- The Washington Times - Friday, June 29, 2001

A federal appeals court yesterday unanimously reversed an order that Microsoft Corp. be split in two, saying U.S. District Court Judge Thomas Penfield Jackson's "serious judicial misconduct" during and after the landmark antitrust trial made him appear biased.
But the U.S. Court of Appeals for the District of Columbia agreed with Judge Jackson that the software giant holds a monopoly in personal computer operating systems and that some of its competitive practices amounted to illegal use of that monopoly.
The court also ordered a lower court to re-examine whether Microsoft illegally tied together separate software products and overturned a decision that the company illegally tried to monopolize the market for Internet browsers.
The court's ruling led the Justice Department and Microsoft's competitors to claim victory.
"I'm pleased to say that the court unanimously found that Microsoft engaged in unlawful conduct to maintain its dominant position in the computer operating systems. This is a significant victory," U.S. Attorney General John Ashcroft said at a news conference yesterday.
The Justice Department, 19 states and the District of Columbia sued Microsoft in May 1998, claiming the software developer tried to thwart competition. Microsoft appealed after Judge Jackson entered his final judgment June 7, 2000.
"This decision, unanimous and powerful, will provide the basis for remedies that fundamentally change Microsoft's conduct in the marketplace," said Connecticut Attorney General Richard Blumenthal, who helped lead the states' effort against Microsoft.
But neither side can claim an outright victory.
The seven-judge panel threw out part of the lower court's finding that Microsoft tried to monopolize the market for Internet browsers, leading Microsoft to claim victory.
"The ruling lifts the cloud of breakup over the company, reverses the tying claim and says clearly that we did not attempt to monopolize the browser market," Microsoft co-founder and Chief Software Architect Bill Gates said yesterday.
"We always said we thought a breakup was not going to take place. Today's ruling is very clear on reversing the district court in that area," Mr. Gates said.
The government and states could negotiate a settlement, appeal to the Supreme Court or go back to the lower court to seek new penalties.
White House spokesman Ari Fleischer said President Bush was withholding comment so the Justice Department could "review a very complicated legal decision."
The appeals court judges issued their 125-page ruling just before noon yesterday.
Shares of Microsoft, the Redmond, Wash., company founded in 1975, rose $1.60 to $72.74 yesterday on Nasdaq after trading was halted for two hours.
The decision boosted the Nasdaq 51 points, or 2.4 percent, and it closed at 2,125.
The Dow Jones Industrial Average rose 131 points, or 1.26 percent, closing at 10,566. Microsoft is a component of the 30-stock index.
After a 78-day trial, Judge Jackson ruled last year that Microsoft maintained a monopoly in the market for operating systems, attempted to gain a monopoly in the market for Internet browsers and illegally tied separate products, the Windows operating system and its Internet Explorer browser.
The appeals court judges heard arguments over two days.
The court reserved its strongest words in the lengthy ruling for Judge Jackson. The court overturned his order that Microsoft split into two companies because he "made numerous offensive comments about Microsoft officials in public statements outside the courtroom, giving rise to the appearance of partiality," they wrote.
Judge Jackson ordered the breakup to prevent future anticompetitive behavior.
"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," they wrote.
The decision means parts of the case will be remanded and the punishment will be reconsidered. The court specifically wrote that a lower court judge other than Judge Jackson must decide the penalty Microsoft will face.
The appeals court also remanded the lower court's finding that Microsoft violated the antitrust act by tying its browser to its operating system. In remand, the Justice Department and the states must show that Microsoft's conduct unreasonably restrained competition.
Despite the setback caused by the appeals court's decision to reverse the breakup, the state attorneys general said they remain optimistic Microsoft will face severe penalties. That is because the court agreed with Judge Jackson's conclusion that Microsoft violated the Sherman Antitrust Act and tried to monopolize the market for operating systems.
"We think it is an enormous victory on our side to have the monopoly maintenance upheld," Iowa Attorney General Tom Miller said. "You have, we think, a good argument for a very strong remedy, perhaps a breakup."
A breakup is "still on the table," Mr. Blumenthal said.
Settlement talks that could end the litigation also could be on the table, and all sides yesterday seemed willing to talk about settlement negotiations.
"We have made clear that we're always willing to discuss settlement. But we think that any settlement that doesn't involve fundamental change of how Microsoft uses its monopoly in the marketplace would be doomed to failure and we would not do something along those lines," Mr. Miller said.
The state attorneys general have said they may demand changes in the new version of Windows due out in October that bundles Internet telephone service, instant messaging and video conferencing.
Mr. Gates also appeared willing to discuss a settlement.
"Microsoft has always wanted to settle this case. I think with this ruling there is a new framework, and I think it's a good time for all the parties to sit down" and talk about a settlement, he said.
Mr. Ashcroft declined to say whether a settlement in the case was possible but pledged that the department would "pursue the best interests of the American people and of America."
In December, advisers to President-elect Bush said he would drop the Justice Department's antitrust suit against Microsoft if the company won its appeal.

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