Microsoft awaits break-up proposal

By BBC News Online's Kevin Anderson in Washington

The US Government is putting the finishing touches to its proposal for action against software giant Microsoft after the company was found guilty of breaking anti-trust laws.

Following the recent verdict in the landmark monopoly case, the government has until Friday to put forward its proposal for 'remedies', the action that should be taken against the software maker.

Microsoft, in turn, has to submit its counter proposal by 10 May, the government's reply comes a week later.

Whatever the judge decides, the trial is likely to drag on for years as Microsoft says it will appeal.

Splitting Microsoft

The key element of the proposal is to split the company in two, according to William Kovacic, an anti-trust law expert with George Washington University.

Shares in Microsoft have plummeted recently on growing speculation that the company will be split up.

On Monday alone they dropped a further 15% or $12 to just over $66, wiping tens of billions of dollars from its market value and impacting on the rest of the tech sector.

They have fallen some 45% from their peak of nearly $120 at the beginning of the year.

Mr Kovacic believes the main element of the plan will be to separate out Microsoft's operating system operations from the rest of the company.

The second measure will be to establish a separate successor company responsible for all other Microsoft applications and its consumer internet efforts including the Microsoft Network and the Internet Explorer web browser, he said.

Devil in the details

While the main points of the proposal are in place, "there are possibilities for refinement," he said.

Judge's options

Break-up - Split into three - operating systems, applications and internet content

Open source code - Competitors could add or modify Windows to use their own software

Fair pricing - Bar on discounts to firms which exclusively use its software

Baby Bills - Create several identical versions of Microsoft

That is why the document won't be released until the end of the day Friday, he added.

The government will either submit a single memorandum containing its preferred remedies, or it may attach affidavits from its advisors, including Herbert Hovenkamp, a law professor with Iowa University, and Carl Shapiro, an economist at the University of California Berkeley.

As well as asking for a break-up of the company, the government is expected to ask the court to impose restrictions on Microsoft's market behaviour during the appeal process.

Microsoft's planned appeal against the ruling could last two years, according to legal experts.

The government wants interim measures imposed to ensure that Microsoft does not use the appeal period to extend its monopoly.

Mr Kovacic said the government was considering a number of possible behavioural restrictions, including:

• Allow computer-makers to design the first screen users see
• Stop Microsoft discriminating in establishing royalty rates and rates for technical assistance
• Stop Microsoft setting different prices for Windows to compel computer-makers to exclusively use Microsoft software
• Restrict the features or software that Microsoft can integrate into the operating system or force the company to offer unbundled versions of the operating system.

Murky area of law

The district court has the power to impose restrictions, Mr Kovacic said, but the law does not provide much guidance on how powerful the restrictions can be.

"The interim measures should eliminate illegal conduct, but the problem is that those measures have irreversible effects on the market and the possibility that elements of the trial court's recommendation could be second-guessed on appeals," he added.

The more powerful the interim recommendations are, the better the position Microsoft will be in to argue that the measures should be suspended.

The appeals court

Microsoft is right to believe that the break-up is far from certain, he said.

"It is fair to say that a number of the conclusions in Judge Jackson's conclusions of law will receive very close scrutiny," he added.

If the appellate court overturns the ruling that Microsoft illegally bundled its web browser to force Netscape out of the market, it would be enough to work against ordering a break up, Mr Kovacic said.