Government to Propose Plan to Break Microsoft in Two
By JOEL BRINKLEY
WASHINGTON, April 24 -- The Justice Department intends to
ask a federal judge this week to break the Microsoft
Corporation into two separate and competitive companies as a means to
restore competition in the software industry, according to officials and
other individuals who are familiar with the government's deliberations.
The strong, structural remedy proposal comes less than a month after the
Judge in the long running antitrust suit, Thomas Penfield Jackson, ruled
that Microsoft is a predatory monopoly in wide violation of federal and
state antitrust laws. But there is no assurance that the judge, a Reagan
appointee, will accept the government's proposal.
Under the breakup plan, which was
described by several knowledgeable
individuals and officials today, one
company would hold the Windows
operating-system business, and the rest
of the company, including the Office suite
of software programs like Word and
Excel as well as Micrsoft's Internet
businesses, including MSN.
Microsoft's leaders would decide which
of the new businesses would carry the
name Microsoft and retain the key
executives. And other details of the
breakup, including how to divide
Microsoft's $17.8 billion cash reserve,
would be decided later.
State government officials, partners in the suit with the federal
government, have been briefed on the federal plan and are generally
supportive. But they have not decided whether to endorse it in full or
formulate a plan of their own.
The broad idea behind the plan would be to create incentives for
increased competition in the operating-system and related businesses.
One reason Windows has no significant competitors is that Microsoft
generally does not create versions of Office for other operating systems,
with the exception of Apple Computer's operating system.
Office holds a better than 90 percent share of the application-software
business, so an operating system that cannot work with Office stands
little chance of prospering. But Microsoft argues that a new
applications-software company would have no more incentive to write
for smaller operating systems than the company does now.
Because the breakup proposal will almost certainly be stayed pending
appeal, the government plans to ask for several temporary remedies that
would modify Microsoft's behavior during the interim. Many of these
so-called conduct remedies have been discussed before. And they would
be in force for three years, if the breakup plan is implemented, and 10
years if it does not accepted by the courts.
Among them, Microsoft would have to publish a standardized price list
for Windows so that the company could not raise the price for
companies that do not go along with Microsoft's requests.
Microsoft would be forbidden to strike exclusive contracts with other
companies, as it did with Internet service providers that in past years
were asked to feature Microsoft's Web browser and no others.
Microsoft would also have to make available the Windows interface
codes that allow other companies to write programs for Windows
without discrimination.
And the company would not be allowed to build certain new
applications, such as Web browsers and media players, into Windows
without also offering a version of Windows that does not provide access
to that new application. Computer makers would get a discount on
Windows if they asked for Windows without hte new feature.
Microsoft calls most of these ideas excessive, beyond the scope of the
evidence presented during the trial
It was Microsoft's decision to build a Web browser, Internet Explorer,
into Windows four years ago that triggered the government's suit. The
decision assured that, over time, Internet Explorer would be installed
automatically on nearly all of the world's personal computers, driving the
market leader of the time, Netscape, to a marginal position today.
Under the new government plan, the applications software company
would retain possession of Internet Explorer, meaning that Microsoft
would have to create a stand-alone version -- something the company
has adamantly refused to do.
The applications-software company could license Internet Explorer back
to the Windows company -- but only once. When the time came to
upgrade the browser, each of the new companies would have to do that
on its own, thereby creating competition in the browser business and,
perhaps, giving Netscape a chance to compete.
While the conduct remedies would expire in three years, the government
would also ask for strong anti-collusion rules for the new companies, and
they would stay in place indefinitely. Those rules have not been
described.
One individual with knowledge of the government proposal stressed that
the Justice Department is proposing this plan for several reasons. First, it
does not fragment the operating system, as some other remedy plans
might have. that would possibly have led to incompatible computers and
programs. Windows will remain the industry standard, unless the
company loses that position through competition.
Under this plan, the government also would not be required to maintain
longterm, constant, intrusive monitoring of Microsoft, as would likely be
the case with a series of remedies that modify conduct. Both Microsoft
and the courts would likely find that idea objectionable.
And, the government argued, divestiture of a key part of a business is not
such a novel idea, citing AT&T's decision to spin of Lucent, its research
lab; IBM's decision to spin off Lexmark; and 3Com's decision to spin off
the Palm computing division.
Under the government plan, the Windows company would face no
specific limits or regulation after three years. But by then, the government
hopes, other operating systems might begin to be competitive.
While the government position could change in modes ways over the next
few days, officials said this fundamental plan was unlikely to be altered.
Neither Microsoft nor the government displayed any indication that they
might try to settle the case before the remedy phase. Microsoft remains
supremely confident that it will overturn the district court decisions on
appeal.
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