US asks court to split Microsoft into two

The government proposal would separate Microsoft’s dominant personal computer operating systems — including the Windows software code-named "Millennium," "Whistler," "Blackcomb" and their successors — from application programmes. The applications company would have Microsoft Office programmes, the Internet Explorer browser, Microsoft’s online and media ventures and a host of other assets.

The split would last 10 years. "This was not developed by anyone who knows anything about the software business," an angry-sounding Bill Gates, Microsoft’s founder and chairman, told a telephone news conference. "These proposals would have a chilling effect on innovation in the high technology industry. Microsoft could never have developed Windows under these rules," Gates said in an earlier videotaped statement.

The company has promised to appeal vigorously all the way to the Supreme Court, which could push the controversial case into 2001 or beyond, when a new president will take office and could change US antitrust policy. Greenhill & Co LLC, a Wall Street firm retained to advise the government, said breakup could be positive for shareholders. "No one should think that shareholder value would be preserved," Gates shot back.

Microsoft shares firmed slightly to 70-11/16 in after-hours trading following the announcement of the proposal, from its close of 69-3/4 in the regular trading session. Analysts said there was relief at finally knowing exactly what remedy was being sought.

And at Microsoft’s sprawling headquarters in Redmond, Washington, employees greeted the plan with shrugs. "It won’t really have any impact on my job, and I don’t think they’ll actually go through with it anyway," said a software testing engineer who would give his name only as Steve.

Another employee, who also declined to be identified, said, "I’m going to be doing the same job next week that I was doing this week." On the MSNBC Web site, in which Microsoft is a partner, there was an unscientific survey about the plan that drew 41,020 responses. Eighty-three percent said the company should not be split in two.

The government wants to stop Microsoft from using its monopoly in Windows, which runs on over 80 per cent of personal computers, to force companies and consumers to use other Microsoft software. The government also wants to encourage challengers to Windows, hoping that a separate Microsoft applications company would develop versions of popular software such as Microsoft Office to run on non-Windows systems.

Some polls however, say consumers like the uniformity of dominant operating system on which most software programmes will run. The government justified the more extreme proposal to split the company by saying Microsoft would flout conduct restrictions if they were imposed on their own. The department noted that as recently as July last year Gates was seeking to harm competitors who make personal digital appliances such as Palm Inc’s PalmPilot.

Klein also said Microsoft’s widely used Office suite of programmes could eventually become a "middleware" substitute for Windows in the way Netscape tried to. The case stems from an antitrust complaint filed by the government in May, 1998, charging Microsoft with illegally using its monopoly power to crush Netscape, a Web browser with operating system aspirations.

The trial began in October, 1998. Federal District Court Judge Thomas Penfield Jackson ruled in November last year that Microsoft held monopoly power. After months of settlement efforts failed, the judge ruled April 3 that the company’s actions violated the law.

There is no sign that the legal wrangling over the case will end soon. Jackson has asked Microsoft to reply by May 10 to the government plan and has set a hearing for May 24. Jackson hopes to expedite any appeal, possibly straight to the Supreme Court. The company would prefer a slower progression of the case through an appeals court. "We do not believe we have violated the law and the Court of Appeals has yet to consider this case," Microsoft President and Chief Executive Office Steve Ballmer said in a statement.

"Microsoft has exciting plans to develop a broad array of next-generation software products that will take computing to the next level, but those plans are imperilled by the extreme regulation proposed by the government," Ballmer said.

A slower timetable could keep the matter from reaching the highest court until after the January swearing in of a new president — either Republican George W Bush or Democrat Al Gore. There is speculation in Washington that Bush would be more sceptical of the government case.

But Iowa Attorney General Tom Miller, a Democrat who has led the states in the case, promised to keep up the pressure on the next administration not to let Microsoft "get off easy." "That’s totally intolerable to the states," Miller told reporters on a conference call after the proposal was released.

Two of the 19 states who joined the government in the case — Ohio and Illinois — dissented from Friday’s proposal, saying it was too soon to consider a breakup.