DOJ, States Favor Plan to Break Up Microsoft

THE FEDERAL government and 19 states suing Microsoft on antitrust grounds are in agreement that a breakup of the software giant is the most suitable punishment for its anti-competitive behavior, sources close to the case said.

As representatives of both Microsoft and the government sit down to the negotiating table in Chicago, where U.S. District Judge Richard Posner will serve as mediator, a breakup into three smaller entities apparently heads the list of the potential remedies drawn up by the U.S. Department of Justice.

"This is a classic trial balloon," said one legal source who has followed the case, and who requested anonymity. "Splitting up Microsoft maybe hasn't been decided on, but [the government is] thinking about it hard and [wants] to see how it will go over."

Last week, the Justice Department refuted a USA Today report that it was eyeing a breakup of Microsoft into two companies, one assuming control of the company's Windows operating system family and the other taking other software.

That report was "inaccurate in several important respects," Justice Department spokeswoman Gina Talamona said.

However, the source close to the case said that the Justice Department's denial did not rule out breaking up Microsoft, and that a different scenario -- breaking Microsoft into three separate companies, not two -- is what the government has in mind.

Once considered the most drastic punishment, many observers are looking at a breakup of Microsoft in a different light.

"By creating separate 'baby Bills' (pun intended), a not inconsiderable force within Microsoft is unleashed to ride the new wave of Internet and potentially thin-client architectures," stated a recent International Data Corp. report.

However, Microsoft officials remain publicly vociferous in their opposition to such a plan.

"It would be absolutely reckless and irresponsible for anyone to try to break up this company," Microsoft President and CEO Steve Ballmer said. "It would be unprecedented, and I think it would be the single greatest disservice that anybody could do to consumers in this country."

Microsoft stands accused of using a monopoly position in the market for PC operating systems to quash competition and move into other markets. Microsoft representatives vehemently deny the accusation and say that competition is thriving.

After declaring Microsoft a monopoly in November, U.S. District Judge Thomas Penfield Jackson has invited both sides to issue briefs and present oral arguments on how the law should be applied in the case before he comes to a final verdict.

Microsoft Corp., in Redmond, Wash., is at www.microsoft.com. The U.S.

Department of Justice, in Washington, is at www.usdoj.gov.

Rebecca Sykes, a Boston-based correspondent for the IDG News Service, an InfoWorld affiliate, contributed to this article.

MICROSOFT AND CALDERA SETTLE

Three weeks before it was scheduled to go to trial, an antitrust lawsuit filed against Microsoft by Caldera has been settled, according to representatives of the two companies.

In the lawsuit, filed in July 1996, Caldera accused Microsoft of using the dominance of Windows in the PC operating systems arena to thwart its product, DR-DOS, which Caldera had purchased from Novell.

Terms of the "mutually agreeable settlement" were not disclosed.

Microsoft representatives said the company would take a one-time charge against earnings in the current fiscal quarter, which ends March 31. The hit will reduce earnings per share by approximately three cents, Microsoft officials said.

"We are pleased to put this issue behind us," said Microsoft's general counsel, Tom Burt, in a joint statement released by the companies. "Rather than litigating, we prefer to focus on building great software for our customers in this dynamic and competitive industry."

Caldera had accused Microsoft of using its Windows monopoly to push its version of DOS, MS-DOS, over DR-DOS, going so far as to insert code into Windows 3.x to ensure that it did not work well with DR-DOS.

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