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Appeals Court Revokes Jackson's Break-Up Order

A federal appeals court rejected the proposed breakup of Microsoft Corp. for antitrust violations in a ruling released Thursday. The court did not reverse U.S. District Judge Thomas Penfield Jackson's finding that Microsoft violated federal antitrust law, however.

The legal decision is the first major victory for Microsoft since the trial ended in 1999, although the company won a significant motion leading up to the appeals court ruling.

It also means the break-up remedy, about the most severe possible remedy in an antitrust case, is officially off the table for now. The court ruled that a new U.S. District Court judge must handle the remedial stage. A breakup is still possible, but the burden now shifts to the government to persuade a new judge to consider it, assuming the government still wants to pursue a breakup.

Jackson had ordered Microsoft split into an operating systems company and an applications company. He stayed his order until the appeals process was complete.

"We vacate in full the Final Judgment embodying the remedial order, and remand the case to the District Court for reassignment to a different trial judge for further proceedings consistent with this opinion," the court concluded in its 125-page ruling.

In an official response, the Justice Department emphasized that the court upheld the finding that Microsoft violated antitrust law.

"We are pleased that the Court of Appeals found that Microsoft had engaged in illegal conduct to maintain its operating system monopoly. We are reviewing the court's opinion and considering our options," the Justice Department said in a statement. Although the appeals court ordered a new remedial phase, the government could appeal the case to the Supreme Court first.

What the Justice Department decides will signal how a new administration will handle the antitrust case. White House spokesman Ari Fleisher told the Washington Post that President Bush was waiting to comment until the Justice Department finished its review. But Fleisher added that "The president believes people should work hard to enter into agreements and the president believes there's too much litigation in our society, generally speaking."

Bill Gates, Microsoft's chairman and chief software architect, acknowledged the split nature of the ruling, and he said the company is still reviewing it. Gates signaled that Microsoft may be open to settlement with the government.

"Today's decision overturns much of the district court's ruling, but not all of it," Gates said. "We will continue to work hard to resolve these issues without the need for continued litigation."

Gates also noted that the appeals court reopened the government's tying claims, and said Microsoft would review its licensing practices to make sure all are consistent with the court's ruling.

Ken Wasch, president of the Software & Information Industry Association and a frequent Microsoft critic, expressed satisfaction that the appeals court upheld the antitrust findings.

"The Court of Appeals has now joined the U.S. Department of Justice, the District Court, and most of the information technology industry in recognizing that Microsoft's business practices are not just business as usual, but rather a clear and demonstrated violation of red letter law," Wasch said in a statement.

Wasch called for the Justice Department to request an effective remedy from the new district judge.

"On remand, we expect the U.S. Justice Department to take the Court's decision to heart and propose remedies that will prevent Microsoft from leveraging the monopoly in the Windows operating system into other products and services," said Wasch, whose organization represents 1,000 high-tech companies.

According to analyst Rob Enderle, of the Giga Information Group, the ruling makes a breakup extremely unlikely.

"It was going to be a snowball's chance in Hell before. Now we're questioning whether Hell exists in the first place," Enderle said. "There was never enough of a foundation built to justify breaking up the company. They never crossed the burden of proof that the benefit would be what they sought."

Microsoft won an important victory last September when the U.S. Supreme Court decided not to fast-track the case and bypass the U.S. Court of Appeals. Instead, the high court allowed the case to follow the usual track through the appeals court, which has ruled in Microsoft's favor in the past.

The appeals court's decision is also not surprising given the tone of the court's questions during the appeals hearings in February. The justices subjected the government to withering questions about Judge Jackson's conduct, including his numerous press interviews about the case in which he lambasted Microsoft and criticized the appeals court.

The appeals court justices' concerns surfaced throughout the appeals court ruling, and the appeals court flatly accused Jackson of "misconduct" during the remedial stage.

"The District Judge's impatience with what he viewed as intransigence on the part of the company; his refusal to allow an evidentiary hearing; his analogizing Microsoft to Japan at the end of World War II; his story about the mule -- all of these out-of-court remarks and others, plus the Judge's evident efforts to please the press, would give a reasonable informed observer cause to question his impartiality in ordering the company split in two," the court wrote.

The full text of the ruling can be found on Microsoft's Web site.

About the Author

Scott Bekker is editor in chief of Redmond Channel Partner magazine.

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