Court reverses breakup of Microsoft
Associated Press
WASHINGTON (AP) — A unanimous federal appeals court on Thursday overturned the court-ordered breakup of Microsoft but ruled that the software giant violated antitrust laws. In a rare rebuke, the appellate judges said the trial judge "seriously tainted'' the case with his derogatory comments about Bill Gates and his empire.
In a 7-0 ruling, the U.S. Court of Appeals for the District of Columbia Circuit set aide the breakup order, narrowed the antitrust case and sent it to a new judge to decide whether a breakup or some other penalty is warranted for the software giant.
Although U.S. District Judge Thomas Penfield Jackson engaged in serious misconduct, the appeals judges said, "We agree with the District Court that the company behaved anticompetitively ... and that these actions contribute to the maintenance of its monopoly power.''
Though its legal troubles aren't behind it yet, Microsoft's stock shot up, as did the spirits of company executives. They pressed ahead with plans for their new Windows XP operating system and Internet services with a promise to pursue settlement talks.
"Every company must have the ability to innovate and improve its products,'' Gates said from the company's Redmond, Wash., headquarters. But the world's richest man conceded, "The legal process can be hard on anyone who goes through it.''
As for settlement talks, Gates said: "It's absolutely worth making an effort there.''
The Justice Department and state attorneys generals who brought the case also found victory in the conclusion that Microsoft operated an illegal monopoly. But the government and states might still appeal to the Supreme Court, try to negotiate a settlement or go back to the lower court to seek new penalties.
Political pressure mounted for the Bush administration to seek a settlement.
"This gives this administration the opportunity to settle the rest of this case so all high-tech companies can move forward,'' said Sen. Patty Murray, D-Wash. House Majority Leader Dick Armey, R-Texas, said it was time for the government to "get off the back'' of companies like Microsoft.
Iowa Attorney General Tom Miller, a leader of the 19 states that launched the case, said his colleagues were open to a settlement if it brought "fundamental change about how Microsoft conducts itself.''
The seven appellate judges narrowed the number of antitrust violations against Microsoft, upholding Jackson's conclusion that the company illegally dominated the market for computer operating systems.
But it threw out the allegation that Microsoft illegally gained a Web browser monopoly, and sent back to the lower court the question of whether Microsoft improperly bundled its Windows operating system with its Web browser.
The appellate judges saved their wrath for Jackson, citing his comments as the reason they vacated his order breaking up Microsoft. Before he ruled, Jackson gave interviews in which he likened Gates to Napoleon and Microsoft to a murderous street gang.
The judge's remarks "would give a reasonable, informed observer cause to question his impartiality in ordering the company split in two,'' the appeals court said.
"Although we find no evidence of actual bias, we hold that the actions of the trial judge seriously tainted the proceedings before the District Court and called into question the integrity of the judicial process,'' the court added in an unusually harsh criticismof a fellow jurist.
Former federal prosecutor Lawrence Barcella said the removal of Jackson from the case was extraordinary. "That is a rare, rare public rebuke,'' he said.
Jackson did not return telephone messages to his office seeking comment Thursday.
A new judge will be assigned to the case. The appellate court said the new judge must reconsider whether a breakup is warranted given the narrowing of the findings. "On remand, the district court must reconsider whether the use of the structural remedy of divestiture is appropriate,'' the judges said.
Microsoft's stock started the day down, but rose sharply after word of the ruling. Its trading was temporarily halted and the stock finished at $72.21, up $1.57.
In asking the lower court to reconsider the issue of whether Microsoft's decision to bundle Windows and its Web browser was illegal, the appeals judges said they were concerned about stifling innovation.
Gates said the ruling sets a high bar for the government when it seeks in the future to block features from being included in software products.
Analyst Neil McDonald of Gartner Group, a high-tech consulting firm, said the decision could embolden Microsoft to proceed with bundling new products in its Windows XP operating system and its .NET suite of Internet products. The attorney generals are already studying those plans.
The case "has not had a significant effect on Microsoft's business strategy,'' McDonald said. "The bundling and tying of new products was continuing.''
The case was brought against Microsoft by the Clinton administration. During the presidential campaign, Bush expressed hope that any settlement "won't ruin this company because this company has been a very interesting innovator.''
Bush was mum on the ruling Thursday. The White House said it was too early to decide the next course of action but reiterated Bush prefers settlements over lawsuits. "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,'' spokesman Ari Fleischer said.
The Justice Department gave no hint of its plans. "This is a significant victory,'' Attorney General John Ashcroft said, praising the career lawyers who worked the case.
Charles James, the Justice Department's new antitrust chief, said the key to the ruling was that the judges agreed that Microsoft has monopoly power and acted unlawfully to preserve it.
Connecticut Attorney General Richard Blumenthal said he didn't know whether the Justice Department and the states would stick together as the case proceeds. "I am extremely hopeful that our team will remain intact,'' he said.
New York Attorney General Eliot Spitzer opposed making concessions to Microsoft. "There is nothing in this opinion that would justify a revised perspective on this litigation on the part of DOJ,'' he said.
Jackson ruled that Microsoft illegally thwarted competitors and violated antitrust laws. In June 2000, he ordered that Microsoft be split into two separate companies as punishment to ensure the company couldn't continue its anticompetitive practices.
Microsoft appealed, honing in on the comments Jackson made to reporters in interviews before he ordered the breakup.
