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Preliminary appeal could be litmus test in Microsoft case

While a federal judge ponders the fate of Microsoft, the software maker is already preparing its appeal--and with good reason.

WASHINGTON--The appeals process in the Microsoft case could take years, but an early appellate decision, which could take place within the next 90 days, may become a litmus test for the eventual outcome of the case.

U.S. District Judge Thomas Penfield Jackson is expected to issue sanctions against the Redmond, Wash.-based software giant any day now. Jackson's order is expected to contain a permanent injunction restricting Microsoft's business practices. The injunction, which would take effect 90 days after the ruling, would effectively compel Microsoft to comply with many of the penalty provisions during the time the overall appeal is heard.

Microsoft has the right to appeal the injunction before it goes into effect, which is where the litmus effect comes in. In all likelihood, the same appellate court that will handle the overall appeal will handle the appeal on the injunction. The early ruling, therefore, will effectively be an outline of the court's opinion of the case.

Even if the eventual appellate process takes a different route, the early decision will become a judicial milestone for subsequent courts to consider.

"What they say and what they don't say will be a litmus test (for the final outcome of the case)," said University of Baltimore Law School professor Bob Lande.

John Smith, an antitrust attorney with Nixon Peabody in Washington, added: "One of the issues that could be addressed--and mostly likely would be addressed--are the chances of merit on appeal. It could be a preliminary signal, but that doesn't always mean that's what follows. The panel could change its mind after hearing the whole appeal, but at least it would give a preliminary indication."

The Justice Department and 17 of 19 states filed their revised proposal for final judgment last week, and Microsoft responded yesterday. The government's remedy is made up of two parts: an order to break Microsoft into two companies--one overseeing operating systems and the other focusing on software applications--and another order placing restrictions on the software maker's business practices.

Jackson is expected to accept the breakup order and many of the conduct restrictions when he issues his final judgment as early as today. It is within his discretion to cut portions of the government's proposal or substitute recommended changes that Microsoft made yesterday.

Jackson is expected to stay--or hold back--the breakup portion pending appeal because the action cannot be easily undone should Microsoft prevail on appeal. But the restrictions on Microsoft's business practices would go into effect 90 days after his ruling.

Microsoft is expected to appeal the conduct remedies to the U.S. Court of Appeals for the District of Columbia Circuit, which the would have to address the petition before the end of the 90-day time frame.

That signal is important if the larger appeal is heard, as expected, by the local appeals court, which is a largely conservative mix of judges that in 1998 slapped Jackson's wrists in the consent decree case.

Even if the appeals court fails to comment directly on the case's merits, Breaking the giant: Special Coverage its actions in handling conduct restrictions could be enough to foreshadow which side may ultimately prevail.

"The court of appeals panel will have some time to study the issues, and we will get some read on what their attitude will be by what they do on the stay motion," said Rich Gray, an intellectual property attorney with Outside General Counsel Silicon Valley in Menlo Park, Calif.

"If they look over the record and think there's enough there to impose the harsh interim measures the government has asked for, that would not be good news for Microsoft's appellate team," Gray added. "If they pull out all the interim measures, the government attorneys should have a heart attack."

The appeals court would have several choices in handling the case: accepting all or some of the conduct remedies proposed by the government, accepting the lesser restrictions offered by Microsoft, combining the two proposals, or imposing no restrictions at all.

"Another thing it will tell us is what they think about how Jackson has handled the remedy phase," said George Washington University School of Law professor Bill Kovacic. The appeals court could send the case back to Jackson with the caveat that he give Microsoft the additional time it had previously requested to review the government's remedy proposal.

Action favoring one side or the other could bring both parties back to the negotiation table, Gray said. The prospects of a major defeat by either side could lead to concessions that were impossible to make in the earlier round of failed discussions.

In the larger appeal of the case, the government is expected to try to skip the local appeals court and request the Supreme Court take the case directly under the Expediting Act. But there is no guarantee it will accept the request.

"It is unusual, in fact almost unprecedented, they would do so," Smith said.