UPDATE: Antitrust Battle Continues

SAN MATEO (06/13/2000) - Microsoft Corp. on Tuesday filed an appeal to a federal judge's ruling that it violated U.S. antitrust laws, and said the proposed remedy -- breaking the software giant into two firms -- is too excessive given the evidence presented during the trial.

The U.S. Circuit Court of Appeals later agreed to hear Microsoft's appeal of U.S. District Judge Thomas Penfield Jackson's ruling. The Justice Department is expected to request that the case be sent directly to the U.S. Supreme Court within 15 days.

In the court filings, Microsoft also requested a stay of a set of business restrictions that were to be put in place within 90 days. The appeal came hours after Jackson refused to grant a Microsoft request to stay those remedies until it appealed, accusing the company of dragging its feet intentionally.

The appeal put in action recent comments from Microsoft Chairman Bill Gates and President and CEO Steve Ballmer that Jackson's ruling and remedy will be overturned on appeal. The company also dropped all efforts to hide its dislike for Jackson, calling his remedy order "draconian" and pounding his ruling as a document rife with mistakes and misunderstandings of the high-tech industry.

Indeed Microsoft's version of events, as spelled out in the appeal, painted a picture of a judge who seemed unwilling to even consider its side of the antitrust story.

"Microsoft's appeal will present an overwhelming case for reversal of the judgment based on an array of serious substantive and procedural errors that infected virtually every aspect of the proceedings below," the company stated in its filing. "These flaws culminated in the entry of unprecedented relief that extends far beyond the case that was presented, without affording Microsoft an evidentiary hearing on the terms of one of the most complex antitrust decrees in history."

In particular, Microsoft claimed that:

-- Jackson "simply ignored" evidence offered by Microsoft as to why it integrated Internet Explorer into Windows, or why it gave the browser away free of charge; -- The judge made "clearly erroneous" findings, such as Jackson's determination that Microsoft had blocked Netscape Communications from channels of distribution; -- Jackson ignored the assertion by Lawrence Lessig -- a Harvard University professor he initially named as special master in the case -- that Microsoft won the right to integrate Internet Explorer with Windows via an Appeals Court ruling in 1998;"Having been told by Professor Lessig that Microsoft must prevail under this (Appeals) Court's test for technological tying, the district court simply refused to apply that test," Microsoft claimed.

Microsoft also threw Jackson's own words back at him, pointing out that he said in a February New York Times interview. "I am not sure I am competent to do that," Jackson said when asked about the possibility of breaking up Microsoft.

In seeking a delay of the business restrictions that are to go into effect in 90 days, Microsoft's lawyers argued that the restrictions not only are unfair to the company, but that "indeed the entire U.S. economy may suffer" if Microsoft must abide by them during the appeal.

"Absent a stay, those provisions will inflict massive and irreparable injury on Microsoft, possibly resulting in the company's demise as an effective competitor in the software industry," the company argued.

"Tens of thousands of computer manufacturers, software developers, system integrators, and resellers that have built their entire businesses on Windows, as well as the millions of consumers who use Microsoft's products, will also suffer grievous injury absent a stay," Microsoft claimed.

The restrictions Microsoft objects to include allowing PC manufacturers to modify their computers' startup screens and promote, license, and place on the Windows desktop software from Microsoft's rivals; releasing APIs and other technical information relating to how Windows interoperates with other Microsoft software; and a ban on bundling "middleware" such as browsers and e-mail clients with Windows.

The appeals court will hear the case "en blanc," meaning all judges on the bench will preside -- a very rare circumstance. Four of the court's 11 judges will opt out of the hearing, according to the court.

In a three-judge ruling, the Appeals Court sided with Microsoft in 1998 in a key decision: whether or not the company could ship Windows 98 with an integrated Internet Explorer.

"We want to resolve this case as quickly as possible," said Microsoft's chief legal counsel, William Neukom. "We believe we have a winning legal case regardless of where the case goes. Given the enormous procedural and factual irregularities throughout this trial record, we believe the court of appeals is the appropriate next step."

Microsoft's filings can be viewed at

www.microsoft.com/presspass/trial/default.asp.

Microsoft Corp., of Redmond, Washington, is at www.microsoft.com.

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