WASHINGTON -- Microsoft still faces questions about what products it can legally integrate into its Windows operating system despite an appeals court ruling on Thursday that spared it from being split in two for antitrust violations, legal experts said.
As the software giant finalizes its new Windows XP system, the appeals judges asked a lower court to re-examine whether Microsoft illegally restrained competition by integrating its Internet Explorer browser into Windows.
"I think it's still a very live issue," said Andrew Gavil, a law professor at Howard University in Washington, D.C. "I don't think most observers believed the court would leave the door open to a tying violation in the way they did."
And while Microsoft executives confidently vowed to forge ahead with Windows XP, packed with new features, Gavil said the appeals court ruling leaves some uncertainty over what can be integrated into the operating system.
During the lower court trial, the browser's integration was a major part of three antitrust charges leveled at Microsoft by the U.S. Justice Department a number of states.
The trial judge agreed that the browser and Windows were tied together to maintain Microsoft's dominance in the operating system, were an attempt to monopolize the browser market and were tied in violation of a provision of antitrust law that prohibits restraints on trade.
The U.S. Court of Appeals for the District of Columbia agreed on the monopoly maintenance finding but threw out the browser monopolization finding saying the government hadn't proven a "dangerous probability" that Microsoft would monopolize the browser market.
The appellate judges sent the remaining restraint of trade issue back to the lower court, saying a new judge must weigh whether the benefits of the integration are outweighed by the harms. The trial court had found that the act of tying alone violated the law.
"If the District Court is convinced of net harm, it must then consider whether any additional remedy is necessary," the appeals court wrote.
The state attorneys general who have been aggressively pursuing the case against Microsoft said they may point to the new features tied into Windows XP -- such as the company's instant messaging software -- as further proof of the company's predatory conduct.
Windows XP is packed with controversial features that turn the software into a multimedia platform combining music, video, the Internet and instant messaging -- a far cry from the original operating system role of managing the internal workings of a PC.
"The tying issue could be the sleeper issue in the decision," said Iowa Attorney General Tom Miller. "(The ruling) doesn't let them have unlimited authority to bundle."
But Microsoft spokesman Jim Cullinan said the company will have no problem showing that tying software products together is, on balance, pro-competitive.
"We believe that there is overwhelming evidence of the pro-competitive nature of our integration," Cullinan said. "We think it's an overwhelming case that people want and need this technology."
The ruling, Cullinan said, "sets a very high bar for (the government) to be able to meet to show that Microsoft's innovations are somehow anti-competitive."
The appeals judges wrote that courts should be "very skeptical about claims that competition has been harmed by a dominant firm's design changes."
But in their ruling, the judges also underscored that Microsoft had failed to provide enough business justification for integrating the browser into Windows and "failed to meet its burden of showing that its conduct serves a purpose other than protecting its operating system monopoly."
Notably absent from Thursday's ruling was an earlier appeals court holding in 1998 that any software product may be tied into Windows as long as it offers some "plausible benefit" to consumers.
The appeals court said it had applied that standard only to determine whether Microsoft had violated an earlier settlement agreement with the government and not whether it had broken antitrust law.
"I think it was significant that it was nowhere (in the decision)," said Gavil, the law professor.
Gavil predicted that Microsoft competitors will now raise legal questions every time the company tries to integrate new software into the operating system.
"I think Microsoft is trying to put the rosy picture on it. The reality is going to be when they integrate new features into the platform, they're going to have to justify it in terms of impact on consumers, and they're going to have to justify it technologically."
