In a decision with potentially far-reaching consequences for the U.S. and global economies, as well as high technology, the federal judge who presided over the Microsoft antitrust trial on Wednesday ordered the company be split in two.
In ordering the breakup of the world’s largest software company, U.S. District Judge Thomas Penfield Jackson accepted virtually all of the recommendations of the Justice Department and states that won the historic antitrust case.
Divestiture, the government said, was the only way to restore competition to a computer industry hamstrung by Microsoft Corp. abusing its monopoly power over operating system software.
Within minutes of the judge’s decree, however, Microsoft indicated the legal fight was far from over. The company said it would file for an appeal within days–and continued its strategy of neither admitting to violating the Sherman Antitrust Act nor showing any contrition.
The appeal means that, even if the government prevails, a breakup could be years away.
Microsoft officials said the appeal would claim Jackson committed errors during and before the trial. “We will be exercising our right to appeal this decision, and we’re confident the judicial system will overturn today’s ruling,” Microsoft co-founder Bill Gates said at a news conference at his company’s Redmond, Wash., headquarters. He also said the company would seek a stay of the order.
In a strongly worded memorandum accompanying his breakup decree, Jackson explained his decision to restructure Microsoft as soon as possible into two companies: one handling the Windows operating system; the other handling the company’s Internet Explorer Web browser as well as applications such as Word, a popular word-processing program, and Excel, a spreadsheet program used by many businesses. Jackson also ordered that significant restrictions be placed on Microsoft’s business conduct.
Although the details of Jackson’s final judgment had been widely expected since a May 24 hearing in which he clearly appeared to embrace the government’s proposals, Wednesday’s black-and-white reality of it nevertheless represented a dramatic moment in U.S. business history.
If the restructuring order is upheld, it would be the most significant dismantling of a corporate power since the breakup of AT&T Corp. in 1984.
In his memorandum, Jackson portrayed Microsoft as unrepentant.
“Microsoft as it is presently organized and led is unwilling to accept the notion that it broke the law or accede to an order amending its conduct,” Jackson wrote.
Jackson essentially said that if Microsoft is so sure of its innocence, that faith should be quickly put to the test before an appellate court. “Microsoft officials have recently been quoted publicly to the effect that the company has `done nothing wrong,’ and that it will be vindicated on appeal.”
Further, Jackson said, because Microsoft still doesn’t believe it violated federal antitrust laws, it was likely to continue the behavior he found to be illegal, possibly leading to domination of markets it doesn’t already control.
The Justice Department indicated it would invoke an obscure federal law that would allow the government to expedite the appeal directly to the Supreme Court. Jackson would have to certify such a request, which he has said he would do.
Microsoft said it would oppose such a move, preferring to make its case before the U.S. Court of Appeals for the D.C. circuit, which reversed an earlier Jackson ruling that went against Microsoft.
Professor Robert Lande, an antitrust expert at the University of Baltimore Law School who has closely followed the trial, said he believes Jackson may have harmed his own stated interest to get the case before the Supreme Court.
“I thought it was surprising how brief [the judge’s order] was. I think the judge made a mistake,” he said, pointing out that Jackson’s 16-page order with a four-page memorandum attached contained no legal justification for the breakup. “That’s imprudent. It suggests the judge had enough and just wanted to get it done.”
In some of the memorandum’s harshest language, Jackson said he found it necessary to enter an order to break up the company without further ado because Microsoft simply “has proved untrustworthy in the past.”
He alluded to Microsoft’s response to an injunction he entered in 1997 to keep the company from integrating its Internet browser into its Windows operating system, an action the judge found to be anti-competitive. “Microsoft’s purported compliance with that injunction while it was on appeal was illusory and its explanation disingenuous,” he wrote.
Jackson’s order was hailed by the Justice Department. “I’m pleased that the court has ordered a strong, effective remedy to address the serious antitrust violations that Microsoft has committed,” said Atty. Gen. Janet Reno. “The court’s remedy strikes the right balance.”
Besides the restructuring of the company, the judge’s order also contained the conduct restrictions on Microsoft that the Justice Department had sought.
Among the restrictions, which would take effect before the divestiture, Microsoft would be forbidden from retaliating against computer manufacturers who installed competitors’ products. Evidence of such behavior had emerged during the trial.
“The structural remedy will stimulate competition that will have a lasting impact on this important industry, and the interim conduct relief will ensure that Microsoft cannot break the law while the structural provisions are taking effect,” Reno said.
Speaking at the news conference at his company’s campus in Redmond, Gates sought to minimize the significance of Jackson’s order.
“I’m reminded of the old saying that today is the first day of the rest of your life,” he said. “I believe very strongly that today is the first day of the rest of this case.”
Gates attempted to frame the issue, as his company has tried throughout the course of the case, as the Justice Department versus innovation.
“The government’s position here on the specifics of the browser and on the general question of improving products really flies in the face of the kind of improvements that have benefited consumers from innovation coming out of the technology industry,” Gates said. “So [Wednesday’s] ruling really represents an unwarranted and unjustified intrusion into the software marketplace, a marketplace that has been an engine of economic growth for America.”
Gates also took a jab at the requirement that Microsoft give computer manufacturers and other software companies controlled access to the proprietary source code of its Windows operating system. Those are the fundamental computer instructions that form the foundation of all Microsoft’s software–information the company has always considered its top-secret crown jewels.
“This ruling says to creators of intellectual property that the government can take away what you’ve created if it turns out to be too popular,” Gates said.
That statement particularly rankled California Atty. Gen. Bill Lockyer, who took a break from a prison tour to join a teleconference of his fellow state attorneys general.
“That’s the kind of disingenuous comment that Judge Jackson was willing to talk about in his ruling,” Lockyer said. “It seems that the Microsoft leadership still doesn’t get it, that popular products are good, that [Microsoft’s products] contributed enormously to the productivity of our economy.”
“But you can’t abuse that monopoly position by injuring consumers and competitors in the way in which Microsoft did,” he said. “It again shows their unwillingness or inability to understand what the damage is all about.”
Although no one can know for certain how the appeals court would rule, there were some educated guesses. Microsoft “made a tremendous mistake” in not settling the case, said Sen. Orrin Hatch (R-Utah), chairman of the Senate Judiciary Committee, whose state is home to Novell Inc., a company that specializes in networking software and is a Microsoft competitor.
Noting that the judge made several hundred findings of fact against Microsoft, Hatch said, “Keep in mind that under our legal system, the trial judge is the sole determinant of findings of fact on appeal. That’s going to make it very difficult to overturn.”
