There were millions of documents to sift through, hundreds of witnesses to interview, complex economic analyses to conduct and 76 grueling days in a courtroom, trying to convince a federal judge that Microsoft Corp. has been a predatory monopolist that has bullied rivals and smothered innovation.
For government lawyers, that was the easy part.
Now the government is facing its toughest challenge in the Microsoft antitrust case: crafting a "remedy" to inject competition into the market for personal-computer operating systems.
The Justice Department and 19 state attorneys general still have not figured out what they would ask U.S. District Judge Thomas Penfield Jackson to do should he rule early next year--as he is widely expected to--that Microsoft has violated the nation's antitrust laws.
The government team is mulling several options, which range from forcing Microsoft to change some of its business practices to the ultimate sanction under American antitrust law, a corporate breakup.
Also under consideration, according to people familiar with the government's strategy, is requiring the firm to auction off the crown jewel of its intellectual property, the secret computer code that makes up its Windows operating system.
Each approach, say proponents, would increase competition in the software industry. But those options--as well as others being debated by government economists, lawyers and policymakers--also pose serious risks.
Some would create an oversight bureaucracy that could impede the fast-moving technology industry. Proposals to have more than one company develop and sell Windows could result in different versions of the operating system, which could prevent software on one machine from running on another.
And several remedies could be viewed as politically risky for the Clinton administration's Justice Department to pursue in a election year.
The chief economist in Justice's antitrust division, Timothy F. Bresnahan, has compared the government's long court fight with Microsoft to a dog chasing a firetruck. "Looks good. Right down the middle of the street. Loud. Red. Crowd already assembled," he said. "But gentlemen, what are you going to do with it when you catch it?"
Microsoft argues that any discussion of remedies is premature, given that Jackson has not yet issued a final judgment declaring that the company has broken the law. But many legal specialists say the highly critical tenor of the "findings of fact" he issued earlier this month makes such a ruling a foregone conclusion.
Complicating the remedies process is the fact that, unlike in many court cases, the government isn't looking to punish Microsoft. The Department of Justice is not, for instance, planning to seek fines against the company. "Monetary penalties are off the table. Our focus is on competitive conditions in the market," said Joel I. Klein, Justice's antitrust chief.
"Ideally we'd know what we want by now, but we don't," said Iowa Attorney General Tom Miller, who is coordinating the states' involvement in the case. "It's very difficult, because every remedy you look at has some advantages but also some significant disadvantages."
A Breakup At the most extreme end of the remedies spectrum is a structural split of Microsoft, which could happen in one of three ways, according to economists who have been studying the issue. Microsoft could be carved horizontally into one company that would sell only Windows and another that would sell other Microsoft software products, such as word processors and spreadsheets.
The second approach would be to split the firm vertically into two or three nearly identical units, dubbed "Baby Bills" after the company's billionaire chairman, Bill Gates.
The third way would be to split Microsoft horizontally and then divide the Windows company vertically into two or more separate firms.
A breakup, particularly the vertical split, arguably would be the most immediate and direct way to create competition in the operating-system market. The Baby Bills would divide Microsoft's programmers, offices and production facilities, and each one would get the secret blueprints to Windows.
Then, with several firms selling Windows, proponents predict, prices would fall and consumers would get more product options. One of the firms, for instance, might choose to offer a version of Windows without Internet browsing software. Another might opt to bundle speech-recognition software with the operating system.
One big worry about this approach centers on the capacity of software to operate properly on each Baby Bill's version of Windows. What would prevent one of the firms from adding features that would make its operating system incompatible with others?
Nothing. But economists say that if one of the Baby Bills diverged from the current Windows standard, its system would become unappealing to consumers because it would not run the tens of thousands of software applications that have been written for Windows over the past decade. And in the future, the incentive to support a large base of software would make each of the firms ensure that new versions of their operating system would be compatible.
Many doubt that logic, and other significant questions remain about a vertical division. Microsoft's most valuable assets aren't made up of factories, oil refineries or railroad lines that can be split in two or three ways. Most of Microsoft's property is intellectual, and as such, its chief resource is people.
Which company would get Gates? How would the programmers be split up? And what would prevent employees assigned to the non-Gates Baby Bills from quitting and joining Gates's company?
How would the firms divide the responsibility of providing technical support to existing Windows users? "These firms would be inexperienced," said Herbert Hovenkamp, a professor at the University of Iowa College of Law who has advised the government on the case. "They wouldn't have a track record."
As such, some contend that a more natural division of Microsoft would be horizontal, into a Windows company and a company that sells all of the company's other software products, most notably the Office suite of programs, which is nearly as ubiquitous as Windows.
Microsoft already has internal divisions between operating-system employees and those who work on software applications. If the company that sold Office was no longer beholden to the success of Windows, it might create versions of Office for rival operating systems, such as Linux, helping them become more popular. And, legal specialists note, it would not be fair to split up Office and the company's other software, because they were not part of the government's case.
The horizontal breakup, however, has a big flaw: It wouldn't directly target Microsoft's market dominance. Each company still would have a monopoly--one in Windows and one in Office.
Recognizing the shortcomings of the horizontal and vertical approaches, others argue that Microsoft should be split both ways: First it should be divided horizontally, and then the Windows company should be diced into several Baby Bills.
