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Judge orders Microsoft split in two

Updated:
WASHINGTON - A federal judge Wednesday ordered Microsoft Corp. split into two companies, prescribing the biggest corporate breakup since AT&T while harshly rebuking the software giant for stifling computer-age competition.

Potentially monumental, the ruling by U.S. District Judge Thomas Penfield Jackson was not the last word in a case that could define the limits of companies operating in a high tech economy.

Microsoft has promised to appeal in the case, which had been pressed by the Justice Department and 19 states. The case could go to the U.S. Court of Appeals or directly to the Supreme Court.

"This is the beginning of a new chapter in this case," said Microsoft chairman Bill Gates. He called the ruling inconsistent with past court decisions and with the realities of the marketplace.

Mr. Jackson's order gives Microsoft four months to break up the company - the time period suggested by the government - but the company asked for a stay while it appeals.

Shares of Microsoft finished regular trading on the Nasdaq Stock Market up 87.5 cents to $70.50. In after-hours trading, shares of Microsoft slipped higher to $72.125.

Mr. Jackson, who concluded two months ago that Microsoft had violated antitrust law, ordered the company to be split into these parts:

One that would own and market the Windows operating system, the source of the company's monopoly position.

A second that would handle all other Microsoft software, such as its "Word" program and Internet browser.

The Justice Department and 17 of the 19 states recommended that the company be broken into the two pieces.

Assistant Attorney General Joel I. Klein, head of the Justice Department's antitrust division, said, "The court's order is the right remedy for Microsoft's serious and repeated violations of the antitrust laws."

Mr. Jackson's ruling also forbids the company from entering into "exclusive dealing" that would restrict the development of competitors' products.

"Microsoft, as it is presently organized and led, is unwilling to accept the notion that it broke the law or accede to an order amending its conduct," Mr. Jakcson, explaining why he believed the breakup was necessary.

"Microsoft has proved untrustworthy in the past," Mr. Jackson said, citing its failure to comply with a court ruling earlier in the 1990s that preceded the antitrust case.

The judge had ruled April 3 that Microsoft had violated federal antitrust law by using illegal methods to protect a monopoly in computer operating systems. He found the company tried illegally to expand its dominance into the market for Internet browsers.

Federal antitrust law allows for cases of broad public importance to go directly to the Supreme Court, but the justices do not have to accept the fast-track system. If Microsoft appeals directly to the Supreme Court, it can send the appeal to the U.S. Court of Appeals for the District of Columbia, where it would be handled like virtually all other appeals from U.S. District Court rulings.

The only previous time the appellate court was bypassed in an antitrust lawsuit was the last case of this magnitude: the AT&T breakup.

Microsoft contended in a May 31 court filing that a breakup would have "significant and damaging" consequences. The corporation sought a year to submit its own breakup plan, compared with the four months sought by the government.

As Microsoft was filing the final legal papers before Mr. Jackson's ruling, Mr. Gates appeared Tuesday at a congressional hearing on the future of high technology in the United States and around the world.

In its filing, Microsoft, disdainful of the department's response to the company's earlier concerns, asked Mr. Jackson to include previously suggested language that would give a broken-up Microsoft more freedom to enter into agreements with software developers and computer makers.

"Instead of agreeing to correct the many defects in the revised proposed final judgment, and thereby minimize the damage that its entry would inflict on a wide range of participants in the computer industry, the government has agreed to only a few cosmetic changes," Microsoft's lawyers wrote.

In the brief, Microsoft also said the Justice Department was, in its recent filing, "confirming that certain provisions are more extreme than they might appear at first blush" and "blithely ignoring substantial problems Microsoft identified regarding the feasibility of complying with many of the provisions as drafted."

In Washington, Justice Department spokeswoman Gina Talamona dismissed Microsoft's response. "The filing rehashes Microsoft's old arguments, ignores the extensive violations found by the court, denies the need for serious relief and grossly distorts our proposed remedy," she said.

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