WASHINGTON (CBS.MW) -- Microsoft shares ended trade with a small gain Friday, a day after a federal appeals court reversed a court order to break up the company to remedy antitrust violations.
Microsoft MSFT, +0.94% rose 26 cents to $73 Friday. Shares ended $1.60 higher at $72.74 Thursday after the U.S. Court of Appeals for the District of Columbia Circuit issued its eagerly awaited ruling.
In a unanimous 7-0 decision, the U.S. Court of Appeals for the District of Columbia Circuit upheld a lower court judge's ruling that Microsoft abused its monopoly power, but threw out an order that would've split the company in two. Barring a settlement, the lower court will rehear part of the case and determine an appropriate remedy.
The U.S. Circuit Court of Appeals for the District of Columbia also removed U.S. District Court Judge Thomas Penfield Jackson from the case. Jackson, who presided over the company's high-profile civil trial, was sharply rebuked for a series of public comments about Microsoft and its executives, which they said threw his impartiality into question. See related story.
The appeals panel agreed with Jackson's finding that Microsoft broke antitrust law by using anticompetitive tactics to maintain its Windows monopoly on the market for personal computer operating systems. At the same time, the court reversed Jackson's findings that Microsoft illegally bundled products together and attempted to monopolize the browser market.
While the outcome of the saga is far from clear, the big winner for now is Microsoft, whose sprawling software empire will remain intact until the new judge, and the company's antitrust regulatory pursuers, decide how to refashion the case.
"Microsoft is pleased that the U.S. Court of Appeals has overturned most of the lower court's findings against the company, drastically narrowing the case and removing the breakup cloud from the company," Microsoft founder Bill Gates told reporters at a news conference.
But Attorney General John Ashcroft called the ruling on the monopoly maintenance claim a "significant victory."
"My own view is that this is a victory for the department, and so the department, is not, I believe, in a weakened position here," Ashcroft told reporters.
Charles James, the Bush administration's newly installed chief of the Justice Department's antitrust division, praised the government team that worked on the case, but he added that the 125-page ruling was "long and very complex." The Justice Department will work with the states that joined the case to determine "the future course of conduct," said James, who is about to be thrust into the limelight as the public awaits the government's next move. See full story.
The monopoly maintenance claim centered on allegations that Microsoft used the dominance of Windows to bully computer makers, Internet service providers and others into favoring Microsoft products over competitors that could have posed a threat to the Windows monopoly.
The tying claim, which was reversed, centered on allegations that Microsoft illegally welded its Internet Explorer browser to Windows in an effort to quash a rival browser made by Netscape, now a part of AOL Time Warner AOL See related story.
The court said the government could readdress the tying claim before the lower court, but would have to show that Microsoft "unreasonably restrained competition."
The Justice Department and 20 states brought the case against Microsoft in 1998, charging a pattern of illegal anticompetitive conduct that squelched competition and harmed consumers.
Iowa Attorney General Tom Miller, who has helped spearhead the states' effort, said he was "very pleased" with the court's decision to uphold the monopoly maintenance claim.
"The big question would be what the court would do on monopoly maintenance," Miller told CBS.MarketWatch.com. By upholding that claim, prospects for a breakup remain, he said, downplaying the court's decision to reverse the illegal tying and attempted monopolization findings.
Antitrust and technology experts were split on the ramifications of the appeals court's tying decision.
"Microsoft's biggest win is defeating the government's core tying claim," said Hillard Sterling, a Chicago-based antitrust attorney. "This case was aimed at Microsoft's product decisions, but the only thing standing is an attack on some elements of its licensing arrangements."
Others contend the invitation to the government to re-argue that part of the case robs Microsoft of a clear victory.
"It is a win for Microsoft, but it is only a partial win ...," said Bill Whyman, president of the Precursor Group, an independent Washington-based research company. "Because they've invited the Justice Department to come back to them on this tying clam, they've given them a club" that can be used to beat concessions out of Microsoft if there are any subsequent settlement talks.
In his order last summer, Jackson declared that Microsoft must split into two nonaffiliated companies - one for the Windows operating system and one for software applications - as a remedy for the violations of U.S. antitrust laws he found after a lengthy trial.
Jackson also set significant restrictions on Microsoft's conduct, but he stayed the entire order pending the final outcome of the appeals process.
The appeals court said Jackson moved too hastily in determining a remedy. Microsoft, in its appeal, had complained that Jackson, after finding Microsoft had violated antitrust laws, opted to impose the bulk of the government's request to break up the world's biggest software company without holding any hearings to determine whether such measures were appropriate.
"A party has the right to judicial resolution of disputed facts not just as to the liability phase, but also as to appropriate relief," the appeals court said.
And there was harsh criticism of Jackson over remarks he made in public and in press interviews regarding the case. "The district judge's [conduct] would give a reasonable, informed observer cause to question his impartiality in ordering the company split in two," the appeals panel found.
On interviews with various news organizations, Jackson had likened Bill Gates to Napoleon and said the company's dismissive attitude toward the case reminded him of the remorseless mindset held by members of a criminal drug gang whose trial he had once presided over. See related story.
The appeals court ruling leaves open questions about the ultimate fate of the case, which President Bill Clinton's Justice Department initiated three years ago this month with 20 state attorneys general.
Speculation has mounted that the Bush administration would await the appeals ruling and then seek a negotiated settlement with the software giant that would avoid a breakup.
"It's pretty clear from the complexity of the opinion that the court made every effort to address a very wide variety of serious and difficult issues, and we have to digest that opinion very carefully," Ashcroft said.
A Justice Department official, speaking on condition of anonymity, said it was too early to determine whether the government could continue to pursue a structural break-up. Antitrust division attorneys are poring over the ruling for guidance on how the appeals court wants the new judge to weigh evidence regarding a remedy, he said.