THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
LOU DOBBS, HOST: Tonight, Microsoft wins. An appeals court throws out the Microsoft breakup order. Bill Gates is our guest. On Wall Street stock prices soar. Investors applaud today's court decision and yesterday's Fed decision.
And tonight Defense Secretary Donald Rumsfeld joins us on a new bigger defense budget and a new way of doing business at the Pentagon. And once the victim of a massive accounting scandal, Cendant is on the rise. It's stock near a 52-week high. I'll talk with CEO Henry Silverman.
Good evening. A special welcome to our international viewers. A blockbuster decision in the most important antitrust battle of the digital age: the U.S. versus Microsoft. An appellate court today overturned a judge's ruling to break up Microsoft, and it delivered a stinging rebuke to that judge, Thomas Penfield Jackson. The appellate court accusing him of serious judicial misconduct. But it wasn't a total victory. The court did find that Microsoft broke the law in some of its business practices.
Bruce Francis has our report.
(BEGIN VIDEOTAPE)
BRUCE FRANCIS, CNN CORRESPONDENT (voice-over): Microsoft avoids the corporate death sentence for now, but many of the key findings against the software giant remain. The appeals court said that Microsoft is a monopoly and that the company illegally tried to protect its position. The appeals court agreed that Microsoft made illegal deals with Apple Computer and Internet service providers, licensing deals with computer manufacturers and certain relationships with independent software developers also broke the law.
JOHN ASHCROFT, ATTORNEY GENERAL: I'm pleased to say that the court unanimously found that Microsoft engaged in unlawful conduct to maintain its dominant position in the computer operating systems. This is a significant victory.
FRANCIS: But the court also singled out a few issues that were clearly victories for Microsoft, namely that evidence did not support the conclusion that the market for browsers was monopolized. Microsoft did not engage in predatory pricing by giving away the browser. And the appeals court disagreed with the claim that Microsoft illegally tied the browser to windows and remanded that claim, or sent it back to a lower court.
The court emphatically agreed with Microsoft that Judge Jackson should have held specific hearings on remedies. And the court found that Jackson's public comments on the case seriously tainted the proceedings.
BILL GATES, CHAIRMAN, MICROSOFT: The ruling lifts the cloud of breakup over the company, reverses the time claim and says clearly that we did not attempt to monopolize the browser market.
FRANCIS: Another judge will oversee hearings on remedies.
(END VIDEOTAPE)
FRANCIS: That means that Microsoft will finally get what it asked for, its day in court to actually argue against a breakup. But that also means that it may yet find itself faced with that dreaded result. The appeals court did not say that a split-up was out of the question, although the bar is raised -- Lou.
DOBBS: Considerably. Bruce, thanks very much. Bruce Francis.
It was more than a decade ago that the Federal Trade Commission first began investigating Microsoft. Today's decision brings the company a step closer to finally resolving its battles with the government. Joining us now from Redmond, Washington is the chairman and founder of Microsoft, Bill Gates.
Bill, good to have you with us. I can only imagine your feelings today. Let me ask you for your emotions following this decision.
GATES: Well, there's a number of positive aspects here. The case is narrowed quite a bit. We feel strongly the cloud of breakup is not over us now because of the reversal that we've got here. And most importantly, we can proceed with the new products that we've been working on. All we've really cared about deeply here is, can we continue to do new software? We tried to avoid this case distracting us and we built a lot of neat new things and now we'll be able to get those in the hands of consumers.
DOBBS: You certainly don't seem to have been slowed much by the court proceedings in terms of introduction of new products. Let me ask you, particularly gratifying has got to be the appellate court finding in terms of bundling, finding and taking no issue whatsoever there are reversing the trial judge.
Is there, in your judgment, as a result of today's decision, and I know it's very early in evaluating this decision, any reason why you wouldn't be able to bundle Windows, Windows XP, that you are introducing this fall and all of the other products that you have your disposal?
GATES: As you said, the time claim was reversed. And a set of comments about how to evaluate that were put forward by the appeals court. The comments are very pro innovation and that's the central issue of the case. Can a software company who's been successful, like we are, continue to improve the product?
Windows XP represents a lot of improvements and we feel that under this standard there's no block at all to us going ahead and bringing products like that to the marketplace.
DOBBS: The appellate court also found, Bill, that Microsoft had violated section 2 of the antitrust, the Sherman Antitrust Act. Is it your judgment that that at this injure is purely an academic finding or does it pose risk to your company?
GATES: Well, although that wasn't the central issue, it does touch on some licensing practices, most of which we haven't used in our contracts for several years now. There are other things that deserve a review there as we go through the opinion, and so in the licensing area there will be some efforts that we have to make.
