, using arguments the government itself made in its prior case against Microsoft.

Forced to propose remedies for a ruling it plans to appeal on behavior it still maintains was legal, Microsoft asked for behavioral regulations, including restrictions governing the company's license agreements with computer makers. In court, Microsoft lawyers declined to discuss their proposed remedies, focusing instead on arguing against a breakup.

Michael Brick, a reporter for TheStreet.com/NYTimes.com, contributed to this report.