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Judgment day nears in Microsoft antitrust trial

The government refiles its plan to break Microsoft in two, setting the stage for a final ruling as early as next week.

The government today refiled its proposal to break Microsoft into two pieces, clearing the way for a final ruling in the landmark antitrust case as early as next week.

Although the judge presiding over the case expressed interest earlier this week in a three-way split of Microsoft, the government today stuck to its proposal for a two-way breakup. Microsoft will file a counterproposal by Wednesday.

Today's proposal from the Justice Department and 19 states makes only modest changes to the version the group filed on April 28. For example, the time before a final judgment would take effect would be increased to 90 days from 30 days after the judge's ruling.

In addition, individuals who own at least 5 percent of Microsoft's stock would be prevented from owning shares in the spin-off company; the threshhold was 3 percent in the previous filing. The change would affect Microsoft cofounder Paul Allen, who holds about 4 percent of the company's shares.

"It's certainly nothing surprising," said Microsoft spokesperson Jim Cullinan. "You could certainly put a different face on a bad proposal, but this proposal remains unprecedented and excessive. In the end, it will harm consumers, the high-tech industry and our economy." Jackson previously ruled Microsoft abused its monopoly in the operating system market to thwart competition for other software. The government's proposal seeks to correct these antitrust violations.

The filing concludes a busy week in the landmark antitrust trial. On Wednesday, U.S. District Judge Thomas Penfield Jackson denied Microsoft's request for more time in the case, clearing the way for a final judgment.

Earlier today, Redmond, Wash.-based Microsoft postponed a major corporate event scheduled for next week, citing "strong indications" that Jackson will issue a final ruling.

The government's plan would break Microsoft into two companies: one focused on operating systems and another on software applications. It also would impose some restrictions on the business practices of the operating systems company.

In its filing today, the government clarified how licensing agreements would work between the operating systems and software applications company.

The Justice Department has argued a breakup would cause less harm to Microsoft and be easier to enforce than keeping it intact and imposing stiff restrictions on its business practices. But a breakup also would be hard to enforce, according to some legal experts.

"It would be difficult to prevent the two hypothetical post-breakup firms from colluding," said University of Baltimore School of Law professor Bob Lande. "The people would be friends, living in Redmond, who all agree that the?decree breaking them up was unfair. I don't see how you could easily monitor that."

Unless Microsoft can win over Jackson at the 11th hour, the judge is now expected to breakup the software giant, analysts said.

"It now looks like Jackson favors breaking up Microsoft," said Dana Hayter, an antitrust and intellectual property attorney with Fenwick & West in Palo Alto, Calif.

Even if Jackson rules immediately to breakup Microsoft, the government today asked him to stay--or hold back--such action until after the case is appealed. Microsoft has made it clear it will appeal a ruling that favors the government.

Reuters contributed to this report.