InformationWeek: The Business Value of Technology

Bill Neukom, Microsoft's senior VP for law and corporate affairs, says the conduct remedies that U.S. District Court Judge Thomas Penfield Jackson levied last week-including requirements that the company disclose secret technical information about its Windows operating system to software publishers and offer versions of Windows without bundled middleware within three months-"would be a hardship," and aren't supported by the facts in the case. "The intended or unintended consequence of that bit of conduct relief is that this intellectual property company is essentially being forced to give up its most valuable asset"-Windows source code, Neukom said during a conference call. Microsoft immediately filed a motion to freeze Jackson's entire order, both the breakup and the conduct remedies, while it appeals the decision.

Jackson concluded the two-year trial last week by ruling that Microsoft should be divided into two companies-one to sell the Windows operating system and another to be responsible for application software. He tabled the breakup penalty until appeals in the case end, but ordered sanctions on Microsoft's business practices to begin within 90 days of the June 7 ruling. Besides publishing the Windows interfaces, the conduct remedies include letting PC makers alter the Windows user interface and forbidding Microsoft from showing any favoritism in the way it apportions technical access and sales support to other technology companies.

Bill Gates, Microsoft chairman and chief software architect, called the ruling "the first day of the rest of this case." But Gates, too, appeared troubled by the implications of court-ordered conduct restrictions; new product development would be hampered, he says. "The case is about Internet support in Windows," Gates says. "Today, that's more important than ever." For example, besides demonstrating a new user interface for Windows that incorporates speech and handwriting recognition at its Forum 2000 conference on software development for the Internet later this month, Microsoft is also building into its software new hooks that use the Extensible Markup Language to ease communication over the Internet with non-Windows systems. "This ruling would provide that the user interface in Windows never be enhanced," Gates says. "Keeping our team together as one Microsoft is critical to our efforts."

In April, Jackson ruled that Microsoft broke federal laws by illegally maintaining its operating-system monopoly and extending it into the market for Web browsers. A breakup would restore competition in the software industry and prevent Microsoft from using its monopoly power in the PC software market to gain unfair advantages in new sectors such as Internet servers and middleware, the judge says. He gave Microsoft four months to submit a plan for its own dissolution, which would take place a year after any appeals end. Microsoft requested a freeze on that requirement as well.

Microsoft may get relief, according to one expert. "They have a fighting chance to set aside at least some of the conduct-related controls," says William Kovacic, a George Washington University law professor, because the sanctions could trigger "irreversible" changes in the industry-and because Jackson ruled so quickly.