It's Official: Government Calls for Microsoft Breakup

The U.S. Department of Justice and 17 of the 19 states that filed an antitrust suit against Microsoft Corp. handed up their proposal Friday to break up the company.

The proposed remedy calls for splitting Microsoft ( into two companies and regulating Microsoft's behavior.

It follows U.S. District Judge Thomas Penfield Jackson's ruling of law in which he found that Microsoft's business practices were in violation of federal antitrust law. Jackson will consider the government's proposed remedies and a counterproposal from Microsoft due in early May before deciding on a penalty.

The government began leaking details of the breakup plan to media outlets early this week. The lead government attorney, Assistant Attorney General Joel Klein, reportedly briefed White House officials as a courtesy in the middle of the week.

U.S. Attorney General Janet Reno issued a statement in support of her department's proposed remedy. "This is the right remedy at the right time. Our proposal will stimulate competition, promote innovation, and give consumers new and better choices in the marketplace," she said.

Clearly signaling their intentions in a news conference after the post-market-close legal action, Microsoft officials lambasted the Justice Department as ignorant of the technology sector and vowed to appeal the verdict against it until it is overturned.

"This is not something that was written by someone who knows anything about the technology business," Microsoft chairman and chief software architect Bill Gates said.

Gates characterized the breakup as "very disturbing, not just for Microsoft but for consumers and the entire high-tech economy."

Microsoft president and CEO Steve Ballmer called the government's remedy "draconian" and vowed that Microsoft would not be broken up. "All new ideas and opportunities would be hurt by these extreme regulations brought on by government proposals," Ballmer said.

The government plan has one company continuing in the operating systems business and another carrying forward Microsoft's application software business.

According to the government the structural split would correspond to existing divisions within the company. The two companies would be prohibited from reuniting for at least a decade.

The Justice Department ( and the states also asked Judge Jackson to stop Microsoft from engaging in several business practices that it claims the software giant used to reinforce its monopoly in the operating system market.

The Justice Department submitted several statements in support of its proposed remedy, including affadavits from an economist, a computer scientist, and two business professors.

Klein said he believed the remedy will benefit consumers. "Under our proposal, neither ongoing government regulation nor the self-interest of an entrenched monopolist will decide what is best for consumers," Klein said. "Instead, consumers will be able to chose for themselves the products they want in a free and competitive marketplace."

Microsoft's top legal executive Bill Neukom called the proposal "far outside the scope of evidence," recalling that the government's original case against Microsoft involved the integration of Internet Explorer with Windows. "The government's demands are out of all proportion to the case itself," Neukom said.

Neukom termed the breakup proposal a "regulatory death penalty" that will affect consumers and increase costs.

Gates left investors with a warning that it was a mistake to believe a split Microsoft would eventually lead to higher stock values through holdings in multiple so-called "Baby Bills".

"Microsoft would be greatly damaged by the split," Gates said. "No one should think shareholders' interests will be preserved by this." - Isaac Slepner

About the Author

Scott Bekker is editor in chief of Redmond Channel Partner magazine.