AP 15 Feb 95 15:31 EST V0278
 
Copyright 1995. The Associated Press. All Rights Reserved.
 
   WASHINGTON (AP) -- The Justice Department and computer software giant Microsoft Corp. are carefully calculating their next legal steps after a federal judge's stunning rejection of their proposed antitrust settlement. 
   Although U.S. District Judge Stanley Sporkin has grumbled for months that the settlement did not go far enough in restricting Microsoft, his decision Tuesday to reject the deal was so unusual that both sides -- Microsoft and the Justice Department -- were stunned into virtual silence. 
   Microsoft said today that it "strenuously disagrees" with Sporkin's ruling and would continue to comply with the proposed consent decree while reviewing its legal options. 
   "Both the government and Microsoft provided ample information to demonstrate that the consent decree provides appropriate relief for the matters alleged in the complaint, and is in the public interest," William H. Neukom, the company's senior vice president for law and corporate affairs, said in a statement. 
   Attorney General Janet Reno said, "I'm going to read the opinion." Both sides said they needed time to review Sporkin's 45-page ruling before deciding what to do next. 
   Microsoft's stock initially plunged more than $2 a share in heavy trading on the NASDAQ stock market, but recovered much of the loss. By early afternoon Microsoft shares fetched $61.12 1/2, down 75 cents. 
   The Tunney Act requires that antitrust settlements be approved by a federal judge as being in the public interest. Approval is so common that it's assumed by all parties. 
   But in this case, Sporkin called the remedies in the proposed consent decree "too little, too late." 
   Sporkin's ruling leaves the government several options: It could appeal his ruling, it could go to trial on its allegations against Microsoft or it could try to negotiate a new agreement with the company that would satisfy Sporkin. The company could join an appeal, decide it wants to go to trial or offer to open new negotiations. 
   Going to trial would be a hassle, but not necessarily traumatic for Microsoft, said Bruce Lupatkin, analyst with Hambrecht & Quist in San Francisco. The case could be tied up in court for years, but "in the interim, I suspect Microsoft's dominance would continue unabated," he said. 
   While technically possible, dropping the case is not a realistic option because the government has publicly charged Microsoft, the world's largest software company, with antitrust violations that prosecutors said were provable in court. Dropping a case under those conditions could subject a prosecutor to disciplinary action. 
   Sporkin set a hearing for March 16 to learn what the government and company have decided to do next. 
   Sporkin said the proposed settlement, reached last July 15, would fail to break the software giant's monopoly or to remedy its past "anticompetitive practices." 
   "Microsoft has a monopoly on the market for personal computer operating systems," with a market share consistently above 70 percent, Sporkin declared. 
   Microsoft's MS-DOS -- along with its Windows program, which allows the user to select visual images to issue MS-DOS commands -- is the operating software that runs an overwhelming majority of the world's 150 million computers. 
   The proposed settlement would have prohibited Microsoft from requiring provisions in its licenses that the government argued gave it an unfair advantage in selling its computer operating systems to companies that make computer terminals. 
   "The court finds the decree on its face to be too narrow," Sporkin ruled. 
   First, the proposed decree applies only to future licensing practices by Microsoft, Sporkin wrote. 
   "Simply telling a defendant to go forth and sin no more does little or nothing to address the unfair advantage it has already gained," Sporkin wrote. "The decree is too little, too late." 
   Second, Sporkin said the decree would apply to licensing of existing Microsoft operating systems including "MS-DOS and Windows and its predecessor and successor products." 
   But, he added, neither side addressed his concern "that the decree be expanded to cover all of Microsoft's commercially marketed operating systems." 
   "The decree must anticipate covering operating systems developed for new microprocessors," because computers and software will undergo "wholesale changes" in the next few years, Sporkin said. 
   Third, Sporkin was particularly upset the decree did not address the practice of "vaporware" -- a public announcement of a computer product well before it is ready for market in order to discourage customers from buying a competing product already on sale or about to go on sale. 
   Other computer companies told Sporkin that Microsoft uses vaporware. Microsoft denied it. 
   At a hearing earlier this year, Assistant Attorney General Anne Bingaman, head of Justice's antitrust division, told Sporkin the settlement covers the violations the government could prove in court and that he had no legal power to force her to bring charges she did not believe she could prove. 
   Microsoft is known for being among the most aggressively competitive software companies, a fact Sporkin noted, and one he suggested the Justice Department note, too. 
   "The government itself is so anxious to close this deal that it has interpreted certain anticompetitive practices so narrowly that it possibly has given the green light for persons to engage in anticompetitive practices with impunity," he wrote. 
   Chris Le Tocq, a principal with SofTracks software research in Los Altos, Calif., and Lupatkin, the San Francisco analyst, agreed. "The way Microsoft markets its products is very competitively, very aggressive," Le Tocq said. "And if they don't see any legal reason to change their habit, they aren't going to." 
   One might assume a strong Justice Department action "could tame them a bit," Lupatkin said. "But in my heart of hearts, I don't really believe that."