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While steadfastly denying the government was conceding anything in its antitrust case against the Microsoft Corp., the Justice Department Thursday announced it would no longer seek to break apart the software powerhouse into separate companies. The announcement comes as the two sides prepare for the next round of litigation in a federal district court in Washington, D.C., later this month. Along with its decision to not pursue splitting the company as a cure for Microsoft’s established antitrust violations, the government also declared that it would abandon its so-called bundling claim against the company. The moves come in the wake of a unanimous June 28 decision by the U.S. Court of Appeals for the D.C. Circuit that upheld the District Court’s ruling finding that Microsoft had engaged in monopolistic conduct, but tossed aside the breakup order. The appeals court sent the case back to the U.S. District Court for the District of Columbia for an appropriate remedy. In doing so, it also held that the bundling claim, in which the government accused Microsoft of illegally tying consumers’ use of its Windows operating system to use of its Internet browser, would have to be retried under a stricter legal standard. A senior official with the Justice Department’s Antitrust Division said Thursday that the decisions were designed to speed the case toward an earlier conclusion. The decisions were made to whittle the case down to “a manageable pack of issues,” the official said, “that would lead us to a prompt and effective remedy as soon as possible.” The 18 state attorneys general who are co-plaintiffs with the United States in the antitrust case were consulted and agreed with the decisions, the official said. Reaction on Capitol Hill was favorable. “This decision avoids lengthy additional trial time and is cause for cautious optimism that this case will be resolved more quickly for the benefit of all consumers,” said Sen. Patrick Leahy, D-Vt., the chairman of the Senate Judiciary Committee. The Justice Department still could have pursued a breakup remedy in the new district court proceeding, but the DOJ official indicated that the language of the appeals court decision made that option seem less viable. Furthermore, any subsequent breakup plan would undoubtedly be appealed by Microsoft with the same relentlessness as the first order. “The Bush administration never had the stomach to break up Microsoft. [The appeals court] decision was good news for them,” said Daniel Wall, an antitrust lawyer in San Francisco with Latham & Watkins. “This is the government embracing the inevitable.” At the same time, the government’s decision to drop the bundling claim means the case can proceed directly to a determination of a remedy for Microsoft’s antitrust violations. The Justice Department denied that Thursday’s actions meant it had lost faith in the case and was seeking a speedy way out. Nor would it say that the decisions were made with an eye toward reaching a settlement. It refused to comment on whether settlement talks were ongoing. And it is arguable that depriving the Justice Department of its most intimidating weapon — the threat of a breakup — makes it less likely the software giant will settle the case on terms favorable to the government. “You would think Microsoft would be pleased about not having to face that,” said Salil Mehra, a former Justice Department antitrust official who is now a professor at Temple University. “This is favorable to Microsoft.” The company itself had little to say. “We remain committed to resolving the outstanding issues in this case,” said Microsoft spokesman Jim Desler. The government’s announcement came as both sides were preparing a joint report for the new judge in the case, Judge Colleen Kollar-Kotelly. As part of that effort, the Justice Department was required to establish “the scope of the case” for the upcoming proceedings, the DOJ official said. Kollar-Kotelly took over the case after the appeals court removed the previous trial judge, Thomas Penfield Jackson, citing Jackson’s expressed hostility toward the company during the trial. The Justice Department official said that the determination not to seek a breakup of the company was made solely “inside” the department. The official said that the White House had no involvement in the decision and that Attorney General John Ashcroft had merely been briefed on the decision. Both President Bush and Ashcroft had evidenced some skepticism toward the government’s case in the past. With the breakup remedy off the table, the government will now attempt to force Microsoft to agree to a set of court-enforced conditions that are intended to limit its anti-competitive conduct. The severity of those conditions will be much of the subject of the upcoming proceedings in the District Court. Wall said that those conditions could include a prohibition on Microsoft’s bundling the Internet browser to the operating system, despite the government’s public surrender on that point. “This could be part of some preliminary deal with Microsoft and taking off the bundling claim formally is part of that,” he said. Thursday’s announcement comes as Microsoft prepares to ship the latest version of its operating system, Windows XP, to consumers in October. The senior Justice Department official said that the government has no plans to seek a court order blocking release of the software, despite the contention of industry rivals who say that the system contains many of the same features that gave rise to the antitrust suit in the first place.

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