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Microsoft Settlement Upheld
Appeal for Tougher Sanctions Rejected

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Bradford L. Smith, Microsoft's head lawyer, said the company was pleased the appeals court upheld a ruling that it would not have to remove code from Windows. The case is unlikely to be appealed to the Supreme Court. (Tetona Dunlap -- AP)


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Report: Microsoft
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Written by washingtonpost.com's tech policy team, the e-mail version of this weekly feature includes an original news article and links to policy and cyber-security stories from the previous week.
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By Jonathan Krim
Washington Post Staff Writer
Thursday, July 1, 2004; Page E01

A federal appeals court yesterday upheld the three-year-old antitrust settlement between Microsoft Corp. and the Justice Department, ending efforts by the state of Massachusetts and two computer trade groups to win tougher sanctions against the software giant for its monopolistic behavior.

In a unanimous decision, a panel of the U.S. Court of Appeals for the D.C. Circuit said the 2001 deal satisfied legal requirements for addressing Microsoft's violation of antitrust laws in the design and marketing of its dominant Windows operating system.

The ruling, along with Microsoft's continuing settlement of a series of civil and class-action antitrust lawsuits, effectively puts to rest the major legal challenges to the company's business practices in the United States. However, the company still faces serious legal action in the European Union, where regulators have ordered Microsoft to provide two versions of Windows -- one without its software for playing digital music and videos. The company is appealing the ruling.

Yesterday's decision, which is unlikely to be appealed to the Supreme Court, effectively closes the antitrust case brought in 1998 by the Justice Department, more than 20 states and the District. Ten states signed on to the 2001 settlement while nine plus the District pushed for stiffer sanctions in new hearings. When U.S. District Judge Colleen Kollar-Kotelly ruled against them in November 2002, only Massachusetts appealed, continuing to argue that the sanctions included in the settlement were a slap on the wrist and that the judge had erred in approving them.

But yesterday the six appeals court judges who heard the challenge endorsed Kollar-Kotelly's ruling for not imposing more invasive requirements on the company, one of which would have forced it to sell a "modular" version of Windows that would have allowed programs for Web browsing, playing digital music and other functions to be removable.

The theory was that such a move would blunt the ability of Microsoft to leverage the dominance of Windows by continuously bundling programs into it, at the potential expense of competitors.

"Far from abusing its discretion," wrote Chief Judge Douglas H. Ginsburg, "the district court . . . went to the heart of the problem Microsoft had created, and it did so without intruding itself into the design and engineering of the Windows operating system. We say, Well done!"

In an interview after the ruling yesterday, a disappointed Massachusetts Attorney General Thomas F. Reilly said Microsoft "not only has been ruled a monopolist, they are now a protected monopolist. That's a very dangerous thing." Reilly said the case demonstrates that "our antitrust laws are not effective in protecting consumers," especially in the realm of high technology.

The head of the Justice Department's antitrust division, R. Hewitt Pate, called the ruling "a resounding victory for the Justice Department and American consumer."

Microsoft General Counsel Bradford L. Smith hailed the decision, saying the company was particularly gratified that the appeals court took such a strong stand against antitrust remedies that involve removing code from Windows.

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