Government lawyers in the Microsoft antitrust
case want to break the software giant into three parts, arguing
that lesser sanctions would be inadequate, people close to the
discussions confirmed Wednesday.
|Microsoft founder and CEO Bill Gates
If U.S. District Thomas Penfield Jackson were to agree to such a
dramatic solution, a mandated breakup of Bill Gates' Seattle-based
empire would carry enormous implications for the way consumers buy
and use software for their computers.
Justice Department lawyers laid out their proposal favoring to
break Microsoft into three parts during a secret meeting last week
in Washington with representatives of 19 states, people close to
the case said. The states are also suing the company over alleged
Those close to the discussions spoke on condition of anonymity,
concerned they might anger U.S. Circuit Judge Richard Posner, the
federal mediator in Chicago holding ongoing settlement talks. But
they indicated little progress has been made so far in those
discussions, as the sides remain far apart on important issues.
The government's endorsement of a breakup considered the
"death penalty" among possible remedies could encourage
Microsoft to seek a lesser sanction during settlement talks. But it
could also stymie negotiations and encourage Microsoft to battle
the case through America's courts for years.
The Justice Department, which last month disclosed that it had
hired as its adviser a financial consulting firm, Greenhill & Co.
LLC of New York, believes that lesser sanctions such as
prohibiting the company from abusing its influence or publishing
its wholesale prices would be inadequate to rein in Microsoft.
The Justice Department declined to publicly discuss its plans.
It wasn't immediately clear exactly how the government envisions
the restructuring of one of America's most successful companies,
with $19.7 billion in sales last year alone. But one source said
lawyers will not propose dividing Microsoft into one company to
sell its dominant Windows operating system, another to sell its
software applications and a third to sell its Internet content.
Another breakup option that had been under consideration was
dividing Microsoft into smaller duplicate companies, dubbed "Baby
Bills" after the company's famous billionaire chairman, that would
be set against each other to compete.
The 19 state attorneys general, who hired their own advisers
separately from Justice, are deciding whether to endorse Justice's
breakup proposal but are leaning in favor of it, sources said. At
least one state has cautioned that a breakup could be unduly
disruptive to consumers, who rely on Windows as a de facto standard
to run their software applications and their PCs.
Critics warn that competing versions of Windows could lead to
software that doesn't run on some versions or some computers.
Breaking up Microsoft into smaller companies would be "stupid,
because it just creates confusion in the marketplace," said
Michael Cusumano, a professor at the Massachusetts Institute of
Technology who has written about Microsoft's battle with the former
Netscape Communications Corp. "The breakup sounds like a mess to
The government expects to formally present the breakup plan next
week when it meets privately again in Chicago with Posner, the
Jackson, the trial judge, urged government lawyers bluntly
during a private meeting in November to agree among themselves on
sanctions before they bring any formal recommendation for him to
Microsoft spokesman Jim Cullinan said Wednesday that "the
notion of breaking up Microsoft is an extreme and radical proposal
not justified by what has been presented in this case."
USA Today, citing unnamed sources, reported Wednesday that the
government favored breaking Microsoft into two parts, not three,
and that one company would sell Windows and the other would sell
its software applications.
Jackson handed down a blistering ruling Nov. 5 that Microsoft is
a monopoly that stifled competition and hurt consumers, agreeing
with nearly all the government's allegations against the company.
The tenor of that ruling raised the possibility of a serious,
eventual judgment against Microsoft. Lawyers and analysts said then
that it indicated Jackson might even be willing to consider a
remedy as dramatic as a breakup. The next round of courtroom
arguments is next month.
The disclosure that Justice favors a breakup comes on the heels
of a high-tech analyst firm, International Data Corp., concluding
that splitting Microsoft into separate companies "would be best"
for the nation's high-tech industry.
It called a voluntary breakup "a brilliant leapfrog maneuver
that would time-warp the company into the next millennium with
renewed purpose and a shining political patina."
But the firm, in a report sent to its software clients and
obtained by The Associated Press, also predicted that, "Microsoft
will choose to settle the case before it would allow itself to be
Microsoft lost more than $18 billion in stock market value on
Wednesday. The company's shares were down $3.56 1/4, or 3.3 percent,
at $105.81 1/4 when the Nasdaq Stock Market closed at 4 p.m. EST.