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Microsoft Penalties: Tough Enough?

Microsoft Logo with a gavel and blind justice
AP / CBS
The antitrust case against Microsoft Corp. is returning to the U.S. appeals court where the world's largest software company already has won significant victories since the government began investigating its business practices nearly a decade ago.

Six appellate judges who agreed in June 2001 that Microsoft had illegally abused its monopoly over Windows software are considering whether the Bush administration and 19 states negotiated adequate antitrust sanctions in a court-approved settlement.

The attorney general in one state, Tom Reilly of Massachusetts, wants tougher penalties, arguing that the settlement was so profoundly flawed that the trial judge's approval of it represented an abuse of her discretion.

"The settlement is a proper one, tough but fair," countered Microsoft's general counsel, Brad Smith. "It was a technical and legally complex settlement, not an approach that makes sense for one government to upset after 20 other governments have already agreed to its terms."

The U.S. Court of Appeals for the District of Columbia Circuit was hearing arguments Tuesday on the Massachusetts appeal of the terms of the settlement.

The government traditionally has broad latitude to fashion such settlements with companies before an antitrust trial, unless the judge can demonstrate the terms would violate the public interest. In this case, critics believe the courts should be more rigorously involved in setting sanctions because Microsoft was already determined to be an abusive monopolist.

"This is the first and most significant time this court will ever have to address the degree to which courts are supposed to defer to the government on these types of antitrust settlements," said Glenn Manishin, who represents two trade organizations contesting the Microsoft settlement.

Justice Department lawyers and U.S. District Judge Colleen Kollar-Kotelly have acknowledged recently that one key element of the disputed settlement isn't working as effectively as they had hoped. The judge has urged lawyers to determine why only nine companies so far have paid Microsoft to license its Windows technology for their own software products and report back during a hearing in January.

Massachusetts has complained that those deals "demonstrate most clearly the ineffectual nature of the court's remedy." Among other changes, Massachusetts wants to force Microsoft to sell one version of Windows without the company's own built-in programs for Web browsing, e-mails, instant-messages and music.

The U.S. Circuit Court for the District of Columbia has generally proved a favorable venue for Microsoft. The appeals court removed two other trial judges in 1995 and 2001 who ruled against the company, Stanley Sporkin and Thomas Penfield Jackson. It also overturned a contempt ruling against Microsoft by Jackson, and the court blocked Jackson's plans to break apart the company before it threw him off the case.

The appeals court unanimously agreed, however, with Jackson's ruling that Microsoft had illegally abused its monopoly over Windows operating system software, and it instructed Kollar-Kotelly to impose new sanctions. Within months — and soon after the Sept. 11, 2001, terror attacks — the sides instead negotiated the disputed settlement.

The appeals judges for Tuesday's arguments include Democratic appointees Harry T. Edwards, Judith W. Rogers, David S. Tatel; the Republican appointees are Chief Judge Douglas H. Ginsburg, A. Raymond Randolph and David B. Sentelle.

By Ted Bridis