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Judge rules for Microsoft in settlement

THE BALTIMORE SUN

A federal judge handed what antitrust experts and consumer advocacy groups said was a clear victory to Microsoft Corp. yesterday, making few changes to a proposed settlement between the software giant and the federal and state governments that charged it with violating antitrust laws.

U.S. District Judge Colleen Kollar-Kotelly tweaked dates and other parts of the proposed settlement but did not adopt broad modifications or impose tougher limitations wanted by nine states and the District of Columbia, which did not settle with Microsoft.

"It's basically a virtually complete Microsoft victory," agreed Bob Lande, a law professor at the University of Baltimore and director of the American Antitrust Institute.

Microsoft was found to have violated federal antitrust laws by monopolizing the market for operating systems that run personal computers. The Justice Department and nine states, including Maryland, had agreed to a proposed settlement with the software giant, and Kollar-Kotelly was charged with reviewing the agreement.

The settlement required Microsoft to allow consumers and computer manufacturers to add icons for competitors' software onto its Windows operating system, found on more than 95 percent of all personal computers. Microsoft was also required to give software manufacturers uniform licensing agreements and to give hardware vendors, Internet access providers, software vendors and other groups technical information so that their products can work with Windows.

Kollar-Kotelly accepted these provisions and ordered Microsoft to implement many of them within three months.

Critics said that there are still loopholes in the settlement and that Microsoft can retaliate against manufacturers who install non-Microsoft products on their computers.

"It's internally inconsistent, and it is worse than a rubber stamp because this judge heard several months of testimony," said Glenn B. Manishin, a former Justice Department lawyer who helped oversee the breakup of AT&T; Corp. in the 1980s and now represents the Software and Information Industry Association.

Manishin said the ruling was "unbelievably flabbergasting" and called it a "weak and, frankly, lazy approach" to complex issues. "It's really a travesty and I think the big question going forward is ... whether the states that went to trial, the nonsettling states, will appeal."

But Ellen Cooper, who heads the antitrust unit for the office of Maryland Attorney General J. Joseph Curran Jr., said the settlement was the right thing to do. "I think it really is a vindication," she said. "It was a very difficult decision to make at the time. The attorney general was up until, I can tell you, the wee hours of the morning weighing the pros and cons of accepting the settlement."

Curran decided it was best for Maryland to accept the settlement, she said. "And I think he was right."

The states that rejected the settlement were California, Massachusetts, Minnesota, Iowa, Connecticut, Florida, Kansas, West Virginia and Utah. The District of Columbia also rejected it. Several seemed pleased, however, with yesterday's ruling.

Connecticut Attorney General Richard Blumenthal said the decision sends a message to Microsoft that it has to comply and it will be held accountable.

"We fought for more, and we got more," he said. "This remedy is better, and the states can be proud of that achievement."

And Utah Attorney General Mark Shurtleff said, "I think it's going to guarantee lower prices and encourage competition, and that is going to be good for consumers in the long run. I feel good about it."

Microsoft Chairman and co-founder Bill Gates said he was "personally committed" to abide by the agreement, which he called "a good compromise and good settlement." He said the company was unlikely to challenge the decision.

"This settlement puts new responsibilities on Microsoft, and we accept them," Gates said, adding: "At this point, we're not seeing anything that would be cause for appeal, but we need to make a full assessment."

U.S. Attorney General John Ashcroft called the decision "a major victory for consumers and businesses."

The case stems back to 1998, when the federal government, the District of Columbia and 20 states, including Maryland, alleged that Microsoft violated the Sherman Antitrust Act, which curbs monopolies. One state later dropped out, and another settled last year.

In June 2000, U.S. District Judge Thomas Penfield Jackson ruled that Microsoft had violated federal and state antitrust laws and ordered that the company be split in two. But the decision was thwarted in June 2001, when the U.S. Court of Appeals overturned that order and demanded that Jackson be taken off the case.

During three long, and sometimes heated, days of hearings in Washington in February 2001, the appellate court harshly criticized Jackson for negative comments he made about Microsoft in interviews with reporters and authors, saying his remarks made him seem biased. At one point, for instance, Jackson compared the company to "gangland killers," according to court documents.

Lande, the University of Baltimore professor, said the Justice Department had achieved a great victory when the court said Microsoft violated antitrust laws, but the Bush administration and Judge Kollar-Kotelly's have since bowed to its discretion. The Justice Department and nine states agreed to the settlement in November 2001.

Consumer advocacy groups had hoped the court would drastically restructure the settlement agreement and order Microsoft to make sweeping changes to the way it designs and markets its software products. They were disappointed.

"This ruling will do nothing to benefit consumers, or to stimulate competition and innovation in the market," said Mark Cooper, director of research for the Consumer Federation of America. "Each customer should have a clear choice about which browser they want to use, which products they want to install. This won't provide for that."

For instance, Cooper said, the court's latest opinion would do little to change the complicated procedure that a computer user must follow to substitute a third-party Internet browser such as Netscape for Microsoft's Internet Explorer.

"It takes a consumer seven clicks to swap out a browser," Cooper said. "That's not competition. It's never going to happen."

Microsoft's competitors also had hoped for more. The dominance of the company's Windows operating system has long restricted the market for software and hardware, competitors claim, forcing them to work only within the market that Microsoft defines.

The ruling promises to open that market somewhat by forcing Microsoft to share some technical information and do less to discourage the use of competitors' products. But critics said it leaves much of the company's influence intact.

"They have so much power that they act like thugs, forcing companies to change how they design their products, how they do business, how they invest," said Ed Black, president and chief executive officer of the Computer & Communications Industry Association in Washington. "They scare even multi-billion-dollar corporations.

"The key to our industry's success is innovation, and the key to innovation is competition," he said. "This goes against that."

Lande said the decision will give Microsoft control of the market for the foreseeable future. "It'll be really difficult for firms other than Microsoft to produce and sell software, and consumer choice will be restricted," he said.

Microsoft spokesman Jim Desler called the settlement a "tough but fair compromise."

"We recognize we'll be closely scrutinized by the government and our competitors, and we will devote the energy and resources needed to ensure that we meet our responsibilities," he said.

The Associated Press contributed to this article.

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