Judge OKs Microsoft settlement

Judge OKs Microsoft settlement
A federal judge mostly approves deal between software maker and DOJ; shares rally.
November 1, 2002: 5:41 PM EST

WASHINGTON (AP) - A federal judge on Friday approved most of the provisions of an antitrust settlement between Microsoft Corp. and the Justice Department, largely setting aside concerns by some states that the sanctions were too light on the software titan.

The sanctions are to last for at least five years unless extended by the court, the judge said.

The approved settlement requires Microsoft to disclose some sensitive technology to its rivals months earlier than the company and the Justice Department had proposed.

U.S. District Judge Colleen Kollar-Kotelly wrote, "The court is satisfied that the parties have reached a settlement which comports with the public interest."

Microsoft said it was reviewing the decision.

"The issues in this case are significant, not only for Microsoft but for the industry and consumers," spokesman Vivek Varma said. "We are committed to resolving these issues in a constructive way so that we can focus on long-term growth and innovation for consumers."

Investors appeared pleased. Shares of Microsoft (MSFT: Research, Estimates) rose $2.30, or 4.3 percent, to $55.30 in after-hours trading following the judge's decision. The stock fell in the regular session.

The judge said the proposed settlement by Microsoft and the Justice Department "adopts a clear and consistent philosophy such that the provisions form a tightly woven fabric."

The decision eliminates the establishment of a technical committee to assess Microsoft's compliance with the agreement. In its place, a corporate compliance committee -- consisting of Microsoft board members -- will make sure Microsoft lives up to the deal, the judge said.

Appeals are likely in a complicated case that has already lasted four years.

"It might not be resolved for another two years," University of Baltimore law professor Robert Lande said. "No one should count their winnings yet."
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Microsoft was found to have violated antitrust laws, illegally maintaining its monopoly over computer software operating systems by strong-arming competitors. But an appeals court threw out a previous order that would break the company in two, leaving Kollar-Kotelly to decide how Microsoft should be punished.

The settlement would prevent Microsoft from participating in exclusive deals that could hurt competitors; require uniform contract terms for computer manufacturers; allow manufacturers and customers to remove icons for some Microsoft features; and require that the company release some technical data so software developers can write programs for Windows that work as well as Microsoft products do.

Justice prosecutors and Microsoft say the deal will immediately benefit consumers. Microsoft has already started complying with the deal by distributing technical data and releasing an update to Windows XP that permits the removal of Microsoft icons.

Some Microsoft competitors, such as Sun Microsystems (SUNW: Research, Estimates), have told the Justice Department that Microsoft's compliance measures aren't adequate. Lawyers for the government and the settling states are investigating those complaints.

The nine states still suing Microsoft, led by Iowa, California and Connecticut, spent two months trying to convince Kollar-Kotelly that those penalties aren't enough to give Microsoft's rivals a fair chance to compete with the software company, whose Windows operating system and productivity software run on over 90 percent of home and business computers.

Those states want Microsoft to divulge more technical information, give computer manufacturers more freedom in how they package Windows in their systems, and allow users to completely remove some Microsoft features from Windows rather than just hide access to them.

Gates said during three days of testimony in the antitrust case that the added penalties would unfairly confiscate Microsoft's intellectual property, cause mass layoffs and force the company's research and development efforts "into a 10-year period of hibernation."

The judge announced her decision just days before national elections. In three of the nine states that agreed to settle the case along with the Justice Department -- Illinois, Michigan and Wisconsin -- those attorneys general are running for governor this year, and two more active in the case are running for governor next year, in Kentucky and Louisiana.

In Connecticut, where Richard Blumenthal is one of the most aggressive attorneys general advocating harsher penalties against Microsoft, his re-election opponent accused him Thursday of being "obsessive" in his pursuit of the software maker. Martha Dean, a Republican, praised Microsoft as a successful business and said penalties against it could hurt the state's pension fund and citizens' retirement investments.

Under federal antitrust rules, Kollar-Kotelly does not have authority to change the terms of the settlement. She can approve the deal or reject it, although she can offer suggestions to lawyers to change the proposal in ways that would win her ultimate approval.

Lande predicted that the five-month delay between the hearings and the ruling could be good news for the suing states.

"If all she was going to do was rubber-stamp the settlement between the Department of Justice and Microsoft and say that the states get nothing, she could have done that in two or three months," Lande said. "I think it means the states are going to get something."

Since the federal and state cases are so intertwined and complicated, no one knows just what that something will be. Lande said Kollar-Kotelly's hardest job was to make sure that the settlement order and any added penalties don't send Microsoft mixed signals -- particularly since Microsoft already has indicated that it plans to appeal to the Supreme Court if necessary.

"She wants to be really sure that there's no inconsistencies," Lande said. "Microsoft is going to appeal anyway, but one of the things they would say is that she's being inconsistent."

Before Friday's after-hours gains, Microsoft was down nearly 20 percent year-to-date, but less than the Nasdaq, which has plunged nearly 32 percent. And Microsoft's shares have outperformed the market since it hit its low point on October 9, surging 22 percent compared with a 19 percent gain for the Nasdaq.

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