The core issue, though is about the ability to design new products.
DOBBS: And in terms of your press conference, as soon as this decision was handed down you went public with the press conference this afternoon, I heard you say, talking about resolution, without the need, as you put it, for continued litigation.
Does that mean that Microsoft is disposed at this point to settlement with the government and the state's attorney's general?
GATES: That's right. We'll see if settlement is a possibility here. I think the decision puts us in a new framework. We tried settlement in the past. We did our best and that wasn't successful. So, I won't make any predictions but it's one of the avenues that we'll pursue.
DOBBS: And the company, would it be fair to say, Bill, will be taking a somewhat different demeanor as it approaches those settlement discussions, irrespective of how they turn out?
GATES: Well, it's a different framework than we've had before. You know, we've put days and days and days into that in the past. We thought we were very close. I think this decision eliminates some of the more uncertain areas so it may be possible that we'll succeed this time.
If not, we'll be back in front of the district court. We'll have a new judge and we'll have much narrowed set of issues to contend with.
DOBBS: Bill, I think it is fair to say that after reading this decision -- some hundred, almost 130 pages, that it is fair to say to you, congratulations on a significant victory in the appellate court.
Bill gates, thanks for being with us here on MONEYLINE.
GATES: Thank you. DOBBS: Microsoft's stock was halted at 11:32 a.m. Eastern as investors awaited the news. It did not resume trading until 2:50 this afternoon, hours after the decision had been released. When it did resume trading, Microsoft stock jumped more than $2.50 a share. It ended up however, just gaining about $1.50.
Microsoft has lost more than $175 billion in market value since Judge Jackson, last year, found that Microsoft had broken the law. But the stock price has exploded this year. It is by far the best performing stock in the Dow Jones Industrial Average, up almost 70 percent.
Microsoft today was among the 25 Dow components to end higher. Both the Dow and the Nasdaq surged on the day, the best rally in fact, in more than three weeks. Stocks were sharply higher at the opening bell, fueled by delayed enthusiasm about the Fed's rate cut, and the rally continued after the court decision on Microsoft.
Jennifer Westhoven with the story from Wall Street.
(BEGIN VIDEOTAPE)
JENNIFER WESTHOVEN, CNN CORRESPONDENT (voice-over): The stock market rang up some of its strongest gains for June in a sweeping rally led in part by the high-tech sector on word of the appeals court's decision in the Microsoft case.
MARTY CUNNINGHAM, SCHWAB CAPITAL MARKETS: Maybe a new group of individuals on the scene, a new perspective, a new pro-business attitude might, again, inspire people to feel more confident about well, what else may happen on the litigation front that could prove to be beneficial for companies' stocks and hopefully investors.
WESTHOVEN: The prospect of lighter regulations lifted big technology names, pulling the Nasdaq composite higher. It gained 50 points to 2,125, a gain of nearly 2.5 percent. Trading in Microsoft was halted for most of the session but investors lost no time, piling into other big-business tech names. Oracle, Cisco, Sun Microsystems, Siebel, and IBM all rose.
The Dow Industrials closed out the day with a gain of 131 points to 10,434. It was helped by tech stocks but Honeywell and General Electric saw heavy trading as well as investors bet their proposed merger has a better chance of surviving the concerns of European regulators. The other behind-the-scenes player in today's rally was the delayed reaction to the Fed decision.
ALAN SKRAINKA, EDWARD JONES: We believe that by the Fed moving only a quarter, it's really the first confirmation that we're seeing the early tentative signs that this economy is starting to bottoming out. And we think the Fed shares that view and that should be very encouraging for investors.
(END VIDEOTAPE)
WESTHOVEN: Traders said it was that optimism about the economy that made today's rally so broad and sweeping. Chip stocks, utilities, transports and small caps all rose, and technical strategists said it was a relief for the bulls to see tech stocks take a strong step up and away from Nasdaq 2000 -- Lou?
DOBBS: Jennifer, thank you very much. Jennifer Westhoven from the New York Exchange.
Reports of another setback tonight for the G.E.-Honeywell deal: the European Union reportedly telling General Electric that it rejects G.E.'s last-ditch proposal to win that $42 billion deal. That, after two days of talks in which G.E. apparently offered to sell off almost 20 percent of its aircraft leasing arm in Europe. Tonight, Honeywell shares are down, down $3.20 a share. G.E. has risen in after-hours 43 cents.
