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Conduct Remedies Could Hammer Microsoft

A breakup could take time, but behavior restrictions may be in effect soon.

By Clare Haney, IDG News   

Jackson on Wednesday ordered Microsoft to be broken into two separate companies as part of his verdict in the U.S. government's antitrust case against the firm. In addition, he also imposed a variety of other remedies on Microsoft designed to curb its anticompetitive behavior.

"Portions of the judgement included conduct remedies, which Microsoft will appeal, but some are likely to survive the appeals process and could be implemented as early as 2001," says Chris Le Tocq, research director with Gartner Group.

Harsh Punishment?

Tim Bajarin, president of Creative Strategies, didn't welcome the judge's ruling.

"I don't believe it's a smart decision for two reasons," he says. "In the PC arena, Microsoft and Windows already won the war. Two years from now, consumers are still going to want to use Microsoft software. I don't think any of us want the government telling us how to write software."

Splitting Microsoft into two companies--an applications firm and an operating system business--could result in what Bajarin dubs a potential tower of Babel. "What you're going to end up with is two monopolies," he says.

Likewise, Jonathan Zuck, president of the Association for Competitive Technology, an advocacy group for the IT industry that has been very supportive of Microsoft throughout the trial, made no bones about his opposition to the judge's ruling.

"This is a travesty of justice, where the ultimate losers will be the IT industry and consumers," he says. "This decision will ultimately lead to fewer choices; it will stifle innovation and will result in higher prices for consumers." Zuck describes the breakup order as more of a punishment than a remedy.

All in Favor?

Not surprisingly, Sun Microsystems, an IT company that's no friend to Microsoft, warmly welcomed the judge's ruling. Sun has an ongoing lawsuit with Microsoft relating to the licensing of Sun's Java technology.

"These measures. . . will protect Internet technologies from becoming the proprietary preserve of any one company--which was, and Sun believes still is, Microsoft's goal," Sun Chair and Chief Executive Scott McNealy says in a statement.

Ken Wasch, president of the Software and Information Industry Association, an IT trade association and a supporter of the plan to break up Microsoft, agrees. In fact, his organization proposed a three-way split of the software giant into applications, operating systems, and Internet companies.

"Consumers won. Justice won. Microsoft lost," Wasch says. "There will be more choice in the software applications consumers can buy, and they will be cheaper."

So who stands to benefit from the judge's ruling? Alternative operating systems to Windows may well find their fortunes much improved, Gartner's Le Tocq says.

Jon "Maddog" Hall, the executive director of Linux International, a nonprofit group that distributes information about the open-source OS, earlier this week looked forward to a Microsoft breakup as being beneficial for Linux. "[A breakup] would be the ideal time for people to say 'Hey, it's time to port Microsoft Office to Linux,'" he says.

Ready to Appeal

Turning to the appeals process, Microsoft will likely have a difficult time of it, according to Robert Schneider, an attorney with Chicago law firm Chapman and Cutler, who has expertise in both antitrust and intellectual property law. He says either the U.S. Supreme Court or the U.S. Court of Appeals for the District of Columbia would have to overturn Jackson's November findings of fact that determined Microsoft to be a monopoly.

Mark Schechter, an attorney at Howrey & Simon in Washington, D.C., and a former U.S. Department of Justice official, agrees with Schneider.

"Appellate courts don't like to second-guess findings of fact," he says. Schechter predicts that the focus of Microsoft's legal attack during the appeals process is likely to be the technological tying issue--of its Windows OS with its Internet Explorer Web browser--and some of the intellectual property issues. "I think they're going to attack the divestiture. . . arguing it's not proportionate to the violation," he adds.

George Chidi, James Evans, Doug Gray, Jack McCarthy, Rick Perera, and Nancy Weil of IDG News Service contributed to this report.