Expected Breakup Proposal Due After Market Close

BOSTON (04/28/2000) - The U.S. Department of Justice (DOJ) today is expected to propose that a federal judge order the breakup of Microsoft Corp. into two competitive companies and impose behavioral restrictions meant to end what the judge has deemed to be the software maker's monopolistic practices.

Today is the deadline for the DOJ and 19 state attorneys general to propose remedies to a federal court that has found Microsoft is a monopoly and has illegally used that power to derail competition. The court filing is expected at 4:01 p.m. EDT, according to the DOJ. The next step will be Microsoft's response to the government proposals, including possible counter proposals, due by May 10.

Both the Wall Street Journal and the Washington Post reported today that the DOJ court filing will seek to sever the company into two parts -- one for the Windows operating system and another for software applications, including Office and the Internet Explorer browser. The published reports quoted unnamed sources said to have seen the proposal.

Behavioral remedies -- which would be in effect for three years, according to the Post -- would be imposed immediately and are aimed at redressing Microsoft's illegal business practices sooner rather than later. Microsoft has vowed to fight any attempt at a breakup and also intends to appeal the decision earlier this month by U.S. District Court Judge Thomas Penfield Jackson, who found that the company has illegally used its operating system monopoly power in an attempt to squelch competition and to dominate the Internet browser market.

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 U.S. 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 proposal due out today would stop that behavior by limiting how Microsoft can "tie" new products and enhancements to Windows, according to the Post report. New programs would have to have a function allowing users to add or remove them from the operating system, the report said.

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 would have to disclose application programming interfaces (APIs), according to the Post. Jackson found that Microsoft allowed some vendors and developers early access to APIs and kept APIs from those it wanted to punish.

As speculation swelled that the proposal would call for a breakup, Microsoft Chief Executive Officer Steve Ballmer called any such plan "unbelievably irresponsible." During a television interview on CNBC yesterday, Ballmer said he is confident the company will not be split into separate entities.

"I don't think American and worldwide consumers will be well served by any such action," he said in the interview. "America is an incredible country that rewards people for innovation; every company is supposed to do its best to innovate or service consumers."

After Microsoft's response to the government comes out, the government will then have until May 17 to respond. Judge Jackson will hear oral arguments regarding remedies on May 24.

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