An American court has ordered that software giant Microsoft be split in two for abusing its dominant market position.

Judge Thomas Penfold Jackson said the action was needed to ensure the company - once the world's biggest - did not operate as a monopoly.

Microsoft has proved untrustworthy in the past

Judge Thomas Penfold Jackson

He also ordered the firm to modify its conduct to give its competitors a better chance of selling their own software.

Microsoft said it would appeal against the ruling. The implementation of the break-up order is likely to be delayed until the higher courts reach a decision.

The US Justice Department has proposed that the appeal go straight to the Supreme Court - which if accepted would significantly shorten a legal process which has already lasted 10 years.

Windows and the rest

Judge Jackson said the company should be split into two separate businesses:

• One to market and produce Windows
• The other to handle Microsoft Office and other applications software, along with the Internet Explorer web browser.

The US Justice Department, which brought the case along with 17 states, was jubilant that the judge had accepted its recommendations.

"Our efforts will protect competition and ensure that consumers will have improved products in the marketplace," US Attorney General Janet Reno said.

Our efforts will protect competition and ensure that consumers will have improved products in the marketplace

Janet Reno, US Attorney General

The Judge ordered the company to submit a plan for its break-up within four months, with the final division to take place within a year.

He also said that "Microsoft has proved untrustworthy in the past" and gave the company three months to modify its business practices.

Guilty of anti-trust violations

Judge Jackson had already ruled that Microsoft had broken anti-trust laws, abusing its dominant position in the computer operating system market.

The US Government charged, and the court accepted, that Microsoft had forced its customers to adopt its own browser by discounting and putting pressure on computer makers, to the detriment of rival software maker Netscape.

This ruling is unfair ... Consumers every day see lower prices and an economy full of competition

Bill Gates, Microsoft

But Microsoft said it encouraged competition, and argued that any break-up would reduce innovation and consumer choice.

"This ruling is unfair ... Consumers every day see lower prices and an economy full of competition," Microsoft founder Bill Gates said.

"Keeping our team together is crucial for our efforts ... we are confident that we will win our appeal," he added.

Conduct remedies

Microsoft's business is likely to be severely restricted by the court's remedies, which are designed to ensure that other companies can compete more effectively with the software giant.

The court ordered Microsoft to modify its behaviour in the following areas:

• Give computer makers more flexibility in configuring their systems and in selling and promoting non-Microsoft software
• Release technical information at the same time and equally to other software vendors as it does to its own personnel
• Charge a uniform price for the Windows operating system to the top 20 computer makers
• And to charge the same price for past supported versions of Windows as it does for the most current version of the operating system.

More legal delays

Despite the government's attempt to take the case directly to the US Supreme Court, the appeals process could still take many years.

The Supreme Court has only agreed to bypass the Appeal Court procedure in one other case - the break-up of huge US telephone company AT&T.

The uncertainty could make it more difficult for Microsoft to recruit and retain its staff.

Microsoft's shares were trading at just over $72, up from its record low of 60, but is still down 40% this year. That has wiped out over $200bn off its stock market value.