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Appeals Court Oks Settlement In Antitrust Suit Against Microsoft

Microsoft Corp., beset by battles with government regulators, won a legal victory Friday when a federal appeals court approved a settlement over anticompetitive marketing practices - and rebuked a federal judge who emerged as a powerful critic of the computer software maker.

The U.S. Court of Appeals for the District of Columbia Circuit said a lower court judge should not have rejected an antitrust settlement between the Justice Department and Microsoft, the largest personal computer software company.

The pact required Microsoft to alter contracts with personal computer manufacturers that allegedly shut out competing operating system software.

More significantly, the appeals court disqualified U.S. District Judge Stanley Sporkin, saying he exceeded his authority by attempting to broaden the case. The three-member appeals court returned the case to a different lower court judge with a recommendation for approval.

Wall Street welcomed the development, sending Microsoft stock up $2.12 to close at $87 a share on the Nasdaq Stock Market on heavy volume of 5.8 million shares.

Legal experts said the outcome wasn’t surprising given the controversial nature of Sporkin’s decision. Sporkin, in a brief telephone interview, declined comment, saying he was still reading the opinion.

But the significance could be overshadowed by a new Justice Department antitrust investigation of Microsoft, announced last week, into its proposed on-line network and software patent infringement agreements.

“If the government takes action on the network and patents, then this decision is not of significance for the industry,” said Gary Reback, a Palo Alto, Calif.-based attorney representing software companies highly critical of Microsoft.

Just last month, Microsoft dropped its planned $2 billion merger with personal finance software maker Intuit Inc. after the Justice Department sued to block the merger.

Kimberly Ellwanger, a senior corporate attorney for Microsoft, said the company was “absolutely delighted with today’s decision,” which resolves a major portion of the government’s 4-year investigation of its business practices.

At issue was so-called “consent decree” the Justice Department and Microsoft reached last July concerning Microsoft’s licensing agreements with personal computer makers. Such agreements required the manufacturers to pay a royalty to Microsoft for every computer they shipped even if they used operating software from another company.

Operating software, such as Microsoft’s Windows, control a personal computer’s basic functions, such as the workings of printers and keyboards. The government argued that Microsoft’s agreements unfairly shut out other operating systems.

The settlement drew criticism from competitors as narrowly drawn and amounting to little more than a slap on the wrist for Microsoft.

Sporkin rejected the settlement Feb. 14, saying he did not have enough information to determine if the deal was in the public interest. The Justice Department didn’t go far enough, he argued, by failing to investigate “vaporware” practices - promoting new software products well before they’re ready for market in order to discourage customers from buying competing products.

The appeals court sided with the Justice Department and Microsoft, which jointly appealed Sporkin’s ruling. The court said Sporkin should not have questioned why the Justice Department did not seek a stronger settlement.

The Tunney Act, a key federal antitrust law, “cannot be interpreted for a district judge to assume the role of attorney general,” the court said in an opinion written by Circuit Judge Laurence Silberman.

Attorney General Janet Reno said the decision confirms the agency’s understanding about “the appropriate roles of the courts and the Department of Justice in the enforcement of the antitrust law.”

Ilene Gotts, an antitrust attorney for Foley & Lardner in Washington, said the ruling provides comfort that judges won’t second-guess basic elements of settlement agreements.

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