Microsoft To Remain Intact

Software giant Microsoft (Nasdaq: MSFT) has escaped a forced breakup in its epic antitrust battle with the U.S. Department of Justice and a group of states unhappy with an earlier settlement agreement. Judge Colleen Kollar-Kotelly supported all of the provisions of the earlier settlement and rejected the penalties proposed by the nine non-settling states.

The ruling is available electronically at the court Web site.

In her ruling, Kollar-Kotelly addressed two issues. First, she determined whether the settlement agreement reached by Microsoft and the DOJ should be upheld or rejected; second, she decided whether any of the stiffer measures sought by the group of nine non-settling states were warranted.

Waiting and Watching

Kollar-Kotelly inherited the case more than a year ago, after an appeals court shelved a harsher plan that called for Microsoft to be split into at least two separate companies. An appellate court upheld Judge Thomas Penfield Jackson's April 2000 ruling that Microsoft behaved like a monopoly, but essentially said the punishment did not fit the crime.

A compromise was later reached, aided by the change in presidential administrations, which resulted in a softer DOJ stance on the case. That compromise required Microsoft to change how it licenses Windows and make it easier to add third-party software to Windows. But the nine non-settling states -- including California, where many of Microsoft's competitors are based -- stepped in to argue that the proposed settlement between the Redmond, Washington-based company and the DOJ was not strong enough to prevent future monopolistic actions.

More of the Same

In June, Judge Kollar-Kotelly wrapped up a three-month hearing process focusing on sanctions sought by the states. Those measures include forcing Microsoft to sell versions of Windows that do not contain such applications as Internet Explorer or Windows Media Player.

Microsoft has countered that such unbundling would cripple its core operating system software, though at one key point in the hearings, state prosecutors apparently were able to demonstrate how a stripped-down version of Windows could work.

The proposed DOJ settlement requires only that Microsoft make it possible for end users to remove those and other programs. Rival companies have said Microsoft appears poised to violate that provision with new versions of its Windows XP operating system.

Beginning of End?

With the case now more than four years old, analysts say it is unlikely that today's ruling will bring closure to the matter. Either side may appeal the ruling, and even under the existing settlement agreement, details such as who would oversee enforcement of penalties have yet to be worked out.

Microsoft has tried to put some of the DOJ settlement's policies into place. For instance, it has released some source code and has struck new licensing agreements with PC makers.

Approval of measures beyond the previously agreed-upon settlement would likely have resulted in an appeal from Microsoft, which has not ruled out taking the matter to the U.S. Supreme Court. The company has continued to post impressive financial results despite the lengthy distraction of legal wrangling and a tech spending slump that has battered many of its rivals.

There was no indication whether the nine non-settling states would appeal Judge Kollar-Kotelly's latest ruling.