US appeal court overturns decision to split 'anti-competitive' Microsoft

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The Independent Online

Wall Street reacted optimistically yesterday as Bill Gates's Microsoft won a US appeal court decision that prevented it being broken up. The court also agreed that the company could tie together previously unrelated pieces of software – while noting that Microsoft has acted as an illegal monopoly.

Shares in the Redmond, Washington-based company, which makes the Windows software that runs on the vast majority of PCs, leapt by $3.82 to $74.96 on Nasdaq before trading was halted. The ruling followed a two-year trial in which the US Justice Department and 19 US states accused Microsoft of using its PC dominance to crush nascent rivals in other fields. The company maintained that it was simply competing in a fast-moving marketplace – a stance with which the appeal judges agreed yesterday.

Some traders suggested that the decision might help technology shares, which have been depressed for the past year. "It will help technology stocks in general," said Owen Fitzpatrick, joint head of Bankers Trust private banking. "It eliminates the possibility of interference on behalf of the government."

Others felt that any possibility of a revival in share prices was overdone because the market had already allowed for the result of the appeal. Debra McNeill, manager of the $100m Fremont Structured Core fund, said: "I think that this was totally expected after [President George] Bush was elected. Bush is not supporting the Justice Department in this case."

By agreeing that Microsoft did not try to monopolise the market for web browsers by bundling its Explorer software into the Windows operating system, the judges knocked away a key plank in the Justice Department's case, and the essence of its argument.

Yet they did agree that Microsoft's contracts with internet service providers, requiring them to feature the company's Internet Explorer browser, were designed to protect illegally the Windows monopoly.

The court said those deals had "a significant effect in preserving its monopoly" because they helped keep the usage of Netscape's Navigator browser below the critical level necessary for it, or any other rival, to pose a real threat to Microsoft.

The decision will embolden Microsoft, which is preparing to introduce a new version of Windows in the autumn, and to extend its presence across the internet. The company had no immediate comment.

Though the seven judges in the appeals court unanimously allowed Microsoft's plea that it should not be broken into two companies – one writing "operating systems" (like Windows) and another writing "applications" (such as its Office product, the company's principal cash cow) – they also confirmed many of Judge Penfield Jackson's findings of fact.

Those said that Mr Gates's company had indeed acted as an illegal monopoly in the mid-1990s in using its dominance in PC operating systems to exclude rivals offering web browser software, in particular Netscape.

Jackson concluded the company was an illegal monopoly and ordered the software giant broken into two as a penalty.

But the appeals judges overruled that remedy because it depended on a number of "findings of illegal conduct" which they reversed. They instead sent the case back to the lower court, where a new remedy will be decided.

But they also ordered that a different judge should decide Microsoft's punishment, a decision prompted by off-the-record interviews given by Judge Jackson to the New York Daily News during the case.