DOJ Goes for Jugular

WASHINGTON (05/01/2000) - The U.S. government last week seized upon the remedy that Microsoft Corp. has feared the most: a breakup of the company founded 25 years ago by an ambitious college dropout who believed in the future of the PC.

Microsoft has called it a "regulatory death sentence."

The success of Bill Gates' company has been the envy of U.S. business. But a judge ruled last month that Microsoft's profits were partly the result of illegal actions that violated U.S. antitrust laws.

And the government says the only way to fix the problem, restore competition and free the software industry from what the judge has called Microsoft's "oppressive thumb" is to break the company into two pieces.

Microsoft's response to the announcement Friday was immediate and as expected.

"Breaking up Microsoft into separate companies is not in the interest of consumers and is not supported by anything in the lawsuit," said Bill Gates, Microsoft's chairman and chief software architect. "Microsoft never could have created Windows and Office if they were in separate companies. This was not developed by anyone who knows anything about the software business."

Microsoft President and CEO Steve Ballmer said the company "will continue to work with the government in good faith to resolve this dispute" but is confident it will win on appeal.

The government's remedy proposal - splitting the applications, servers and middleware operations from the operating system business - has already touched off a raucous debate among end users, legal experts, economists and many others (go to our forum at Court-ordered breakups are rare and usually are done along past merger or geographic lines.

End users, in a Computerworld poll of 132 respondents taken last month, said a breakup was their least-favored option. Less than 20 percent supported it.

About half supported some form of conduct remedy.

That viewpoint was upheld by users interviewed this week.

"I think that what Microsoft did was predatory, and I think it was wrong, and I think they should be punished. But I think the scale on which this is being carried out is overkill," said William Steinmetz, an information technology director at Lear Corp., an automotive interior manufacturer in Southfield, Michigan. "It's too much. It's way beyond what was needed."

Some wonder whether a breakup will make any difference at all.

"Depending on the business practices they choose, [Microsoft] could be just as damaging as two different companies as they could be as one," said Ron Wells, an information systems director at Carolina Turkeys Inc. in Mount Olive, North Carolina.

A split-off application company "could choose to stay [and develop] on the Microsoft platform. I don't see how the government could really force that issue," Wells said.

But others say a breakup may improve competition. "It could probably be a good thing for the country, but it's going to be very confusing for a period of time," said Harvey Kasinoff, who does advanced development work at PMI Food Equipment Group in Troy, Ohio.

Judge Thomas Penfield Jackson isn't obligated to impose the remedy outlined by the government. And if the government believes the judge is reluctant to break up Microsoft, it's good legal strategy nonetheless to recommend it, experts said.

"It's a sound strategy to demand more than you may realistically expect," said Hillard Sterling, an attorney at Gordon & Glickson PC in Chicago. "A breakup request at least will focus Judge Jackson on the need for significant relief."

And even if Jackson imposes a breakup, Microsoft's appeals could reduce the basis for such an extreme remedy.

"If, during the appeals, Microsoft succeeds in overturning important elements of Judge Jackson's conclusions of law, they will simultaneously weaken the foundation for a broad-based remedy," said William Kovacic, a law professor at George Washington University in Washington.

In any event, no irreversible remedy - such as a breakup - would be imposed until all appeals are exhausted, said legal experts. That could take several years - or less than one, if the case goes directly to the Supreme Court.

End users could feel some impact from this case in the relatively near future if some of the government's interim remedies proposed last week survive appeal.

These interim remedies include a requirement that Microsoft share its interfaces and technical information with developers as they start using them internally. The government may also expedite this case to the Supreme Court, bringing a final legal ruling in a year or so.

It still remains to be seen whether the government's breakup goes as requested.

But even if the company is broken up, it may be years before the impact is really felt.

The government's proposed breakup separates the server and Office products from the operating system. But it might take 18 to 24 months before Microsoft's server products could be rewritten to work with other operating systems, said Dan Kusnetzky, an analyst at International Data Corp. in Framingham, Massachusetts.

Little Change?

A breakup of Microsoft alone wouldn't change much within the software industry, argued Jean-Louis Gassee, president and CEO of Be Inc., an operating system maker in Menlo Park, California. The new companies could become new monopolies, he warned. But Gassee said a split-off applications company would be expected to make versions of Office for Linux and, as a result, might pressure the operating systems company to end its restrictive licensing practices. He added that a breakup, along with conduct remedies, will be needed to change Microsoft.

Glenn Gies, manager of security and infrastructure services at Koch Industries Inc. in Wichita, Kansas, doesn't see users moving off Office if the applications business is separated from the operating systems business. But some good may come of a breakup along those lines, he said, in that the Office company might be more willing to develop office productivity applications that are independent of the operating system and work on the application service provider model.

Domenick Branciforte, corporate technology manager at insurer Royal & SunAlliance USA in Charlotte, North Carolina, said the main thing is that Windows and developer tools stay together.

"If the developer tools move with the Windows operating system, we're fine with it," said Branciforte. "Office is more of a commodity" and could easily be replaced by Lotus Development Corp.'s SmartSuite, with which many of Royal & SunAlliance's users are familiar.

Luke M. Froeb, an economist at the U.S. Department of Justice during the Reagan and Bush administrations, said a breakup doesn't free the government from the need to impose conduct remedies.

"If you break up the company into pieces, you're going to have two dominant players: a dominant applications suite and a dominant operating system," said Froeb. "What's to prevent that operating system [company] from doing exactly what it did the first time?"

Froeb, now an associate professor at the Owen Graduate School of Management at Vanderbilt University in Nashville, said the court would be involved in making sure the split-up firms didn't expand into other areas. "I don't see how you can avoid a conduct remedy," he said.

Robert L. Scheier and Dominique Deckmyn contributed to this story.

Private Cases Consolidated

While Microsoft battles its antitrust case, it will also fight a slew of private cases - but at least it won't send its lawyers all over the country to do so. A panel of federal judges last week consolidated 27 private antitrust suits pending against the software giant in a single court in Baltimore.

Microsoft spokesman Jim Cullinan said the company supports the consolidation because concentrating the cases in one court can reduce costs, which "helps the taxpayer."

- Robert L. Scheier

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