Judge: Split Microsoft in 2

Calling the company "untrustworthy," a federal judge accepts Justice Department's plan.

©Washington Post, published June 8, 2000

WASHINGTON -- A federal judge Wednesday ordered Microsoft Corp. split in two, declaring the software giant an "untrustworthy" monopoly that refuses to abandon illegal business practices that crush competitors and harm consumers.

In a strongly worded order, U.S. District Judge Thomas Penfield Jackson largely accepted the plan submitted by attorneys from the U.S. Justice Department and 17 states to divide the company and to impose restrictions on its aggressive behavior until the breakup can be put into place.

Microsoft filed an appeal to delay any restrictions on its business and will seek to have the judge's order overturned. Even if the company ultimately loses, a breakup could be years away.

The judge's historic ruling sets in motion what would be the largest forced reorganization of a corporation since the breakup of Standard Oil in 1911. It also affirms the government's continued role as a powerful referee in the marketplace of the information age and, if upheld, would change the dynamics of the multibillion-dollar software industry and rewrite the high-technology rules of the road for the 21st century.

"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," Jackson said. "There is credible evidence to suggest that Microsoft, convinced of its innocence, continues to do business as it has in the past."

Under the judge's order, one of the two resulting Microsoft companies would continue to make and sell the Windows operating system family of products, including the operating system for personal computers. The second company would produce software application programs along with the myriad other Microsoft business operations.

At Microsoft headquarters in Redmond, Wash., chairman Bill Gates predicted that the company he co-founded would be redeemed with complete victory on appeal.

"Today's ruling really represents an unwarranted and unjustified intrusion into the software marketplace," Gates said. "The idea that somebody would say that breakup is a reasonable thing comes as quite a surprise to us, and we are quite confident that it won't be something that ever comes into effect."

Under Jackson's ruling, Gates and chief executive officer Steve Ballmer would be made to choose one company to join and own stock in.

Gates pledged to challenge both the court's legal conclusions as inconsistent with antitrust law and the factual findings.

Attorney General Janet Reno, speaking at a Justice Department news conference, said she was satisfied with the "strong, effective remedy to address the serious antitrust violations that Microsoft has committed."

Justice Department antitrust chief Joel I. Klein called the decision good news for consumers. "It will stimulate competition in the PC operating system market and throughout the entire computer industry," Klein said. "When the remedy is implemented customers, consumers, in a free and competitive marketplace, will decide for themselves what software they want to purchase."

The judge ordered that the separated companies be barred from reuniting for 10 years; the operating-system company would be required to provide both the separated company and the rest of the computer industry equal access to the applications programming interfaces -- the part of the operating code that allows programers to write software running on Windows.

The judge said Microsoft's counterproposal, which involved a series of less-drastic restrictions, "is plainly inadequate."

Government antitrust lawyers envision that the operating-system company will design its product not so that it favors Microsoft applications, but so that it offers all independent software developers equal access to distributing their products on the program that runs nine out of 10 of the world's personal computers.

The second applications company, the government postulates, could become an instant competitor that would sell its products, ranging from word processors to spreadsheet programs, to both the Microsoft operating-system company but also to competing operating-system platforms. But Microsoft predicts chaos in the computer industry: Innovation would be stifled, consumers harmed and the two divided companies doomed to fail because of overly onerous restrictions imposed on both companies.

Within four months, Microsoft must outline the reorganization of the company into two pieces under the broad outlines described by the government, the judge ruled. Microsoft had sought a year for the plan. Now the company will appeal that decision, too.

While the appeals process is moving forward, Microsoft was ordered to follow a series of tough restrictions on its practices. In three months, Microsoft would be required to share equally with the computer industry its applications programming interfaces.

Microsoft argues that the publication of this code is an undue and irreversibly damaging confiscation of the company's intellectual property rights and should be put on hold until the appeals are complete. The government responds with the judge's findings that Microsoft used access to the code to hurt its competitors and help its allies.

Microsoft also will seek an emergency hold on an order requiring that computer makers be given more flexibility in the way they configure the Windows operating system. The company contends that this would let computer makers damage their Windows product and hence create more cost in service calls and harm the product's reputation.

In his order, Jackson said the restrictions were necessary because Microsoft's credibility is in doubt. The judge pointed to an incident involving an earlier consent decree case when the company, which he ordered to separate its Internet Explorer Web browser from the Windows operating system, gave a "disingenuous" explanation about why it hadn't done so.

"Microsoft has proved untrustworthy in the past," Jackson wrote. "Microsoft's purported compliance with that injunction while it was on appeal was illusory and its explanation disingenuous."

After Microsoft files its appeal, the Justice Department plans to ask Jackson to send the case to the U.S. Supreme Court under a special provision in the Sherman Antitrust Act. Microsoft has vowed to oppose such a move and would prefer the case go first to the U.S. Court of Appeals in the District of Columbia, which has given Microsoft victories in the past. Also, Microsoft would prefer that the Court of Appeals narrow the case before it gets to the Supreme Court.

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