UPDATE: Judge Rules to Split Microsoft

BOSTON (06/07/2000) - A federal judge today ruled that Microsoft Corp. should be broken into two companies and heavily regulated to stop the software company's anticompetitive behavior.

The ruling by U.S. District Court Judge Thomas Penfield Jackson ends one phase of the historic antitrust case -- and begins another.

Bill Gates, Microsoft's chairman and chief software architect, said in a statement posted on the company's Web site that Microsoft will appeal the decision and believes it has "a very strong case" for overturning Jackson's decision.

"We believe this ruling is inconsistent with the past decisions by the Appeals Court, with fundamental fairness and with the reality of the marketplace," Gates said. "This is clearly the most massive attempt at government regulation of the technology industry ever, and it was conceived by the government and imposed by this ruling without a single day of testimony or scrutiny."

The Justice Department expects the appeal to head directly to the U.S. Supreme Court.

Jackson apparently accepted the government's recommendation for a breakup with little or no change. As requested by the DOJ and the 17 states involved in the case, the judge ordered that Microsoft be split into two separate companies -- one for its operating systems, the other for its applications and Internet Explorer Web browser businesses.

"The court's order is the right remedy for Microsoft's serious and repeated violations of antitrust laws," said Joel Klein, assistant U.S. attorney general for antitrust, in a statement.

Jackson ruled on April 3 that Microsoft violated federal antitrust law by abusing its monopoly position in the PC operating systems market. The U.S.

Department of Justice and 17 states recommended a remedy that would regulate Microsoft's conduct with PC vendors and split Microsoft into a Windows business and an applications software business.

"I believe very strongly that today is the first day of the rest of this case," Gates said in a conference call with reporters after the ruling was announced.

He called Jackson's decision "an unwarranted and unjustified intrusion into the marketplace," and added that keeping Microsoft together as a single company is crucial to developing future products, such as a new user interface that will include handwriting and speech recognition.

The two sides squabbled this week about the details of the government's proposed remedy. Microsoft said it was too harsh, with unrealistic deadlines, onerous rules and "unintelligible" language. The Justice Department maintained the remedy is needed to restrain Microsoft's aggressive efforts to thwart competition.

In today's opinion, Jackson dismissed Microsoft's contention that a forced divestiture is "draconian" and required more evidence and hearings. He wrote that Microsoft should have known that a breakup was a possibility and he curtly ruled: "There will be no more proceedings."

The judge continued: "The court is convinced for several reasons that a final -- and appealable -- judgment should be entered quickly. It has also reluctantly come to the conclusion, for the same reasons, that a structural remedy has become imperative: 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."

Today's decision is available at the U.S. Government Printing Office's Web site. Patrick Thibodeau and Dominique Deckmyn contributed to this report.

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