Appeals Court OK's Microsoft Antitrust SettlementAppeals Court OK's Microsoft Antitrust Settlement

A U.S. appeals court Wednesday unanimously affirmed the antitrust settlement reached two years ago by Microsoft and the Department of Justice. The six judges of the U.S. Circuit Court of Appeals for the District of Columbia ruled in favor of the deal struck by Microsoft and Justice, and endorsed by 18 states, and the judges agreed that Microsoft could "hide" its browser software in Windows, rather than completely remove the code.

Brad Smith, Microsoft's senior VP and general counsel, heralded the ruling as a major victory in the company's ongoing legal battles. "This decision is a landmark decision," Smith said in a conference call with reporters, adding that it should put to rest questions that lingered over the impact and longevity of the settlement.

The state of Massachusetts and two industry groups had sought tougher sanctions against Microsoft, including code removal. Massachusetts' attorney general, Tom Reilly, called the appeals court decision "bad news for consumers, bad news for competition, and ultimately bad news for our economy."

The issue of code removal remains a central issue in Microsoft's ongoing legal battle with the European Commission, which fined the vendor $613 million earlier this year for antitrust violations. On Sunday, the European Commission temporarily suspended its decision, as a judge decides whether to delay sanctions until Microsoft's appeals are exhausted.

Smith said he hoped European regulators would take notice of Wednesday's ruling. "As this court today concluded, removing code from Windows would hurt consumers rather than help them, [and] it would hurt the software industry rather than help it," he said. "There's no reason to think the answer would be any different in any other country. The facts are the same."

The appeals ruling will make it easier for Microsoft to decide what to do with its more than $50 billion in cash reserves. "Today's decision does remove the last area of legal doubt that we were considering as a factor with respect to the company's financial reserves," Smith said. Microsoft is expected to disclose plans for how it will invest some of that cash sometime in July.

Microsoft's settlement with the Justice Department, approved in November 2002 by U.S. District Judge Colleen Kollar-Kotelly, was aimed at giving consumers more choices by, among other things, helping rivals develop competing software on computers running Windows. The provisions expire in 2007.

Massachusetts, the only holdout state that continued to press for tougher sanctions, argued that the settlement was so flawed that it represented an abuse of the trial judge's discretion. Microsoft's lawyers responded that Massachusetts had sought extreme penalties that would require its engineers to redesign Windows.