- The Washington Times - Saturday, November 2, 2002

A federal judge yesterday rejected a request to impose strict new penalties against Microsoft Corp., handing the world's largest software company perhaps its biggest legal victory in an ongoing antitrust case.

U.S. District Judge Colleen Kollar-Kotelly yesterday approved a proposed settlement between the $281 billion company and the Bush administration, a decision that could end the landmark antitrust case.

"We believe today's ruling represents a fair resolution. It's a major milestone," said Bill Gates, Microsoft's chairman and co-founder and the world's richest man.

Microsoft, whose Windows operating system runs 95 percent of the world's computers, endorsed the penalties outlined in the settlement.

Microsoft agreed to the sanctions to end the antitrust lawsuit after it was found guilty of illegally maintaining a monopoly in the market for computer-operating systems, and it worked furiously to fend off tougher sanctions. A group of nine states and the District pushed for stronger penalties because they said the government's proposed curbs on the company wouldn't protect consumers or its competitors.

In a decision released yesterday after the markets closed, Judge Kollar-Kotelly ruled that penalties outlined in the government's settlement will serve the public's interest.

The settlement is intended to benefit consumers and punish Microsoft by forcing the company to promote software developed by its competitors.

In accepting the settlement, the judge dismissed nearly all of the arguments of the nine states and the District that sought to impose tougher sanctions on Microsoft, which is based in Redmond, Wash.

"This suit is not the vehicle through which [the states pressing for more sanctions] can resolve all existing allegations of anti-competitive conduct which have not been proven or for which liability has not been ascribed," the judge wrote in a summary of her decision.

She also wrote that the states presented "little, if any, justification for" their proposed remedies.

The non-settling states California, Connecticut, Florida, Iowa, Kansas, Massachusetts, Minnesota, Utah, West Virginia and the District asked Judge Kollar-Kotelly to force Microsoft to create a version of Windows that could incorporate competitors' features and require it to divulge blueprints and technical information about how some of company's products work, which would enable rival programs to run on Windows.

"I would regard the outcome as neither a total victory nor a total defeat," California Attorney General Bill Lockyer said.

U.S. Attorney General John Ashcroft said the settlement will benefit consumers because it encourages companies to develop new software to run on the Windows operating system.

"In fact, Microsoft has already modified its licensing practices to permit computer manufacturers to substitute competing middleware products for those provided as part of its operating system, modified its new XP operating system, and begun to release important interfaces and protocols that will enable third parties to develop products and services that will" work with Windows, Mr. Ashcroft said.

The settlement will require Microsoft to give computer makers identical contract terms for licensing Windows. The company can give discounts on the basis of sales volume and participation in agreements to market the system.

The company also will be required to post the prices for the Windows license on an Internet site accessible to the computer makers.

Computer manufacturers will be allowed to hide icons giving computer users access to software programs, like the browser Internet Explorer, so they can promote software developed by Microsoft rivals.

The deal also prohibits Microsoft from retaliating against competitors.

The judge said the deal will last five years, and she reserved the right to extend it two more years if Microsoft violates the agreement. She changed one element by making a committee overseeing enforcement include board members who are not Microsoft employees and gave herself greater oversight.

"We recognize that we will be closely scrutinized by our competitors and the government," Mr. Gates said.

The judge warned Microsoft directors to enforce the settlement and made reference to Niccolo Machiavelli's "The Prince."

"Let it not be said of Microsoft that 'a prince never lacks legitimate reasons to break his promise,' for the court will exercise its full panoply of powers to ensure that the letter and spirit of the remedial decree is carried out," she wrote.

Iowa Attorney General Tom Miller said the states haven't decided whether to appeal yesterday's decision.

"That is something we really need to talk through," he said.

Connecticut Attorney General Richard Blumenthal said he expects Microsoft to pay the states' legal fees.

Shares of Microsoft fell 47 cents on Nasdaq, closing at $53 a share before the decision.

Yesterday's decision is the latest development in a seemingly interminable court case that began in May 1998, when the Justice Department and 20 state attorneys general sued Microsoft, charging that the behemoth company illegally thwarted competition to protect and extend its monopoly on software.

U.S. District Judge Thomas Penfield Jackson found Microsoft guilty in April 2000 of violating the Sherman Antitrust Act. An appeals court confirmed in June 2001 that Microsoft illegally maintained a monopoly in the market for operating systems, but it rejected Judge Jackson's order that Microsoft be split into separate companies.

The appeals court said a new judge must decide the penalty, and the chore fell randomly to Judge Kollar-Kotelly.

The trial began March 18 and ended June 19. Mr. Gates was one of 33 witnesses.

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