In a major victory for Microsoft Corp., a federal appeals court Tuesday lifted an injunction against the software giant, freeing it to continue bundling its Internet software with the Windows 95 operating system.
The U.S. Court of Appeals offered a 40-page judgment that analysts said would provide the company with important ammunition in its broader upcoming antitrust battle with the Department of Justice.
"We view this as very much a vindication of our business practices and our legal strategy," said Bill Neukom, Microsoft's senior vice president for legal and corporate affairs.
Wall Street reacted positively to the announcement, pushing Microsoft's share price up $4.94, to $100.75, its all-time high. The stock of Microsoft's biggest rival in the browser business, Netscape Communications Corp., fell 56 cents, to $26.19 on Nasdaq.
The decision was a setback to the Justice Department, which in December had asked U.S. District Judge Thomas Penfield Jackson to find Microsoft in contempt of a 1995 consent decree for its practice of requiring computer makers that offered Windows 95 software on their machines to also offer the company's Internet Explorer software.
But the government's broader case is hardly lost.
"They [the Department of Justice] still have weapons and ammunition," said Sam Miller, an antitrust attorney who led an earlier Justice case against Microsoft. He said trustbusters will still likely argue Microsoft engaged in "unreasonable restraint of trade" by requiring Internet service providers to sign licensing contracts that forced them to favor Microsoft's browser.
The government also is likely to argue that Microsoft contracts that determine exactly what can be shown on a computer screen when it starts up are unfairly restrictive, Miller said.
Tuesday's appellate court decision struck down, largely on procedural grounds, Jackson's preliminary injunction requiring that Microsoft offer a version of its Windows software with the Internet Explorer removed or hidden. The court also agreed with Microsoft that Jackson was out of line when he appointed Harvard Law professor Lawrence Lessig as "special master" to examine the more complex technological issues involved in the case.
Those decisions are largely moot because few computer companies chose to distribute Windows without Internet Explorer and because the decision applies only to Windows 95, which Microsoft is phasing out in favor of Windows 98, which will be launched Thursday.
But two judges on the three-member panel took an unusual step that makes the decision hugely relevant to part of the broader case that Justice and 20 states filed against Microsoft in May and which will appear before Jackson on Sept. 8.
In that case, the Department of Justice argues that Microsoft illegally "tied" sales of its Windows software to its browser as part of an effort to destroy rival Netscape and to extend its Windows monopoly into the browser market. The judges undermined that argument by pointing out that Microsoft was justified in adding new features to its Windows operating system provided it can show the features are integrated into Windows and offer consumers some additional benefits.
Now that the appellate court has backed Microsoft on the "tying" issue, "Microsoft may prevail on integrating Internet Explorer into Windows 98," Miller said. As part of the District of Columbia circuit court, "Jackson has to follow the" decision, he said.
"This is good news, because the issues the DOJ are raising are looking less likely to have a major impact," said Christopher Galvin, an analyst at Hambrecht & Quist, a San Francisco brokerage house. "It looks like Microsoft can keep adding new functions to Windows."
Experts said the appellate court decision also reflected a broader sentiment among higher court justices against antitrust cases in the high-tech field when it argued: "Antitrust scholars have long recognized the undesirability of having courts oversee product design, and any dampening of technological innovation would be at cross purposes with antitrust law."
The Department of Justice said in a statement it is disappointed but, "we remain confident that the evidence and our legal arguments in our antitrust case filed on May 18, 1998, will demonstrate that Microsoft's conduct has violated federal antitrust law."
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