US District Judge Thomas Penfield Jackson ruled Wednesday that Microsoft should be split into two companies, closely following a US Department of Justice recommendation. Microsoft said it will appeal the ruling.
"We will be appealing this decision, and we have a very good case on appeal," said Microsoft chairman Bill Gates in a video news release. According to Jackson's order, Microsoft would be divided into one company controlling the Windows operating system and the other firm in charge of applications and Internet dealings.
At a Business Software Alliance CEO summit Wednesday in Washington, DC, where Gates was supposed to be one of the panellists, BSA president and CEO Robert Holleyman told attendees that Gates had flown back to Redmond Tuesday night to "be with his employees" in the event of a ruling in the DoJ case.
Eric Schmidt, chairman and CEO of networking giant Novell, told BSA attendees that "it's very early to speculate on what is going to be a very long and drawn-out process." Microsoft shares were down $1 in early trading to about $67.
The ruling comes a day after Microsoft submitted a brief criticising the government for making only "cosmetic" changes to a breakup proposal it says is riddled with flaws.
In a harshly worded document, Microsoft called the government's position "extreme" and warned Jackson that the proposal would force the company to redesign its operating system and may cause employees to quit. Microsoft had one last chance to make changes to a government proposal to split the software giant into an operating system company and a separate applications company.
At a hearing two weeks ago, Jackson invited the US Department of Justice and 17 state attorneys general to submit their breakup proposal to him in final form. In the weeks that followed, he's given each side two chances to propose edits to the document.
In the final filing of that paper battle, Microsoft attorneys complained Tuesday that the government ignored many of the changes they proposed -- a move they said could hurt both the company and others in the industry.
"Such flaws should be corrected even if one accepts -- which Microsoft decidedly does not, for reasons stated previously -- that relief of the sort requested by the government is either necessary or appropriate in this case," said the document, which was filed a day before the Wednesday deadline.
In its filing, Microsoft called the government's most recent proposal "so vague and ambiguous as to be unintelligible."
"In fact, the government's reply to Microsoft's comments makes the government's revised proposed final judgment worse than Microsoft initially thought," company attorneys wrote.
The company said the provisions would force Microsoft to redesign its operating system and open up its source code. What's more, the company said the proposal may force employees out the door because Microsoft workers, "many of whom are engineers accustomed to precision in the ascertainment of objectively verifiable facts," wouldn't be able to understand the new rules. Predictably, the DoJ downplayed the Microsoft document.
"The filing rehashes Microsoft's old arguments, ignores existing violations found by the court, denies the need for serious relief and grossly distorts our [proposal]," DoJ spokeswoman Gina Talamona said. Nevertheless, she said, government attorneys would not ask Jackson for another chance to file a response -- as they did the last time Microsoft filed. Last week Jackson granted the government's request for another round of filings, delaying his final decision in the case by at least a week.
Many legal experts say Jackson's request for the DoJ's breakup proposal at the hearing indicates he favours splitting the company into at least two parts.
Jackson already has ruled Microsoft a monopoly that used its dominance to illegally move into other markets. Microsoft has vowed to appeal, and any decision by Jackson probably would be set aside until that process is finished.
Reuters and Margaret Kane and Mary Jo Foley of ZDNet News contributed to this report.
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Take me to the DoJ/Microsoft special.