Appeals Court Kicks Back Microsoft Break-up Order

The U.S Court of Appeals for the District of Columbia Circuit today set aside the breakup of Microsoft Corp. proposed last year by District Court Judge Thomas Jackson Penfield and sent the case back to the lower court. And, as expected, the court said the case should be heard by a new judge.

But, significantly, the court "let stand for review his Findings of Fact and Conclusions of Law." After a lengthy trial, Jackson ruled that Microsoft had violated antitrust laws by abusing its monopoly in the operating system market to increase its penetration in the Web browser market. As such he proposed the company be split into two, one focussing on operating systems with a second, separate firm, developing applications and other products.

But the Appeals Court disagreed, with a unanimous decision to send the case and the remedy back to the lower court. Jackson enraged the legal establishment by holding secret meetings with the media during the trial and making many outspoken and offensive remarks about the company after the trial, which the Appeals Court said gave "rise to the appearance of impartiality.

"But, given the limited scope of our disqualification of the District Judge, we have let stand for review his Findings of Fact and Conclusions of Law. The severity of the District Judges misconduct and the appearance of partiality it created have led us to consider whether we can and should subject his fact-findings to greater scrutiny. For a number of reasons we have rejected any such approach.

As such, the judgment of the District Court "is affirmed in part, reversed in part, and remanded in part. 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 judgement said.

But todays judgement opens up a new can of worms for the Microsoft. Legal experts have said recently that the company is playing dangerously close to the legal edge given its dominance in the desktop operating system market, and could end up paying a heavy price for the inclusion of Smart Tags and other technologies in Windows XP.

Microsoft has already backpedaled on the issue of Smart Tags. The Wall Street Journal reported this morning that Microsoft had decided to kill that feature, at least for this year. As such, Smart Tags wont appear in the final version of Windows XP when it is released on October 25.

John Soma, who was part of the Justice Departments legal team on the IBM antitrust case and is now a law professor at the University of Denver, recently told eWEEK: "What we have here is a very aggressive monopolist working way beyond what are appropriate standards for its activities. The totality of all the technologies Microsoft is bundling and all the other initiatives it has introduced will effectively severely limit competition. It is this total view that has, in my opinion, pushed them over the line," he said.

The Redmond, Wash.-based software giant was taking an enormous risk by being so aggressive and pushing the legal envelope even before the U.S. Court of Appeals for the District of Columbia Circuit had ruled on the current pending antitrust case, he said.

If the Appeal Court sent the remedy portion of Judge Jacksons ruling back to the District Court for review, as is widely expected, the Justice Department and the state Attorneys General would then be able to introduce new evidence of Microsofts continued abuse of its monopoly position, he said. All of the things that Microsoft had been doing since Judge Jackson ordered the company split in two would then have relevance and could be introduced as evidence that it continued to abuse its monopoly position, Soma said.

"These behaviors could have a significant impact on any future remedy imposed, since new evidence can be submitted until the District Judge writes the new remedy proposal," he said.