U.S. to Ask Federal Court
For Breakup of Microsoft
States to Join in Request, but Appeals
Could Delay Any Action for a Year
By JOHN R. WILKE and TED BRIDIS
Staff Reporters of THE WALL STREET JOURNAL
April 28, 2000
WASHINGTON -- The government will ask a federal court Friday to split Microsoft Corp. into two companies, an extraordinary step that would break up one of the most powerful engines of profit in economic history.
The Justice Department and most of the 19 states in the landmark antitrust suit are expected to file the joint proposal with U.S. District Judge Thomas Penfield Jackson late Friday. They will ask for the most significant breakup of a major corporation since 1984, when the Bell System telephone monopoly was broken into eight companies.
But a breakup isn't imminent. Even if Judge Jackson accepts the proposal, which is uncertain, it would likely be stayed pending appeals that could take a year or more.
The government plans to ask the court to create rival companies, one built around Microsoft's widely used Office applications software, and a second based on its flagship Windows operating software, which is the source of Microsoft's monopoly power, the court found. Both would get Microsoft Internet Explorer software, though that product's future, and that of much of the rest of Microsoft's Internet businesses, would be controlled by the Office company.
Microsoft's vast cash hoard of more than $21 billion would also be divided between the two companies, according to revenue. Details of this, and of much of the rest of the plan, were still being worked out Thursday night, people close to the deliberations said.
Shareholders May Be Winners
Some government officials and analysts believe that under proposals now taking shape, Microsoft's shareholders could end up big winners as the changes reverberate across the new economy. Microsoft investors own one of the world's most widely held stocks, but it has lost more than a third of its value in four months. After a spin-off of the Office-based applications company from the core Windows company, Microsoft shareholders would end up with shares of two rich and powerful companies instead of one.
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Breaking Up Microsoft?
The Justice Department and most states suing Microsoft will urge a federal court today to break the company in two parts: an operating system company and an applications company. Below, a likely proposal for each:
Operating System Company -- Will get Windows and all future versions, plus a one-time source-code license for Internet Explorer.
Applications Company -- Will get Office and everything else, including full Internet Explorer rights, Internet content and Web properties such as MSN, Hotmail, Expedia and others.
How Business Would Change -- Bans on certain PC maker contracts and cross-investments; open price lists for PC makers for Windows; and publicly disclosed file formats to allow rivals to write interoperable applications.
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Microsoft's president and chief executive, Steve Ballmer, denounced the expected breakup proposal as "the most over-the-line, irresponsible thing I have ever heard" and vowed to move quickly toward the federal appeals court, where executives have said they expect to prevail. Evidence in the trial simply doesn't support a breakup, a Microsoft spokesman added.
Microsoft also mobilized its growing army of lobbyists, winning new statements of support from members of Congress, including some Democrats who had been silent. The company began a second round of nationwide television spots as well, extolling Microsoft's technology and promising, "The best is yet to come."
Microsoft officials believe that better is yet to come in the antitrust case, which was filed in U.S. District Court here two years ago. After remedy proceedings next month, Microsoft will ask for a review by a federal appeals court, where it already prevailed against Judge Jackson earlier in the case. But the judge also has said he may seek immediate Supreme Court review, which is highly unusual but permitted in antitrust cases of broad public importance.
U.S. to Seek Immediate Curbs
The government will also ask for immediate and sweeping restrictions on Microsoft's conduct to protect competition during any appeal, people close to the case said. These restrictions, addressing charges alleged in the 78-day trial, would range from a ban on certain exclusive deals between Microsoft and its distributors to a requirement that Microsoft not discriminate in price or terms among computer makers that license Windows.
Other provisions would give PC makers greater freedom to put competing software products on new computers or customize the appearance of the first screen users see. They would also require the Redmond, Wash., company to offer greater disclosure of the inner workings of Windows, including crucial interfaces needed for rivals to write compatible software.
The government is also expected to seek a requirement that if features are added to future versions of Windows, the company must provide an "unbundled" version without these features if they are already sold separately by other companies. Microsoft, and later the Windows company, still would be allowed to add features to its operating system, an issue Microsoft has said is nonnegotiable.
In its counterattack Thursday, Microsoft sent e-mail to thousands of software developers and supporters who have joined its online lobbying effort, the "Freedom to Innovate Network," urging them to contact their representatives in Congress and state attorneys general. It cast the company as a champion of innovation over "regulation."
Microsoft got some support Thursday from the likely Republican nominee for president, Texas Gov. George W. Bush, who said on the PBS "NewsHour With Jim Lehrer" that he hopes the government doesn't "ruin this company" in seeking a breakup. "I hope the judge would keep in mind that this company is an important part of the technological revolution taking place in America." His Democratic challenger, Vice President Al Gore, has largely steered clear of the case, saying the legal process should run its course.
Members of the Congressional Black Caucus also were enlisted for support. "There will always be big fish; it is part of the history of business in this country," said Rep. James Clyburn (D., S.C.), the caucus chairman. "That doesn't mean that if a company is found guilty of competition violations there should be a knee-jerk reaction to breaking them up. It is not cost-beneficial to the economy to break up Microsoft. Look at the drastic effects this case has already had on the stock market." |
