Article 184 of 200
Judge orders Microsoft split in two pieces - Firm draws harsh denouncement as Gates vows immediate appeal
Kevin Coughlin
The Star-Ledger Newark, NJ
Page 001
(c) 2000. The Star-Ledger. All rights reserved.


Mincing no words, a federal judge yesterday ordered the "untrustworthy" Microsoft Corp. broken in two - a move that would rank with the landmark breakups of AT&T and Standard Oil if it survives legal challenges.

Microsoft Chairman Bill Gates promised to appeal Judge Thomas Penfield Jackson's historic order "within days."

To speed the legal process, the federal Justice Department said it will press to have the U.S. Supreme Court hear Microsoft's appeal immediately -an unusual step that Microsoft opposes.

If appeals fail, the world's largest software company would be split into rival companies - one selling its ubiquitous Windows operating system, the other controlling its Office suite of applications, online services and everything else.

The stark remedy was proposed by the Justice Department and 17 of 19 states that sued Microsoft in May 1998, alleging violations of federal antitrust law.

On April 3, Jackson ruled that Microsoft violated the 1890 Sherman Act by using illegal methods to protect its Windows monopoly, stifling competition. He also found the company illegally tried to expand its dominance into the market for Internet browsers.

''Following a full trial, Microsoft has been found guilty of antitrust violations, notwithstanding its protests to this day that is has committed none," Jackson said in a three-page order issued in Washington, D.C.

The judge gave Microsoft four months to devise a plan to divide itself. Interim restrictions on the firm's operations are scheduled to kick in three months from now. These preclude Microsoft from cutting exclusive deals with computer makers, offering special discounts or tying the sale of other products to Windows. Most onerous to Microsoft is a dictate to share its propietary Windows "source code" with competitors.

Microsoft is expected to seek a stay of those conditions, too.

A breakup is "imperative," Jackson wrote, because Microsoft continues wielding its software dominance to "do to other markets what it has already done to the PC operating system and browser markets."

The Justice Department recently cited e-mails from Gates suggesting Microsoft would play hardball to gain ground in the emerging hand-held computer market, now dominated by the Palm operating system.

Despite Microsoft requests for further hearings on the breakup, Jackson stressed that he was not about to retry the case. Microsoft had ample warning of this outcome, he said, and months to negotiate a less harsh solution.

In blunt language, Jackson upbraided Microsoft for denying any misdeeds and refusing to change its practices. He said the case deserves swift appellate review - either to uphold the remedial actions before Microsoft can inflict more damage, or to overturn them before they irreversibly alter the corporate giant.

Previous efforts to curb Microsoft's actions through court orders, the judge added, were hampered by the company's "untrustworthy" behavior, "illusory" compliance and "disingenuous" explanations.

The government has said its antitrust case will protect competition. Gates, who would have to give up half of a bifurcated Microsoft, said the case sends a message that "the government can take away what you have created if it proves to be too popular."

''I think this ruling flies in the face of what consumers experience every day - a high-tech economy that's lowering prices and bringing out lots of great new products," said Microsoft's billionaire co-founder, predicting victory on appeal.

Investors apparently weren't overly worried. Microsoft rose 87.5 cents to $70.50 a share during the regular session, then rose to $72 per share in after-hours trading.

Legal experts said there is no guarantee the Supreme Court will take the appeal, even if Jackson approves the government's request. The Justice Department is invoking a seldom-used law that allows cases of national importance to bypass the normal appeals process.

''The Supreme Court is not set up to wade through heavy records," said attorney Charles F. Rule, a Microsoft consultant who was the government's top antitrust enforcer from 1986 to 1989.

Rule predicted the high court would let the U.S. Circuit Court of Appeals for the District of Columbia sort out the details and identify any questions of law. The Washington-based lawyer said the process could take at least six months.

Jackson's tone - including his use of the term "guilty," not normally seen in civil cases - will be scrutinized on appeal, Rule said.

''What's troubling is, the judge seems to suggest he is imposing this remedy because Microsoft has indicated it intends to exercise its right of appeal. That's certainly not a basis for imposing punishment," said Rule.

Microsoft will oppose any short cut to the Supreme Court, said William Neukom, the company's lead attorney. His preferred battleground is the appellate court, where Jackson was overturned in a prior Microsoft decision. Analysts say a lengthy appellate review also would buy Microsoft precious time, both to gain footholds in new markets and to welcome a new president who might drop the entire case.

The most tenacious fight is likely to involve disclosure of Microsoft's Windows source code, said Nicholas Economides , a professor of economics at New York University. "Giving away the source code is definitely a no-no for them," he said.

Economides questioned the consumer benefits of a breakup. He doubts a new Microsoft applications company can create an operating system to challenge Windows, which runs 90 percent of the world's personal computers. Nor does he see the free Linux operating system posing a serious threat. And consumers may wind up paying for the Internet Explorer browser, which they now get for free.

''It fails in all respects," he said of the breakup.

But Attorney General Janet Reno begged to differ. She said the ruling will have a profound impact, "not only by promoting competition in the software industry but by reaffirming the importance of antitrust laws in the software era."


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