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  Microsoft Settlement Rejected

By Elizabeth Corcoran
Washington Post Staff Writer
Wednesday, February 15, 1995; Page A01

A federal judge yesterday threw out a proposed settlement for a crucial antitrust case, saying the deal between Microsoft Corp. and the U.S. Justice Department was "too narrow" and would allow the software giant to continue anti-competitive practices.

"The picture that emerges from these proceedings is that the U.S. government is either incapable or unwilling to deal effectively with a potential threat to this nation's economic well-being," U.S. District Judge Stanley Sporkin wrote in a 45-page opinion.

He offered four reasons for rejecting the settlement, which followed a federal investigation of the world's largest software company that took more than four years. Microsoft's "operating system" software is used in more than 70 percent of all the world's personal computers.

Along with criticizing the decree as too narrow, Sporkin said it lacked adequate enforcement mechanisms to ensure that Microsoft would live up to its terms.

The judge complained that the Justice Department did not provide enough evidence for him to assess the merits of the settlement. He also said it did not address "certain anti-competitive practices which Microsoft states it will continue to employ in the future and with respect to which the decree is silent."

Microsoft's competitors have complained that the company uses its dominance in the operating systems business to bolster its sales of software "applications," such as word processing and spreadsheet programs. Sporkin also has criticized Microsoft for announcing products before they are finished, and so chilling sales of competing products.

The ruling was hailed by many of Microsoft's competitors, who have complained about Microsoft since the Federal Trade Commission began looking at the company's business practices in 1990. They contend that the company, which had annual sales of about $5 billion last year, could squelch competition and inhibit innovation in an industry that every year is more important to the U.S. economy.

"We hope the parties go back to the table and modify the settlement," said Jeffrey Jacobovitz, a Washington-based lawyer who represents IDEA Corp., a computer company that opposed the settlement during a hearing Sporkin held in January.

"It's definitely a step forward," said Ed Black, president of the Computer and Communications Industry Association, which also criticized the deal at the hearing. "We are extremely pleased that the judge stayed focused on the public interest. . . . When we say we want to be at the forefront of an open and competitive industry, we really do mean it."

The Justice Department would not comment yesterday on the decision, saying that it is still reviewing the judge's written opinion. A Microsoft spokesman said the company was disappointed over the ruling. "We haven't yet had a chance to read his order," spokesman Greg Shaw said. "When we have, we'll determine an appropriate course of action."

Sporkin was ruling on a proposed settlement that the Justice Department and Microsoft reached last July. The department then simultaneously filed a complaint alleging that certain practices that Microsoft used in licensing operating systems to computer makers were anti-competitive and proposed a settlement that centered on an agreement by Microsoft to change those practices. The company did not admit that it had acted inappropriately.

Under the so-called Tunney Act governing this case, the settlement must be approved by a judge before it becomes final.

Because Sporkin rejected the remedy proposed by the government and Microsoft, the Justice Department's complaints about the software company are still active. Sporkin has scheduled a "status call" on March 16 that will bring the parties together to assess the next step in the case.

What happens next, observers said, is up to the Justice Department and it could take several paths. One would be to appeal the ruling, arguing that Sporkin overstepped his role in the case.

"It is an unusual ruling," said William Baxter, a professor at Stanford University Law School and former antitrust division chief. "As I read the Tunney Act, he can only respond to the issues . . . the Justice Department negotiated."

The department also could choose to try to work out a new settlement with Microsoft or void the settlement and fight the company in court. If the Justice Department chose to litigate against Microsoft, the case would be likely to stay in Sporkin's court, legal experts said.

"We hope that the judge's opinion will cause the Justice Department to do some introspection," said Gary Reback, an attorney with Wilson Sonsini Goodirch & Rosati in Palo Alto, Calif.

Reback, who represents three unidentified computer companies that were critical of Microsoft, submitted evidence to Sporkin that the ruling suggests made a dramatic difference in how the judge viewed the settlement.

"We believe it would be inappropriate to appeal this finding by a neutral judge," Reback said.

Staff writer Kara Swisher contributed to this report.

© Copyright 1998 The Washington Post Company

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