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Commentary: It's not over till it's over

Although Microsoft claimed victory, the U.S. Appeals Court condemned some of its past business practices, and the case isn't over yet.

By David Smith, Thomas Bittman and Neil MacDonald, Gartner Analysts

Although it provided a victory for Microsoft and its technology strategy, the U.S. Appeals Court condemned some of Microsoft's past business practices as illegal, and the case is not over yet.

In Microsoft's

See news story:
Appeals court: Don't break up Microsoft
appeal of its earlier conviction in U.S. District Court for violations of antitrust law, the appeals court did the following:

• Upheld the District Court's finding that Microsoft held monopoly power in PC operating systems and that some of its behavior amounted to illegal use of that power.

• Reversed the District Court's finding that Microsoft illegally tried to monopolize the browser market.

• Remanded to the District Court the question of whether Microsoft illegally tied its Internet Explorer browser to the Windows operating system to maintain its operating-system monopoly--and gave instructions on how to determine this part of the case.

• Directed that the case go to a judge other than the original trial judge, Thomas Penfield Jackson, whose comments to the media gave the appearance of bias--although the appeals court said it found no evidence of actual bias.

• Vacated the remedies ordered by the District Court, including breaking Microsoft into two separate companies--one selling operating systems, the other, applications.

The appeals court has given Microsoft a win by overturning the split-up of the company. Microsoft also notched a victory for its technology strategy, specifically its efforts to bundle technology into its operating systems. However, the appeals court upheld a damaging decision--that Microsoft held an operating-system monopoly and engaged in illegal use of its monopoly position.

Microsoft still faces risk in the continuing legal process but will likely be emboldened to continue to expand its bundling strategy. Moreover, Microsoft's .Net strategy, originally positioned as platform-neutral--making it a possible "plan B" if the company were split up--will likely become more aligned with Windows and tied to the PC platform, especially in products delivered in the near term. The ruling at first glance should have little immediate effect on the forthcoming releases of Windows.

Nevertheless, Microsoft is not in the clear just yet. Gartner believes that the case could go in three legal directions:

• Most likely the case could be remanded to the lower court as ordered to focus on whether Microsoft tied its browser to the operating system to maintain its OS monopoly.

• Microsoft could choose to appeal the ruling to the U.S. Supreme Court in hope of eliminating the monopoly ruling, which could be damaging in third-party cases that will depend on the monopoly ruling.

• The U.S. and state governments could drive for a settlement if Microsoft is willing.

The case is far from over, and the only changes expected from Microsoft are subtle changes in focus.

(For related commentary on the original Microsoft ruling last year by U.S. District Judge Thomas Penfield Jackson, see registration required.)

Entire contents, Copyright © 2001 Gartner, Inc. All rights reserved. The information contained herein represents Gartner's initial commentary and analysis and has been obtained from sources believed to be reliable. Positions taken are subject to change as more information becomes available and further analysis is undertaken. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of the information. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof.