Appeals Court Overturns Microsoft Injunction

(June 24, 1998)  The U.S. Court of Appeals in Washington DC overturned Judge Thomas P. Jackson's preliminary injunction against Microsoft in the contempt proceeding which the Department of Justice initiated last October.  The government has also brought a separate Sherman Antitrust Act case against Microsoft.

U.S. District Court Judge Thomas P. Jackson entered a preliminary injunction late last year prohibiting Microsoft Corporation from requiring computer manufacturers who license its operating system software to license its internet browser as well.  Jackson also referred the government's motion for a permanent injunction to a special master, Lawrence Lessig.

The Court of Appeals reversed the order imposing a preliminary injunction on both procedural and substantive grounds.  The Court held that it was improper to grant a preliminary injunction, because the Department of Justice had not asked for one in its motion to have Microsoft held in contempt for allegedly violating a 1995 Consent Decree, and because Microsoft was not given sufficient notice.

The Court also ruled that Microsoft's business practices did not constitute a tying agreement in violation of the Consent Decree.  However, the court went on to criticize the notion of prosecuting companies for using tying agreements.   "Courts are ill equipped to evaluate the benefits of high-tech product design," the Court wrote.  "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."

Finally, the Court overturned the appointment of Master Lessig.

"This decision is good news for consumers and the entire computer industry," said Bob Herbold, Microsoft EVP and COO.  "Our integration of Internet technology into Windows makes our operating system and the personal computer a more powerful and useful tool for our customers."

Microsoft (MSFT) shares rose almost 5 points, and over 5%, on news of the decision.   Netscape (NSCP) shares fell over 2% in value.

William H. Neukom, Microsoft SVP for law and corporate affairs, added: "We're gratified the Appeals Court has agreed with Microsoft that there was no basis for the entry of a preliminary injunction against our efforts to add new Internet capabilities to Windows.The Court today has helped focus the legal issues squarely where they belong, by concentrating on whether a product innovation brings new benefits to consumers. We have long been confident that our Internet improvements to both Windows 95 and Windows 98 meet this test."

Mike Pettit, a Washington DC attorney who is also the director of Pro Comp, an anti-Microsoft group, stated that "While we are disappointed with aspects of this decision, today's ruling is like looking in a rear view mirror, for this was a Consent Decree case based on facts investigated in the early 1990s. The ongoing, and widening, investigation continues to bring to light new evidence concerning a whole host of Microsoft's predatory and anti-competitive practices as well as the company's unyielding, clear intent to illegally leverage its monopoly position.

Pettit continued that, "It is clear that the real battle will occur in the compelling and historically significant Sherman Act antitrust case that will be tried in September. That case is based on antitrust law, which is broader than the Consent Decree language in today's ruling, and goes to the heart of Microsoft's anti-competitive and predatory practices that span the computer industry.

The Department of Justice issued the following statement Tuesday after the Appeals Court issued its opinion:

"We're disappointed with the Court of Appeals' decision in the consent decree case. We're reviewing the opinion to assess our options. 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 laws."