Judge Weighs Plan to Split Microsoft Into 3

A visibly impatient federal judge on Wednesday cut off further delays in the antitrust trial of Microsoft Corp. and appeared poised to order a breakup of the software giant as early as next week.

Rejecting Microsoft’s request for more time to present evidence, U.S. District Judge Thomas Penfield Jackson blurted to shocked Microsoft lawyers that “this case has been pending for two years.” He then ordered the Justice Department and lawyers from 17 states and the District of Columbia to submit--by Friday--an alternative plan to divide up the world’s most powerful computer software maker.

Lawyers for both sides said they were unsure how much the government’s earlier 13-page breakup plan could be modified to satisfy Jackson’s order.

But a new breakup plan, experts say, might include slicing Microsoft into three parts instead of a two-way split the government proposed last month. If Microsoft were broken up into three parts, it would probably become an Internet browser company, a company to make the flagship Windows software, and a company that would oversee all other Microsoft products such as Microsoft Office, WebTV and Microsoft Network.

Jackson’s abrupt ending of what many experts say is the most important antitrust case since the breakup of the Bell telephone monopoly in 1984 sets the stage for a series of crucial decisions by Jackson that will affect how quickly, and in what form, the case comes before any appeals court.

During Wednesday’s standing-room-only courtroom hearing, Jackson’s questions focused on the possibility of breaking up Microsoft into three parts, along the lines proposed in a friend-of-the-court filing by the Software and Industry Information Assn. and the Computer and Communications Industry Assn.--two Washington trade groups made up mainly of Microsoft rivals.

Jackson criticized the government proposal to separate Microsoft into two companies, one that would sell Windows operating system software and a second that would sell all other Microsoft products. He noted that the brief filed by the two trade associations “pointed out that this would simply create two monopolies, both of which would be dominant.”

Kevin J. O’Connor, a senior assistant attorney general in Wisconsin who argued on behalf of the states suing Microsoft for antitrust violations, defended the government’s breakup plan. O’Connor said it would stimulate competition and encourage the new Microsoft companies to develop new markets with former Microsoft competitors.

Outside the courtroom Wednesday, the Justice Department’s lead trial lawyer, David Boies, would not comment on how the government would respond to the judge’s request for a new breakup proposal. Boies would say only that the revised plan would “take into account the day’s proceedings.” Microsoft will have 48 hours to respond to the new government plan.

Although Jackson has long publicly expressed his desire to expedite the conclusion of the Microsoft case, his unusually swift push to wrap up the case Wednesday, as well as his intense focus on various breakup proposals, surprised Microsoft lawyers.

Microsoft’s lawyers had requested up to a six-month delay in court proceedings. Critics described the request as a ploy designed to get the dispute before a new president, who will take office in January.

Jackson put Microsoft’s delay strategy to the test Wednesday when he sarcastically asked lead lawyer John Warden why, if Microsoft was so confident “that your travails will end” in appeals court, “you would want to spend more time in this court” presenting evidence?

“We expect to prevail on appeal,” Warden replied. “But we cannot acquiesce in our own commercial demise” by helping to expedite the case to the U.S. Court of Appeals for the District of Columbia.”

Warden went on to argue that the government’s breakup proposal is extreme. He also said that the government had failed to show a connection between Microsoft’s behavior and an adverse impact on competition in the personal computer operating-systems market. He said that without taking evidence on the issues the court could not reach such a finding.

“Show me cases to support that claim,” Jackson demanded.

“There is no [such] case, your honor,” Warden replied.

“I didn’t think so,” Jackson said.

Jackson and Justice Department lawyers have hinted at circumventing the U.S. Court of Appeals--which has twice ruled against Jackson in related Microsoft cases--and taking the dispute directly to the Supreme Court.

While Microsoft was surprised by indications that Jackson might move quickly to break up the company, others close to the Redmond, Wash.-based software giant seem to have been preparing for the possible split for weeks.

For example, billionaire Paul Allen, who co-founded Microsoft with Bill Gates and still retains a 4% stake in the company, wrote the court several days ago seeking modification of stock ownership limits if Microsoft is broken up.

The government has proposed that no single investor can hold more than a 3% stake in both companies after a breakup. Allen wants the ceiling raised so he won’t be prevented from owning stock in the separate companies.