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Editorial: Soft on Microsoft?

No, but an appeals court is hard on a judge

Sunday, July 01, 2001

In litigation as in politics, it is natural to "spin" a particular result as a complete victory even if it isn't. Thus it's not surprising that Microsoft Chairman Bill Gates is exulting over a unanimous federal appeals court decision reversing a judge's order that his company be broken up into two entities.

"With this ruling," Mr. Gates said, "there is a new framework." His partner Steven Ballmer, Microsoft's chief executive, crowed that the ruling "lifts the breakup cloud from the company."

He is probably correct. While the appeals court did not completely rule out the possibility of a breakup, it assailed the reasoning of U.S. District Judge Thomas Penfield Jackson in ordering that remedy.

And there was another victory for Microsoft in the ruling:

The appeals court cast serious doubt on Judge Jackson's conclusion that Microsoft illegally tied its Windows operating system for personal computers to its Internet browser.

But Microsoft lost in other ways. The appeals court upheld much of Judge Jackson's finding that the software giant was a monopoly and had abused that status to stifle competition in the market for PC operating systems. As in the lower court decision, Microsoft stands accused of abusing its monopoly by bullying other firms.

The biggest loser in the appeals court ruling was neither Microsoft nor the government but Judge Jackson. The appeals court rebuked the judge for out-of-court criticism of Microsoft that "seriously tainted the proceedings before the District Court and called into question the integrity of the judicial process."

Among other ill-considered comments, Judge Jackson had compared Microsoft officials to Napoleon and a street gang.

But if Judge Jackson was intemperate in his remarks to reporters, he was right on the money, according to the appeals court, in finding that Microsoft acted illegally to safeguard its operating-system monopoly in its dealings with other companies like Netscape, Apple Computer, Intel and Sun Microsystems. As we observed in an editorial after Judge Jackson's ruling last June: "Microsoft deserves to pay a steep price for its past behavior."

The appeals court ruling does not dispute that conclusion. Nor does it seem to rule out the sort of "conduct remedies" Judge Jackson ordered in addition to a breakup.

Those remedies would force Microsoft to allow computer manufacturers greater leeway to customize the operating systems, to ban certain exclusivity contracts, to publish source codes to make it easier for other software companies to offer programs compatible with the Windows operating system and to adhere to uniform pricing.

In previous editorials, we have suggested that Microsoft could be made to pay for its anti-competitive conduct without being broken up into separate companies, a position that even the Clinton Justice administration embraced for a time.

In making such a breakup unlikely, the appeals court has given the Bush Justice Department, which inherited the Microsoft lawsuit, an incentive to explore a settlement with Microsoft that vindicates the public interest in competition.

But Bill Gates also has an incentive to settle. In refusing to exonerate Microsoft and in sending the antitrust case back to a different trial judge, the appeals court -- in Mr. Gates' terms -- has left several clouds hanging over the company as it prepares to launch a new version of Windows. That gives the government leverage that it ought to use in new negotiations.

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