Judge orders Microsoft broken into two companies

WASHINGTON - A federal judge ordered the breakup of Microsoft Corp. on Wednesday, declaring the software giant that spurred an explosion in home computing should be split into two because it ''proved untrustworthy in the past.''

''Microsoft, as it is presently organized and led, is unwilling to accept the notion that it broke the law,'' U.S. District Judge Thomas Penfield Jackson wrote as he ordered the most dramatic antitrust breakup since AT&T in 1984.

An unrepentant Microsoft Chairman Bill Gates, vowing an appeal, said the ruling shows ''the government can take away what you have created if it proves to be too popular.'' He said the company would seek to block Jackson's order from taking effect during the appeals process.

''This is the beginning of a new chapter in this case,'' added Gates, who would only be able to control one of the two companies mandated by the ruling.

Jackson's ruling came two months after he concluded April 3 the software company violated antitrust laws by using illegal methods to protect its monopoly in computer operating systems, stifling competition. He also found the company tried illegally to expand its dominance into the market for Internet browsers.

The judge gave the company four months to devise a plan to divide itself into two parts.

One company would manage the Windows operating system that helped make Gates a billionaire; the other would manage all of Microsoft's software, such as its Office Suite and the Internet browser that spurred the antitrust lawsuit filed by the Justice Department and 19 states.

Justice Department antitrust chief Joel Klein said the government will seek an expedited hearing in the Supreme Court for Microsoft's appeal. A case with such serious market implications ''should, one, benefit from Supreme Court review and, two, should benefit quickly so that the expectations can be settled, the remedy can go forward and the industry can move on,'' Klein said.

Microsoft attorney William Neukom said the company will oppose any attempt to send the case straight to the Supreme Court, saying the place to argue it is in the U.S. Circuit Court of Appeals for the District of Columbia. That court ruled in Microsoft's favor in an earlier case.

Jackson must approve any request that the Supreme Court take the case directly. In an interview with The Washington Post published on its Web site Wednesday night, he said he is ''favorably inclined'' toward sending it straight to the Supreme Court.

Jackson also said he arrived reluctantly at his decision to break up Microsoft.

''Given my personal preferences, I'd much prefer to have market forces accomplish as much of the remedy as could be done,'' Jackson said. ''I've always thought the best remedy was the one the parties could have negotiated between themselves.''

Attorney General Janet Reno 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.''

New York Attorney General Eliot Spitzer, whose state joined the suit, called the decision a ''pretty scathing assault on Microsoft.''

With Windows on more than 90 percent of all personal computers, the ruling drew strong reactions from average Americans and the computer industry.

Microsoft ''doesn't understand how abusive they are of their monopoly position,'' said James Barksdale, former chief executive of Netscape - the Web browser that lost a battle for dominance with Microsoft's Internet Explorer.

''In this case I think the market should have decided,'' said Janet Barrs, 30, a production coordinator for a Salt Lake City photography studio. ''I have nothing against government but sometimes they do things for the wrong reason.''

Jeff King, a computer systems consultant with Cellular South, from Raymond, Miss., countered, ''Why didn't they cut off the giant at its knees? Instead, they just cut it off at the toes. I wonder how they're going to fight two monopolies now.''

Jackson suggested in his ruling that Microsoft was continuing predatory business practices.

''There is credible evidence in the record to suggest that Microsoft, convinced of its innocence, continues to do business as it has in the past, and may yet do to other markets what it already has done in the PC operating system and browser markets,'' the judge wrote.

Jackson's ruling imposes several measures designed to protect Microsoft's competitors.

Among them, he ordered Microsoft to divulge to outside developers technical information about the way Microsoft operating systems interact with its software. Those developers will be able to pick apart the computer code without cost to improve their understanding of it and make their own products.

Microsoft also would no longer control what icons are on the Windows operating screen when a user buys a computer. This means that consumers buying a computer from a distributor such as Dell or Gateway could see a desktop that looks nothing like the Windows desktop they're accustomed to.

Shares of Microsoft finished regular trading on the Nasdaq Stock Market up 87.5 cents to $70.50.

In ordering the breakup, the judge approved the penalty recommended by the government and 17 of the 19 states. He suggested Microsoft brought the split upon itself when it failed to settle the case - even after the court named a mediator.

''The final judgment proposed by plaintiffs is perhaps more radical than might have resulted had mediation been successful and terminated in a consent decree,'' he noted.

Until the breakup is implemented, the judge ordered Microsoft to preserve the company's current structure, and to continue to maintain all current Microsoft products.

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

Federal antitrust law allows for cases of broad public importance to go directly to the Supreme Court, but the justices can send it back to the appeals court, 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.

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On the Net:

Microsoft: http://www.microsoft.com/presspass/trial/jun00/06-06reply.asp

Justice Department: http://www.usdoj.gov/atr