The order, issued by the US Court of Appeals for the District of Columbia Circuit, means that the government can resume proceedings before a federal district judge while the Supreme Court decides whether to take Microsoft's request for appeal.
The mandate returning the case to the trial court will be issued seven days from Friday, the order states.
"We are pleased with the court's decision, and we look forward to proceedings in the district court," said Justice Department spokeswoman Gina Talamona.
Microsoft also responded to the order with a look to the future. "While we believe the process is best served through a stay, we are prepared to move ahead with getting the rest of the remaining issues of the case resolved, while we wait on Supreme Court review," said Microsoft spokesman Jim Desler.
"We will move forward with the case that has been significantly narrowed, with many of the district judge's findings against the company rejected," Desler said.
The Redmond, Washington-based company last week had asked the Supreme Court to consider an appeal in the case, which centers on the Windows operating system. The company argued that US District Judge Thomas Penfield Jackson's comments to reporters before rendering his two-part decision--the findings of fact and conclusions of law--warranted throwing it out.
Microsoft also asked the Court of Appeals to stay the mandate that would return the case to the US District Court for the District of Columbia for further proceeding. On Tuesday it reiterated that request, in response to a government petition that the seven appellate judges refuse the stay request.
In its order, the appeals court faulted Microsoft for failing, under the rules for federal procedures governing appeals, to show that the "petition would present a substantial question and that there is a good reason for a stay".
The Court of Appeals also chastised Microsoft for misconstruing "our opinion, particularly with respect to what would have been required to justify vacating the district court's findings of fact and conclusions of law".
Microsoft had argued last week that because of the issues of law raised by Jackson's out-of-court comments, the case is worthy of review by the nation's highest court.
"Whether a showing of actual bias is necessary to disqualify a judge as of the date of his earliest known violation of (the codes of conduct governing judges' behavior) is an important issue of law that is fundamental to the further conduct of this litigation," Microsoft's Tuesday brief stated. "If the district court's findings of fact and conclusions of law--entered while he was legally disqualified under (those codes of conduct)--are vacated, that would render invalid any actions taken on remand in reliance on those findings and conclusions."
The Court of Appeals made no decision on "whether Microsoft's objections constitute a 'substantial question' likely to lead to Supreme Court review." The court's reasoning: Microsoft "failed to demonstrate any substantial harm", should proceedings resume at the trial court.
The appeals court order cranks up the pressure on Microsoft as it prepares for the Oct 25 launch of Windows XP. While Microsoft initially benefited from the Court of Appeals throwing out Jackson's order breaking the company in two, the software giant faces renewed scrutiny during new remedy proceedings.
"Because a remedy is supposed to be forward looking, it can look at things not covered in the trial--and that could be Windows XP," said Emmett Stanton, an antitrust lawyer with Fenwick & West in Palo Alto, California.
A breakup of the company--which Jackson had recommended--also is not off the table, Stanton said. "You have a unanimous decision by seven appellate judges on monopoly maintenance."
In its June 28 ruling, the Court of Appeals upheld eight separate claims that Microsoft illegally maintained its monopoly in Intel-based operating systems.
Microsoft's options are limited, said Jonathan Jacobson, an antitrust attorney with Akin, Gump, Strauss, Hauer & Feld in New York. "It would be unlikely, but not impossible, for the Supreme Court to stay proceedings that might be related to ongoing business affecting the market," he said.
Meanwhile, the case could move forward as soon as a new judge is randomly selected from a pool of 14 jurists.
Jacobson said that even though it is summer, a new judge could be assigned quickly, particularly "if one of the parties is requesting immediate relief." He predicted the government would file briefs moving the case forward as soon as a judge is assigned.
"It is important to keep the case moving forward as quickly as possible in such a fast-moving industry," said Iowa Attorney General Tom Miller, one the leaders of the 18 states working with the Department of Justice in opposition to Microsoft.
One of the tasks before the government is to decide what it wants to do about Windows XP. In last Friday's filing, federal and state trustbusters made it clear they would look at the new operating system's competitive impact during remedy hearings.
"Microsoft has announced that it will soon introduce Windows XP, the next generation of its monopoly operating system," the brief states. "The sooner remedial proceedings begin, the sooner a resolution can be crafted to assure competitive conditions...Until that remedy is in place, each day of delay contributes additional injury to the public interest in competition."
Clouds over Windows XP
More immediate is whether the government would seek an injunction delaying Windows XP's scheduled launch date.
"Certainly the government has the option of seeking an injunction against XP," said Bob Lande, an antitrust professor with the University of Baltimore School of Law. "But I don't think there is enough time."
Microsoft is expected to release final--or gold--Windows XP code as early as the weekend. PC makers will use gold masters to install Windows XP on new computers expected to go on sale Sept 24, or about a month before the new operating system goes on sale at retail.
With such a tight deadline and no court record about Windows XP, the government must weigh carefully whether its resources are best used pursuing an injunction. The government can create much of the record needs when presenting its request for preliminary injunction. These would include affidavits from Microsoft competitors concerned Windows XP's release could cause them and consumers irreparable harm.
If nothing else, the government could ask for a short delay that could push Windows XP's official release well into November, even if no injunction is requested or granted.
"The first step of the process is getting a temporary restraining order, and that can happen quite quickly," Jacobson said. "Typically judges that don't know all the details and are persuaded something bad might happen will issue temporary restraining orders until they can sort out what happened."
Initially, the government could get a restraining order for 10 days, but no more than 20 days.
But Lande isn't so sure the government would pursue a restraint or an injunction. "It's not at all clear they would win it, so do they want to take the chance?" he asked. "If they lose, it would be a loss of momentum for the government. It makes more sense to just focus on the remedy."