Next here on MONEYLINE: "rampant disregard for judicial ethics." Just one salvo aimed at Judge Jackson by that higher court for his handling of the Microsoft case. We'll be taking a look at settlement prospects now that Clinton-era trust-busters are out of the Justice Department.
And Defense Secretary Donald Rumsfeld joins us to tell us about a new way of doing business at the Pentagon, and why more money is needed.
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DOBBS: In tonight's "Powering America," President Bush today announced new energy conservation measures. Mr. Bush spelled out his plan after looking over a display of fuel efficient devices with Energy Secretary Spencer Abraham. Among the president's new steps: more money for entrepreneurs.
(BEGIN VIDEO CLIP)
GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: And so today I'm pleased to announce $857 million in federal grants to encourage academia and the private sector to join with contributions from the private sector to accelerate the development of fuel cells, advanced engines, hydro technology and efficient appliances for American consumers.
(APPLAUSE)
(END VIDEO CLIP)
DOBBS: In Congress today, a hint of the obstacles facing Mr. Bush and his administration in the drive to boost domestic fuel production. The House voted to block new drilling for oil and natural gas in the Great Lakes. Also halted, a gas pipeline to Florida.
Defense Secretary Donald Rumsfeld today on Capitol Hill, fighting for his new Pentagon budget, taking his case to the House Armed Services Committee. Rumsfeld says the military is worse off than he expected. One result: he wants to spend nearly all of the new budget's almost-$19 billion increase on fixing old problems, not modernization. Joining us now from the Pentagon, Defense Secretary Donald Rumsfeld.
Mr. Secretary, good to have you with us.
DONALD RUMSFELD, SECRETARY OF DEFENSE: Thank you very much, Lou.
DOBBS: Striking in your testimony today was the fact that 14 percent of the budget actually focused on combat missions. That's an extraordinary, extraordinarily low number, is it not?
RUMSFELD: Well, it is. The important thing about it, of course, is it's very difficult to calculate because you have to include logistics and you can't have a combat capability without that. So it's undoubtedly a higher number. But the important thing is that the department is not well run, and I say that because there are so many restrictions and prohibitions and requirements that have been imposed over the years that we simply have to make this institution work better for the taxpayer.
DOBBS: Well, one of your proposals and one of the elements you put forward for consideration was raising the level for Davis-Bacon to a million dollars. That represents staggering savings. A number of the elements that you suggested would have significant savings. But surely, this has been tried before in the defense department, and it is, as you well know, notorious for overspending and inefficiency.
Are you really confident that you can bring to bear Rumsfeld rules and discipline?
RUMSFELD: Well, you never know until you get at it and try it. The department has got to do a better job itself. It also has to fix its relationship with Congress. We, today, have to file over 905 reports to the Congress every year. We have something like 3,100 contacts with the Congress every week. We have over 400 legislative liaison people. We have six or seven inspector generals, we have four or five surgeon generals. We have duplication.
We're doing a host of things inside the department that are not core military (UNINTELLIGIBLE), and that could unquestionably be done much better in the private sector. So we've got a lot to work to do here.
DOBBS: A lot of work, and the president promising to improve the lot of America's men and women in uniform, calling for, in your budget, pay increasing of 5 to 10 percent. Under this budget, even though it's a revised and higher number from the original budget of this year by the Bush administration, are we still, in your judgment, doing enough for men and women in uniform?
RUMSFELD: Well, of course, central to the success of the armed forces of the United States are the men and women. And it is the United States military and our capability across the globe that contribute to the peace and prosperity that we all enjoy. So it's the underpinning of that prosperity. We have to treat those people right. We have to be able to attract and retain the people we need to see that we can function in this increasingly high-tech environment. DOBBS: And in this $329 billion budget, a significant increase, whether one starts with the baseline at the beginning of the year or going back to the original budget as put forward. The fact is, you're calling for base closings, and that is always the most difficult political issue with the Congress you're trying to change relationships with -- shutting down the peacekeeper missile program, and cutting back and curtailing the B1B bomber, or taking third of those aircraft out of commission.
What do you think will be the Congressional reaction when it's all said and done?
RUMSFELD: Well, it's hard to know. There's no question anytime anyone changes anything, or asks a tough question, someone's going to be concerned about it. And there's a great deal of pressure in this town to keep things exactly as they are. The pressure in the building, the pressure in the Congress, the pressure in the contractor community.
But everyone who looks at the base structure for the Department of Defense comes up with the conclusion that somewhere between 20 and 25 percent base structure is excess, that we simply don't need it. Well, no organization can say that they're doing a good job with the taxpayers' dollars if they're maintaining some 20 to 25 percent excess capacity.
