- The Washington Times - Tuesday, April 25, 2000

Shares of Microsoft Corp. fell 15 percent yesterday and dragged down the Nasdaq Composite Index after federal officials proposed breaking the software giant into three pieces.

Executives at the Redmond, Wash., company repeated their belief that the breakup plan the federal government and 19 states could make official this week is unjustified.

"We feel strongly that these kinds of excessive proposals by the government and our competitors are not appropriate and aren't in the best interests of the high-tech industry or of consumers," Microsoft spokesman Mark Murray said.

The company's stock closed yesterday on the Nasdaq at $66.60 a share, continuing a monthlong free fall. It closed at $111.84 March 23.

Nasdaq fell almost 300 points before rebounding to close down 161.24 at 3,482.64.

Analysts said the Justice Department wants to break up the company because antitrust officials and the software giant's competitors believe only radical changes to Microsoft's corporate structure will ensure an end to its anti-competitive practices.

If Justice succeeds in breaking up Microsoft, it would be the first time since a 1972 antitrust suit against AT&T; Corp., which split into the "Baby Bells" in 1984.

"I think what government plaintiffs believe is that most of what [U.S. District Court] Judge [Thomas Penfield] Jackson has given them to date will withstand review, so they think a breakup will withstand review also," George Washington University law professor William Kovacic said.

Microsoft's stock fell partly because of a plan by the Justice Department and 19 states that sued to divide it into as many as three companies as a penalty for violating U.S. antitrust laws.

Lower-than-expected earnings, announced after the close of trading Thursday, also prompted the stock plunge. The stock market was closed Friday in observance of Good Friday.

Judge Jackson ruled April 3 that Microsoft violated the Sherman Antitrust Act by using its position to "monopolize the Web browser market" to the detriment of competitors and "unlawfully tying its Web browser to its operating system," he wrote in his decision.

Under the Justice plan for Microsoft, one company would manufacture its widely used Windows operating system. A second company would market Microsoft Office and other products. The company's Internet service could make up a third company.

Justice Department spokesman Gina Talamona declined comment.

Iowa Attorney General Tom Miller and Connecticut Attorney General Richard Blumenthal, both of whom helped lead failed settlement talks with Microsoft, declined to comment on proposals to split the company.

Microsoft linked Windows and its browser and sold them together beginning in 1995. The company's Windows operating system runs an estimated 90 percent of the world's PCs.

The Justice Department and state attorneys general tried to engineer a breakup of Microsoft during settlement talks mediated by U.S. Circuit Court of Appeals Judge Richard Posner, but those talks ended unsuccessfully April 1, after Judge Posner determined the sides were unlikely to reach an agreement.

Successful negotiations would have pre-empted Judge Jackson's verdict two days later.

Microsoft Chief Executive Steve Ballmer said last week after speaking at a Washington technology convention that a breakup is uncalled-for.

"That's out of line … I just think it would be irresponsible," he said.

Steven Salop, professor of economics and law at Georgetown University Law Center, said Justice and the states aren't being overzealous in trying to split the company.

"I think the real question is whether [the breakup plan] goes far enough" toward creating competition among the "Baby Bills," Mr. Salop said. The latter is a reference to Microsoft CEO Bill Gates.

Mr. Kovacic said Microsoft competitors are lobbying for harsh remedies against the software developer.

"Competitors are insisting this needs to be done and they are saying to the government 'you have to do this or you aren't helping us,' " Mr. Kovacic said.

The Justice Department and states have until Friday to submit proposals to Judge Jackson. Microsoft is scheduled to reply to the government's plan for remedies by May 10. The judge has scheduled a May 24 hearing on remedies.

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