MS/DOJ - UPDATE: US proposes Microsoft breakup

As expected, the US Department of Justice (DOJ) over the weekend proposed that a federal judge order the breakup of Microsoft into two separate competing companies and recommended behavioral restrictions designed to end the software maker's monopolistic practices.

The DOJ proposal calls for splitting Microsoft into one company for the Windows operating system and another for software applications, including Office and the Internet Explorer browser. The behavioral remedies, which restrict how the company is allowed to operate, are aimed at redressing Microsoft's illegal business practices soon rather than waiting for the legal appeals process to play out.

US District Court Judge Thomas Penfield Jackson ruled earlier this month that Microsoft has used its operating system monopoly to illegally attempt to squelch competition and to dominate the Internet browser market in violation of federal antitrust laws. The DOJ, 19 state attorneys general and the District of Columbia filed the antitrust suit against Microsoft two years ago. Seventeen states signed on to the DOJ-led proposal. The others will file a proposal separately.

In a press conference in the US on Friday, US Assistant Attorney General Joel Klein, who oversees the DOJ antitrust division, outlined the proposed behavioral remedies, which would be in effect for three years.

Microsoft has vowed to fight any attempt at a breakup and also intends to appeal the decision earlier this month by Jackson.

Microsoft has also said that if the government calls for a breakup of the company, it might ask for an extension on the due date for its counter proposal.

Although Jackson has said that he might ask the US Supreme Court to hear the appeals, that process still could drag out for months, if not years. Taking the appeal to the Supreme Court would bypass a lower appellate court and ostensibly speed the process. Though it is unusual for the Supreme Court to take cases not heard by the appellate court, it is a step that may be done in antitrust matters involving the public interest.

The government successfully argued during the historic antitrust trial that Microsoft's "tying" of the browser to versions of Windows gave it an unfair advantage in the browser market because the vast majority of the world's computers use Windows. The government also cited numerous instances of anti-competitive behavior.

The government's proposal today would stop that behavior by limiting how Microsoft can "tie" new products and enhancements to Windows. New programs would have to have a function allowing users to add or remove them from the operating system.

Microsoft also would be forced to have uniform Windows licensing terms for computer vendors. Jackson ruled that Microsoft used licensing terms to keep vendors from promoting rival browser software.

The company would further be banned from retaliating against computer vendors and software developers who do not bend to Microsoft's demands.

Microsoft has said that if the government called for a breakup it might ask for more time to file its counter proposal, which is due by May 10 under a schedule set by Judge Jackson. As the schedule is now, the government has until May 17 to respond to Microsoft's response, which could include an alternative "remedy" proposal. After that, Judge Jackson is to hear oral arguments regarding remedies on May 24.

Microsoft also said after Judge Jackson issued his "conclusions of law" -- or the verdict -- in the case that it will appeal his findings that the company used its monopoly power in violation of antitrust law.

According to business analysts, Ragen Mackenzie, Microsoft's operating system business, which would produce Windows for businesses and consumers would be worth $11-11.5 billion by 2001. The applications business, which would include Microsoft's Office suite of products, internet browser and internet sales would be valued around $15 billion.

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