We simply have to recognize that this department has been underfunded and overworked for the past five or six years. The result of that is that we have a an operations tempo that is hard on the people, we've been overusing the equipment, it's aging. The ship- building budget is declining. And if those are very real problems, and they are, then the question is: Where do we get the money to deal with them?
Well, we're gotten the biggest increase since 1986 that the president's recommending to the Congress, but that isn't good enough. We're going to have to get more money and we're going to have to get more money by managing this place an awful lot better than it's been managed.
DOBBS: Well, let me, if I may, go to a management by objective. We know what you want to do. How many months are you giving yourself to get it done?
RUMSFELD: Oh, it's years. It's years. This department didn't get like this in five minutes, and it's not going to get out of this in five minutes. It is an enormous task. It's like turning a battleship. It doesn't turn on a dime. And we'll have to work with the Congress and find a way inside this institution to fix our acquisition system, which is broken.
It takes 20 years to produce a weapon system, at a time where technology is turning over every 24 months. Our financial management systems can't account for $2.6. trillion worth of transactions, simply because the way they're arranged and organized... DOBBS: Mr. Secretary, thank you. As you talk about improving relations and working with Congress, I was thinking of one of those favorite Rumsfeld rules: Don't try to please everybody. If you do, somebody won't like it.
RUMSFELD: Thank you, Lou.
DOBBS: Donald Rumsfeld, good to have you with us.
Still ahead here on MONEYLINE, Connecticut Attorney General Richard Blumenthal and the government's next move in the Microsoft antitrust case. We will be joined by Roger McNamee of Integral Capital Partners. He'll tell us why Microsoft still has a lot of problems. Stay with us.
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DOBBS: One Microsoft executive today praised the appellate decision, calling it "the sunshine we have been waiting for." But my guest now says that decision could be a negative for the company: Roger McNamee of Integral Capital Partners joins us.
Roger, why do you feel that way?
ROGER MCNAMEE, INTEGRAL CAPITAL PARTNERS: Lou, I think from Microsoft's point of view, this decision was a big win. I think from an investor's point of view, it's not so clear. Every time in the past you have seen the Justice Department get involved and break up a company, investors have been better off letting that happen.
And the reason is that because the independent companies have been more market sensitive, more aggressive and have done better. I think Microsoft's just getting held up by viewing every new opportunity as an extension of Windows, rather than viewing it as some new marketing opportunity.
DOBBS: Stock up 67 percent since the beginning of the year, best performing Dow stock. How much better do you think they would perform?
MCNAMEE: Quite candidly, Lou, I think we're in a bear market for a while. And I'm looking for anything that could go high right. And I just think Microsoft is incredibly well-positioned, and if they are willing to take the Internet on as a new opportunity separate from windows, they would be a lot more successful. And I think the Justice Department is going to do that.
DOBBS: All investors want to be successful here, irrespective of how you characterize this market. What should investors be doing in this bear market?
MCNAMEE: I think fundamentally we have to buy one stock at a time, the old strategy in buying the best in each market category, playing the big sectors and big momentum just isn't going to work. From now on, we have to play product cycles, we have to be a lot more selective. And quite frankly, I think time horizons have to be shorter. Right now, if you love technology stocks, I'd only own half of a portfolio, relative to what you think you want to own, because I think fundamentals will continue to get worse for at least the next couple of quarters.
DOBBS: All right, Roger, as always, good to talk to you.
MCNAMEE: Lou, good to be back.
DOBBS: Still ahead, we'll take a look at why that appellate court decision resulted in a blast against the man who ordered Microsoft broken up.
And later, the chief executive officer who delivered a turnaround for Cendant. I'll be talking with CEO Henry Silverman about where his company goes next.
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DOBBS: Today's appellate court decision is a big win, an enormous win for Microsoft. It is also a humbling decision for the judge who last year branded the company a predatory monopolist. Judge Thomas Penfield Jackson criticized by the appellate court for revealing his personal impressions of the case to reporters. Peter Viles has the story.
(BEGIN VIDEOTAPE)
PETER VILES, CNN CORRESPONDENT (voice-over): With his rumpled appearance and his plain-spoken style, Thomas Penfield Jackson looks the part of a common sense judge. But the appeals court that threw him off the Microsoft case, said he broke one of the simplest rules of all, one that tells judges not to talk about pending cases outside the courtroom.
HARVEY SAFERSTEIN, MINTZ LEVIN: I think it is a tremendous embarrassment to a very nice and a very bright judge.
