"The order approving the consent decree in the public interest is affirmed," the appeals court wrote in an 83-page ruling that preserves the settlement and dismisses the objections of Massachusetts -- the lone holdout state -- and two industry trade groups.
The decision by the US Court of Appeals for the District of Columbia Circuit is another step for Microsoft toward putting to rest a case that once threatened extraordinary penalties. Judge Thomas Penfield Jackson originally ordered, in June 2000, that the software giant be split in two as a penalty for violating federal antitrust law.
An appeals court a year later upheld some findings that the software maker had abused its monopoly position but threw out the breakup order. Microsoft and the federal government reached a settlement in November 2001, with the states divided on whether to accept the deal or fight for stiffer penalties.
The settlement has a number of provisions, including requirements that Microsoft disclose server protocols to rivals, offer uniform licensing of Windows to computer makers and not engage in exclusive contracts that would prohibit software developers or PC makers from using competing products.
Those appealing the ruling had argued that the court should have taken more direct action to prevent Microsoft from tying its products together -- an action known as "commingling" -- but the court said the settlement aided competition without taking such a drastic step.
"Far from abusing its discretion, therefore, the district court, by remedying the anticompetitive effect of commingling, went to the heart of the problem Microsoft had created, and it did so without intruding itself into the design and engineering of the Windows operating system. We say, 'well done!'" the court said in the ruling.
Microsoft was quick to praise the decision.
"Of all the steps we've taken over the past two years, this is the most important step in resolving our legal issues and moving forward," Brad Smith, senior vice president and general counsel at Microsoft, said in a statement. "Today's unanimous decision sends a clear and emphatic message that the settlement reached two years ago is a fair and appropriate resolution of these issues."
Massachusetts could appeal to the US Supreme Court, but the high court would have to agree to hear the case. So far, the state has not indicated that it will appeal.
"This was a fight worth fighting, because it was about the future of our economy. This decision is bad news for consumers, bad news for competition and ultimately will be bad news for our economy," Massachusetts Attorney General Tom Reilly said in a statement on Wednesday. "This clearly shows that our antitrust laws are not effective in protecting consumers. Our high-tech economy will not reach its full potential unless regulators and the courts are willing to deal with Microsoft and its predatory practices."
The Justice Department said it was pleased with Wednesday's ruling.
"This is a resounding victory for the Justice Department and American consumers," Assistant Attorney General R. Hewitt Pate said in a statement. "The Court's forceful decision confirms what the department has been saying all along: Our settlement protects the public by providing a full and effective remedy for Microsoft's anticompetitive conduct."
This has been a momentous week for Microsoft on the legal front. On Tuesday, the company agreed to pay $34m to settle a separate class action lawsuit in Massachusetts, in which the company was charged with breaking laws on unfair competition and consumer protection. A day earlier, it won preliminary approval of a $105m deal in Arizona to settle similar charges.
And over the weekend, the European Commission suspended an order that would have required Microsoft this week to begin offering a version of Windows without its Media Player. In that case -- the biggest hurdle remaining among the company's many legal battles over its business practices -- Microsoft has asked a key European court to annul the Commission's $604m fine and other judgments against it.
Microsoft has also been working to settle other outstanding legal matters in recent months, reaching multimillion-dollar accords with Sun Microsystems, Time Warner and others. A $1bn lawsuit by RealNetworks remains active.
RealNetworks on Wednesday lashed out at the court's ruling.
"The US courts and the European Commission have each concluded that Microsoft's unlawful abuse of its operating-system monopoly has restricted competition, stifled innovation and limited consumer choice," the company said in a statement. "Unfortunately, the settlement approved today by the court has done little to restore competition in the browser and operating-system markets."
