Court salvages Microsoft deal over price discount tactics

MATHEW HORSMAN

Microsoft, the giant computer software company, won a rare victory in a US federal appeals court yesterday, when a lower court ruling that had threatened the company's controversial settlement with the Justice Department was overturned. The shares rose on the news.

The lower court had thrown out the settlement last February, criticising the government for not pursuing a broader case against Microsoft, which had been accused of anti-competitive practices in the sale of operating systems.

Microsoft had agreed to stop providing discounts to computer manufacturers that used its operating systems. But the appeals court ruled that the lower court acted inappropriately in quashing the negotiated settlement.

Legal and regulatory problems have dogged Microsoft since the Justice Department began to take an interest in its dominant market position. Last month, the company was forced to abandon plans to buy the software company Intuit when the department went to court to pre-empt the deal.

The sheer size and dominant position of Microsoft were also at issue in Japan this week, when reports that the US company was in talks with Softbank, a Japanese games producer, sent shares in home entertainment companies Nintendo and Sega tumbling.

Microsoft and Softbank proposed joint development of games to run on personal computers equipped with Microsoft's new Windows 95, due for launch this year.

Analysts said the news worried investors in Sega and Nintendo, both of which make dedicated games hardware that does not run other applications. Many expect games using CD-Rom, and particularly with Windows, to overtake the cartridge-based systems that have made fortunes for the two Japanese games companies.

Microsoft's games strategy is linked as well to development of its Microsoft Network, an on-line information, news and entertainment network. It has also linked up with DreamWorks, the consortium established by director Steven Spielberg, music promoter David Geffen and former Disney movie chief Jeffrey Katzenberg. The companies plan to make games based on films and other entertainment developed by DreamWorks.

The link with Softbank, if confirmed, would see $12m invested to develop titles for Microsoft-powered PCs.