Court denies Microsoft rehearing

The U.S. Court of Appeals for the District of Columbia on Thursday rejected Microsoft Corp.’s request for a rehearing on its decision that the software giant illegally “commingled” operating system and browser code. In doing so, the court denied the software maker’s bid to reverse a ruling handed down last month affirming that the company illegally tied its software code for the Windows operating system to its Internet Explorer Web browser.

In a succinct order, the court also denied the request of the U.S. Department of Justice (DOJ) to fast-track the case back to the U.S. District Court in Washington, leaving the remand schedule on the original timetable for a hearing on Aug. 12.

The federal appeals court overturned the lower court’s order to break up Microsoft into two separate companies in a June 28 ruling, but upheld the court’s opinion that Microsoft was an illegal monopoly in the operating system business, and that it had used its monopoly power to squash competition by bundling Internet Explorer and Windows 98.

The issue of commingling code is central to the DOJ case against Microsoft, and forms the basis for their desire to break the company into two parts – one for the operating system business and one for everything else.

Subsequent to the June ruling, Microsoft began to change its licensing policies for computer makers planning to install Windows XP – the next generation of its operating system due for release later this year. Citing the ruling, it said computer makers could choose the icons that will appear on the Windows desktop, and would add an add-remove function to allow consumers to remove Internet Explorer from the computer. The company is still locked in combat with AOL Time Warner Inc. over exactly what icons will be allowed on the desktop when Windows XP computers ship, however.

Microsoft had hoped to see the “commingling” ruling reversed in a rehearing, telling the court in a petition for a rehearing that “critical evidence was overlooked – or misinterpreted – on the technical question of whether Microsoft ‘commingled’ software code …”

The lower court is expected to deal “harshly” with MS, said Rob Enderle, an analyst at Giga Information Group Inc. in Cambridge, Mass.

“It just depends on how draconian the remedy is going to be (in the lower court),” he said. “It’s only going to get worse off from here.”

This could put Microsoft in a weakened position, in terms of settlement talks, he noted. “The other side is strengthened in terms of settlement talks.”

Microsoft Thursday put on a brave face. Asked whether the court decision was a blow, Microsoft spokesman Jim Desler, said: “Not at all.”

“We are committed to move forward … and resolve any remaining legal issues as quickly as possible,” he said.

Additional reporting by Scarlet Pruitt of the IDG News Service.