Judge Orders Microsoft Breakup

After two years of contentious legal wrangling, Microsoft (Nasdaq: MSFT) Corporation was ordered by a federal judge Wednesday to split its operation into two competing companies.

The landmark ruling, which could have far-reaching repercussions in the growing electronic commerce industry, also requires the company to comply with a lengthy list of restrictions on its business practices that will last three years if the breakup order withstands appeal, and 10 years if it does not.

Microsoft vowed to appeal Judge Thomas Penfield Jackson's ruling immediately, all the way to the U.S. Supreme Court if necessary. However, if the judgment is upheld, it represents the toughest antitrust ruling against a U.S. corporation since AT&T agreed to spin off the "Baby Bell" regional phone companies in 1982.

The court's ruling allows the company to remain intact until the appeals process is exhausted, a process that some analysts project could take up to two years.

In his final ruling, Judge Jackson accepted the U.S. government's remedy proposal entirely, without alteration, and without acknowledging strident assertions by Microsoft's legal team that a breakup is potentially disastrous for the software industry and for the new economy.

Since April 28th, when the breakup plan was first proposed on behalf of the Department of Justice (DOJ) and 17 state attorneys general, Microsoft has called it extreme and unwarranted.

As late as just hours before the ruling was handed down, Microsoft chief executive Steve Ballmer said, "A breakup of Microsoft, I think, would be an awful thing for consumers and for the industry. The real issue in a possible breakup would be the harm it does to innovation."

Gates Vows to Appeal

In a videotaped response, Microsoft chairman Bill Gates said, "This is the beginning of a new chapter in this case. We will be appealing this decision and we have a very strong case on appeal."

Gates added, "We believe this ruling is inconsistent with the past decisions by the appeals court, with fundamental fairness, and with the reality of the marketplace. This is clearly the most massive attempt at government regulation of the technology industry ever. This plan would undermine our high-tech economy, hurt consumers, make computers harder to use, and impact thousands of other companies and employees throughout the high-tech industry.''

The initial appeal, according to some experts, will focus upon the restrictions on the company's business practices. The restrictions include

• requiring Microsoft to offer equal licensing terms to all PC makers,

• barring the company from threatening or taking action against companies that make competing products by withholding license terms, technical support or sales support,

• prohibiting Microsoft from forcing Windows licensees to buy other Microsoft software, and

• preventing the company from locking PC manufacturers into agreements requiring them to promote, distribute or use Microsoft products.

While appealing Wednesday's ruling, Microsoft will ask a higher court to postpone or stay all of the restrictions.

Under U.S. law relating to major antitrust cases, Microsoft's appeal could bypass the normal appeals process and go straight to the U.S. Supreme Court.

However, Microsoft may want to see that the case is not fully resolved before the swearing in of a new U.S. president in January 2001. There is speculation that Republican challenger George W. Bush, if elected, would not be sympathetic to the government's case against Microsoft.

Also, some legal experts believe that the high court will not agree to receive the case on an expedited basis.