Government to present Microsoft breakup plan today

On Friday, the U.S. government and 19 U.S. states that are suing Microsoft for antitrust violations will present a proposed remedy to Judge Thomas Penfield Jackson, suggesting that the software giant be broken up into two or more companies. If this plan is implemented it would be the largest corporate breakup since 1984, when Bell was broken into eight "Baby Bells" in a bid to create competition in the telecommunications industry. But because such a breakup would require a lengthy legal battle, the government is also expected to request strict sanctions on Microsoft Corporation, effective immediately, that would curb its ability to illegally protect and extend its monopoly in the meantime. For a fiercely competitive company such as Microsoft, which prides itself on its ability to demolish its adversaries, the news is grim indeed. Regardless, company officials are taking a hard stance behind appellate process, which has worked to Microsoft's advantage in the past. But the stakes this time are higher, and the outcome less obvious.

Under the terms of the breakup plan, which were still evolving as late as Thursday night, it's likely that the government will now ask the judge to split Microsoft into two companies, one selling Windows, the other selling Office, Internet products, and all of Microsoft's remaining products. The Windows team would get access to the current version of Internet Explorer, but would be required to develop its own Internet software going forward. And the two companies would be legally prevented from working together for ten years, so that they couldn't continue to share technology and shut out the rest of the third party software developers. Microsoft executives and employees would be reassigned to one of the companies, according to a plan that the government wants Microsoft to draw up. The biggest winners in such a breakup, of course, would be the shareholders, who would receive stock in both companies. But the government is going to ask that Microsoft executives not get this same allowance, and be forced to place their existing shares into the company to which they are assigned.

For the short term, the government is expected to request that Microsoft be held to sweeping set of restrictions. The company would be prevented from striking any exclusive deals during the appeals process, for example, and would be required to end discriminatory pricing, effectively setting a standard price on all of its products. The Windows APIs would be opened up so that third party software developers could learn more about the inner workings of Microsoft's key technologies, giving them equal access to the knowledge that the Office and IE teams have had for years. Microsoft may also be required to sell an "unbundled" version of Windows that would be stripped of Internet Explorer and a host of other features and sold at a discount. This way, going forward, the Windows company could continue to add features as it saw fit, but only if a stripped-down version was offered as well. This way, the company couldn't force new features into Windows, and consumers would have the choice of not accepting these features.

To counter these moves, Microsoft has contacted its shareholders and the developers who support the company, asking them to join the "Freedom to Innovate Network" and champion "innovation over regulation." It's unclear what shareholders have to gain from such a move, however, as a breakup would surely increase their wealth dramatically. But other signs of hope, such as presidential hopeful George W. Bush, who apparently opposes the breakup, and a number of other Republican politicians in Washington, may prove to be more influential should the appeals process drag on long enough to see Bush elected. And few people need to be reminded of the recent problems in the stock market, which were dragged down largely by Microsoft's legal woes. Microsoft might bolster its defense by more adequately describing how beneficial the company has been to the U.S. economy, for example. And it should be noted that Judge Jackson's ruling against Microsoft, though legally justifiable, contains much incendiary language, casting doubt on his ability to fairly judge the company: It's clear that Jackson found Microsoft to be arrogant during the trial; some analysts have supposed that he came to a conclusion in this months many months before his verdict was delivered.

As the deadline approaches, the war of words has become more and desperate. Microsoft executives such as Bill Gates, Steve Ballmer, and Bob Herbold, have been discussing the case all week, using strong language to denounce "rumors" of a breakup, which they describe as "irresponsible." According to Microsoft, none of its actions were illegal and it did nothing but benefit its customers with good products. But the government has finally weighed in on these comments, even as they remain silent on the proposed remedy. New York State Attorney General Eliot Spitzer said that Gates' and Ballmer's comments were "fundamentally distortive" and that "the truth is that Microsoft has been a monopolist found by a federal judge to have undercut innovation, and hence competition and consumer welfare.

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