Court to hear appeals in Microsoft case

Action puts settlement of software maker's legal battle in limbo


WASHINGTON - A federal appeals court has agreed to hear two separate challenges to Microsoft Corp.'s antitrust settlement with the federal government and nine states, putting in limbo final resolution of a 4-year-old legal battle spurred on by some of Microsoft's fiercest Silicon Valley rivals.

The U.S. Court of Appeals in Washington agreed yesterday to review a Nov. 1 District Court ruling that found the settlement agreement was in the public interest. The Computer and Communications Industry Association and the Software and Information Industry Association, whose members include Sun Microsystems and Oracle, filed the appeal.

In a separate but related case, the court ruled this month that it would hear an appeal of a second Nov. 1 ruling, also by U.S. District Judge Colleen Kollar-Kotelly, that largely approved the settlement agreement with the Justice Department and nine states. This appeal was brought by Massachusetts and West Virginia. Both cases will be heard separately by the entire appeals court panel Nov. 4.

Kollar-Kotelly's rulings marked Microsoft's most decisive win in its decade-long antitrust battle, widely viewed as the most important antitrust case since the breakup of Standard Oil in 1911.

She rejected efforts by nine states to impose tougher sanctions against the company for violating antitrust laws, and instead accepted a settlement that competitors say didn't go far enough to prevent future antitrust abuses. Seven states decided not to appeal her decision, but West Virginia and Massachusetts decided to fight on.

The appeals court's decision to take up both appeals calls into question the final outcome of the battle, raising the hopes of Microsoft's rivals who are concerned that Microsoft is leveraging its monopoly control of the personal-computer operating-system market to dominate fledgling markets, like instant messaging and software for handheld computers. The appeals court has broad authority to change the settlement in any way it sees fit, and could even throw out the settlement altogether.

"The fact that they have agreed that the entire court will hear the appeal is good, mainly because it reflects the obvious seriousness the appeals court attaches to the issue," said Michael Morris, senior vice president and special counsel for Sun Microsystems.

Still, antitrust experts remained doubtful that the lower court's rulings would be overturned.

"The fact of the matter is there's a lot of discretion with the District Court judge in fashioning that remedy," said Mark Ostrau, an antitrust attorney in the Palo Alto, Calif., office of Fenwick & West. "Unless the appeals court finds some real factual errors, it's going to be a real uphill battle" for Microsoft's opponents to win.

University of Baltimore law Professor Robert Lande agreed that the chances of the states winning were "very low." He speculated that the court decided to take up the trade associations' appeal to "establish some law in the area."

Under the settlement agreement, Microsoft is required to provide competitors with detailed technical information to make competing products, such as e-mail and multimedia players, work seamlessly with its Windows operating system, which runs more than 90 percent of the world's personal computers.

The agreement requires that Microsoft make Windows available under a standard licensing agreement to computer manufacturers. And it also allows computer manufacturers to remove desktop icons linking users with add-on Windows features, like the Media Player.

Microsoft is also facing an antitrust challenge in the European Union. A decision is expected by summer.

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