VILES: At issue: A series of private interviews Jackson gave to "The New York Times," "The Washington Post," the "Financial Times," and the "New Yorker". None of the interviews appeared in print until after his ruling to break up Microsoft, but when they did, they were candid and critical of Bill Gates. On Gates' testimony, Jackson told the "New York Times":
"His testimony is inherently without credibility. If you can't believe this guy, who else can you believe?"
To the "New Yorker", he said this about Gates: "I think he has a Napoleonic concept of himself and his company, an arrogance that derives from power and unalloyed success."
JOSEPH NOCERA, EXECUTIVE EDITOR, "FORTUNE": Basically, I think he wanted his views on the record for history. And I also think Microsoft so infuriated him in the courtroom that it's almost as if he needed a forum in which to describe that.
VILES: In throwing him off the case, the appeals court wrote that these interviews "convey the impression of a judge posturing for posterity, trying to please the reporters with colorful analogies and observations, bound to wind up in the stories they write."
(END VIDEOTAPE)
VILES: This was not a total defeat for Judge Jackson. The court did let stand his landmark ruling that Microsoft is an illegal monopoly, and it did not accuse him of bias or prejudice against Microsoft, only improper conduct that destroyed any appearance of impartiality -- Lou?
DOBBS: Pete, thank you very much.
Following today's ruling, the question for Microsoft and the government is, what comes next? The appeals court says a new judge must hold a hearing on how to remedy Microsoft's monopoly power. But even before that hearing takes place, Microsoft and the government have another option: settlement talks. Allan Dodds Frank has the story.
(BEGIN VIDEOTAPE)
ALLAN DODDS FRANK, CNN CORRESPONDENT (voice-over): The Microsoft legal drama enters the next stage with a changing cast of players and a new backdrop. Gone are the Clinton administration and its legal team, as well as the controversial judge whose findings of fact that Microsoft is a monopoly were largely upheld.
KEVIN ARQUIT, CLIFFORD CHANCE ROGERS & WELLS: After a decision like this there will always be some renewed settlement talks because a lot of the uncertainty has now been removed.
FRANK: Bill Gates and his Microsoft team declared victory and so did the Justice Department. Microsoft must still face the appeals court decision which upheld the district court's finding of monopoly power in its entirety.
Gates says he is looking for a resolution, rather than further litigation. But the appeals decision may prompt Microsoft's most vocal opponents, the state attorney's general, to hold firm.
TOM MILLER, IOWA ATTORNEY GENERAL: To have that court unanimously say, yes, Microsoft is guilty of a very serious violation of maintenance of monopoly and go through in great detail why that is the case, that really strengthens our position.
FRANK: Appeals Judge Richard Posner was unable to lead the parties to a settlement last year, despite some encouraging signs.
JAMES GOODDALE, DESEVOISE & PLIMPTON: It's hard for the feds to come in with a straight face and push hard and say the case will never be settled, because they already agreed to settle it. The argument there will be whether Microsoft can talk them out of the settlement they had before to something less.
FRANK (on camera): A new judge, as well as a new outside legal team for the Justice Department still have to be named. But once that happens, legal experts expect settlement talks will be imminent, even as the new judge prepares for an extensive hearing on monopoly remedies.
Allan Dodds Frank, CNN Financial News, New York.
(END VIDEOTAPE)
DOBBS: Still ahead: a complete look at all of the activity on Wall Street today. Also, I'll be talking with Cendant CEO Henry Silverman. We'll be talking about what is next for his company, now that the turnaround is well under way. And we'll tell you where the government may head next in its battle against Microsoft.
ANNOUNCER: Coming up: Lou discusses the Microsoft decision with Connecticut Attorney General Richard Blumenthal.
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ANNOUNCER: This special edition of Lou Dobbs' MONEYLINE, "The Microsoft Decision" continues. Here again, Lou Dobbs.
DOBBS: In tonight's headlines: a victory for Microsoft, after an appellate court reverses a ruling to break up the software company. Microsoft, only one of the stocks higher in a broad-based rally today on Wall Street. The Dow up more than 1 percent, the Nasdaq gained almost 2.5 percent on the day.
And European regulators are reportedly not impressed with GE's latest offer for Honeywell. The concessions are not enough. Reports say chances are small indeed that the $42 billion deal will receive European Union approval.
In the Microsoft case, the United States appellate court threw out findings that the company tried to monopolize the market for Internet browsers. But the court agreed Microsoft violated antitrust laws, and that it has a monopoly in computer operating systems. The appellate court also ordered a new judge to decide what penalties Microsoft should face.
A lengthy portion of that ruling was spent criticizing Judge Thomas Penfield Jackson's handling of the case, saying his secret interviews with the media and the derogatory comments he made violated ethical guidelines.
