Microsoft's Antitrust Case Ends In U.S As Appeals Process Begins In Europe

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Microsoft has reached the end of its six-year antitrust case with the U.S. government following a court of appeals decision issued Wednesday, but the company faces continued litigation with ISVs and regulators here and in Europe.

On Wednesday, the U.S. Court of Appeals upheld the antitrust settlement Microsoft signed with the U.S. Department of Justice in 2001, and denied an appeal by the attorney general of Massachusetts for harsher penalties against the software giant.

In particular, the court ruled that any requirement forcing Microsoft to make changes to the Windows operating system-"such as removing the media player-"would be "significantly harmful" to consumers and ISVs, said Brad Smith, Microsoft's chief legal counsel.

Removing code from Windows was one of the potential sanctions sought by Massachusetts, the last holdout of the original 19 states that filed antitrust litigation against Microsoft in conjunction with the U.S. Justice Department in 1998. Half of those states initially objected to the 2001 settlement between Microsoft and the U.S. government, but ultimately all but Massachusetts consented to the decree.

Neither Microsoft Chairman Bill Gates nor Microsoft CEO Steve Ballmer attended a press conference held Wednesday afternoon after the long-awaited ruling was issued.

In their place, however, Microsoft's chief legal counsel lauded the ruling as a historic and final decision ending the case and said the competitive landscape is alive and well in the software industry.

"It's very clear that the court decision addressed the heart of competition issues, but did so in a sensitive way to the needs of consumers and the industry," said Smith, who pointed to the successes of Apple's iTunes, MusicMatch and Linux as evidence that the consent decree is working.

"Here we stand six years later, and who would doubt for a moment that a product like Linux would remain an important part of the OS universe, and it's not just one product from one company but a common kernel being built and deployed by many companies, Novell and Red Hat. We see vibrant competition every day and it does a good job of keeping us on our toes."

In 2001, Microsoft, Redmond, Wash., was found guilty of violating both Sections I and II of the Sherman Antitrust Act but ultimately endured penalties far less severe than many once conceived, including a potential breakup of the company and forced changes to the operating system.

Microsoft has been aggressive about settling a good portion of the vast amount of antitrust-related litigation filed against it since that time, most notably with nemesis Sun Microsystems in April. Over the past week, Microsoft settled outstanding class-action cases with the states of Massachusetts and North Dakota.

The company still has litigation pending in the United States and Europe, but the ruling was a significant victory, said one economist who has followed the case since its beginning.

"This concludes most of the series of antitrust cases against Microsoft," said Nicholas Economides, an economics professor at New York University's business school. "In the U.S., the suit of RealNetworks against Microsoft on dominance of the Windows Media market by Microsoft is still open, and so are some civil suits. The European case remains as the most significant antitrust challenge to Microsoft right now."

On March 24, the European Commission imposed a hefty $613 million fine against Microsoft and an order to ship a version of Windows without the media player after ruling the software giant abused its monopoly power.

Microsoft appealed the ruling and this week was granted a stay on the order to produce a stripped-down version of Windows until the Court Of First Instance hears Microsoft's appeal.

Pro-Microsoft lobbying groups such as CompTIA and the Association for Competitive Technology cheered Wednesday's decision as a win for consumers while opponents decried the U.S. remedies as a slap on the wrist.

"This decision represents the failure of antitrust laws in the high-tech industry. The court has found that competition to Microsoft is inefficient, therefore ensuring the perpetuation of the very monopoly the same court found was unlawfully maintained," said Mike Pettit, president of ProComp, the Project to Promote Competition and Innovation in the Digital Age, based in Washington. "The biggest losers are consumers. An unrestrained monopolist in the most vibrant sector of the economy cannot be good for America."

While opponents dismissed the remedies as insufficient, most Microsoft solution providers were pleased with the U.S. settlement and cheered the conclusion of the case as long overdue.

"You cannot legislate innovation," said Arnie Bellini, owner of ConnectWise, a solution provider in Tampa, Fla. "Microsoft has every right to include features in its operating system."

"As one of the lone states continuing with the case, the Massachusetts attorney general spent taxpayer monies chasing after something that was settled with the DOJ [Department of Justice] and other states months ago," said Ken Winell, president of Econium, a Microsoft solution provider in Totowa, N.J.

Following the ruling, Microsoft's Smith urged European officials to read the rationale of the U.S. Appeals Court's decision before rendering its final decision.

"It takes another significant step forward in providing legal clarity and putting the issues of the past behind us," said Smith. "I do hope that people in Europe will pause and take a bit of time to read today's decision. This court concludes that removing code from Windows would hurt consumers rather than help them, and hurt the software industry rather than help it. So there's no reason that the answer should be any different in another country."

In a joint status report filed with the court in April, the Department of Justice and the Massachusetts attorney general claimed that Microsoft was not adequately complying with one provision of the consent decree related to the communications protocol licensing program. The parties urged Microsoft to produce better documentation for its communication protocols to competitors.

On Wednesday, however, the Department of Justice said it is confident that the consent decree is working well.

"The court's forceful decision confirms what the [Justice] Department has been saying all along--our settlement protects the public by providing a full and effective remedy for Microsoft's anticompetitive conduct," said R. Hewitt Pate, assistant attorney general of the department's Antitrust Division, in a prepared statement Wednesday. "The division's attorneys and economists will continue to monitor closely Microsoft's compliance with the settlement."

A Microsoft spokesman said Microsoft will file a status report on the communications protocol licensing issue and other outstanding items later this month.

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