New York Times web update - June 7, 2000, 4:40 p.m
Judge Orders Microsoft Split Into Two Companies
By JOEL BRINKLEY
WASHINGTON, June 7 -- A federal judge ordered the break up of the Microsoft Corporation today, saying the severe remedy was necessary because Microsoft "has proved untrustworthy in the past" and did not appear to be taking seriously his previous rulings against the company.
"There is credible evidence in the record to suggest that Microsoft, convinced of its innocence, continues to do business as it has in the past and may yet do to other markets what it has already done" in the markets discussed during the long antitrust trial, Judge Thomas Penfield Jackson said in his final ruling, issued late this afternoon.
The Judge accepted the government's remedy proposal in its entirety, without alteration, utterly rejecting Microsoft's repeated assertions that the break up plan was "extreme," "unwarranted" and "bad for consumers, the high tech industry and our economy."
Under his order, Microsoft would be broken into two separate and competing companies. Microsoft would also be forced to comply with a long list of restrictions on its conduct that would last three years, if the break up order withstands appeal, 10 years if it does not.
Microsoft said it would appeal the order immediately.
Microsoft's founder and chairman, William H. Gates, was in Washington on Tuesday, planning to meet with lawmakers today. But, anticipating the ruling, he canceled the meetings and hurriedly flew back to Seattle. Microsoft said it would issue a reaction to the ruling on its Web site: www.microsoft.com.
If the judge's order withstands appeal and Microsoft is eventually broken up, it would join the ranks of only a small handful of major national monopolies that have been taken apart over the last 90 years as the result of antitrust violations, including Standard Oil, American Tobacco, the Aluminum Company of America, Paramount Pictures and AT&T.
While appealing the judge's verdict, Microsoft will also ask a higher court to stay all of the remedies during appeal.
If that request for a stay is rejected, Microsoft must begin complying with the restrictions on its conduct by Sept. 7 and must also submit a detailed plan for dividing the company in two by Oct. 7 -- fast-track compliance for a company that has grown to be one of the nation's wealthiest, best known and most influential institutions in record time. Just 25 years ago, the Microsoft Corporation had three employees, including Mr. Gates, and first-year revenues of $16,005.
Following the break up, one of the resulting companies would have the Windows operating systems, while the other would hold everything else, including Microsoft's Internet businesses and applications software including the Office suite of programs. Based on current year figures, the two new companies would start life with about $10 billion in revenues for the operating-system business and about $13 billion for the applications business.
The judge's order says the actual break up will be stayed during appeals, and Judge Jackson is encouraging the Justice Department to take the appeal directly to the Supreme Court, under a 1974 revision to the antitrust laws allowing fast track consideration of significant antitrust cases. Whether the court would take the case is uncertain.
If the conduct remedies are allowed to take effect in the fall, consumers will quickly notice some changes in their software. Right away, computer manufacturers will be allowed to offer customized versions of Windows on their computers in ways they never could before. And future versions of Windows will be offered in a way that allows buyers to accept certain new features Microsoft chooses to offer -- or to decide they don't want them so they can use a competing product instead.
It was Microsoft's decision four years to tie a Web browser to Windows, giving buyers no choice but to accept it, that triggered the investigation and law suit that led to today's break up order.
Some years from now, if the government's remedy plan works as intended, consumers might also begin to see alternate operating systems on sale that are competitive with Windows. If that occurs, the universal compatibility among personal computers that exists today may begin to erode.
Judge Jackson issued his ruling at 4:30 this afternoon, just after the markets had closed. His decision had been widely expected, and investors appeared to have already taken the break up plan into account. Microsoft stock gained 7/8 today, to close at 70 1/2.
While Judge Jackson accepted the remedy plan put together by the Justice Department and 17 states, his endorsement was not unequivocal.
On one hand, he noted that the plan was the collective work of senior state and federal officials "in conjunction with multiple consultants." And, "it appears to the court to address the principal objectives of relief in such cases, namely to terminate the unlawful conduct, to prevent its repetition in the future and to revive competition in the relevant markets."
But on the other hand, he added, even though several experts have provided "some insight as to how the provisions" of the remedy might "operate, but for the most part they are merely the predictions of purportedly knowledgable people as to effects which may or may not ensue if the proposed final judgment is entered."
Microsoft has leveled serious criticism at the judge for his decision to hold no substantive hearings on the government's remedy proposal, saying the company was surprised by the scope of the plan and ill-equipped to respond to it in the six weeks since it was offered.
But in his order today, Judge Jackson retorted: "Microsoft's profession of surprise is not credible. From the inception of this case Microsoft knew, from well-established Supreme Court precedents dating from the beginning of the last century, that a mandated divestiture was a possibility, if not a probability, in the event of an adverse result at trial."
In addition, although the judge did not mention this, the government first made plain to Microsoft, during settlement negotiations a year ago, that it planned to ask for a so-called structural remedy. That was repeated during another round of settlement talks early this year.
The judge also explained why he moved through the remedy phase so quickly, noting that he wanted to pass the case to a higher court as soon as possible for validation, revision or rejection of his decision, "to abort any remedial measures before they become irreversible as a practical matter."
If necessary, the judge said he could hold hearings later or "modify the judgment as necessary in accordance with instructions from an appellate court."
Judge Jackson noted, with some apparent irritation, that following his ruling April 3 saying Microsoft was in wide violation of the nation's antitrust laws, Microsoft's leaders have continued to assert that "the company has done 'nothing wrong' and that it will be vindicated on appeal.
"The court is well aware," he added, "that there is a substantial body of public opinion, some it it well informed, that holds a similar view. If true then an appellate tribunal should be given an opportunity to confirm it as promptly as possible."
Microsoft's continued assertions of innocence were one reason for his ruling he said. Another, he added, was that "Microsoft has shown no disposition to voluntarily alter its business protocols in any significant respect."
And a third reason, he explained, was that "Microsoft has proved untrustworthy in the past." As an example, he referred to the precedent case he tried in the fall of 1997, when the Justice Department charged Microsoft with illegally tying a Web browser to Windows.
In December 1997, Judge Jackson issued a preliminary injunction, ordering Microsoft to separate the two products.
But "Microsoft's purported compliance while it was on appeal," he said, "was illusory and its explanation disingenuous."