Report Backs a Microsoft Breakup

International Data Corp., a highly respected technology research firm, has issued a report saying that Microsoft Corp. should be broken up into separate companies as a remedy in the antitrust trial against the software company.

“The best outcome for consumers, for the industry and for Microsoft is for the company to break itself up along functional product lines,” the report concludes. “Microsoft would then gain access to more markets and repair its reputation.”

A Microsoft spokesman said Tuesday that it was premature to discuss any settlement in the case but that there is no basis for any such “outrageous remedy” as a breakup. “We believe Microsoft and our innovations and products have been a boon for consumers, for the PC industry and for the high-tech industry in general,” said spokesman Jim Cullinan.

The 10-page IDC analysis--undertaken and released for specific clients only, and written by senior researchers Anthony Picardi and Dan Kusnetzky--is the first by a national research firm to call for breaking up Microsoft. The report adds to the growing chorus of experts calling for Microsoft to divest.

Some analysts believe that although IDC’s opinion has no legal standing, the Justice Department will use it as another piece of ammunition in its antitrust case.

“I think it’s very significant,” said Ken Wasch, president of the Software and Information Industry Assn., a national trade group that counts Microsoft as its largest member.

“When a well-respected industry research firm analyzes the role Microsoft plays in our industry and calls for a breakup, that’s a significant development,” Wasch said.

U.S. District Judge Thomas Penfield Jackson issued a finding of fact on Nov. 5 that Microsoft had used a monopoly in Windows software to harm consumers and competitors and that it stifled innovation.

Jackson then appointed an outside mediator to try to settle the case, Judge Richard Posner, chief of the U.S. 7th Circuit Court of Appeals. Attorneys for Microsoft and the U.S. Justice Department and 19 states have been meeting in Chicago with Posner in an attempt to reach a settlement.

Jackson will decide whether Microsoft violated U.S. antitrust laws sometime after he hears oral arguments on the matter Feb. 22. The company on Tuesday will submit its proposed conclusions of law to the judge.

Although the IDC researchers believe the best remedy would be to break up Microsoft, they say such a move is unlikely.

“We believe Microsoft prefers business as usual,” the authors wrote. “It will settle the suit [only] if it can do so without jeopardizing its ability to build upon its dominant position on the desktop to gain dominance in server operating environments.”

Otherwise, the authors believe, the company would fight a protracted appeals battle that could drag on for years.