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Judge Orders Microsoft Split In Two – Microsoft Vows To Fight Breakup

Washington – A federal judge Wednesday ordered Microsoft Corp. split into
two companies, prescribing the biggest corporate breakup since AT&T while
harshly rebuking the software giant for stifling computer-age competition.

The ruling by U.S. District Judge Thomas Penfield Jackson was not the last
word in a case that could define the limits of companies operating in a high
tech economy. Microsoft has promised to appeal in the case, which had been
pressed by the Justice Department and 19 states. The case could go to the
U.S. Court of Appeals or directly to the Supreme Court.

Jackson, who concluded two months ago that Microsoft had violated antitrust
law, ordered the company to be split into these parts: One that would
oversee the Windows operating system. A second that would handle all other
Microsoft software, such as its “Word” program.

The Justice Department and 17 of the 19 states recommended that the company
be broken into two pieces – one to own and market Windows, source of the
company’s monopoly position, and another to control other software and the
company’s Internet business.

Jackson’s ruling also forbids the company from entering into “exclusive
dealing” that would restrict the development of competitors’ products.
“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, explaining why he believed the breakup was necessary.

“Microsoft has proved untrustworthy in the past,” Jackson said, citing its
failure to comply with a court ruling earlier in the 1990s that preceded the
antitrust case. The judge had ruled April 3 that Microsoft had violated
federal antitrust law by using illegal methods to protect a monopoly in
computer operating systems. He found the company tried illegally to expand
its dominance into the market for Internet browsers.

Federal antitrust law allows for cases of broad public importance to go
directly to the Supreme Court, but the justices do not have to accept the
fast-track system. If Microsoft appeals directly to the Supreme Court, it
can send the appeal to the U.S. Court of Appeals for the District of
Columbia, where it would be handled like virtually all other appeals from
U.S. District Court rulings.

Microsoft contended in a May 31 court filing that a breakup would have
“significant and damaging” consequences. The corporation sought a year to
submit its own breakup plan, compared with the four months sought by the
government.

As Microsoft was filing the final legal papers before Jackson’s ruling,
Gates appeared Tuesday at a congressional hearing on the future of high
technology in the United States and around the world.

In its filing, Microsoft, disdainful of the department’s response to the
company’s earlier concerns, asked Jackson to include previously suggested
language that would give a broken-up Microsoft more freedom to enter into
agreements with software developers and computer makers.

“Instead of agreeing to correct the many defects in the revised proposed
final judgment, and thereby minimize the damage that its entry would inflict
on a wide range of participants in the computer industry, the government has
agreed to only a few cosmetic changes,” Microsoft’s lawyers wrote.

In the brief, Microsoft also said the Justice Department was, in its recent
filing, “confirming that certain provisions are more extreme than they might
appear at first blush” and “blithely ignoring substantial problems Microsoft
identified regarding the feasibility of complying with many of the
provisions as drafted.”

In Washington, Justice Department spokeswoman Gina Talamona dismissed
Microsoft’s response. “The filing rehashes Microsoft’s old arguments,
ignores the extensive violations found by the court, denies the need for
serious relief and grossly distorts our proposed remedy,” she said.

Microsoft had been due to file the brief Wednesday. But company spokesman
Jim Cullinan said the “cosmetic” filing by the government made it easier to
reply quickly.

Jackson had been set to rule on the case – including whether to split the
company into two parts – last week, but the Justice Department asked for
more time so it could address clarifications brought up by the company.

In Monday’s court filing, the Justice Department agreed to grammatical and
semantic changes, but refused to concede to the company on major points such
as giving Microsoft additional time to nail down details on how the breakup
should occur, or more freedom in licensing and marketing its products.

The department and 17 states have pushed to have Microsoft broken into two
separate companies – one to market and produce Windows, and the other to
handle Microsoft Office and other applications software, along with the
Internet Explorer Web browser.

In a ruling that shook the company, the industry and the financial markets,
Jackson held April 3 that Microsoft engaged in anticompetitive conduct in
violation of antitrust laws. Microsoft has said it will appeal the entire
case after Jackson issues his final ruling.

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