Officials want change to structure and conduct

After months of speculation about the relative strength or weakness of their proposals, US antitrust officials have crafted a series of remedies that only the most ardent of Microsoft's enemies could oppose.

The proposed remedies put to Judge Thomas Penfield Jackson last night, which the court could still reject, represent an effort to pre-empt Microsoft's legal arguments and undermine its strategy of running its business as usual while the case goes to appeal.

Officials at the US justice department were faced with one of two options: either a structural remedy to break up the world's largest software company, or a conduct remedy to restrict its business practices. They have chosen both.

Breaking up Microsoft is likely to be a protracted and complex process, which government officials would like to start with the company's co-operation. Microsoft would be asked to submit its own proposals for how the break-up would work in practice.

But the broad outlines of the government's proposals are clear. The world's largest software company would become two - a Windows company controlling the market-dominating operating system, and an applications company controlling software products.

The idea is to kickstart competition in both areas of the industry, as the applications company would begin to develop products for rivals to Windows. In return, the Windows company would be free to develop its own rival applications. Shareholders would be left with holdings in both companies. But Mr Bill Gates, the chairman and founder of Microsoft - alongside other executives and employees with stakes of more than 3 per cent - would be forced to divest their shares in one of the two new companies.

In spite of such draconian measures, the federal government believes a break-up on its own will not prevent the company from maintaining and extending its market dominance.

Officials are also demanding tight restraints on Microsoft's conduct with an immediate impact on its business.

In particular, for three years - or one software product cycle - the company would be banned from discriminating against companies working with its software rivals. Microsoft would also be forced to allow computer makers to change the look and feel of Windows in the start-up sequence.

Microsoft would be banned from bundling the sale of its products together, and it would also have to sell its new version of Windows at the same price as older versions. It would be forced to disclose crucial technical information to software developers on an equal basis.

For its part, Microsoft would be free to add any new features it wanted into Windows - a bedrock principle the company believes is protected by legal precedent and recent appeals court decisions.

That principle is likely to be tested intensely in the coming months as the company's lawyers develop their own response to the remedy proposals. Antitrust lawyers expect the case to reach the Supreme Court within two or three years.