"There isn't the legal foundation to divide up the applications part of the company," said Steven C. Salop, a professor of economics and law at Georgetown University. "But you can't leave the Windows entity as a single company. That won't do anything about the monopoly problem."
Although structural remedies probably would involve little to no continued government oversight--a key goal of government lawyers--there is a worry that such an approach is too draconian. The government accused Microsoft only of unlawfully maintaining--not obtaining--its Windows monopoly. As a result, some legal experts predict that Jackson, and the appeals judges who will almost certainly review his ruling, might be less inclined to chop up the firm.
Proposing a breakup also could subject the Justice Department to a new round of political criticism from congressional Republicans, many of whom have lined up behind Microsoft and would be quick to attack the Clinton administration as a destroyer of one of America's most successful companies.
"A breakup is too politically dangerous," said William E. Kovacic, a law professor at George Washington University. "And it will remain a tough sell to Judge Jackson and the appeals court."
A Windows Auction Recognizing the practical and political hurdles to a breakup, a growing number of attorneys and economists on the government team, particularly among the states, favor a remedy that would leave the corporate structure of Microsoft intact but would require the firm to auction off Windows blueprints to two or three other companies.
With the "source code" to Windows, the other firms could sell Windows clones or they could incorporate the technology into other software products, possibly creating new operating systems that would have Windows compatibility. Large PC makers also might bid for the code, which would effectively prevent them from having to pay royalties to Microsoft every time they install Windows on a computer.
Proponents of this remedy believe well-established technology firms would bid for the code, reducing the worry that Windows would be supported by fledgling Baby Bills. But like the Baby Bills, the winning bidders--and Microsoft--would have an incentive to ensure compatibility among their products.
Critics question whether the bidders, even if they were large and experienced computer firms, would be able to compete with Microsoft, which would be armed with the programmers who created Windows, its $19 billion cash hoard and its long-standing customer relationships. After all, would any Fortune 500 company buy a Windows clone just to a save few dollars on each computer?
"The source code is not like Coca-Cola's recipe, where you take the recipe and make the soft drink," Salop said. "Windows is comprised of 30 millions lines of very complex, bug-filled, poorly documented code. The license winners are going to be in disarray trying to figure out what they've gotten, and meanwhile Microsoft will be moving forward. . . . There's a serious risk they'll get left in the dust."
Conduct Remedies The third remedy being seriously considered by government lawyers would be to ask Jackson to issue a court order prohibiting those Microsoft business practices deemed to be anti-competitive.
One of the practices likely to be targeted in the order would be Microsoft's secret contracts with PC manufacturers. Microsoft, the government alleged in court, has rewarded PC makers who acceded to Microsoft's various demands with lower prices for Windows. As a result, the government contended, many PC makers--whose profit margins are generally thin--have become Microsoft's vassals. Such a requirement would force Microsoft to generally charge PC makers the same price for Windows, regardless of whether they distribute other Microsoft software.
Another provision of a court order could prevent Microsoft from sharing technical information about Windows with its corporate allies and in-house programmers who work on software such as Office before those specifications are publicly released. Competitors have argued that Microsoft has restricted their access to the information, known as "application programming interfaces" (APIs), an allegation Microsoft has denied. An order could require Microsoft to let an independent body monitor API disclosure.
Critics of this approach argue that Microsoft has a poor record in complying with court orders. They point to a 1995 "consent decree" between Microsoft and Justice, which the government accused the company of violating in 1997 by bundling its Internet browser in Windows. "How many chances are we going to give them?" Hovenkamp said. "They played extraordinarily fast and loose with the 1995 consent decree."
There's also the worry that an extensive consent decree will require ongoing Justice Department or judicial oversight of the company, a burden government lawyers are anxious to avoid, considering the dynamic nature of the technology industry. "There is a risk that a consent decree that addresses all of the practices that concern the government will be overly regulatory," Kovacic said.
The Road Ahead The discussion about remedies currently involves senior Justice Department officials, state attorneys general and economic advisers hired by the government, but eventually it could include the White House and congressional leaders.
Although Justice and the states are not expected to publicly identify their preferred remedy until Jackson formally rules that the company has broken the law, many of the states already are backing either a structural remedy or a forced auction of the Windows code, sanctions that could strip the company of its dominance in the market for PC operating systems. Lawyers representing many of the states are determined not to accept any settlement offer from Microsoft that does not dilute the company's monopoly with Windows, according to sources familiar with the states' legal strategy.
Klein said he and his staff are still "looking at a broad range of remedies, including conduct and structural options," but have not yet made a decision.
Some legal specialists worry about the sheer magnitude of the challenge. They fear that the government will simply find itself incapable of designing a remedy that prohibits conduct it finds troublesome while not overly infringing on the company's rights or creating an oversight bureaucracy. This could lead Justice and the states to scale back what they eventually ask for, opting for milder sanctions that might not address all their concerns.
"They could have to accept half a loaf partly because of the uncertainties created by harsh remedies," said Ernest Gellhorn, a professor of antitrust law at George Mason University. "But that would be better than proposing a remedy that makes things worse than they are now."