Judge rules that Microsoft must be split in two

Judge Jackson follows DoJ recommendations closely in ordering Microsoft to be broken into two companies
Written by Lisa M. Bowman, Contributor

Calling Microsoft "untrustworthy," US district judge Thomas Penfield Jackson signed off on a Department of Justice proposal to split the company into two parts: one that would sell operating systems and another that would sell applications and run the company's Internet efforts.

In an order that basically followed a earlier DoJ filing word-for-word, Jackson Wednesday gave Microsoft four months to submit a divestiture plan once the judgment is in place. But he then set aside that provision, and others, until the appeals process is finished.

In a memorandum accompanying the judgment, Jackson said he "reluctantly" came to the decision that a breakup is necessary. He cited several reasons, including Microsoft's refusal to concede that its practices violated the federal Sherman Antitrust Act and the possibility that the company may be trying to hurt competition in other markets as it did in the browser market. What's more, he said, Microsoft has "proved untrustworthy in the past" by failing to comply with a previous injunction. Jackson also defended his decision to deny Microsoft extra time to fight the breakup plan, a move that the company claims caught it off guard.

"Microsoft's profession of surprise is not credible," Jackson wrote in the filing. "From the inception of this case Microsoft knew, from well-established Supreme Court precedents dating from the beginning of the last century, that a mandated divestiture was a possibility, if not a probability, in the event of an adverse result at trial."

Microsoft chairman Bill Gates vowed to appeal and said he would pursue a motion to set aside the ruling while he does so. "Today is the start of a new phase of this case," Gates said during a news conference.

Under antitrust law, the DoJ also has the option of expediting the case by leapfrogging the US Court of Appeals and asking the Supreme Court to hear it directly -- an option it said it would exercise.

Jackson also placed a series of restrictions on Microsoft's conduct for at least three years. Among other provisions, they would prevent the company from:

  • restricting computer makers from modifying computer startup screens or punishing them if they don't follow orders;
  • withholding technology that would let software makers create products that work smoothly with its Windows operating systems;
  • taking actions that knowingly interfere with the performance of competitors' products;
  • raising prices on previous versions of Windows when a new version is released;
  • threatening companies that develop or distribute products that run on non-Microsoft operating systems;
  • and tying other products to Windows.
  • "Today, Judge Penfield Jackson hit a triple," said consumer advocate Ralph Nader. "Had he broken Microsoft into three companies, separating the operating system, the applications and the browser businesses, we would be able to cheer a home run. But a triple isn't bad."

    Another Microsoft critic, Sun Microsystems CEO Scott McNealy, said the judge's ruling was fair and measured.

    "Nobody wants to go back to the days of one telephone company," McNealy said in a news release. "Everyone cares about the freedom of choice, which is why today's ruling is so monumentally important both to the industry and consumers."

    But Gates said the judge's decision was an unwarranted attack on free enterprise.

    "This is clearly the most massive attempt at government regulation of the technology industry ever," Gates said in a statement on the Microsoft Web site.

    At a news conference later, Gates continued in a similar vein, saying, "Today's ruling really represents an unwarranted and unjustified intrusion into the software marketplace, a marketplace that has been an engine of economic growth."

    US attorney general Janet Reno said Jackson's ruling will protect competition and ensure that consumers will have more choices in the marketplace.

    Chief antitrust lawyer Joel Klein hailed the ruling. "When the remedy is implemented, customers and consumers will decide for themselves what software they want to purchase. ... Neither a monopolist nor the government can dictate that choice."

    The DoJ and 17 state attorneys general first submitted a breakup proposal April 28, with Ohio and Illinois filing a separate proposal that did not include a divestiture. After that, Microsoft was given a chance to suggest its own remedy proposal -- a document that contained few substantive restrictions on conduct.

    Then, during a hearing on remedies in Washington DC, on 24 May, Jackson invited the DoJ to resubmit its plan to him, the first major indication that the judge favored a breakup. He also abruptly ended the case by cutting the hearing short and refusing Microsoft's request for six more months to present witnesses and evidence in response to the breakup plan. At that hearing, he also praised a trade group document calling for a three-way split, although the DoJ eschewed that plan in its revised proposal.

    In the past few weeks Jackson gave both sides a chance to edit the document, although government attorneys incorporated only a few of the changes proposed by Microsoft.

    Wednesday's ruling, in effect, winds up the trial in Jackson's courtroom, a phase that has lasted more than two years. The DoJ and 20 state attorneys general sued Microsoft in May 1998, accusing it of violating federal antitrust law. During the trial, which began that October, both sides called dozens of witnesses from the computer industry and academia to testify on their behalf.

    Then, in November 1999, two months after closing arguments in the case, Jackson issued his findings of fact, a scathing document that declared Microsoft a monopolist that had bullied its way through the software industry, quashing competition from companies such as Netscape, Sun Microsystems and Apple Computers. He also appointed US appeals court judge Richard Posner to oversee settlement talks.

    When those talks collapsed in early April, Jackson released a ruling declaring that Microsoft had violated federal antitrust law by, among other things, attempting to monopolize the browser market and by leveraging its market dominance to spoil competition. That ruling paved the way for the remedies stage of the trial, which culminated in Wednesday's judgment.

    Rupert Goodwins thinks the split may yet turn out to be the best thing that's happened to Microsoft. In the most optimistic scenario, the software will be better, more reliable, more flexible and cheaper. But as rivals and Microsoft partners cackle happily what does it actually mean to us users? Go to AnchorDesk UK for the news comment.

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