Microsoft Appeals Jackson's Final Judgment

WASHINGTON (06/15/2000) - Microsoft Corp. (MSFT) filed a formal notice Tuesday to appeal U.S. District Judge Thomas Penfield Jackson's "final judgment" breaking the software giant into two companies. Simultaneously, the company's lawyers asked the U.S. Court of Appeals for the District of Columbia Circuit to put Jackson's order on hold pending the outcome of the appeal.

The moves clear the way for Jackson to send the appeal directly to the Supreme Court, as requested by the Justice Department, the District of Columbia and 19 states pursuing the case against Microsoft. But most legal experts expect the high court to send the case back to the appeals court. On Wednesday, Microsoft asked Jackson to give it until June 19 to respond to the government's request.

The appellate court unexpectedly issued its own order late Tuesday. In a two-paragraph release, the 10-member court said three of its judges would have to sit out the Microsoft case for unspecified reasons (disqualifications that typically would occur if the judges owned stock in Microsoft). On Wednesday, the government filed a motion asking the appeals court to dismiss Microsoft's stay motion, pointing to the possibility that the Supreme Court might take the case out of the appellate court's hands.

Because of the recusals and given the "exceptional importance" of the case, the appeals court said it would skip having the appeal heard by a three-judge panel and instead would have it heard by all seven remaining judges. The panel would contain a slight majority of conservative judges, including three appointed by President Reagan and one by President Bush. The conservatives include two judges who ruled in Microsoft's favor in a 1998 appeal of an earlier Jackson finding against the software giant.

Jackson's ruling on June 7 brought the historic antitrust trial to a close by adopting the government's suggestion that the company be split into two companies for 10 years. One company would own the Windows operating systems and would be subject to a raft of temporary conduct restrictions, and one company would own everything else, including the Office suite of software applications and the Internet Explorer Web browser.

Jackson's final judgment stayed the breakup until the end of the appeals process, but it ordered that the list of conduct restrictions imposed on the software giant must take effect in 90 days. Microsoft also must draw up a detailed breakup plan within four months.

Redmond immediately filed a motion last week asking Jackson to stay his entire order pending the outcome of appeals. Earlier Tuesday, Jackson said he wouldn't rule on Microsoft's stay motion until the company had actually filed an appeal.

The judge sided with government lawyers who told him Monday that he should wait to rule on the stay so that he can simultaneously send his final judgment directly to the U.S. Supreme Court for review under the federal Expediting Act.

Microsoft is now throwing up its hands, pointing to the 90-day clock and asking the appeals court to stay Jackson's order.

"Immediate Supreme Court review of this case is in the public interest because of its importance to the American economy," the Justice Department said in a statement. "Microsoft's filing in the Court of Appeals, which was made when Judge Jackson has not even ruled on its stay motion, is an ill-conceived attempt to end-run the Expediting Act."

Microsoft officials welcomed the start of the appeals process, in which they hope to get a more receptive hearing.

"Obviously, we will comply with any final order in this case, but we believe this judgment is both wrong and unfair," Microsoft CEO Steve Ballmer said in a statement. "We believe the appellate courts will recognize that Microsoft's product innovation is the heart and soul of competition in the high-tech industry."

Microsoft deliberately filed its appeals court documents in two sets, one for the Justice Department and one for the 19 states and the District of Columbia, which originally filed a separate case alongside the federal government.

Although Jackson combined the two cases early on, Microsoft contends that not only should the federal government case not go to the Supreme Court now, but that the states' case is ineligible for expedited review and must be sent to the appeals court.

The company's lawyers argue that the appeals court should overturn Jackson because the district judge committed a host of procedural and legal errors throughout the two-year case. Microsoft cites Jackson's aggressive scheduling of the case, combined with his willingness to allow the government to expand its scope and introduce what Microsoft calls "rank hearsay" evidence. The company's lawyers also excoriate Jackson for refusing to allow evidentiary hearings on the government's breakup proposal, then adopting the proposal outright without citing any relevant case law.

In asking the appeals court to stay Jackson's conduct remedies, Microsoft warned that it would suffer a parade of horribles if the limits took effect in October as ordered. The company argued that its upcoming consumer update for Windows, called Windows Millennium Edition, would have to be redesigned and thus delayed for months; the "Next Generation Windows Services" project would be impaired; and the company's ability to recruit and retain staff would be undermined.

Microsoft is resting its legal argument on several points. The company's lawyers argue that Microsoft cannot be found to have illegally tied its Internet Explorer Web browser to its Windows operating systems, which was the central issue of the case. Microsoft points to a 1998 appeals court decision that overturned an earlier Jackson order prohibiting it from welding Explorer to Windows.

The company also cites Jackson's ruling that it was not guilty of "exclusive dealing" under the Sherman Antitrust Act. Microsoft says that Jackson's findings of illegal "attempted monopolization" and "monopoly maintenance" are not valid because rival Netscape Communications was not foreclosed from distributing its Navigator Web browser.

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