Emboldened by a federal judge's finding that Microsoft Corp. has used its monopoly power to crush competitors and restrict innovation, many of the 19 states suing the software giant for antitrust violations have decided to push for sanctions that would strip the company of its dominance in the market for personal computer operating systems.
Lawyers representing many of the states also have resolved that they will not accept any settlement offer from Microsoft that does not dilute the company's monopoly with its Windows software, according to sources familiar with the states' legal strategy.
The lawyers believe there are two general approaches to weaken Microsoft's monopoly: a corporate breakup, or a forced sharing of the secret computer code that makes up Windows.
"Many state lawyers working on the case feel an important element of any relief would have to include redress of past harms and to make sure that future abuses of its monopoly power don't continue," said one person familiar with the states' strategy.
U.S. District Judge Thomas Penfield Jackson's findings of fact, issued Friday, said Microsoft has used its monopoly position in the PC operating-system market to bully rivals, squelch competition and harm consumers. Although Jackson's findings only addressed the factual issues presented in the case filed by the U.S. Justice Department and 19 states--a final ruling that would address whether Microsoft violated antitrust laws is expected early next year--the blunt and stinging tone of the judge's ruling has encouraged government lawyers to pursue stiff sanctions.
Economists working for the government have analyzed several potential ways to break up Microsoft. But the approach favored by many of the state lawyers would be to split the firm vertically into two or three nearly identical units, already dubbed "Baby Bills" in reference to the company's billionaire chairman, Bill Gates. Each of the firms would sell Windows and Microsoft's other software products, but the lawyers reason that with more than one supplier in the market, prices would fall and consumers would have more choices.
In such a world, one Baby Bill might choose to offer a version of Windows without an Internet browser, while another might choose to incorporate word-processing software into the operating system.
Under the code-sharing approach, viewed as a way to avoid the political fallout of a breakup, either Microsoft would be forced to sell its equivalent of the Coca-Cola soft-drink formula to two or three other technology firms, or Microsoft would have to publish the code, making it freely available to any software developer that wants to create a clone of the operating system. With the "source code" for Windows, the government lawyers believe, other firms could develop their own versions of the operating system, injecting new competition into the market.
A breakup or code sharing "are very appealing options," said one government lawyer involved with the case. "They address Microsoft's monopoly power, which is the central issue here."
Iowa Attorney General Tom Miller, who is coordinating the states' involvement in the lawsuit, said last night that there was "no consensus among the attorney generals as to the proper remedy."
"We continue to search for the remedy that would provide for the greatest competition in the computer industry and, most importantly, would bring about the greatest consumer welfare through competition," Miller said.
The Justice Department's antitrust chief, Joel I. Klein, has said that a breakup of Microsoft "is in the range" of possible remedies but that he had not decided on a sanction. Although Justice and the states do not have to agree on the remedy they ask the judge for, many legal specialists believe the two groups will reach an agreement before a remedies phase of the trial, which would not begin until next spring. A final decision on remedies rests with Jackson, though a Microsoft appeal would likely stall any sanction.
A Microsoft official said it is "premature for anyone to be talking about regulation before the court actually issues a ruling."
"All of these regulations, which have been proposed by our competitors, would hurt consumers and slow down innovation by creating incompatible versions of Windows," the official said.
In a Gallup poll conducted Thursday through Sunday, the days before and immediately after Jackson issued his ruling, 54 percent of respondents opposed any government action that might break up Microsoft.
"Those approaches represent radical regulatory intervention into the most successful sector of our economy," said Jonathan Zuck, president of the Association for Competitive Technology, a pro-Microsoft industry group. "Balkanizing the Windows standard will lead to fewer choices and higher prices for consumers."