Appeals Court Approves Microsoft Settlement With DOJ

A U.S. appeals court on Wednesday approved the landmark antitrust settlement Microsoft Corp. (MSFT) negotiated with the Justice Department, setting aside objections by Massachusetts that sanctions in the agreement were inadequate against the world's largest software company.

In a significant victory for Microsoft and the Justice Department (search), the appeals court ruled that the settlement was in the public's interest.

The decision is a significant milestone in the long-running antitrust case. Any court-ordered changes to the design of Microsoft's lucrative Windows software would have reverberated across homes, industries and governments since its products run more than 95 percent of the world's personal computers.

The ruling followed the March 24 decision by European antitrust regulators who concluded that Microsoft unfairly hurt rivals by building its multimedia software into Windows. The European Commission (search) fined Microsoft a record $613 million.

The central question for the appeals court involved how much deference judges should show toward the settlement negotiated by the Bush administration and Microsoft lawyers. That agreement, approved in November 2002 by U.S. District Judge Colleen Kollar-Kotelly (search), was aimed at giving consumers more choices by, among other things, helping rivals develop competing software on computers running Windows. The provisions expire in 2007.

The trial judge and Justice Department lawyers have acknowledged that one of the disputed settlement's most important provisions — which compels Microsoft to license some of its technology to its rivals — is not working.

But the appeals court could not formally consider that information because those disclosures came after the appeals judges heard oral arguments in early November.

Massachusetts, the only holdout state that continued to press for tougher sanctions, argued that the settlement was so flawed that it represented an abuse of the trial judge's discretion.

Its lawyers said the agreement — which came months after the government won its case — does not prevent Microsoft from building its own products into Windows to stifle competitors and broadly fails to deny Microsoft "the fruits of its wrongdoing."

Microsoft's lawyers responded that Massachusetts had sought extreme penalties that would require its engineers to redesign Windows, "almost certainly an impossible task." It argued that the court-approved settlement was appropriate for its dozen violations of U.S. antitrust laws.

The U.S. Circuit Court for the District of Columbia (search) has proved a favorable venue for Microsoft. The court removed two other trial judges from the case, in 1995 and 2001, who had ruled against the company, Stanley Sporkin and Thomas Penfield Jackson. It also overturned a Jackson contempt ruling against Microsoft, and blocked Jackson's plans to break the company apart.

The same appeals court unanimously agreed with Jackson's ruling that Microsoft had illegally abused its monopoly over Windows operating system software, and it instructed Kollar-Kotelly to impose new sanctions. Within months — and soon after the Sept. 11, 2001, terror attacks — the sides instead negotiated the disputed settlement.