A lengthy legal battle lies ahead as Microsoft, the world's largest software company, fights against the US court ruling that its operations be split in two. The only alternative to further court hearings is a negotiated settlement between the company and the US Justice Department, which has led the case against it. Both sides have said they are willing to talk, but it remains to be seen whether any ground for compromise can be found.
The recommendation by US District Judge, Thomas Penfield Jackson, that Microsoft be split in two, came as little surprise. The judge ruled last November that Microsoft had abused its monopoly power in the market to the disadvantage of competitors and consumers. The strength of his finding made it all but inevitable that his final ruling would involve some splitting up of Microsoft - the first such ruling in the US since the break-up of the AT&T telephone monopoly in the early 1980s.
The aim of the ruling is to try to weaken Microsoft's grip on the market. It is the provider of the operating system on which the bulk of the world's computers are run and also the biggest supplier of software. The court ruled that it has used its dominance in the operating system market to unfairly compete in the provision of software - thus the decision to split the company in two and make available to competitors the codes underlying the Windows operating system. The latter move is designed to make it easier for other software companies to design products to run on the Windows system.
If no negotiated compromise can be reached, then the appeal could delay action for a couple of years. And expert opinion in the US is divided over whether last week's decision would be upheld in a higher court. The evidence that Microsoft infringed anti-trust rules is compelling but the argument that breaking up the corporation will spur competition, is less clear-cut. What consumers need is not only the widest possible choice of operating systems and software at the lowest possible cost, but also the guarantee of ease of installation and operation. Microsoft will also argue that its case is supported by other aspects of the decision, such as the short time which the judge said should be given for it to divide its operations in two.
Clearly, a speedy negotiated settlement would be the best route forward, not least for the company's 1,500 employees in Ireland who manufacture and distribute its products throughout Europe and who will want to know the future shape of their employer. But it remains to be seen whether Microsoft is willing to enter into meaningful negotiations; its conduct so far suggests it will find it difficult to do so. But the stakes for Microsoft could hardly be higher. Faced with strong evidence that its actions have disadvantaged competitors it is up to the company to put forward another option to enhance competition, if it wants to avoid a lengthy court battle.
The growth of the Internet, meanwhile, is already changing the face of the industry and leading to the emergence of new competition. Ironically, the spread of technology via the web is likely to be a much more potent source of competition to Microsoft than any decision made in a US court.