Microsoft break-up may not stop at the border

The U.S. government’s plan to split Microsoft into two separate companies will have a direct impact on Microsoft Canada, according to one Canadian law professor, because the split isn’t likely to stop at the U.S. border.

“My understanding is that Microsoft Canada simply functions as a subsidiary as opposed to a separate company,” said Michael Geist, a University of Ottawa professor who specializes in Internet law.

“A break-up of the company could well mean a similar recourse for Microsoft Canada in the sense that a [U.S.] Justice Department mandate that the company be split up along operating system and application lines will have ramifications for the company worldwide,” he said.

“It will not simply stop at the U.S. border. Clearly, an integrated company such as Microsoft – which operates in multiple jurisdictions but does so by way of subsidiaries – in order to put into effect the court order (should it come to pass) would be required to not only makes changes in the United States, but to its company operations worldwide.”

The U.S. government recently filed its plan in U.S. District Court in Washington, D.C., seeking to separate Microsoft’s Windows from its other software.

Kevin Restivo, an analyst with IDC (Canada) Ltd. in Toronto, agreed with Geist. “Anything that happens to the parent company will be reflected in the Canadian company.”

Restivo cautioned that for the U.S. Department of Justice (DOJ) to claim a victory in its case against Microsoft, there needs to be interim remedies put in place in order to curb the reasons for filing the antitrust case in the first place.

“I think that would be crucial as they want to stop what [the DOJ] sees as Microsoft’s predatory behaviour.”

Restivo also suggested that if Microsoft launches appeals and the case bogs down in the courts then Microsoft could use the very strengths the DOJ fears to dominate another aspect of the industry.

Microsoft has announced it will appeal the plan and is already asking for more time to form such an appeal. Microsoft president and CEO Steve Ballmer has appeared in televised U.S. ads trumpeting the company’s case. Microsoft chairman Bill Gates sent out a letter to stockholders outlining the company’s position.

“My initial reaction is that the [U.S.] government’s plans are so extreme and radical that there is not much of a chance we’ll see this [break-up] happen,” said Michael Eisen, Microsoft Canada’s director of law and corporate affairs. “Microsoft’s business practices will be vindicated at the end of the day.”

Eisen said that U.S. law has no jurisdiction in Canada. “U.S. courts cannot regulate the behaviour of Canadians,” he said. However, Eisen admitted that any break-up or changes in the business operations of the parent would have an effect on Microsoft’s operations worldwide.

“The government is not thinking about any impact this decision will have elsewhere but in the United States. Because it’s so complex it’s inappropriate to speculate about what will happen internationally,” Eisen said.

“Right now there is no immediate impact on Microsoft Canada and a lot of speculation,” Restivo said. “In Canada it’s all systems are go as they are trying to roll out products.”