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The decision to break up the company may have been thrown out. And the judge who issued that ruling may have been thrown off the case. But most legal observers familiar with the strongly worded, unanimous decision in United States v. Microsoft Corp.are calling it a compelling win for the government. Although there was something in the per curiam opinion of the U.S. Court of Appeals for the D.C. Circuit to please both sides, many observers think that Microsoft is still on shaky antitrust ground. After all, the federal court of appeals embraced the lower court’s conclusion that Microsoft is a monopolist, leaving the company vulnerable to private damage suits or even a renewed effort to break up the company. In the detailed 125-page opinion, the unanimous D.C. Circuit agreed with U.S. District Judge Thomas Penfield Jackson that Microsoft had monopolized the market for operating-system software. The 7-0 ruling, however, also rejected an attempt-to-monopolize claim and sent a “technological tying” claim back to the District Court for another try. In the case brought by the U.S. Department of Justice and 19 states, the appeals court also cancelled Jackson’s June 2000 order breaking up the company. It found that Jackson had not made enough findings on why the divestiture was needed. The court also ruled that the breakup couldn’t be sustained on the current state of the evidence, in light of the appeals court’s own decision to whittle down the legal basis for dividing the company. Finally, the court took the case away from Judge Jackson in future proceedings, finding that the trial judge’s interviews with reporters during the trial had created an appearance of bias and partiality. “The violations [by Jackson] were deliberate, repeated, egregious, and flagrant,” the appeals court wrote. “The only serious question is what consequences should follow.” Notably, the court declined Microsoft’s invitation to cancel all of Jackson’s findings of fact on the grounds that they were tainted by the appearance of partiality. Instead, the appeals court swept away only Jackson’s breakup order, leaving his conclusions on the antitrust issues undisturbed in many instances. At a press conference today, Attorney General John Ashcroft and Assistant Attorney General Charles James, head of the Antitrust Division, called the ruling a “significant victory,” pointing out that Microsoft had been found to have had a monopoly share of the computer operating systems market and to have acted improperly in several ways to maintain that monopoly. Several antitrust experts say that despite the harsh words for Judge Jackson’s conduct and despite the rejection of some of the government’s theories, the bottom line is not good news for Microsoft. “Remember that there are two different agendas here for Microsoft — the case itself and the private suits that followed it,” says Marc Williamson, an antitrust partner at the D.C. office of Latham & Watkins who has no connection to the case. “A final judgment of liability will be admissible in the private suits without regard to what the remedy is. And the damages can be huge.” Williamson adds that in his view, even a settlement at this point that involves Justice and all the state attorneys general would not solve Microsoft’s private-suit problem. “One would think that this would be a complete setup for a settlement and provide perfect political cover for a Republican administration. The trouble is that Microsoft can’t get [Jackson's] ruling vacated, now that it has been affirmed. They’ll have a final judgment that they are a monopolist and engaged in anti-competitive behavior.” Williamson suggests that Microsoft might therefore wish to seek Supreme Court review, but that the high court would most likely refuse to hear the case at this point, since it has been remanded to the trial court for two purposes: another look at the “tying” issue and a new remedy hearing. In a statement issued Thursday afternoon, Microsoft said it is “pleased that the U.S. Court of Appeals has overturned most of the lower court’s findings against the company, drastically narrowing the case and removing the breakup cloud from the company. … We are very pleased that this ruling reverses the District Court’s previous ruling and provides a positive framework for Microsoft if these issues have to be retried.” James Gattuso, vice president for policy at the Competitive Enterprise Institute, a D.C. advocacy group that is sympathetic to Microsoft, said in a statement that the decision was a “clear, but qualified, victory for consumers. Judge Jackson’s decision, had it been allowed to stand in full, would have sent a message to firms nationwide: Don’t innovate too much, don’t compete too hard. Today’s action overturning much of that original decision is a step in the right direction.” Thomas Lenard, an economist and vice president for research at the Progress and Freedom Foundation, says he still wouldn’t rule out an eventual breakup of Microsoft somewhere down the road. He points out that the circuit court rejected the basis for Jackson’s divestiture order as well as the judge’s conduct, but did not permanently rule out a divestiture in the case. “Microsoft is now in a stronger market position than it was before the trial,” says Lenard, whose group filed a brief at the appeals court supporting the government. “There are real antitrust concerns about their ability to leverage their power into the Internet. All this will now become part of the record for the remand stage.” Robert Lande, an antitrust professor at the University of Baltimore, calls the ruling “a great government victory.” “Microsoft had predicted a clean sweep of all the issues, a total reversal,” Lande says. “Instead, the government won the big one, the monopolization case.” Lande says that if settlement talks are the next step, a couple of “wild cards” will turn up. “First, you have Charles James, the new antitrust chief, who tends to be conservative. The second wild card is the states,” Lande says. “If James agrees to a slap on the wrist, the states will probably not go along with that settlement. Then there will really be a remand to a different district judge. And private lawyers should be encouraged by this ruling. This case is far from over.” Related Item: U.S. v. Microsoft (PDF file)

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