U.S. to Present Breakup Plan for Microsoft Today

The U.S. Justice Department today will ask a federal judge to split Microsoft Corp. into two competing companies whose business practices would be tightly restrained for up to 10 years, people who have seen the plan said Thursday night.

Lawyers for Justice and the states that have joined the antitrust case are to present the breakup proposal to U.S. District Judge Thomas Penfield Jackson, igniting a historic debate about the future of one of the world’s most successful companies.

Jackson, who ruled April 3 that Microsoft broke federal antitrust law, could rule on Microsoft’s fate by this summer. Microsoft has said it will appeal his decision, and a final disposition could be years away.

Virtually all of the 19 states in the case are expected to sign on to the federal government’s proposal that Microsoft be divided into two companies--one that sells the various Windows operating systems and another that does everything else, including make software applications such as office-efficiency programs and the Internet Explorer browser, according to people who have seen the plan.

Under the plan, the companies wouldn’t be able to recombine their efforts for 10 years. Other provisions would impose three-year restrictions on business conduct, such as forcing the operating-system company to give computer makers more power to feature rivals’ products. The rules are meant to place limits on Microsoft until competition can be jump-started in the marketplace.

Justice and the states settled on the breakup plan because they believe it offers the best chance of stimulating competition “without long-term government intervention and regulation,” according to an official close to the case.

Microsoft has been prepared for months to battle what some call a corporate death penalty. The company’s response is due next month and a remedy hearing is set for May 24, but officials plan to ask the judge for more time to respond.

Microsoft spokesman Mark Murray said Thursday night that a breakup “will hurt Microsoft’s ability to innovate, and it will hurt consumers. Microsoft has delivered tremendous benefit to consumers as an integrated company. And there is virtually no information in this case to support these radical steps.”

The move could be one of the most far-reaching made by the Justice Department during the Clinton Administration. White House officials summoned Justice lawyers for a briefing Tuesday. White House spokesman Joe Lockhart declined to comment on the substance of the plan, saying it was a Justice decision.

Under the plan, the sources said, Microsoft Chairman Bill Gates and his board of directors would be required to put together a proposal for implementing the breakup, including how to divide intellectual property rights such as patents and copyrights. The company would decide which of the new entities would retain the Microsoft name, and Gates and other officials would receive stock in only one of the companies, sources said. Ordinary shareholders would get stock in both entities under the plan.

Government attorneys believe the plan aims squarely at the problems outlined in Jackson’s two-part verdict that Microsoft broke antitrust laws, sources said. In particular, they will argue that the plan will reignite competition in the multibillion-dollar software industry for personal-computer platforms; also, they will contend the plan repairs the damage described by Jackson, who ruled that Microsoft used its monopoly power to crush innovations that threatened Windows.

Also, they are expected to argue that the breakup plan creates incentives for Microsoft to refrain from the behavior at issue in the case and that it rectifies the damage by creating competition similar to the rivalry created when Netscape Communications first offered its Internet browser in 1995.

The browser, which ran on top of the operating system, was considered “middleware” that threatened to eventually supplant Windows. Under the divestiture plan to be made public today, the separation of products such as Microsoft Office, which includes a word-processor, spreadsheet and other programs, from Windows could stimulate a new middleware threat, the attorneys plan to argue.