All Eyes on Microsofts Appeals Process

Microsoft heads to the appellate court, seeking a reversal of its fortunes

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Having lost its antitrust trial in the U.S. Circuit Court, Microsoft Corp. has shifted its focus to the U.S. Court of Appeals for the District of Columbia Circuit, where the software developers no-compromise legal stance may have a better chance of paying off.

After several months of being bloodied in U.S. District Judge Thomas Penfield Jacksons court, Microsoft scored a couple of tactical victories last week.

First, the appeals court immediately accepted Microsofts request for appeal and said the full 12-judge panel would review Jacksons decision to break up the Redmond, Wash., software giant, which in April was found guilty of antitrust violations. (Three appellate judges recused themselves, leaving nine judges to review the case.) The appeals court has reversed previous Jackson rulings in the case.

In response, government lawyers requested that Jackson fast-track the case to the U.S. Supreme Court; many legal experts said they believe the high court will return the case to the Court of Appeals.

(On Monday, The U.S. Court of Appeals said it will consider Microsofts request to freeze Jacksons order that forces changes in its business practices, unless the Supreme Court decides to handle the case. Jackson ordered the stringent conduct remedies to take effect Sept. 5.

(Microsoft asked the appeals court to stop the remedies from taking effect. The seven judges said they would consider the proposed freeze without waiting for Jackson to rule. The Justice Department had asked that the appeals court wait for Jackson to act on the stay first. The appeals court gave the Justice Department 10 days to reply, and Microsoft has seven days after that to file further views.)

Separately last week, a county circuit judge in Portland, Ore., threw out a class-action lawsuit alleging that Microsoft violated antitrust laws by overcharging consumers for Windows 98. The judge threw out the case -- one of nearly 140 class-action suits against the company -- ruling that consumers cannot sue Microsoft if they did not buy Windows 98 directly from the company.

An artful plan?

Observers are watching the appeals process to see if Microsofts decision not to settle -- or compromise in any way by changing its business practices -- will help its appeal.

If the companys arguments are successful before the appellate judges, Microsofts legal strategy will look brilliant in hindsight, some legal experts said.

"Jackson notes Microsoft has not admitted guilt or changed its business practices," observed Joseph Angland, an antitrust lawyer and partner at New York-based law firm Dewey Ballantine LLP.

"Well, until the appeal is done, I would expect Microsoft to do just that. You dont say youre innocent but then change business practices just in case," Angland added.

Other legal experts said they believe Microsoft is risking much more by refusing to compromise, in part because its unlikely that any court will overturn Jacksons strongly worded verdict entirely.

"The biggest problem Microsoft has by taking this stance is the findings of fact issued last fall that concedes almost every key fact in the governments favor," said Rich Gray, a partner at Outside General Counsel for Silicon Valley, in Menlo Park, Calif.

"The appeals court has to rule based on that record," Gray added. "You can definitely quibble with some of Jacksons legal reasoning that gives Microsoft ammunition on appeal. But the foundation of the case is 97 percent against Microsoft."

Gray said Microsoft has no choice at this point but to continue its no-compromise stance, although he added that the company could be more tactful in its arguments.

"When the decision came down, they could have said, We respectfully disagree and look forward to the appellate process," Gray said. "But there was an edge to their response. Theres that sense they dont think the judge knows what hes talking about. Theres a right way and a wrong way to go about these things."