UPDATE 2: Microsoft Breakup Ordered

SAN MATEO (06/07/2000) - The day after the anniversary of the Allies' invasion of Normandy has turned into a D-Day of sorts for Microsoft Corp., as the federal judge who found the software giant guilty of violating U.S. antitrust laws ordered it broken in two on Wednesday.

As expected, U.S. District Judge Thomas Penfield Jackson accepted the Department of Justice's plan to separate Microsoft into two companies: one that builds and sells the Windows operating system and another that would get the rest of Microsoft's current offerings.

The breakup, which Microsoft is expected to appeal, would be the largest corporate split since AT&T Corp. That antitrust case went straight to the Supreme Court, bypassing the appellate court, a move that could happen in the Microsoft case as well.

Such a drastic move is the only remedy that can effectively combat the company's monopolistic grip on the high-tech industry, Jackson said.

"There is credible evidence 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 PC operating system and browser markets," Jackson wrote in his final order. "Microsoft has shown no disposition to voluntarily alter its business protocol in any significant respect. Indeed, it has announced its intention to appeal even the imposition of the modest conduct remedies it has itself proposed as an alternative to the non-structural remedies sought by the plaintiffs."

"Microsoft officials have recently been quoted publicly to the effect that the company has 'done nothing wrong' and that it will be vindicated on appeal," Jackson said. "The court is well aware that there is a substantial body of public opinion, some of it rational, that holds to a similar view. It is time to put that assertion to the test."

Jackson gave Microsoft four months to draw up a divestiture plan that would create an Operating Systems Business and an Applications Business, which would handle all of the company's non-operating system endeavors.

The two companies would not be able to enter into any joint venture; exclusively provide APIs or other technical information to each other; and license each other's products at terms more favorable than another company would receive.

Jackson spelled out restrictions on its business practices that Microsoft must obey while the breakup plan is being worked out.

Those included a ban on retaliating against computer manufacturers for distributing, promoting, or licensing products or services that compete with Microsoft's. In addition, the company must offer all manufacturers the same terms for licensing Windows. Also, manufacturers would be allowed to promote non-Microsoft products on their Windows PCs, including adding icons to the desktop and launching non-Windows software upon first boot.

The company, notorious for integrating its disparate products, would not be allowed to "bind" middleware products to Windows unless it offers an "otherwise identical" version of the system that allows users to remove that software. For example, the company would have to offer a Windows version that does not integrate the Internet Explorer browser.

Jackson defined "middleware" as Internet browsers, e-mail client software, multimedia software, Office, and the Java virtual machine.

Microsoft also would have to disclose "APIs, communications interfaces, and technical information" to independent software vendors and [manufacturers] "in whatever media Microsoft disseminates such information to its own personnel."

That would cover Microsoft products that interoperate tightly with Windows.

The company would be prohibited from entering into exclusive deals in which the other party agrees to curtail non-Windows development or exclusively promote Microsoft products.

Jackson also provided protection for those in the high-tech industry who testified against Microsoft during the two-year trial.

"Throughout the term of this final judgment, Microsoft -- the Operating Systems Business and the Applications Business -- shall be prohibited from taking adverse action against any person or entity in whole or in part because such person or entity provided evidence in this case," Jackson wrote.

The Justice Department praised Jackson's final judgment saying the breakup and accompanying restrictions would foster competition and innovation in the high-tech world.

Assistant Attorney General Joel Klein, head of the Antitrust Division, said the elimination of Microsoft business practices that the Justice Department and Jackson deemed unfair would be a boon to the industry.

"You play ball with us, you get a low price. You carry our competitors' products, you get a high price. That would be prohibited," Klein said at a news conference in Washington D.C.

Microsoft Chairman Bill Gates proclaimed the case is not over.

"I'm reminded of the old saying that today is the first day of the rest of your life. I believe today is the first day of the rest of this case," Gates said.

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