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  Appeals Panel Backs Justice, Microsoft Deal

By Elizabeth Corcoran
Washington Post Staff Writer
Saturday, June 17, 1995; Page A01

A federal appeals court rebuffed an activist district judge and ruled that last year's antitrust deal between Microsoft Corp. and the Justice Department, which the judge had rejected as too lenient, was "in the public interest."

In upholding the consent decree reached last July, the U.S. Court of Appeals here said it was "deeply troubled" by aspects of Judge Stanley Sporkin's conduct in handling the case. The three-judge panel criticized Sporkin for trying "to assume the role of attorney general" and ordered him removed from the case.

Heading up the panel was Harry T. Edwards, chief judge of the U.S. Court of Appeals for the D.C. Circuit. Also serving were Judges James L. Buckley and Laurence H. Silberman, who wrote the opinion.

The decision was a welcome victory for the odd alliance of Microsoft and the Justice Department, which since last July have been battling accusations, in court and in industry circles, that the consent decree did not adequately curb Microsoft's aggressive style of business.

Both Microsoft and Justice said in written statements yesterday that they were "gratified" by the decision. The stock market also approved, nudging Microsoft's stock up $2.12 1/2 a share, to close at $87.

"I'm feeling very relieved and very pleased," said William Neukom, Microsoft's general counsel in a telephone interview. Approval of the consent decree "has been a long time in coming . . . this is where we should have been eight months ago."

The consent decree aimed to settle complaints that Microsoft – whose operating system software runs on more than 80 percent of the world's personal computers – had engaged in anti-competitive practices. Other software companies and computer makers had complained that Microsoft unfairly used its dominance in operating systems to strengthen its position in the market for software "applications," such as word processing and spreadsheet programs.

Microsoft's competitors said yesterday they were disappointed. But they contended that Sporkin's rejection of the decree helped spur the government to scrutinize other Microsoft activities.

"Judge Sporkin's decision was a wake-up call to the Justice Department," said Jeffrey Jacobovitz, a local attorney who represented computer maker I.D.E.A. Corp., one of the companies opposed to the decree.

Jacobovitz said that after Sporkin rejected the decree, Justice stepped up its investigation of Microsoft's proposed merger with Intuit Inc., the leading maker of personal finance software.

Microsoft abandoned the Intuit merger last month, after the Justice Department said it would fight the deal in court.

"We think Judge Sporkin called it square," said Gary Reback, a California-based attorney who has represented three unidentified companies that are critics of Microsoft.

Other legal observers offered a harsher view of Sporkin, an independent-minded judge who served for many years as head of enforcement at the Securities Exchange Commission and later as general counsel at the CIA.

"It's a monumental victory for the (Justice) department, and richly deserved," said James F. Rill, a local attorney who was an assistant attorney general for antitrust during the Bush administration.

"They properly criticized Sporkin on at least three grounds."

Rill summarized the appeals court's criticisms of Sporkin: that he acted as though he was directing – rather than reviewing – the government's antitrust investigation; that he considered materials that were outside the legal record; and that he allowed "anonymous plaintiffs" to appear in court.

Removing a judge from a case is "very, very unusual," Rill said.

Sporkin's office declined to comment yesterday.

Yesterday's decision ended what had been a roller-coaster legal ride that began in 1990 when the Federal Trade Commission began looking at complaints that Microsoft was freezing out competition in the market for personal computer operating system software. An operating system controls the basic functions of a computer.

After three years of investigation, the four voting commissioners of the FTC deadlocked over the issue of whether the government agency should take action against the software company. In July 1993, the Justice Department's newly appointed antitrust chief, Anne K. Bingaman, decided that her team should take over the investigation.

One year and 1 million pages of documents later, the Justice Department and Microsoft reached a settlement on a narrow set of issues. Microsoft agreed to change the kind of licenses it asked computer makers to sign when they used its operating system software. The company also agreed to loosen some of the restrictions in the so-called "nondisclosure agreements" it made software makers sign in exchange for receiving prototype versions of new operating system software.

Microsoft's competitors were bitterly disappointed by the consent decree, which they denounced as little more than a slap on the wrist. Those complaints found a sympathetic ear in Sporkin, who was assigned the task of reviewing the consent decree and ensuring that it was "in the public interest."

From his first meetings with attorneys from the Justice Department and Microsoft, Sporkin made it clear that he did not intend to simply rubber stamp the agreement. He said he wanted to hear from those who objected to the consent decree. "I don't want to look like a patsy here," he told lawyers for Microsoft and the government last November.

Silicon Valley cheered when he issued a lengthy opinion last February, rejecting the consent decree; but even then, some legal experts questioned whether Sporkin was overstepping his role.

Though the appeals court ruled firmly on the side of Microsoft and Justice, Microsoft's opponents found a measure of hope in the court's description of precisely what Microsoft products are covered by the settlement. The decree signed last July explicitly exempts a Microsoft operating system called "Windows NT," which is used by only a fraction of large, sophisticated computers called "servers."

Reback and other Microsoft opponents, including an association called the Computer and Communications Industry Association, have argued that Windows NT eventually will become a linchpin Microsoft product and should be covered by the decree. Yesterday's opinion noted that if this software becomes a "successor" to other Microsoft operating systems, it indeed will be covered by the decree.

"It's a fly on the ceiling of the Sistine Chapel," said Microsoft's Neukom, dismissing the point.

Though yesterday's ruling finally ends the four-year investigation, the Justice Department is far from finished examining Microsoft's business practices. Last week, officials at Justice said that they were looking into several issues involving Microsoft's new on-line service as well as conditions in the licensing agreements that hardware makers must sign to use Windows 95.

In particular, computer makers have complained to the Justice Department about a clause in the Windows 95 license agreement that exempts Microsoft from lawsuits for patent infringement.

© Copyright 1998 The Washington Post Company

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