Supremely good news for Microsoft

Speculation about a Microsoft breakup might go the way of DOS: history. All bets are now on the giant staying in one piece.

Microsoft Corp. won no small victory when the U.S. Supreme Court decided last Tuesday not to hear a speeded-up appeal of the company’s court-ordered breakup. The case was sent instead to the U.S. Court of Appeals for the District of Columbia, effectively delaying a final decision in the case for as long as two years.

Time is traditionally a monopolist’s best friend. Whether or not the appellate court agrees that the company illegally used monopoly power over PC operating systems changes in the market and technologies could make Tuesday’s remedy outdated by 2002.

“It’s not a ‘get out of jail free’ card,” said Bill Whyman, an analyst with the Precursor Group, a research firm in Washington. The appellate court is likely to find some of Microsoft’s practices disturbing, but for the software company, “the single most important thing is time,” Whyman said – time to introduce products and change the marketplace.

Microsoft is making the most of this breathing room to get back to business.

To conquer the Internet, the giant needs to form hardware and e-business-solution partnerships. The initial verdict raised doubts about how much of a commitment prospective partners could afford to make. Now it seems that for the next year or two it’s safe to do business with Microsoft.

The company wasted no time, launching its latest drive into enterprise software last week in San Francisco surrounded by CEOs from Commerce One, Compaq, Intel, SAP and Unisys.

Microsoft hopes the Supreme Court’s pass means a longer-term victory. The case will now go to the U.S. Court of Appeals, which has been a friendlier arena for the company. In 1998, a three-judge panel reversed U.S. District Court Judge Thomas Penfield Jackson’s order that Microsoft remove its Internet Explorer Web browser from the Windows 95 operating system, citing “the undesirability of having courts oversee product design.”

Two of the judges in the Windows 95 case, Stephen Williams and A. Raymond Randolph, will be among the group of seven on the appellate court that will hear Microsoft’s appeal.

Beside them will be the court’s resident expert on antitrust and the judge most likely to write the majority opinion, Douglas H. Ginsburg, former head of the Justice Department’s antitrust division during the Reagan administration. During his tenure and in his academic writings, Ginsburg has sought to narrow some applications of antitrust law pertaining to predatory pricing and vertical pricing arrangements. Joining Ginsburg is David Sentelle, a former political ally of Sen. Jesse Helms (R-N.C.), who has also written critically on some enforcement of antitrust law.

The appellate court was eager to take the ball from the Supreme Court. Within hours of Tuesday’s announcement, the Court of Appeals had posted on its Web site an order for Microsoft to propose a schedule by Oct. 2. The government’s response is due two days later. Briefs will likely be submitted late this fall.

“I don’t think the probability of a break up was ever very high, but the question now is just how much is that threat or risk reduced,” says C. Boyden Gray, a White House counsel during the Bush administration who now represents a group of software developers that support Microsoft. The Supreme Court’s sentiment about the merits of the antitrust case remain unknown, “but we might be pretty certain how the [Washington] circuit court will rule,” Gray said.

Left undetermined is whether the Justice Department and 19 states will press the court to impose some remedial measures on Microsoft’s conduct before the case is decided.