The decision reverberated from Washington, D.C., to Seattle, where Microsoft is the second biggest company behind Boeing. Katharine Barrett joins us now from Microsoft headquarters in Redmond with the reaction there -- Katharine.
KATHARINE BARRETT, CNN CORRESPONDENT: Well, Lou, Microsoft founder Bill Gates wore a broad and sunny smile this afternoon as he told the assembled media he was, quote, "very pleased with the appeals court's decision," and he said it lifts the cloud of a breakup that was hanging over his company.
The meteorological metaphors continued as Microsoft's productivity executive Jeff Rakes (ph) told the crowd that all Seattleites know the feeling of sun breaking through the clouds, and that this was the sunshine Microsoft had been waiting for.
The company is apparently confident that even if this gets kicked back to a lower court, the scope of the government's case has been narrowed, and the company's chances perhaps for settlement have improved somewhat.
On Microsoft's corporate campus, employees too cheered the news, excited, quote, "to finally see something in our favor," and they hope that this may be a light at the end of a long legal tunnel. Microsoft staffers also very big shareholders in terms of their options grants here. They were especially excited when Microsoft's stock zoomed toward $75 a share on the news early this morning.
Even passerby on the street in this consummate company town expressed their support.
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UNIDENTIFIED MALE: I think the government gets involved in many things that it shouldn't, and this is one of them.
(END VIDEO CLIP)
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UNIDENTIFIED MALE: The software industry changes so fast with software. I'm not sure the current antitrust laws really fit today's situation.
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UNIDENTIFIED FEMALE: I just think that they do business the best they can, and you know, and some other people can't compete -- well, you know, get out there and work harder at it.
(END VIDEO CLIP)
BARRETT: A little bit of hooting and hollering from the cars going by us behind here at the campus. But it's a little too early for people to be breaking out the champagne yet. Microsoft knows that when both sides claiming victory in this, it's too early to be out of the woods yet -- Lou.
DOBBS: OK. Katharine Barrett from Redmond, Washington, thank you.
Bill Gates today said the court's decision removes the cloud of breakup that has been hanging over Microsoft for more than a year now. But the road ahead may be more complicated. Tim O'Brien reports from Washington.
(BEGIN VIDEOTAPE)
TIM O'BRIEN, CNN FINANCIAL NEWS CORRESPONDENT (voice-over): Both the Justice Department and Microsoft were declaring victory today.
GATES: We're very pleased that this ruling reverses the lower court ruling and sets a much higher standard for these issues than the lower court applied.
CHARLES JAMES, DOJ ANTITRUST GROUP: Today's decision represents a very significant victory for the antitrust division on the core claim in the Microsoft case.
O'BRIEN: Significantly, the court of appeals upheld much of Judge Jackson's decision, finding that Microsoft had engaged in a pattern of antitrust violations. It sent part of the case back to the lower court for reconsideration by another judge.
The court did not directly address whether breaking up the company was the correct remedy, but it did note how extraordinary a remedy divestiture is, and that: "The cases on which the government relies in arguing for the split of Microsoft have involved entities formed by mergers and acquisitions," not the case with Microsoft.
That will surely be considered in any new hearings, should there even be a new hearing. Many analysts say today's decision, coupled with a new administration more sensitive to business, could pave the way for an out-of-court settlement.
ALAN WEINSCHEL, WEIL, GOTSHAL & MANGES: I think it makes it a lot easier to settle the case for Microsoft, because it can address the specific issues that the court of appeals were violations, with conduct remedies. In other words, I won't do that anymore.
O'BRIEN: A big question mark: the appeals court did not decide whether it was illegal for Microsoft to bundle its Windows operating system with its Internet Explorer browser. The court set some new guidelines for re-examining that question.
Three former solicitors general told MONEYLINE tonight they did not believe the government would appeal, and Microsoft might not either.
BILL WHYMAN, PRECURSOR GROUP: Both sides should declare victory and move on, and I think that's what will happen.
O'BRIEN (on camera): The decision does offer something for everyone, but it also casts doubt on whether the government will ever be able to break up Microsoft. That's a big victory for the company. And should there be any settlement negotiations, it would surely enhance Microsoft's hand -- Lou.
(END VIDEOTAPE)
DOBBS: Tim, thank you very much. Tim O'Brien from Washington. States' attorneys general said today they would pursue their case against Microsoft, but added that a settlement is certainly not out of the question.
Joining me now, Connecticut's Attorney General Richard Blumenthal.
Good to have you with us.
RICHARD BLUMENTHAL, CONNECTICUT ATTORNEY GENERAL: Thank you, Lou.
