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Judge Approves Microsoft Antitrust Settlement

Microsoft's four-year-long battle with the federal government over antitrust violations may be at an end, with a federal judge's approval Friday of the U.S. Department of Justice's settlement with the software giant.

U.S. District Judge Colleen Kollar-Kotelly approved most of the provisions of the settlement and dismissed most of the concerns of the nine states which refused to sign on to the DoJ-brokered settlement last year. However, she did require that the company move up the timetable for disclosure of APIs to rival software makers.

"The court is satisfied that the parties have reached a settlement which comports with the public interest," Kollar-Kotelly wrote in her ruling.

Minutes after the ruling, U.S. Attorney General John Ashcroft noted, "The Department is pleased with the court's decision approving the department's settlement with Microsoft."

"That decision confirms that the final judgement furthers the public interest by fully and effectively addressing Microsoft's unlawful conduct and restoring the competitive conditions in the computer software industry," he said.

In a statement Friday, Microsoft said, "We are pleased that the court has conditionally approved the settlement we reached with the federal government and the nine states. The settlement is a tough, but fair, compromise. It imposes significant requirements on Microsoft, but it enables us to continue to innovate and to create products that address the changing needs of our customers. We recognize that we will be closely scrutinized by the government and our competitors, and we will devote all the time, energy and resources needed to ensure that we meet our responsibilities."

Microsoft reached a settlement with the federal government nearly a year ago to the day, agreeing to an independent panel to monitor the company's practices, but requiring few changes to its business model.

The agreed upon settlement does not prevent Microsoft from tying software like its Web browser, e-mail client and media player with its operating system -- initially an issue that was a cornerstone of the government's case against Microsoft. However, the settlement broadly defines middleware, including browsers, e-mail clients, media players, instant messaging software and future middleware developments. It goes on to require the company to provide software developers with the APIs used by Microsoft's middleware to interoperate with its operating systems, allowing developers to create competing products that can utilize the integrated functions Microsoft includes in its own middleware. It also gives computer manufacturers and consumers the freedom to substitute competing middleware software on Microsoft's operating systems.

The agreement also prohibits Microsoft from retaliating against any PC manufacturers or software makers for supporting or developing competing software. Additionally, it requires the company to license its operating systems to PC manufacturers on uniform terms for five years. It also bans Microsoft from entering into exclusive agreements.

Microsoft also agreed to ensure that non-Microsoft server software can interoperate with Windows on a PC the same way that Microsoft servers do.

Finally, the settlement includes a provision for a panel of three independent monitors, which will work from Microsoft campuses and have full access to the company's books, records, systems (including source code), and personnel for five years. The court will have the option to extend that period for another two years if it finds that Microsoft violates the settlement.

But nine of the 18 states that joined with the DoJ to prosecute the historic antitrust case refused to sign on to the settlement. Those states -- including California, Connecticut, Florida, Iowa, Kansas, Massachusetts, Minnesota, Utah and West Virginia -- argued the agreement was bad for Microsoft competitors and consumers because provisions intended to rein in Microsoft's monopolistic business practices were riddled with exceptions that gave the company too much latitude.

The states requested that Kollar-Kotelly require Microsoft to release its source code to competitors and offer a stripped-down, modular version of its Windows operating system.

"The Software and Information Industry Association is disappointed in today's decisions by Judge Kollar-Kotelly," said Ken Wasch, president of the Software & Information Industry Association (SIIA). "We believe that she sorely overestimates the value of the Proposed Settlement. In our opinion, it will prove an ineffective remedy to Microsoft's anti-trust violations. Her ruling gives consumers and competitors little assurance that Microsoft will refrain from using its monopoly power to gain unfair market advantages, which ultimately hurt all consumers."

"In the remedies phase of the trial, we listened to the same testimony that Judge Kollar-Kotelly did, and we are perplexed that she didn't recognize that Microsoft's anti-competitive behavior now extends far beyond the browser, into a range of other technologies and markets."

Microsoft was a member of the SIIA, with a seat on the industry association's board of directors, until two years ago, when SIIA's board voted 11 to 2 to file an amicus brief against Microsoft in the case.

However, another industry association, the Computing Technology Industry Association (CompTIA), hailed the judge's ruling as a victory for the technology sector and consumers.

"The court's ruling found that the penalties sought by a few states were not in the public interest and would not have promoted consumer interests," Lars Liebeler, antitrust counsel for CompTIA, said in a statement after the ruling. "We are pleased that the court made a careful review of all the evidence and made the correct decision, reaffirming the principle that consumer welfare is the paramount concern of the antitrust laws."

He added, "CompTIA has consistently taken the position that the technology sector operates at its best when market forces are permitted to operate freely. To that end, governmental intervention in the marketplace should be reserved for those few occasions when actual consumer harm can be demonstrated by clear and convincing evidence. Even then, the remedies imposed on an antitrust violator should be narrowly tailored so that firms are not deterred from competing aggressively because it is that aggressive competition that benefits consumers. CompTIA believes the Court held well to these overarching principles."