Wednesday, June 24, 1998

Microsoft appeals victory could affect broader antitrust case

By TED BRIDIS / Associated Press Writer

WASHINGTON (AP) -- In a victory for Microsoft with important implications for the government's landmark antitrust case, a federal appeals court on Tuesday removed restrictions a judge had imposed on the company's Windows 95 software.

The three-judge panel decided there was adequate justification for Microsoft to bundle its Internet browser within its popular Windows 95 software.

The same practice in Windows 98, which goes on sale this week, is one of the core complaints of the Justice Department and 20 states currently suing Microsoft.

Government lawyers contend that requiring computer makers to buy Microsoft's browser as part of Windows 95 amounted to an illegal "tying" of the products and violated a 1995 court-sanctioned agreement between the company and the government. But the appeals court on Tuesday described the packaging of the browser with Windows 95 as "a genuine integration," which is legal, because a single combined product offers benefits over separate ones.

"Microsoft has clearly met the burden of ascribing facially plausible benefits to its integrated design," the appeals court wrote, but also noted that "the factual conclusion is, of course, subject to re-examination."

Microsoft's stock soared 4.3 percent after the ruling, climbing from just under $96 to close just over $100. The surge meant that Microsoft Chairman Bill Gates, named the world's richest person earlier this week by Forbes magazine, earned about $2.3 billion Tuesday, with total stock holdings worth about $54 billion.

The court's decision Tuesday overturns limits that U.S. District Judge Thomas Penfield Jackson had imposed in December, when he prohibited Microsoft from forcing computer makers that sell Windows 95 "or any successor" to also sell its browser. He also required the company to allow the sale of a Windows version without all the browser components.

Microsoft's chief operating officer, Bob Herbold, said the appeals ruling on Windows 95 "will provide helpful guidance to resolve the Windows 98 lawsuit. ... Both the government's lawsuits are based on the same argument."

During a hearing last month in the antitrust case, the judge suggested he was eager to hear the appeals ruling, saying: "It may be that we will have a decision in that case and we will have some expression of appellate opinion on some of the issues that will cover this."

The Justice Department said it was disappointed and was reviewing the 57-page decision to consider its options. It said the appeals loss won't affect its broader antitrust case against Microsoft.

"We remain confident that the evidence and our legal arguments in our antitrust case ... will demonstrate that Microsoft's conduct has violated federal antitrust laws," the agency said in a statement.

Tuesday's broad ruling wasn't entirely unexpected.

During April's courtroom arguments, the appeals panel asked about legal procedures in the judge's earlier ruling but also posed tough questions about whether Microsoft can improve its products without illegally dominating its competitors.

In the same ruling, the appeals court also overturned the judge's appointment of Harvard law professor Lawrence Lessig as a special master to consider important technical matters in the Windows 95 case.

Microsoft claimed Lessig was biased against it, and that the judge tried to give Lessig too much authority. The appeals panel disagreed there was any evidence that Lessig "is biased or has conducted the proceedings ... improperly."

Lessig declined to comment on the appeals ruling but said in a statement his "only personal regret is that the question bias became so central.... It was inevitable that any inquiry into my background would become the topic of a great deal of public attention."

Microsoft said it hasn't decided, since the judge's restrictions have been overturned, whether it will again require computer makers that sell Windows 95 also to include all the company's browser components.

"There are so few PCs today that have that strange mutation on Windows 95 (without part of the browser) that we're aware of," Herbold said. "I don't think we're talking about any significant number."