A rchive Date
[ 08-06-2000 ]
Category
[ International Relations ]
sub-Categoy
[ Microsoft ]
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[Judge Orders Microsoft to be Split in Two
By James V. Grimaldi and John Schwartz
Washington Post Staff Writers
Wednesday, June 7, 2000; 4:35 PM
A federal judge today ordered the Microsoft Corp. to be split into two competing companies, a ruling that sets in motion the largest forced reorganization of a corporation in since the breakup of Standard Oil as the bitterly contested government lawsuit now faces months or years of appeals.
U.S. District Judge Thomas Penfield Jackson?s order, accepts the proposal to split the company devised by the U.S. Department of Justice. Delivered this afternoon via the Internet, the decision marks an ignominious moment in the 25-year history of one of the world?s most valuable and successful companies, the corporation that defined the New Economy and the Information Age.
Splitting the company ?has become imperative," Jackson wrote. ?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."
Microsoft Chairman Bill Gates has vowed that the company he co-founded would be redeemed with complete victory on appeal. The company is certain to challenge both the court?s legal conclusions as inconsistent with antitrust law and the factual findings as ?clearly erroneous."
To correct the damage the software giant has inflicted on the computer industry, Jackson ordered Microsoft split into two companies: One that makes and sells the Windows operating system products, including the monopoly operating system for personal computers, and a second company centered around software application programs along with the myriad other Microsoft business operations.
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.
More significantly while the appeals process is moving forward, Microsoft was ordered to follow a series of tough restrictions on its business practices. That order also will be appealed, but the outcome of the appeal is not assured.
In three months, Microsoft would be required to share equally with the computer industry its applications programming interfaces, the all-important APIs, which other software companies need to figure out how to write their software to run on operating systems.
Microsoft will argue that the publication of these APIs 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 will argue that the damning findings that Microsoft hurt its competitors and helped its allies through the discriminatory method by which it gave access to these APIs calls for an immediate order. These APIs are crucial for companies to be able to sell their software so it can run on Windows, the operating system running on nine of ten of the computers in the world.
Microsoft also will seek an emergency hold on an order requiring that computer makers be given more flexibility in the way it configures 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 when it breaks down.
A milestone in the 110-year history of the Sherman Antitrust Act, the court?s breakup order also stands as one of the most significant policy victories for the Clinton administration. The breakup move that would alter the face of the multibillion-dollar computer industry and rewrite the high-technology rules of the road for the 21st century.
?The government has not been terribly relevant?until now," said Goldman Sachs analyst Rick Sherlund, who has followed the technology sector for two decades and provided analysis when Microsoft went public. "Companies were left alone to fight among themselves. Some would get beat up and the strongest survived. Government intervention is a frightening prospect in technology, no matter what side your on."
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 ten 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 old 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.
The separated companies would 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 interfaces in the operating system where programmers write their software to run on the operating system.
The decision comes at an awkward time for Microsoft as it is set to announce a strategy called Next Generation Windows Services in two weeks. The idea is to shift to Internet-based services and software for a variety of computing devices rather than selling software in shrink-wrapped packages.
Some scholars think that Microsoft?s fate up to this point might have been inevitable because of the comapny?s in-your-face approach during the 78-day trial and in subsequent filings. Michael Cusumano, a Massachusetts Institute of Technology business school professor who has written two books about Microsoft and is a shareholder, said Gates is dangerously gambling with the future of his company when he could have been the architect of his own fate with an out-of-court settlement.
These guys have been incredibly aggressive since the beginning of the company and relatively immature about how a company with a monopoly share should behave," Cusumano said. ?The combination of this incredible aggressiveness and this immaturity led them to this situation."
Those very qualities led Judge Jackson to a conclusion that he called ?inevitable." The decision, he wrote, was ?perhaps more radical than mihgt have resulted had mediation been successful." In the opinion, he wrote, ?Microsoft has shown no disposition to volutarily alter its business protocol in any significant respect.? The company has proved ?untrustworthy? in the past, Jackson wrote.
© 2000 The Washington Post Company
 World Fact Book (CIA)]
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