DOBBS: This, a big victory, as Tim O'Brien just reported from Washington. The settlement prospect, does that -- do you find that compelling?
BLUMENTHAL: Well, we've said all along that our door is open to settlement. In fact, we have negotiated with Microsoft, both face-to- face, across the table and through Judge Posner. Having been there myself, I'd say that it may be worth another try.
But the point is that any remedy, any outcome of settlement talks, has to really fundamentally change the way that Microsoft uses its monopoly power in the marketplace. And that's really the most compelling objective we have here, whether you call it breakup or conduct or any other characterization.
DOBBS: What do you think of the fact that three solicitors general are telling us that maybe everyone just declares victory, calls it a day and moves ahead?
BLUMENTHAL: Well, I always like to take advice from former solicitors general, but they're not the once who are responsible or who will be held accountable in the Department of Justice. We look to the department now as a continuing ally and partner, and we'll be consulting with them.
And I'm very hopeful after today's reaction that all of the predictions of doom and gloom and the federal government abandoning the case will really be seen as overly alarmist, and really untrue.
DOBBS: Do you intend to press ahead vigorously with lawsuits?
BLUMENTHAL: We will press ahead very vigorously and aggressively with the Department of Justice, we hope and expect, but without them, if need be, because we have an independent responsibility as attorneys general, and I think our team is going to be very firmly united.
DOBBS: You would characterize today's appellate decision, though, certainly as a setback for your interests?
BLUMENTHAL: You know, setting aside all the spin on both sides, nobody scored a knockout. What emerges from today's decision very clearly is first and foremost, no finding of the judge has been at all reversed. And so those facts and the findings go back to the trial court along with the fundamental core of the case, which is that Microsoft broke the law. It illegally, really, denied the benefits of competition to consumers when it tried to preserve and extend its monopoly.
And as a footnote, let me just say, the announcement of some of its newer products, XP and HailStorm raise the prospect of repeating those offenses.
DOBBS: OK, Mr. Attorney General Richard Blumenthal of Connecticut, thanks for being with us.
BLUMENTHAL: Thank you.
DOBBS: Coming up next here: a turnaround story on Wall Street. We'll meet the man behind Cendant's comeback next. And an investor alert from the Securities and Exchange Commission. We'll have that for you coming right up.
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DOBBS: The Microsoft decision boosted an already positive mood on Wall Street. The Fed's quarter-point interest rate cut looked upon favorably by investors today, both the Dow Jones Industrials and the Nasdaq Composite climbing. The Dow up more than 1 percent on the day, spending four consecutive sessions lower. The index today up 131 points. Technology issues big winners today. Chip and software stocks especially strong. The Nasdaq gained nearly 2.5 percent.
Topping tonight's "MONEYLINE Movers": FedEx, which jumped more than $2 a share. It beat lowered earnings expectations, but the weak economy cut profits by half compared to a year ago. FedEx also warning of continued weakness. Estee Lauder gaining more than $2 a share today. The cosmetics maker, reorganizing its brands, closing half of its Tommy Hilfiger in-store shops. Estee Lauder also saying it's on track to meet its targets for the full year. Biotech company Icos jumping more than $4 a share today. It's asking the FDA for approval to sell its new anti-impotence drug. The pill will compete with Pfizer's blockbuster drug Viagra. That anti-impotence drug called Cialis. And Icos stock is now up more than 75 percent since hitting a low in March.
And tonight: an unusual government warning about stock analysts. The Securities and Exchange Commission has issued an investor alert; an alert urging investors to -- quote -- "not rely solely on analysts' recommendations when deciding to buy, hold or sell stock." That alert tells investors to be cautious about potential conflicts of interest that Wall Street analysts might have.
MONEYLINE will continue in just one moment. I'll be talking with the man who's leading the Cendant turnaround -- it's Chief Executive Officer Henry Silverman next.
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DOBBS: In tonight's "Sectors Report": tobacco. The Supreme Court today handing a victory to the tobacco industry. The court rejected a state advertising restriction designed to keep cigarette ads out of the view of children. Justice Sandra Day O'Connor says the Massachusetts regulation violates free speech rights. That regulation banned tobacco ads within 1,000 feet of schools and playgrounds. The American Cancer Society called today's ruling a setback for the nation's children. Tobacco companies applauded the decision, and investors applauded the decision as well, as those stocks moved higher.
Coming up next on MONEYLINE: the story of a comeback and the CEO who has led it.
ANNOUNCER: Up next, Lou talks with Cendant CEO Henry Silverman.
