A judge has virtually rubber-stamped the US government's proposal to break up Microsoft.
As expected, Judge Thomas Penfield Jackson ruled that Microsoft should be split in two - an applications company and an operating systems vendor.
The breakup order will be stayed, pending an appeal. The proposal, which prohibits Microsoft from punishing original equipment manufacturers for supporting competitive products, will come into effect 90 days after the order is entered, according to documents.
In terms of conduct, Microsoft cannot interfere or restrict the appearance of Windows on the desktop, and the vendor must disclose application programming interfaces, technical information and communications interfaces to interested parties "in a timely manner".
The Redmond giant must also "not take any action that will knowingly interfere with the performance" of non-Microsoft products, and cannot bind middleware to its own operating systems.
In addition, it must continue to offer and license older versions of its own operating systems, such as Windows 95, Windows 98 and Windows 2000 Professional.
Steve Frankel, research director at Boston investment company Adams, Harkness & Hill, said: "On the one hand, breaking up Microsoft might benefit the company itself, but it will hurt the market. A breakup will only serve to increase the uncertainty, and uncertainty is bad."
Facing the facts
The US Department of Justice said it had won the case not on courtroom theatrics or brilliant cross-examination by its lead attorney, but simply on the facts.
Joel Klein, US assistant attorney general, said: "Probably the single most important piece of this particular case was the 208-page 'findings of fact'."
Written by Judge Jackson, the findings "put the lie to the notion expressed by many observers that district courts were unable to understand the sophistication of the high-tech industry", said Klein.
"The opinion and everything this judge did is based on the facts and the law."
Klein said the case proved that common law judges can apply existing law and rule on complex issues of technology.
However, Jonathan Zuck, president of the Association for Competitive Technology, said: "The judge has made it clear that he cannot see the forest for the trees. Microsoft represents just four per cent of the $500bn market that will be affected in the crossfire of this plan."
Judge Jackson said in his ruling: "A structural remedy has become imperative. Microsoft, as it is presently organised and led, is unwilling to accept the notion that it broke the law or accede to an order amending its conduct."
Microsoft had become "untrustworthy" after the company's continual denial that it had broken the law, despite mounting evidence that it illegally maintained its operating system monopoly, said Judge Jackson.
Richard Blumenthal, attorney general of Connecticut, said he believed that Microsoft simply lost credibility in the eyes of Judge Jackson.
Ken Wasch, president of the Software & Information Industry Association, added: "Judge Jackson has handed down a final ruling that can only be characterised as providing a tremendous opportunity for new companies and technologies that aim to enhance consumer choice. Within a year, you will see more applications and lower prices. The industry wins and the consumer wins.
"The longer story is that the application areas that have been a dead zone for a decade are going to come to life again - word processors, spreadsheets, databases and lots of other applications."
Microsoft will soon file a formal appeal against the proposed split that will extend the antitrust case well into 2001, said the company's top executives and lawyers.
The software giant last week filed a request to stay the order while it appeals against the breakup. It also said that it would vigorously fight any federal government attempt to fast-track the case to the US Supreme Court.
A stay will ensure that Microsoft would not have to abide by the court's final ruling - which also includes stiff conduct remedies - until it is disposed of by a higher court.
Bill Gates, Microsoft's co-founder and chief software architect, said: "We are anxious to get this up in front of a higher court.
"The judge created an expectation that we would have our day in court on the remedies. Almost all of us were surprised that it did not happen. The benefit is that it does get the case in front of the [appeals] court sooner."
The motion to appeal will be given the green, or red, light within 90 days, said Gates. "This is the beginning of a new chapter in this lawsuit. We have a very strong case on appeal, and we look forward to resolving these issues through the appeals process and putting this case behind us once and for all," he said.
Bill Neukom, executive vice president for law and corporate affairs and the top legal gun at Microsoft, described the court ruling as "flawed" both in substance and in procedure, adding that the decision will extend the case well into next year or longer.
He said Microsoft will file a request for a stay to the US Court of Appeals if Judge Jackson turns it down. "It will go on for a number of months, probably a year or longer," said Neukom.
One antitrust expert believes Microsoft has a good chance of success. Hillard Sterling, antitrust specialist and partner at leading Chicago law firm Gordon & Glickson, said: "Microsoft has a genuine chance of ultimately prevailing. Judge Jackson's decision is vulnerable because of the severe remedy ordered against Microsoft.
"Any breakup will just enhance the scrutiny that these judges will apply to Judge Jackson's ruling."
Klein said last week that the US solicitor general had moved to act under the Expediting Act to request that the Microsoft case go directly to the US Supreme Court and skip the Circuit Court of Appeals for the District of Columbia, which is next in line to hear the case on appeal.
But Klein said that Judge Jackson must first approve the motion.
The judge will make the decision on whether to turn the case over to the US Supreme Court, added Klein. The federal government will file its request with the court "in a timely fashion", following Microsoft's filing of its notice of appeal.
But Microsoft can contest the move. The software company has the right to ask the US Supreme Court to return the case to the Court of Appeals for review before it ultimately reaches the Supreme Court.
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