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Court lifts Microsoft ban
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June 23, 1998: 8:49 p.m. ET
U.S. Appeals Court strikes down injunction against Windows 95
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NEW YORK (CNNfn) - In a victory for Microsoft Corp., a federal appeals court Tuesday struck down a preliminary injunction against the software giant, a move that could have far-reaching effects on the government's broader antitrust case against Microsoft.
A 1997 injunction issued by a U.S. District Court judge prevented Microsoft from forcing PC makers to include the Internet Explorer Web browser in the Windows 95 operating system.
However, the U.S. Court of Appeals for the District of Columbia Circuit ruled U.S. District Court Judge Thomas Penfield Jackson erred by granting the injunction even though the government had not asked for it. Moreover, the court said he should have provided more notice to Microsoft before issuing the injunction so the company could mount a defense.
"We find that the District Court erred procedurally in entering a preliminary injunction without notice to Microsoft and substantively in its implicit construction of the consent decree on which the preliminary injunction rested," two of the three appellate court judges said in their majority opinion.
Microsoft hailed the decision, saying the company was "obviously gratified" with the court's decision.
Microsoft's General Counsel William Neukom said the appellate court's ruling validated Microsoft's arguments that it has the right to integrate what it wants into its products and that it could have far-reaching implications in its current antitrust suit against the government. [342K WAV] or [342K AIFF]
"This is a very powerful decision," he said. "This Court of Appeals ruling rejects the government's central argument and we believe it will provide helpful guidance to resolve the Windows 98 lawsuit as well."
The news sent Microsoft (MSFT) shares up 3-13/16 to 99-5/8 in late-afternoon trading, ahead of its 52-week high of 99-1/8.
Click here to see a chart of Microsoft's 52-week stock activity
Last fall, the Justice Department asked Judge Jackson to hold Microsoft in contempt and fine it $1 million a day for breaking a 1995 consent agreement by tying its Web browser to its Windows 95 operating system. Microsoft argued that it had the right under the agreement to integrate the products.
The Justice Department said it is disappointed with the appellate court's ruling.
"We're reviewing the opinion to assess our options," the DOJ said in a statement. "We remain confident that the evidence and our legal argument in our antitrust case… will demonstrate that Microsoft's conduct has violated federal antitrust laws."
The court also voted to remove Harvard law professor Lawrence Lessig as a "special master" from the case. The court rejected the Justice Department's claim that the case was "of such technological complexity as to be exceptional."
"So far as the meaning of the consent decree is concerned, that is clearly false," the court wrote. "The words are in plain English, and if their meaning is not clear it is not because of some deep technological issue but because of uncertainties in the purposes of the parties that drafted the decree."
Microsoft had argued that Lessig held an anti-Microsoft bias based on some of his past public statements. While removing Lessig, the court said it did not agree with Microsoft's claim.
Judges Raymond Randolph and Stephen Williams voted to lift the preliminary injunction and remove Lessig as special master. Judge Patricia Wald agreed on those two points, however, in a dissenting opinion, she said it was unclear if the 1995 consent decree clearly allowed Microsoft to integrate the browser and operating system.
"The majority seems to conclude that (Internet Explorer 3.0) and Windows 95 are 'integrated' on the basis of little or no evidence," Wald wrote. "Should more evidence on this point come to light, the district court thus cannot be bound by the majority's conclusions."
Second overruling
This is the second time the appellate court has overturned a decision by Judge Jackson. In May, the appellate court ruled the 1997 injunction did not apply to the Windows 98 operating system, freeing Microsoft to ship the operating system with Internet Explorer included.
Tuesday's decision does not end the government's offensive against Microsoft.
In May, the Justice Department and 20 states filed a broad antitrust suit against Microsoft, alleging the software titan unfairly used its monopoly position in the operating system market to destroy competition in other markets.
Judge Jackson is also the judge presiding over the current case.
While the appellate decision deals with the narrower case against Windows 95, legal experts said the ruling could lend support to Microsoft's argument that the browser and the operating system is an integrated product.
"On the facts before us, however, we are inclined to conclude that the Windows 95/IE package is a genuine integration; consequently [the 1995 consent decree] does not bar Microsoft from offering it as one product," the majority opinion said.
In a statement, Netscape Communications Corp., Microsoft's arch rival in the browser business, said it remains confident the government will prevail in the larger antitrust case against Microsoft, despite Tuesday's ruling.
"The Sherman Act case will develop a full factual record for the courts to evaluate," Netscape said. "Based on the evidence and the law, we believe the [Justice Department] and the States will prevail against Microsoft in this case."
A spokeswoman for New York Attorney General Dennis Vacco said Tuesday's decision doesn't affect the government's ongoing litigation against Microsoft.
She added that while the appellate court cited procedural errors in the District Court's granting an injunction, the decision also leaves the door open for legal precedents involving the current antitrust case.
Ammunition for Microsoft
Nevertheless, Michael Kwatinetz, an analyst at Deutsche Morgan Grenfell, said the ruling may tip the scales in Microsoft's favor in the Windows 98 litigation.
"It gives more credence to Microsoft's point of view that it hasn't overstepped the boundaries of the law," he said.
Brian Goodstadt, an analyst at S&P Equity Group, said Tuesday's decision may give Microsoft more ammunition in integrating other products into future versions of the operating system.
"It sets the tone that they may be able to integrate other features like speech technology into the next version of Windows," he said. "One of their goals is to integrate new products. This is just one step."
Spencer Waller, a professor at Brooklyn Law School and an expert on antitrust issues, said Tuesday's ruling amounts to the appeals court proving Microsoft right.
"This is a very clear signal the court is sending that it views the case fundamentally the way Microsoft views it," he said. "And if the government is basing its case on the same tying and bundling theory that its Windows 95 case is based on, it's in trouble."
Waller said the government still has a chance to win the current antitrust battle because it is based on broader issues of using monopoly power in one market to stifle competition in another. [175K WAV] or [175K AIFF]
But for that to happen, Waller said the government will have to change the way it approaches the Windows 98 case.
"The government has [until September 8] to come up with a theory the court is likely to buy," he said. "So far, we haven't seen that in public. 
-- by staff writer John Frederick Moore
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