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DOBBS: Now the story of a comeback and the CEO who made it happen. And accounting scandal broadsided Cendant, the travel and real estate services provider. Now the company is thriving. Its stock is trading near a 52-week high. Joining me now to talk about the turnaround and the travails is Henry Silverman, the chairman and the chief executive officer of Cendant.
Good to have you with us, Henry.
HENRY SILVERMAN, CEO, CENDANT: Nice to see you, Lou.
DOBBS: You and I have talked about your company and its problems over the course of the past three years. You've got to be feeling a lot better this year than even last.
SILVERMAN: Well, our shareholders are. Our stock has more than doubled this year and I think that it's because we have great visibility in our earnings for the next several quarters, probably the next six quarters at least, as far as we can see. That's given us the ability to give people sort of upside surprises and upside warnings in an environment where most companies are coming and warning on the down side.
DOBBS: In terms of your most recent acquisition, Galileo, what will that add to your earnings?
SILVERMAN: We think it will add between 10 and 14 cents to our earnings per share next year and that really will depends on when it's timed, how many shares we issue and how quickly we can achieve the synergies we've identified. But it will be in that range.
DOBBS: And part of the deal is merging Web sites and the interactive aspect of the travel site with trip.com. And exactly how is that going to work?
SILVERMAN: Well, John Malone, as you know, sits on our board and John has taught me that Web, content is king. And we have enormous amounts of content. We have nine hotel brands, we own Avis, as you know, we are very big in the time share business. Our content, which is also advised very extensively in traditional media, will be a part of our travel portal, which actually be trip.com as the URL. We think it will be very powerful. Right now, with no advising, the Cendant sites are the fourth most visited on the Internet in the travel sector.
DOBBS: And making you lots of money?
SILVERMAN: They are, yes. We actually are very disciplined and we avoided the Internet hype which allowed us to avoid the Internet meltdown.
DOBBS: And in terms of your acquisition strategy going forward, will it be vigorous?
Silverman: Very vigorous, but we will stay focused on services primarily within, exclusively within residential real estate and travel. That's about $4 trillion with a T in global annual revenue so there's plenty of opportunities in that space.
DOBBS: And travel right now hard pressed. Give us your best judgment about when this slowdown will conclude.
SILVERMAN: Well, business travel is very soft. Fortunately leisure travel is still pretty good. Consumers are still consuming. There's not a recession in the service sector of the economy. As long as unemployment stays relatively benign meaning let's say, less than 6 percent, travel will be OK.
Business travel will come back when the economy comes back and your guess, Lou, is as good as mine as to when that will be.
DOBBS: True. Henry, as always, good to see you and congratulations.
SILVERMAN: Thank you so much for having me on. Great to see you.
Coming up next here, your e-mails and "Ahead Of The Curve."
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DOBBS: Keep an eye on the shares of PMC Sierra. After today's close, the company lowered its revenue and earnings targets for the second quarter because of continued weakness in customer demand. Expect the final revision tomorrow of first quarter GDP. Economists are expecting that the economy grew at a rate of 1.2 percent in the first quarter.
Also due out tomorrow, the final look at June's University of Michigan Consumer Sentiment after seeing a considerable rise in consumer sentiment in the past two months.
Time now for a look at your comments. Michael in Maitland, Florida writing, "Greenspan lowered rates again so my T-bills and CDs pay less. There's less to spend, less to eat, and less for medicine."
Bob shares the same concern, writing, "Lou, what about we who are not in the market and living on CDs?" And there's certainly a lot of you. The FDIC says there are more than 400 million CD accounts in the country, more than $4 trillion on deposit. And those rate cuts do hurt. The longer maturities now yielding the lowest returns in point of fact, in about seven years.
Wish we had better news for you. On to stocks. Ellen asks, "Given the drastic condition Lucent Technologies stock, do you think there's any hope it will ever recover?" Well, Wall Street analysts say that Lucent has a head start in its turnaround effort. It could emerge from the current downturn sooner than some other companies.
Finally, Andrew in Singapore says, "Shame on MONEYLINE" for inviting economist, and "New York Times" columnist Paul Krugman on the show. Shame on you for giving Mr. Krugman another soap box to spread his conspiracy theories about the big bad power companies."
Well we thought it would be interesting, while we don't share Mr. Krugman's views -- at least I don't -- he does have an interesting perspective we thought might interested in. A reminder, we always want to hear from you. E-mail us here at MONEYLINE at: moneyline@cnn.com, and please, if you would like us to include those on the air, please include your name and your town of residence.
For tonight, that is MONEYLINE. We thank you for joining us. I'm Lou Dobbs. Good night from New York. CROSSFIRE is next.
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