A U.S. appeals court Thursday unanimously overturned an order to split Microsoft Corp. in two, but left intact a finding that the software company illegally used its monopoly in the Windows(tm) operating system.

The seven-judge appeals panel agreed that Microsoft holds a monopoly in personal computer operating systems and some of its competitive practices amounted to illegal use of that monopoly. The U.S. Court of Appeals for the District of Columbia also ordered that a new lower court judge look at whether Microsoft illegally tied its Internet browser to the Windows operating system to maintain that monopoly, a question that could have implications for Microsoft’s soon-to-be-released Windows XP operating system.

The court overturned a ruling by the lower court judge, Thomas Penfield Jackson, that Microsoft had tried to monopolize the market for Internet browsers. The appeals panel also rebuked Jackson for giving the “appearance of partiality” through his media interviews during the trial.

Microsoft said it was pleased by the ruling and suggested it would be willing to head to the bargaining table. “Today’s ruling drastically narrows the case and removes the breakup cloud from the company,” Microsoft spokesman Jim Cullinan said. “We will continue to work to resolve the remaining issues without the need for continued litigation, which benefits no one.”

The U.S. Justice Department also welcomed the appeals court finding that Microsoft engaged in illegal conduct to maintain its monopoly over personal computer operating systems.

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