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Microsoft plan to be filed

Updated:
WASHINGTON (AP) — The Justice Department and 19 states that successfully sued Microsoft for antitrust violations will ask a federal judge to split the software giant into two competing companies forbidden to reunite for at least a decade.

The proposal was to be submitted to U.S. District Judge Thomas Penfield Jackson after the close of financial markets today. Jackson ruled April 3 that Microsoft repeatedly broke federal antitrust laws intended to maintain fair competition by using its monopoly power in computer operating systems to crush rivals.

Jackson gave the government and the states the option of submitting separate briefs if they failed to agree on a remedy. Despite doubts expressed by some states on the divestiture plan, a single proposal would be filed with the court, according to people close to the talks.

``There will be one document which will be the voice for the Department of Justice and virtually all of the states,'' one source said Thursday, speaking on condition of anonymity. However, ``one or two states may choose to put in an appendix or footnotes,'' to note difference of opinion in some areas.

But the differences ``are very marginal,'' another source added today.

Microsoft stock was down 31 1/4 cents a share at $69.50 in morning trading on the Nasdaq Stock Market.

Microsoft has said it plans to appeal Jackson's ruling and company executives have insisted that no laws were broken. In an interview earlier this week with The Associated Press, Microsoft Chairman Bill Gates said divestiture of any part of the company he founded 25 years ago would hurt consumers and be ``a very inappropriate thing.''

New York State Attorney General Eliot Spitzer called the recent comments by Gates, along with those by Microsoft's chief executive officer, Steve Ballmer, ``fundamentally distortive.''

``The truth is that Microsoft has been a monopolist found by a federal judge to have undercut innovation and hence competition and consumer welfare,'' said Spitzer, pointing to passages of Jackson's April 3 ruling.

Under the government's proposal, one company would sell Windows, the operating system that runs most of the world's personal computers. The other would handle applications software, such as the dominant Office suite, which includes the word processor Word and the spreadsheet program Excel.

Microsoft's browser, Internet Explorer, would be owned by the applications company, although the Windows component could license the rights to use the program, said one source who had seen a draft of the plan. Government attorneys felt that the split would spur competition in the Web browser market.

``It may give incentives to people to start investing in this market again if they feel that it can't be captured by one company, Microsoft,'' the source said.

The two companies wouldn't be able to recombine for 10 years. The government's plan also would impose three-year restrictions on the Windows company to give computer makers more flexibility to feature rival products. Microsoft would also be banned from retaliating against business partners who have resisted the company's wishes.

Gates and his board of directors would have to create a proposal for implementing the split. Gates and other officials would receive stock in only one of the new companies, while ordinary shareholders would get stock in both.

Microsoft has until May 10 to respond to the government's filing but has said it would request an extension to respond to a proposal as extreme as a breakup.

Justice Department officials gave an ``informational briefing'' on the proposal to White House economic advisers earlier this week ``because I think it is a significant and important case,'' Attorney General Janet Reno said.

In a separate document filed with the court Thursday, a group of prominent antitrust experts urged Jackson to order a more extreme measure — to ``clone the operating systems into three companies.''

The government's likely proposal ``is a move in the right direction, but doesn't go far enough,'' said the brief's chief author, Robert Litan, a former Justice Department official who negotiated with Microsoft in a related 1994 case and now works for the Brookings Institution.

Other authors of the report, which was not commissioned by either side, are Roger Noll, an economist at Stanford University; William D. Nordhaus, a Yale University economist; and Frederic Scherer, an economist at Harvard University's John F. Kennedy School of Government.

In addition to the government's lawsuit, Microsoft faces more than 100 private antitrust lawsuits. On Tuesday, a panel of federal judges consolidated 27 of them in a single court in Baltimore.

U.S. District Judge J. Frederick Motz will coordinate pretrial activities for the 27 claims, which were filed in 17 federal jurisdictions.

The private claims echo the antitrust charges detailed in the federal antitrust lawsuit but carry the potential for triple damages against Microsoft.
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