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Microsoft Rivals Gain New Hope Judge’s Ruling Raises Spirits, But Final Impact Is Uncertain

A federal judge’s rejection of the government’s proposed antitrust settlement with Microsoft Corp. has given smaller rivals hope they can compete more effectively against the computer-software behemoth.

But it’s premature for these smaller companies to break out the champagne, experts in antitrust law and the computer industry said Wednesday.

Microsoft, one of the most successful, profitable and combative American corporations, said it “strenuously disagreed” with the ruling, which was seen as a possible indication it would appeal.

For now, nothing has significantly changed for Microsoft’s rivals, who operate in the shadow of the world’s biggest computer software company and fear its awesome influence.

“It’s a long way from ultimate victory for them,” said Warren Grimes, a professor at Southwestern University School of Law in Los Angeles who follows antitrust cases. “All they’ve got is one judge saying he doesn’t like the current settlement.”

Microsoft, based in the Seattle suburb of Redmond, has long dominated the market for personal-computer software with its MS-DOS and Windows operating systems. The systems, which run a personal computer’s basic functions such as storing files, are found on more than 70 percent of all PCs in the world.

Smaller companies such as Lotus Development Corp. and Borland International have long complained that Microsoft has used unfair licensing and business practices to monopolize the market.

In July, the Justice Department and Microsoft crafted an antitrust settlement under which Microsoft would drop the practice of licensing MS-DOS to computer manufacturers based on the numbers of computers they sold, regardless of whether the computers used MSDOS.

U.S. District Judge Stanley Sporkin in Washington, who has authority over the proposed settlement, on Tuesday rejected it as too narrow. He said it wouldn’t break what he called Microsoft’s monopoly or remedy its past “anticompetitive practices.”

Microsoft’s stock tumbled in early trading Wednesday, plunging more than $2 a share in heavy trading on the NASDAQ stock market. It recovered a bit, closing at $60.75, down $1.12.

In disagreeing with Sporkin’s ruling, Microsoft said Wednesday it would continue to comply with the terms of the settlement, known as a consent decree, while reviewing its legal options.

“Microsoft negotiated the consent decree in good faith and made accommodations to the government,” said William H. Neukom, the company’s senior vice president for law and corporate affairs. “Both the government and Microsoft provided ample information to demonstrate that the consent decree provides appropriate relief for the matters alleged in the complaint, and is in the public interest.”

The Justice Department said it also needed time to review Sporkin’s 45-page ruling before deciding what to do next.

Attorney General Janet Reno was expected to announced the government’s next legal steps in the case at her weekly news conference this morning.

The parties can appeal the decision to the U.S. Court of Appeals or renegotiate the settlement to satisfy Sporkin’s concerns. Another option, considered highly unlikely, is for the government to drop the case. Or it could go to trial on the government’s original allegations.

There was speculation Wednesday that Microsoft could win on appeal. William Baxter, head of the Justice Department’s antitrust division in the early 1980s, when the government decided to drop an antitrust suit against IBM after 12 years of court wrangling, said Sporkin overstepped his bounds.

Grimes wouldn’t hazard a guess as to what Microsoft would do.