Judge accepts most of settlement agreement

U.S. District Court Judge Colleen Kollar-Kotelly Friday approved most of the provisions of a settlement deal between Microsoft Corp. and the U.S. Department of Justice (DOJ) and nine states that sued the software maker in a landmark antitrust lawsuit. In doing so, she brushed aside harsher remedies proposed by nine states that had refused to sign on to the agreement.

The "remedy" ruling is in effect for five years unless the court chooses to extend it, and orders Microsoft not to retaliate against computer makers who offer competing software products with the PCs they sell. The full opinion runs more than 300 pages, but a 14-page final judgment lays out the remedies, and Kollar-Kotelly also released an executive summary that synthesizes the key points in the complex case.

"The Court will hold Microsoft's directors, particularly those who testified before this Court, responsible for implementing each provision of this remedial decree," she wrote. "Let it not be said of Microsoft that 'a prince never lacks legitimate reasons to break his promise,' for this Court will exercise its full panoply of powers to ensure that the letter and spirit of this remedial decree are carried out."

Microsoft is prohibited from retaliating against computer makers or independent software makers that consider "developing, distributing, promoting, using, selling or licensing any software that competes with Microsoft Platform Software or any product or service that distributes or promotes any Non-Microsoft Middleware," the judge said in her final judgement.

Such middleware products include software for browsing the Web, for instant messaging and for playing music and video files, as well as other products. Specifically, Microsoft's middleware products include Internet Explorer, Windows Media Player and Windows Messenger, as well as Outlook Express and its Java virtual machine.

Microsoft is also prohibited from retaliating against companies that ship PCs with both the Windows operation system (OS) and non-Microsoft OSes, or PCs that boot with more than one OS.

Microsoft must provide written notice at least 30 days in advance when it seeks to terminate a licensing deal and must explain why it wants to end the contract. The company also must apply uniform terms and conditions in its license agreements and must charge a Windows royalty that complies with terms published on a Web site that can be accessed by the plaintiffs in the case and all covered companies.

One analyst said the judge's order appears to bode well for the giant software maker, which had faced the prospect of far tougher restrictions.

"It's clear, given the alternatives, that Microsoft did pretty well with this ruling," said Rob Enderle, a research director with Giga Information Group Inc. "Microsoft still has to contend with the compliance committee under the existing settlement, but it's nowhere near as painful -- even at its worst -- as what was proposed by states."

One antitrust legal expert went further.

"I thought there was some chance that (the judge) might have entered a decree that actually tried to undo some of the harm that was done," said Donald Falk, a partner with the law firm Mayer, Brown, Rowe & Maw, in Palo Alto, California. "What the opinion said basically was, 'You robbed a bank, you can keep the money, and you can do it again, but don't use exactly the same method.'"

For its part, Microsoft seemed satisfied with the outcome.

"We are pleased that the court has conditionally approved the settlement, which is a tough but fair compromise," said Jim Desler, a Microsoft spokesman. "We recognize it 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."

When Windows XP Service Pack 1 is released, or three months after the final judgment is entered -- whichever occurs first -- Microsoft must make it possible for computer makers and end users to enable or remove access to all Microsoft middleware products or non-Microsoft products through icons, shortcuts or menu entries on the desktop or start menu, the ruling says. Such middleware includes media software used to play music and video clips, and software for browsing the Web.

End users also must be able to choose a different middleware product in cases where Windows would automatically launch Microsoft software in a separate window.

The ruling orders that Microsoft cannot automatically change the way PC makers set up icons, shortcuts or menu entries without allowing users to first approve the change on their computer. It must ask for approval of such changes until 14 days after the first time a new PC is booted up. Any changes must be offered in a way that is "unbiased" to Microsoft and its competitors, the judge wrote.

Microsoft does not, however, have to document, disclose or license APIs (application programming interfaces) or communications protocols that would compromise the security of systems used for antipiracy, antivirus, software licensing, digital rights management, encryption or authentication.

Kollar-Kotelly rejected some government arguments that new technologies not previously considered by courts in the case should be covered in the remedy phase. For example, the government had argued that interactive television software and set-top boxes, handheld devices and Web services should be covered by the remedies because of Microsoft's potential to dominate in those areas in the future.

However, the "threat" from interactive TV software "is almost entirely hypothetical," she said. If in the future TV set-top boxes run on a Microsoft PC operating system and "expose a range of functionality to ISVs (independent software vendors) through published APIs," they will be automatically included in some of the court's remedy provisions.

She dismissed claims that handheld devices pose a "platform threat" to Windows, saying those arguments were either flawed or not supported by evidence. She also rejected arguments that Web services could decrease reliance on PCs and increase reliance on other devices, saying that the government did not explain how increased use of non-PC devices with Web services would affect Microsoft's monopoly.

As for enforcement, Kollar-Kotelly tossed out the plaintiff's proposal to appoint a special master over concerns that creating such a position might not be "legally sound." The government is in charge of enforcing the remedies and must form a committee to coordinate enforcement. The plaintiffs do not, however, have to create a technical committee to help them enforce the provisions. Microsoft had sought such a committee.

A compliance officer must be chosen and that person will serve as a high-level Microsoft employee, but will work independently. The plaintiffs also will have "reasonable access" to Microsoft source code, accounts, correspondence and other documentation, as well as to company employees for interviews as part of the compliance effort.

U.S. Attorney General John Ashcroft, who heads the Justice Department, hailed the court decision, calling it "a major victory for consumers and businesses" and pledging to ensure Microsoft complies with the ruling.

(Paul Roberts in Boston and Matt Berger in San Francisco contributed to this report.)

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