A rchive Date
[ 11-06-2000 ]
Category
[ International Relations ]
sub-Categoy
[ Microsoft ]
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[http://www.chron.com/cs/CDA/story.hts/page1/538224
Plan would split Microsoft in half
By DAVID IVANOVICH
Copyright 2000 Houston Chronicle Washington Bureau
April 28, 2000, 9:25PM
WASHINGTON - The U.S. Justice Department and 17 states formally asked a federal judge Friday to split Microsoft Corp. into two companies, arguing a breakup is the best way to ensure the company cannot abuse its power in the software industry.
Justice and state officials submitted their proposal Friday afternoon to U.S. District Court Judge Thomas Penfield Jackson, who presided over Microsoft's lengthy antitrust trial and ruled earlier this month that the Redmond, Wash.-based software behemoth had violated antitrust laws.
Microsoft officials said Friday they will vigorously oppose any effort to break up the company, suggesting a final resolution of the matter could be months, if not years away.
"This is really out of bounds," Microsoft Chairman Bill Gates said Friday. "It's out of touch with what's going on in our industry."
Jackson ruled April 3 that Microsoft had attempted to use its popular Windows operating system - which controls about 95 percent of the world's personal computers - to help create a new monopoly for the company's Web browser, Internet Explorer.
To guard against any such behavior in the future, regulators are proposing splitting Microsoft into two entities, one which would sell the Windows operating system and a second with control over Microsoft's other software applications, including its popular Office software.
Such a division would be the most aggressive action taken by antitrust busters against a company since the breakup of AT&T.
Assistant U.S. Attorney Joel Klein called the proposal "not regulatory, not burdensome, but really allows market forces to dictate the competitive landscape. ... That's exactly the kind of remedy that the antitrust laws should foster."
The Office applications company would retain control over the Internet Explorer production, although the Windows company - like other customers - would be able to license the Web browser.
Klein made clear that regulators are hopeful that by creating two companies - already dubbed "Baby Bills" - the Office software, which is now used for word processing, spreadsheet work and graphics production, would evolve into a major rival to Windows.
"Office has the very real potential to be a ... threat to the dominance of the Windows monopoly ... because Office is an enormously popular product, with over 100 million copies in use around the world," Klein said.
The proposal would also place restrictions on Gates, chief executive officer Steve Ballmer and possibly one or two executives, who would be permitted to own stock in either one of the two, new companies, but not both.
The regulators also would insist the two Microsoft pieces remain separate companies for at least a decade. And at the same time, the Windows operation would have to abide by further restrictions for three years.
That operation would be required to offer the Windows operating system at a uniform price, as a way to answer complaints Microsoft punished customers that promoted rival products by charging higher fees for Windows.
The operating system company also would be limited in how it could tie other software products to the Windows system. During the trial, Microsoft was accused of integrating its Internet Explorer into its Windows system in such a way as to hinder use of rival Netscape.
The company would be required to keep the e-mail of company executives for at least four years, to ensure they were complying with the restrictions.
Gates called the government's proposal "beyond random," arguing that it was "not developed by anyone who knows anything about the software business."
If Microsoft had been operating all along under the kind of rules the regulators are proposing, Windows would have never been developed, Gates said.
Microsoft is to reply formally to the government's proposal on May 10, and Jackson has scheduled oral arguments beginning May 24.
Two states participating in the case against Microsoft - Ohio and Illinois - were unwilling to sign on to the proposed penalty. Instead, they proposed that the court wait three years before deciding whether to break up the company.
"A reorganization could be difficult to undo, and its effects would be difficult to predict," Ohio Attorney General Betty Montgomery said in a written statement. "Therefore, we should first determine whether significant restrictions upon Microsoft's behavior could be sufficient to establish a competitive and consumer-friendly marketplace."
Many observers believe the Microsoft case is headed to the appeals court and eventually to the U.S. Supreme Court.
Layne Kruse, an antitrust attorney with Fulbright & Jaworski in Houston, said if Jackson were to follow the government's suggestion and order a breakup of the company, an appeals court would take a close look at that decision. Such a remedy, "even the government would have to concede, is rare," Kruse said.
And despite some embarrassing moments during its antitrust trial, Microsoft retains many allies among computer users and lawmakers on Capitol Hill.
A group known as Citizens for a Sound Economy called the proposal "a government takeover of America's most dynamic and innovative industry," while House Majority Leader Dick Armey asked: "After Microsoft, who's next? Which successful entrepreneur will be prosecuted next for making America more productive and more prosperous?"
Some observers argued that the government's proposal was not Draconian enough to break Microsoft's monopoly power and foster competition.
Robert Litan, vice president of the Brookings Institution think tank, together with economists from Harvard, Yale and Stanford universities, urged Jackson to split Microsoft up into four rather than two pieces.
Litan, a former Justice Department official who has wrestled with Microsoft in the past, argued Friday that the regulators' proposal would not adequately address the monopoly power ofMicrosoft's Windows operating system.
One of the two entities after a breakup would still retain that market position and be able to "use that monopoly in subtle ways to continue their abuses," Litan said.
He and his colleagues said Jackson should break the Windows entity up into three parts to encourage competition in that segment.
Regulators waited until after the stock markets closed Friday before filing their petition. With investors expecting just such a proposal, Microsoft shares dipped to close at 69 3/4 on the technology-heavy Nasdaq composite.
 World Fact Book (CIA]
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