Justice Dept Klein's statement on Microsoft

WASHINGTON, April 28 (Reuters) - Following is the statement by U.S. Assistant Attorney General Joel Klein made on Friday on the U.S. Justice Department's proposal to break Microsoft Corp. (NasdaqNM:MSFT - news) into two separate companies:

"The Department of Justice has just filed our proposed remedy in the Microsoft case with the Federal District Court. We are asking the court to enter an order establishing a process under which Microsoft would be reorganized into two companies: an operating systems company and an applications company.

The assets of the operating system company will consist of Microsoft's operating system products -- Windows 2000, Windows 98 and Windows CE -- plus the personnel, facilities and other assets associated with those businesses.

The assets of the applications company will consist of Microsoft's other business, including its applications business, which contains products such as Microsoft Office, as well as Internet Explorer, developer tools, the Microsoft network, the Internet content business, and Microsoft's consumer hardware business.

The operating system business will receive a license to continue to distribute the existing Internet Explorer code, but it will have to develop its own browser in the future. That browser will compete with Internet Explorer, which will belong to the applications company. The result will be revitalised competition in the browser market, which the court found Microsoft illegally had attempted to monopolise.

After the separation, the two companies will be barred from colluding with one another or distributing each other's products. But both businesses will be entirely free to compete with each other in all lines of business. Each company will have the incentive to compete vigorously through developing and licensing products that compete with the other company's core businesses.

For example, instead of using the Office product as a club to force Apple to use Microsoft's browser, as the district court found in this case, a separate applications company would have the incentive to develop the best possible Office suite, not just for Windows, but for other computing platforms like the Apple and Linux operating systems.

Much like the browser was in 1995 before Microsoft declared war, Office has the very real potential to be a cross-platform middle-ware threat to the dominance of the Windows monopoly. Besides, Office is an enormously, because Office is an enormously popular product, with over 100 million copies in use around the world, its availability on other operating systems would give those operating systems a real opportunity to compete with Windows.

As these other computing platforms grow and proliferate, the operating system business will face real competition for the first time. The result will be an exciting and innovative set of new products with more choices and lower prices for America's consumers.

Under our proposal filed today, neither the heavy hand of ongoing government regulation nor the self-interest of an entrenched monopolist will decide what is in the best interests of consumers. Rather, consumers will be able to choose for themselves the products they want in a free and competitive marketplace. That is our goal and that is the overriding purpose of America's antitrust laws.

Almost 20 years ago, the telephone industry was dominated by a single monopoly that used its power to stop competing technologies from taking hold. That monopoly was challenged by the Antitrust Division and it ultimately agreed to structural relief. The result has been an explosion of innovation in telecommunications, including the development of the Internet itself and a vast array of exciting new products and services now available to consumers at increasingly lower prices.

We believe that over the long term the reorganization of Microsoft will similarly result in competition in the operating systems business and innovative new products throughout the software industry.

Microsoft will not be required to implement this reorganization until after the appellate process has been completed. In the meantime, the proposed decree contains a number of restrictions on Microsoft's business practices that can and should go into effect immediately and that would be phased out three years after the reorganization plan is completed.

These are necessary, these conduct restrictions, to allow the structural remedy sufficient time to restore competitive conditions and to take hold in the software industry. These provisions include prohibitions on the conduct specifically found illegal by the Federal District Court.

First, to prevent retaliation against computer manufacturers that support competing technologies, the decree would prohibit retaliation and would require a uniform schedule of prices and license terms for Windows for the 20 largest OEMs.

Second, to forestall limitations on the ability of computer manufacturers to promote competing products, the decree would require that those manufacturers be given broad freedom to configure their products to meet the demands of their consumers.

Third, to stop Microsoft from punishing software and hardware developers that support competing technologies, the decree would prohibit Microsoft from retaliating against these developers and disabling their products. And it would require Microsoft to disclose important, critical, technical information about Windows to those developers when that information is disclosed to Microsoft's own applications developers or used in other Microsoft products like its server.

Next, to stop Microsoft from forcing consumers and computer manufacturers to use Microsoft products, the decree will prohibit Microsoft from tying the licensing of other Microsoft products to the licensing of the Windows operating system. And when Microsoft binds, as the court found, middleware products to the operating system, it will be required to offer a version with an add/remove utility so that computer manufacturers and end users can remove access to the middleware product and obtain Windows at lower prices.

The decree would also prohibit the kind of exclusive dealing agreements and agreements limiting competition that Microsoft used to maintain its monopoly in operating systems in this case, and it would require Microsoft, at long last, to adopt internal antitrust oversight and compliance mechanisms.

Let me be clear: This decree will not limit Microsoft's ability to add new features to its products or otherwise to innovative. But by turning loose the power of competition in the operating systems business this decree will stimulate innovation throughout the software industry, in operating systems, applications and computing devices. The American consumer will benefit enormously from this proposed remedy."