U.S. Appeals Court Nixes Breakup Of Microsoft

By BridgeNews Microsoft Corp. was the big winner in a U.S. appeals court decision June 28 which overturned many of the issues in a previous district court decision critical of the software firm and left only two key points to be resolved. There now will be no break up of Microsoft, although the Court of Appeals for the D.C. Circuit acknowledged some monopolization in the operating system market and ordered a new trial on another issue. In addition, based on the findings of fact and the oral argument, the court said it remains unclear whether the Redmond, Wash.-based software firm violated Section One of the Sherman Act by tying its browser, Internet Explorer (IE), to its Windows operating system. That section was sent back for a retrial, to someone other than Judge Thomas Penfield Jackson, whom the court said behaved impermissibly by privately talking with reporters, making it appear he was biased. But that's not the only problem the appeals court had with Jackson's decision. The biggest error Jackson made was his failure to assess carefully all available information before deciding on a radical fix like breaking the company in two. In what could become far-reaching advice, the court wrote government regulators should use caution when bringing similar antitrust cases to court because of the length of time such cases take to wend their way through the legal system. "By the time a court can assess liability, firms, products, and the marketplace are likely to have changed dramatically," the court wrote. But companies shouldn't assume there is no place for government intervention. "The government will continue to have an interest in defining the contours of the antitrust laws so that law-abiding firms will have a clear sense of what is permissible." While it is not illegal for a firm to become a monopoly, it cannot use anticompetitive means to maintain its position once it has established its dominance in a market. The district court found that Microsoft had used such behavior to maintain its monopoly in the Intel-compatible PC operating systems, and the appeals court agreed. The appeals court wrote that the anticompetitive acts included restricting licenses to OEMs that slightly modified the look of the Windows desktop. The appeals court also agreed that the exclusive deal Microsoft made with Apple Computer, agreeing to continue to provide Mac Office as long as Apple made IE the default browser for its users, was similarly anticompetitive behavior. Moreover, the exclusive deal surrounding the First Wave agreements regarding Java Virtual Machines was also a violation of the Sherman Act, as was Microsoft's conduct to thwart Java's efforts to compete in the operating systems market. Even more important, and what could be the most bitter battle that remains, is the issue of tying. While Jackson found that Microsoft illegally forced consumers who wanted to buy Windows to also get -- and use -- IE, the appeals court ordered the lower court to reconsider the issue, and gave guidance on how to consider whether the actions were illegal. "Essentially, the court is holding that integration of new functionalities doesn't give rise to antitrust violations," says Bill Kolasky, an antitrust lawyer with the Washington office of Wilmer, Cutler & Pickering. That is a huge victory for the industry, he said, because it will encourage software developers to put more capabilities into the programs they design, enhancing consumer's productivity.

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