Microsoft's week began like it ended: very, very badly. By Monday, Softies woke up to the news that, despite the government's earlier position that it wouldn't ask for a company breakup, the Feds now want to cut it in two. The same day, Wall Street analysts, disappointed with Microsoft's earnings, downgraded their perennially rosy outlooks. It wasn't over. On Thursday a cadre of academics from the likes of Harvard and Yale submitted a brief to the court arguing that the government's breakup proposal was actually too mild: Microsoft should be diced after being sliced, they said. On Friday the government's antitrust chief, Joel Klein, delivered a 17-page blueprint that laid out how he meant to divide the house that Bill built. By Friday afternoon one harried Microsoft exec could be excused for announcing: "I'm tired."
The Feds' proposal clearly awakened any lingering Microsoft dozers Friday night; you could practically feel the blast from Redmond, Wash., when company brass held a press conference in response to the Department of Justice's filing. Again and again, Gates & Co. spoke of the destruction such a proposal would wreak upon consumers. The government's plan wouldn't just break up Microsoft; it would break it. Do that and watch the stock markets tank more than they already have, doubly punishing consumers. "This [plan] was not developed by anyone who knows anything about the software business," said Gates, who called the proposal "really out of bounds, out of touch." Steve Ballmer, Microsoft's tirelessly upbeat CEO, was downbeat: "I'm disappointed beyond belief that the interests of consumers and the health of the American economy don't seem to be evident in this proposal."
After years of investigation, 78 days in court, four months of go-nowhere settlement talks, the proposed breakup of Microsoft would seem to set the stage for the dismantling of one of the country's most successful companies, possibly America's first court- ordered breakup in the last 30 years. After the government's big wins with Judge Thomas Penfield Jackson--and the Feds' lingering frustration at their past inability to cage Microsoft--it should come as no surprise that DOJ asked for a breakup. Whether it ever gets it is another question. Christmas may have come early for Microsoft's foes in Silicon Valley, but many antitrust observers think it's unlikely Microsoft will be snapped in two.
Judge Jackson or appellate courts could rely on several arguments to stop short of splitting Microsoft. First, a breakup could have unintended consequences, for the company or consumers or both. Judges "should be wary about making major market changes because it's not their job and it's not their expertise," says Eleanor Fox, a professor at New York University Law School. Then too, an appeals court might find Microsoft's violations of the law less sweeping than Jackson did. If the Feds' victory is narrowed, a breakup could seem out of proportion to the offense. "Not enough of the legal victory will survive appeals to support the breakup," predicts William Kovacic, a law professor at George Washington University. Experts also say there's little historical precedent for carving up a company like Microsoft that didn't built its monopoly through acquisitions. …