A US appeals court has rejected an effort by Massachusetts and two IT industry groups to overturn the anti-trust settlement reached between the US Department of Justice (DoJ) and Microsoft.

The ruling rejects appeals by Massachusetts (which reached a separate settlement with Microsoft this week), the Computer and Communications Industry Association (CCIA) and the Software and Information Industry Association (SIIA), which argued that the November 2002 DoJ settlement was not in the public interest.

In the 83-page ruling, Chief Justice Douglas Ginsburg said the three appellants failed to prove the need for additional anti-trust penalties against Microsoft. Among the additional penalties Massachusetts asked for were for Microsoft to release the code for its Internet Explorer (IE) browser and to separate the "commingling" of IE code and the Windows operating system.

The settlement went far enough by allowing OEMs and consumers to remove IE middleware from the operating system and install competing browsers, Ginsburg wrote. Removing middleware code that affects IE functionality would hurt consumers and independent software developers, and could be nearly impossible to do, Ginsburg said.

"The district court, by remedying the anti-competitive act 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," Ginsburg wrote. "We say, well done!"

Microsoft top lawyer Brad Smith cheered the ruling. "We're obviously very gratified with today's decision, and we're pleased that it takes another significant step forward in adding legal clarity and putting the issues of the past behind us," he said during a Wednesday conference call with press. Smith said his company's "job number one" was fulfilling its obligations under the anti-trust settlement. And he did it with a straight face too.

Microsoft was also pleased that the court's decision focused on the issue of whether to remove components of the Windows operating system. "Competitors and regulators have been focused on whether it would make sense to remove software code from the Windows product," he said. "Today's unanimous decision thoroughly affirms the principle that removing code from Windows is neither necessary nor helpful for our industry or consumers. To the contrary, the Court of Appeals made clear today that removing software code from Windows would be a huge step backward."

The question of whether to remove Windows code remains a central one in Europe, where the European Commission has ordered Microsoft to begin offering a version of Windows without Windows Media Player. Earlier this week, the European Commission temporarily suspended the enforcement of the order requiring this change, one day before it was scheduled to take effect.

Smith said he hoped Europeans would take note of Wednesday's decision, which "addresses many of the precisely same questions that are front and center in Europe".

CCIA President and Chief Executive Officer Ed Black said he was disappointed but not surprised in the ruling. Getting the appeals court to overturn the district court's "presumption of discretion" was a difficult case to make, Black said. "I don't think there's anybody who believes the settlement has had an impact," Black added. "In the real world, our claim has been validated. Unfortunately, no real competition has increased as a result of the ruling." CCIA has no immediate plans to appeal Wednesday's ruling, Black said.

Massachusetts Attorney General Tom Reilly issued a statement saying the US technology economy will not "reach its full potential unless regulators and the courts are willing to deal with Microsoft and its predatory practices."

"This was a fight worth fighting because it was about the future of our economy," Reilly added in his statement. "This decision is bad news for consumers, bad news for competition and ultimately will be bad news for our economy."

In the anti-trust settlement, Microsoft was prohibited from retaliating against computer makers or independent software vendors that develop or sell competing software. Microsoft was also prohibited from retaliating against companies that ship PCs with both the Windows operating system and non-Microsoft operating systems.

The Computing Technology Industry Association (CompTIA) had been converted to Microsoft's cause however and hailed the court decision as one that "serves the interest of consumers and the industry".

"CompTIA is relieved that the ruling finally ends this untenably long case and allows the IT industry, including our 19,000 members, to get on with its business of innovating instead of litigating," Bob Kramer, vice president for public policy at CompTIA, said. "We have long held that the interest of the consumer should be placed over the parochial concerns of a small handful of competitors."

Additional reporting by Robert McMillan