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Appeals court overturns Microsoft injunction

A U.S. Appeals Court has overturned a preliminary injunction against Microsoft Corp.

A U.S. Appeals Court has overturned a preliminary injunction against Microsoft Corp., saying that a lower court made substantial errors when it prohibited Microsoft from requiring computer manufacturers that license Windows 95 to license the Internet Explorer browser as well.

The 2-1 decision issued Tuesday morning (text of the ruling) says that a lower court made both procedural and substantial errors when it ruled that the company had to remove the Internet Explorer browser from Windows 95.

In its ruling, the appeals court stated that the addition of Internet Explorer in Windows 95 does constitute an integrated product and not simply the combination of two separate products, and therefore does not violate an earlier agreement between the government and Microsoft (Nasdaq:MSFT).

In the current suit against Microsoft, the U.S. Department of Justice accuses Microsoft of violating antitrust regulations and the earlier consent decree by bundling its browser with its operating system. The DOJ had asked for and won a preliminary injunction requiring Microsoft to remove IE from Windows 95.

Microsoft had argued that Windows 95 would not function if the company removed all of the code related to IE. In the end, the company reached a settlement with the Justice Department to remove some of the code from the operating systems, and the browser functionality would be "hidden" from users.

Basically, the two sides disputed whether the browser represented a new product or an improvement to the operating system itself.

In the government's argument, Microsoft was guilty of "tying" its browser to the operating system, conduct that is forbidden under the earlier consent decree.

But the appellate court ruled that Microsoft is allowed to market "any genuine technological integration, regardless of whether elements of the integrated package are marketed separately."

And, the court argued, Windows 95 is an integrated product.

"On the facts before us, Microsoft has clearly met the burden of ascribing facially plausible benefits to its integrated design as compared to an operating system combined with a stand-alone browser such as Netscape [Communications Corp.'s] Navigator," the court said.

The appellate court stated that, while its decision does not end all debate on the suit, "on the facts before us, however, we are inclined to conclude that the Windows 95/IE package is a genuine integration; consequently, [the consent decree] does not bar Microsoft from offering it as one product."

DOJ request not properly written

The appellate court also held that Microsoft had not received sufficient notice of the request for a preliminary injunction, because the DOJ's request was not properly written.

"The request for a permanent injunction amounted to no more than a request for a clarification, and thus would require only a showing that the Department's reading of the consent decree was correct," the decision said.

Also, the court found that the government did not make a sufficient case that allowing Microsoft to continue with its practices would cause "irreparable harm," the standard for issuing a preliminary injunction.

No 'presumption of irreparable harm'

"Thus a finding of probable violation of the consent decree could not support a presumption of irreparable harm even under the most extravagant version of the doctrine the government invokes," the court said.

The DOJ's broader antitrust suit, which alleges that Microsoft competed unfairly against competitors, is scheduled to go to trial Sept. 8.