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Microsoft Settlement Upheld


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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Text of U.S. Court of Appeals Ruling (Jun 30, 2004)
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Report: Microsoft

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The appeals court decision comes three years and two days after the same court upheld rulings by a lower court that Microsoft had abused its monopoly in the market for personal computer operating systems.

District Judge Thomas Penfield Jackson had judged Microsoft to have crushed competition from Netscape Communications Corp., which made the leading Web browser until it was overtaken by Microsoft's Internet Explorer. Jackson also ruled that Microsoft hobbled rival Sun Microsystems Inc.'s Java programming language by degrading its performance on Windows.

But the appeals court rejected Jackson's order to break up the company, and sent the case back to a different judge to determine appropriate sanctions against the software giant.

The original case had been brought by the Clinton administration's Justice Department, which had skirmished with the company for several years over antitrust issues. The resulting trial produced some of the most embarrassing and damaging moments in Microsoft's history.

Well-known litigator David Boies, hired by the Justice Department to try the case, pounded Microsoft officials with internal e-mails showing a corporate culture bent on beating competitors at any cost.

Microsoft Chairman Bill Gates, in a taped deposition, appeared sullen and combative. Judge Jackson became so appalled at the company's behavior that he could barely contain his contempt in open court. That, and his decision to give interviews to a reporter in his chambers, led the appeals court to toss him off the case.

By the time the appeals court upheld most of Jackson's core findings in the summer of 2001, the world had changed. President Bush was in office and a new antitrust division in place. Microsoft, stung by its rivals pushing for the government to pursue the case, lobbied the new administration to settle the case.

Then, in the wake of the Sept. 11 terrorist attacks, Kollar-Kotelly signaled that she preferred the case be settled, and ultimately pushed the parties into mediation.

The deal, which lasts until 2007, requires Microsoft to allow computer makers and users to hide access to Microsoft programs. It also forces the company to disclose more technical information to rivals to allow their programs to work properly with Windows. And it prohibits the company from cutting special deals with computer makers to keep rival programs off new machines.

The company and the Justice Department appear before Kollar-Kotelly at regular intervals to discuss compliance with the settlement.

Rival trade groups did receive support from the appeals court in one area that could affect future antitrust settlements: Kollar-Kotelly had refused to give the Computer & Communications Industry Association and the Software Information & Industry Association the right to challenge her ruling as part of a congressionally mandated process for reviewing antitrust deals between the government and companies.

The court ruled that she was wrong.

But that did little to dampen their disappointment.

The ruling "signals a systemic weakness in the antitrust laws and their vulnerability to political power," said CCIA President Edward J. Black.

Mitchell Pettit, head of ProComp, another trade group, said the decision "comes close to blessing Microsoft as a natural monopoly."

Former federal judge Robert H. Bork, who represented the industry group ProComp, said, "It appears on first reading that Microsoft has been cleared to continue its campaign of predation, including the use of tactics such as the co-mingling of code."

Staff writer Mike Musgrove contributed to this report.

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