Updated from 3:51 p.m. EDT


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scored a legal victory Wednesday when a federal appeals court rejected an effort by the Commonwealth of Massachusetts and two industry groups to overturn the company's antitrust settlement with the Department of Justice.

In an 83-page opinion, a six-judge panel of the U.S. Court of Appeals for the District of Columbia unanimously affirmed that the settlement crafted by Microsoft and the DOJ was in the public interest, a ruling reached by District Court Judge Colleen Kollar-Kotelly in 2002.


settlement included requiring Microsoft to set up uniform license agreements with hardware vendors, preventing Microsoft from restricting hardware vendors from installing non-Microsoft middleware or services and disclosing some software code.

Massachusetts appealed that ruling and, joined by the Computer & Communications Industry Association and the Software & Information Industry Association, argued for stricter sanctions, including removing the Internet browser from Microsoft's operating system code and broader disclosure of Microsoft code.

"This decision is a landmark decision. It removes any remaining legal uncertainty; it makes it clear that the settlement and district court decision were appropriate," Brad Smith, Microsoft's general counsel, said during a conference call on the opinion Wednesday afternoon.

For investors, the ruling is also good news because, as Smith said, it removes the last issue of legal doubt standing in the way of Microsoft making a decision on what to do with its enormous cash balance. Smith noted that CFO John Connors has said that the company's goal is to make an announcement about its plans for its cash by the company's July 29 analyst day.

Smith said the heart of the appeals court ruling found that requiring Microsoft to remove code would hurt consumers and the software industry. He expressed hope that the message would be heard in Europe, where Microsoft is appealing an antitrust ruling involving the media player and server markets. "The facts are the same," he said. "There's no reason to think the answer should be different in any other country."

Massachusetts Attorney General Tom Reilly has not yet decided whether to appeal the decision, spokesperson Sarah Nathan said via email. In a statement Reilly lambasted the appeals court ruling. "This decision is bad news for consumers, bad news for competition and ultimately will be bad news for our economy," he said.

"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," Reilly said.

Massachusetts argued the district court abused its discretion in adopting several provisions proposed by Microsoft while rejecting others proposed by Massachusetts and other states. But the appeals court noted that the settlement approved by the district court avoided at least one drawback of dissenting states' alternative proposals: Microsoft redesigning its software.

Case law dictates that it's not the court's role to make companies redesign products, both the district and appeals courts noted.

At one point, the appeals court was surprisingly effusive about the district court's ruling that restricted Microsoft from preventing hardware manufacturers from installing other middleware, writing, "We say, 'Well done!'" That restriction, the appeals court noted, opens up channels of distribution for other middleware vendors who had previously been blocked by Microsoft.

Smith pointed to the media player market as an example of how that restriction has fostered competition, citing rivals Musicmatch and the wildly successful iTunes music service delivered via


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own media player.

But RealNetworks, another media player rival still embroiled in a lawsuit against Microsoft, took a different view. "Unfortunately, the settlement approved today by the court has done little to restore competition in the browser and operating system markets," the company said in a statement.

"As recognized by the European Commission, Microsoft has used the same unlawful tactics to limit competition, innovation and consumer choice in other critical technologies, including the growing field of digital media," RealNetworks said.

Separately, CCIA and Software and SIIA appealed the district court's denial of their motion to intervene to appeal the court's determination that the Microsoft-DOJ settlement was in the public interest. The appeals court reversed the district court's denial of that motion but still rejected the trade groups' arguments against the settlement.

Other issues that came up in the appeal included how much code Microsoft should disclose, Microsoft's deception of Java developers and definitions of such terms as "Microsoft middleware."

The appeals court ruling was the latest in a string of legal announcements by Microsoft

this week, including settlements of consumer class-action lawsuits in Massachusetts and Arizona.

Shares of Microsoft inched up 6 cents, or 0.2%, to close Wednesday at $28.56; shares gained an additional 15 cents to $28.71 in recent after-hours trading.