Starring Joel Klein as The Gambler

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Among the nominees for the Making Life Difficult for Yourself Award, it's hard to beat the Department of Justice. When probing for flaws in the Collossus of Redmond's armor last year, Joel Klein chose a dangerous gambit. Instead of launching a new and achingly slow suit against Microsoft that might take years to resolve, he decided to move much more speedily. Last October he sued to reopen an existing Windows 95 lawsuit. All went well -- at first. An irate Judge Thomas Penfield Jackson in December ruled that Microsoft had violated a 1995 agreement with the government. In no uncertain terms, he told Microsoft to split off its browser from Windows 95.

Microsoft appealed that decision, and this week government lawyers learned a bitter lesson about the perils of gambling, overzealous federal district court judges, and how a choice that once seemed like a certain win may end with them losing their shirts. Not only did the appeals court slam the door on the Justice Department's lawsuit over Windows 95, but the decision imperils the mammoth Sherman Act case the feds and 20 states filed last month and on which they staked their reputations.

How did the strategy backfire? All along, the risk was that the Win 95 case might come before a DC Court of Appeals panel without all the supportive facts the Justice Department would have liked: weeks of hearings, stacks of documents, testimony from a bevy of experts. Assembling that mountain of evidence would have taken far too much time when suing one of the world's fastest-moving companies, the government decided. "They took a risk in asking for the injunction and they knew that the factual foundation for the request was going to be very austere. They took a chance. They gambled a bit here," says William Kovacic, a law professor at George Mason University and former FTC official who specializes in antitrust.

For their part, chagrined Justice Department officials labored all week to put the best spin on the situation. Attorney General Janet Reno was characteristically blunt. "We still think we can proceed and we'll do so," she said on Wednesday. "We will prevail in the long run," a senior Justice official told The Netly News. "You have to look at these things like other epic legal battles. There are days when you have progress. This was a step backwards." Says the official: "These judges are wrong, and their decision, if it were binding, that's not what the law is. We filed a broad case involving a wide variety of unlawful action."