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Appeals court may be next stop for Microsoft

With U.S. District Judge Thomas Penfield Jackson ready to rule as early as next week, there may be no other option for the software giant.

WASHINGTON--Where do you want to go today?

The Justice Department and 19 states may answer Microsoft's motto this afternoon with a revised remedy proposal seeking to break the software giant into two companies.

Where Microsoft may want to go is an appeals court--and quickly, say industry and legal experts. With U.S. District Judge Thomas Penfield Jackson ready to rule as early as next week, there may be no other option for Microsoft.

The prospect of an imminent ruling casts an even darker cloud over the company's future and the hope that it might win on appeal what it couldn't get before Jackson. The timing is also potentially problematic as Microsoft plans its Next Generation Windows Services (NGWS) announcement next Thursday. If Jackson is to rule immediately, it could be the same day.

Microsoft couldn't have anticipated the double blow delivered by Jackson that set its fate on an unexpected course. During Wednesday's remedy hearing Jackson indicated he might well be ready to break up Microsoft, and he denied the company more time to evaluate the government's remedy proposal.

Redmond's own remedy: Special Coverage The software company clearly had been betting on getting that time--as much as six months--to depose government experts, review additional documents and probe witnesses about the breakup proposal.

But when Microsoft lead attorney John Warden asked Jackson about setting a schedule for the remainder of the trial, he shot back, "I'm not contemplating any further processes."

The pronouncement stunned both sides and stirred a flurry of last-minute activity from Microsoft's lawyers. Attorney Steven Holley rushed to introduce an unexpected document, an offer of proof, which covered some items Microsoft would have addressed during an extended remedy proceeding.

"We knew this was a possibility, and we were ready," said a source close to Microsoft. "We wanted to get this in the record for the appeals court."

William Neukom, Microsoft's general counsel, said the company would appeal and win. "At the end of the process we are confident we will prevail."

Breaking the giant: Special Coverage But sources on the other side said the filing was foolish and only further antagonized Jackson. "They knew breakup was a possibility," said a source familiar with the government's case. "There's no reason they couldn't have filed it earlier. It was like sandbagging the judge."

The abrupt ending to the case signals that Jackson feels he's heard all he needs to, said Rich Gray, an intellectual property attorney with Outside General Counsel Silicon Valley in Menlo Park, Calif.

"Jackson as the trial judge not only reached the findings of fact and conclusions of law but sat there for all of the evidence and reached his own opinions and feelings about Microsoft," he said. "What we're seeing here is when he takes all of that into account, a very severe remedy is necessary."

Other than planning its appeal, Microsoft's next move is uncertain, but the company made it clear it will fight aggressively and expects to win at the appellate level. So confident is the software maker, some people in Microsoft's camp said they believe Jackson's actions on Wednesday almost cinch an appeal.

"They may think that he's overplayed his hand," said George Washington University School of Law professor Bill Kovacic. "Judge Jackson in the past has been very careful to navigate the boundary of what he can do but never to cross it. He now seems ready to decisively step beyond that point."

Joe Wilcox Staff Writer
Discussing the forms Judge Jackson's ruling might take.
The question is whether Jackson denied Microsoft due process by preventing a longer examination of the government's remedy proposal. University of Baltimore Law School professor Bob Lande agreed "Microsoft could have a good due process claim."

But practicing attorneys thought that given the length of the trial and the not totally unanticipated breakup proposal, Microsoft had all the time it needed. "There is no due process issue here," said Dana Hayter, an antitrust and intellectual property attorney with Fenwick & West in Palo Alto, Calif. Gray agreed.

Glenn Manishin, an attorney with Patton & Boggs in McLean, Va., said Microsoft made a strategic error for which it must now pay.

"Microsoft chose to hang its hat on a procedural technicality, suggesting that because of no causation, the government wasn't empowered to impose structural relief," he said. "That was their whole argument. They introduced no expert testimony, no affidavits. Nothing. It was their choice to come in with no evidence and a very narrow legal attack on the government's authority."

So where will Microsoft go today--or tomorrow?

Gartner Group analyst David Smith said it's business as usual as Microsoft prepares for the NGWS launch next week. Smith said he didn't expect any immediate impact on the NGWS strategy or on Microsoft's core operations.

"I have heard from remarkably few Microsoft customers who are concerned about this case," he said. "For example, customers who are standardized on NT are asking what's the likelihood NT won't be a viable platform based on this. That's pretty remote."

But Smith warned Microsoft is already too fixated on the appellate process and that "it's not a good idea to put all their eggs in the appeals basket."

The larger question is the company's long-term strategy if it loses on appeal. Smith and International Data Corp. analyst Roger Kay both wondered if Microsoft had a plan B to deal with this turn of events.

"It's all really a matter of whether they are true believers," Kay said. "If they truly believe they are innocent, that they've done nothing wrong, there might not be a plan B. Long term--that could be a big problem."