US proposes Microsoft breakup

As expected, the US Department of Justice has proposed that a federal judge order the breakup of Microsoft into two separate companies, and recommended behavioral restrictions.

          As expected, the US Department of Justice (DOJ) has proposed that a federal judge order the breakup of Microsoft into two separate companies and recommended behavioral restrictions designed to end the software maker's monopolistic practices.

          The DOJ proposal calls for splitting Microsoft into one company for the Windows operating system and another for software applications, including Office and the Internet Explorer browser. The behavioral remedies, which restrict how the company is allowed to operate, are aimed at redressing Microsoft's illegal business practices soon rather than waiting for the legal appeals process to play out. If US District Court Judge Thomas Penfield Jackson, who is presiding over the case, orders that Microsoft be split in two, that remedy will not take effect until appeals are over.

          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.

          Jackson ruled earlier this month that Microsoft has used its operating system monopoly to illegally squelch competition and to dominate the Internet browser market in violation of federal antitrust laws. The DOJ, 19 state attorneys general and the District of Columbia filed the antitrust suit against Microsoft two years ago. Seventeen states signed on to the DOJ-led proposal. The others, Ohio and Illinois, will file a proposal separately.

          In a prepared videotaped statement released after the government's recommended remedies were announced, Microsoft Chairman Bill Gates said, "these proposals would have a chilling effect on innovation in the high-technology industry. Microsoft could never have Windows under these rules. Looking forward, these rules will make it impossible for Microsoft to develop the next generation of good software."

          The behavioral remedies proposed late this afternoon would take effect 30 days after Judge Jackson rules on them, and remain in effect for three years. The breakup order would expire 10 years after it takes effect.

          "Under our proposal neither the heavy hand of ongoing government regulation nor the self interest of an entrenched monopolist will decide what is in the best interest of consumers," US Assistant Attorney General Joel Klein said at a press conference regarding the proposal. "Rather, consumers will be able to choose for themselves the products they want in a free and competitive marketplace. That is our goal and that is the overriding purpose of America's antitrust laws."

          Klein referred to the breakup nearly two decades ago of AT&T's stranglehold on the U.S. telecommunications industry, asserting that "the result has been an explosion of innovation in telecommunications, including the development of the Internet itself and a vast array of products and services ... at increasingly lower prices. We believe that over the long term the reorganisation of Microsoft will similarly result in competition in the operating systems business and innovative new products throughout the software industry."

          These are the behavioral remedies proposed by the government in the 17-page document filed on Friday:

          -- Microsoft would be banned from taking any action or threatening any action that would adversely affect any OEM (original equipment manufacturer) or any hardware or software vendor that wanted to "use, distribute, promote, license, develop, produce or sell any product or service that competes with any Microsoft product or service."

          -- The company would have to provide uniform OEM (original equipment manufacturer) licensing terms for Windows operating system products. OEMs further would have "equal access to licensing terms; discounts; technical, marketing,and sales support; product information; technical information; information about future plans; developer tools or developer support; hardware certification; and permission to display trademarks and logos."

          -- Microsoft would be prohibited from restricting OEMs when it comes to "modifying the boot sequence, startup folder, internet connection wizard, desktop, preferences, favorites, start page, first screen" or other aspects of Windows, including registration sequence, display icons, user interfaces and automatic launches of non-Microsoft products.

          -- APIs (application programming interfaces), other interfaces and technical information would be given to other partner vendors in a timely fashion.

          -- To ensure compliance of OEM and vendor-related remedies, Microsoft would have to create a secure facility where hardware and software vendor representatives can "study, interrogate and interact with relevant and necessary portions of the source code and any related documentation of Microsoft Platform Software" to make certain vendor products will interoperate with Microsoft.

          -- Microsoft would be forbidden from doing anything that the company knows will interfere with or degrade the performance of competing middleware without first notifying the supplier that it intends to do so.

          -- The company would be banned from cutting deals with any vendor that agreed to "limit development, production, distribution, promotion or use of, or payment for" competing software, or those that agreed to degrade performance of any competing software.

          -- Contractural tying would be forbidden, so that Microsoft would not be allowed to force Windows licensees to promote products distributed separately from Windows. The company would further be restricted from binding middleware products -- such as the browser -- to the operating system unless Microsoft offers an otherwise identical version of the operating system from which OEMs and users can remove the middleware.

          OEMs and users that choose to remove middleware will pay reduced royalties.

          -- Microsoft would have to establish a Compliance Committee as part of its corporate Board of Directors with at least three members of the board who do not and have not worked for Microsoft. The committee would have to hire a chief compliance officer who would be charged with making certain that the company was complying with federal antitrust laws and the final judgment in the case.

          The compliance officer also would have to make certain that for at least four years that e-mail messages be kept from all Microsoft officials, directors and managers involved in software development, marketing, sales and developer relations in platform software.

          -- Representatives of the DOJ and the state attorneys general would have the right to inspect Microsoft records, interview officers and employees and request written reports from Microsoft to check for compliance.

          Microsoft has vowed to fight any attempt at a breakup and also intends to appeal the decision earlier this month by Jackson.

          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.

          Microsoft has said that it might ask for more time to file its counter proposal to today's recommendations from the government. The counter proposal is due by May 10 under a schedule set by Jackson. As the schedule is now, the government has until May 17 to respond to Microsoft's response, which could include an alternative "remedy" proposal. After that, Jackson is to hear oral arguments regarding remedies on May 24.

          Microsoft also said after Jackson issued his "conclusions of law" -- or the verdict -- in the case that it will appeal his findings that the company used its monopoly power in violation of antitrust law.

          (Additional reporting by Margret Johnston.)

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