A US appeals court overturned yesterday the landmark decision to break Microsoft into two separate companies, condemning the original trial judge for "deliberate, repeated, egregious and flagrant" violations of judicial standards of conduct.
The appeals court effectively removed Judge Thomas Penfield Jackson from the case by remanding it to another court for further review.
In explaining its decision to "vacate" the break-up remedy after four months of consideration, the court said that Judge Jackson's behaviour had "given rise to an appearance of partiality". It specifically men tioned his "impermissible ex parte contacts", "secret interviews with members of the media" and "numerous offensive comments about Microsoft officials".
Judge Jackson held several interviews with members of the press after his ruling in which he accused Bill Gates, Microsoft's founder, of having a "Napoleon complex" and compared the company to a drugs gang.
Yesterday's ruling blamed "such crude characterisations of Microsoft" and "frequent denigrations of Bill Gates" for jeopardising "public confidence in the integrity and impartiality of the judiciary".
Another district judge will now rule on what sanctions should be imposed on Microsoft for its illegal behaviour. These sanctions are expected to be far less onerous than a break-up after the appeals court reversed or remanded two of the three findings against Microsoft delivered just over a year ago.
Despite reversing much of Judge Jackson's work, the appeals court agreed with an earlier ruling that the software group had illegally maintained its stranglehold over the world's computer systems.
Microsoft spokesman Mark Thomas said: "We are pleased that the ruling significantly narrows the case and removes the break-up cloud from the company."
He added that the company was "disappointed" over some aspects of the ruling.
Ron Katz, a senior partner at law firm Coudert Brothers, described the ruling as "a victory, but not a clear-cut one" for Microsoft. Shares in the company rose by as much as 4% immediately after the verdict.
The appeals court decision is likely to prompt settlement talks between Microsoft and the US government, which under the Clinton administration brought the landmark case alongside 19 US states in 1997. The Bush presidency has never supported the trial.
The US states are likely to prove less willing to settle with Microsoft, however. Several have indicated that they will consider an appeal all the way to the US supreme court in the event of Judge Jackson's verdict being overturned. They were not immediately available for comment yesterday.
The US department of justice said it was "pleased" that Microsoft had been found guilty of illegally maintaining its operating system monopoly. "We are reviewing the court's opinion and considering our options," it added.
However, the court stopped short of sending the entire case back for a retrial. It found that Microsoft had broken US anti-trust laws by illegally maintaining its monopoly of the operating systems market by bullying computer manufacturers, among other things. Windows, a Microsoft product, is used on more than 90% of the world's computers.
This part of the verdict was seized on by Microsoft rivals and pro-consumer groups yesterday. Ken Wasch, president of the Software and Information Industry Association, which appeared as a witness on behalf of the government, said he was "partly pleased" with the decision. "We believe that it paves the way for providing assistance to the industry," he said.
Mr Wasch and others expect Microsoft to be made subject to so-called conduct remedies as a punishment for its illegal behaviour. Such remedies would force the company to change the way it did business.
