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. Last Updated: 07/27/2016

Judge's Ruling Breaks Up Microsoft

WASHINGTON -- A U.S. federal judge has ordered that Microsoft Corp. be split in two, saying the severe remedy was needed because the software powerhouse "has proved untrustworthy" and did not accept his ruling that it had broadly violated antitrust laws.

"There is credible evidence in the record to suggest that Microsoft, convinced of its innocence, continues to do business as it has in the past and may yet do to other markets what it has already done" to dominate operating systems and Internet software, U.S. District Court Judge Thomas Penfield Jackson said Wednesday in his final ruling in the long-running trial.

If his order withstands the appeals process, Microsoft will be broken into competing companies, one for its Windows operating system and one for its other computer programs and Internet businesses. Microsoft would also be forced to comply with a long list of restrictions on its conduct that would last three years if the breakup order withstands appeal, and 10 years if it does not.

The judge's order stays the breakup plan, but not the other measures, while an appeal proceeds.

If the conduct remedies were allowed to take effect, computer manufacturers would be allowed to offer customized versions of Windows on their computers in ways they never could before. Future versions of Windows would be offered in a form that allows buyers to accept certain new features Microsoft chooses to offer f or to decide they do not want them and use a competing product.

It was Microsoft's decision four years ago to tie a web browser to Windows that prompted the investigation and lawsuit that led to the breakup order.

Some years from now, if the U.S. government's remedy plan works as intended, consumers might also begin to see alternate operating systems on sale that are competitive with Windows, as Apple Computer's operating system is now.

Company co-founder and chairman Bill Gates insisted Thursday the computer software giant has not broken antitrust laws and promises an appeal that could end up in the U.S. Supreme Court.

On Wednesday, soon after the decision was announced, Gates had called the judge's ruling "an unwarranted and unjustified intrusion into the software marketplace, a marketplace that has been an engine of economic growth for America.

"The idea that someone would say that a breakup is a reasonable thing comes as quite a surprise to us," he said. "We have a very strong case on appeal, and we look forward to resolving these issues through the appeals process."

Interviewed on CBS television Thursday, Gates said: "The judge apparently formed those opinions even before this case began. We had a previous case in front of this judge where the appeals court overruled him entirely.

In its suit against Microsoft, the government charged, and the judge agreed, that the firm had used its monopoly in operating systems to put competitors at a disadvantage and stifle innovation.

In strongly assertive language, Jackson accepted the government's remedy proposal in its entirety, attaching it to his ruling f utterly rejecting Microsoft's repeated assertions that the breakup plan was "draconian," "unwarranted" and "bad for consumers, the high-tech industry and our economy."

If the judge's order withstands appeal and Microsoft is broken up, it would be the harshest antitrust action taken against a U.S. corporation since AT&T agreed to spin off the "baby bell" regional telephone companies in 1982. Microsoft would join the ranks of a handful of major national monopolies that have been taken apart over the last 90 years as the result of antitrust violations, including Standard Oil, American Tobacco and the Aluminum Co. of America.

While appealing the judge's verdict, Microsoft will also ask for an immediate stay of all remedy provisions.If the request is rejected, Microsoft must begin complying with the restrictions on its conduct by Sept. 7 and submit a detailed plan for splitting the company by Oct. 7.

With Jackson's encouragement, the Justice Department said Wednesday it would take the case directly to the Supreme Court, under a 1974 revision to federal antitrust laws allowing fast-track consideration of significant cases.

Microsoft opposes the direct appeal to the Supreme Court, preferring to take its case first to the U.S. Court of Appeals, which ruled in its favor in a related lawsuit two years ago and reversed a decision by Jackson.

Microsoft shares opened higher Thursday but then fell back as investors reacted to the judge's order that the software giant be split in two. Microsoft jumped $1.63 to $72.13 when the Nasdaq stock market opened, but then gave up most of its gains, hovering around its Wednesday closing price of $70.50.