Judgment Day: Microsoft Ordered to Split into Two

Judge Jackson caps off two-year antitrust battle by handing down final judgment and memorandum and order, calling for separation of operating systems business from applications business. Microsoft is

Nothing short of a breakup was expected for Microsoft and, in anticlimactic fashion, U.S. District Judge Thomas Penfield Jackson today capped off the two-year antitrust battle by handing down his final judgment and memorandum and order, which details ordering Microsoft to split into two companies. Microsoft shortly began filing appeal; trial watchers predict that this process can drag on for months or even years, which means that today's decision won't bear any immediate impact on Microsoft, partners or competitors.

Appeals notwithstanding, Jackson’s final judgment calls for Microsoft to submit a proposal for divesting the company within four months of the filing of this judgment, with one portion of the company to handle the operating system business (including any software used as the platform to run applications—-all flavors of Windows for PCs, servers, Intel-based and competitive microprocessors, handheld devices and cell phones, and television set top boxes), and the other to handle its application business (some examples include SQL Server, Office, Internet Explorer, Windows Media Player, XML servers and parsers, transaction servers, MSN, MSNBC, Slate, and Expedia).

The judgment also places several restrictions on how the company is to conduct future business with OEMs and software partners. One provision bans Microsoft from entering into any OEM relationships that depend on restricting OEMs from entering into agreements with Microsoft competitors. Another prevents Microsoft from restricting how OEMs modify features--such as the display of icons or menu items--of Windows for distribution in products. Yet another provision orders that Microsoft disclose APIs and other technical information to software and hardware vendors and OEMs in a timely manner and in the same media as provided to Microsoft’s own employees.

Jackson’s memorandum and order goes on to summarize the Justice Department’s actions and Microsoft’s unwillingness to accept the inevitable. Jackson effectively accuses Microsoft of having taken no measures in the past two years to change its business practices, in light of its own predictions that the case would conclude with today’s result.

“A mandated divestiture was a possibility, if not a probability, in the event of an adverse result at trial,” states the memorandum. “At the conclusion of the trial the Court's Findings of Fact gave clear warning to Microsoft that the result would likely be adverse, yet the Court delayed entry of its Conclusions of Law for five months, and enlisted the services of a distinguished mediator, to assist Microsoft and the plaintiffs in reaching agreement on a remedy of some description that Microsoft knew was inevitable.”

The judge called his conclusions “imperative,” because “Microsoft as it is presently organized and led is unwilling to accept the notion that it broke the law…” Among his evidence:

  • Microsoft does not yet concede that any of its business practices violated the Sherman Act.
  • Credible evidence in the record suggests that Microsoft continues to do business as it has in the past, and may yet do to other markets what it has already done in the PC operating system and browser markets.
  • Microsoft has proved untrustworthy in the past.

In a press release issued by Microsoft, Bill Gates called the judgment “the most massive attempt at government regulation of the technology industry ever,” and Microsoft has already begun to file appeals.

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