March 10 (Bloomberg) -- The Bush administration is leaving most enforcement of the Microsoft Corp. antitrust settlement to the 17 states that joined in suing the world's largest software maker in 1998.

A lawyer for the states told a federal judge March 7 that they investigated, without U.S. government help, a software company's complaint that Microsoft violated the settlement. The states said they were able to resolve the complaint without federal involvement.

The Justice Department, in a little-noticed move, bowed out from enforcing all but one provision of the court-ordered decree late last year as California, New York and the other states asked a judge to extend the settlement until 2009.

``They walked away from their biggest victory in 25 years,'' New York lawyer Stephen Houck said in an interview, referring to the 2002 settlement that resolved the case President George W. Bush's Justice Department inherited from Democrat Bill Clinton. Houck represents the states.

The Bush administration settled the case after a 2001 appeals court ruling that Microsoft illegally protected its monopoly for Windows, which powers 95 percent of the world's personal computers. After the states argued the settlement wasn't given enough time to promote new competition, U.S. District Judge Colleen Kollar-Kotelly on Jan. 29 extended the decree until November 2009.

The Justice Department allowed its separate court judgment against Microsoft to lapse. Microsoft spokesman David Bowermaster said the company had no comment on the enforcement of the antitrust settlement.

No `Basis to Extend'

``We have reached the conclusion that there is not a basis to extend'' the decree, Justice Department lawyer Aaron Hoag told the judge during an Oct. 23 telephone conference call, according to a court transcript.

The U.S. said in court papers it will continue to enforce a provision requiring Microsoft to disclose the communications links that allow rival software programs to talk to Windows- powered servers. Microsoft agreed in 2006 to extend that provision until November 2009 after the government complained the company was slow to help competitors decipher its code.

The Justice Department will no longer enforce restrictions that bar the company from pressuring computer makers not to promote competing software products such as browsers or media players. This includes the design of the next version of the operating software, now in early development. Houck told the judge March 7 that the states are reviewing early versions.

`Has No Say'

``Technically, the federal government has no say, nothing to enforce, with respect to those provisions that have expired'' now that the government's court judgment against Microsoft has lapsed, said Andrew Gavil, who teaches antitrust law at Howard University in Washington.

Justice Department spokeswoman Gina Talamona defended U.S. enforcement of the decree, saying the agency ``has not hesitated to extend the judgment when it believed it was necessary.''

``This was a Democrat case to begin with'' and ``Republicans have never shown the same level of enthusiasm about it,'' said Herb Hovenkamp, an antitrust expert at the University of Iowa law school in Iowa City.

Even if a Democratic election victory in November led to a more aggressive Justice Department, the agency's options would be limited because ``they are no longer parties to the consent decree,'' Hovenkamp said. The government would have to file a new suit to address any new complaints of anticompetitive behavior.

`Communications Links'

The requirement that Microsoft disclose its communications links has been the most problematic for the Redmond-Washington- based company. It was the basis for Kollar-Kotelly's order to extend the decree.

Her ruling said that five years after the settlement there was still no usable ``technical documentation'' for the software links. She said she would consider another three-year extension after 2009 if necessary.

At last week's hearing, Kollar-Kotelly praised Microsoft for its ``dramatic announcement'' Feb. 21 that it was publishing all 30,000 pages of Windows documentation to make it easier for competitors to design software that works with Microsoft products.

Still, she urged Microsoft and antitrust enforcers to settle their differences over a reference guide to the software documentation and agree on a timetable for its completion. ``I hope this would not be a stumbling block,'' she said, noting that 2009 is fast approaching.

Occasional Complaints

State antitrust officials continue to investigate occasional complaints that Microsoft favors its products over rivals' software, a violation of the 2001 settlement.

Phoenix Technologies Ltd. recently complained that the Windows user licensing agreement discouraged manufacturers from installing a Phoenix product. At the March 7 hearing, Houck told Kollar-Kotelly that Microsoft's agreement to change the license marked a successful conclusion to the first dispute resolved by the states without Justice Department aid.

Both critics and supporters of Microsoft said they were troubled by the federal government's scaled-back role.

``The states' hands are tied by the overly mild consent order'' agreed to by the Justice Department, said Robert Land, who teaches antitrust at the University of Baltimore. The government's departure ``just fits the pattern'' of leniency toward Microsoft, he said.

Microsoft supporter Jonathan Zuck, president of Association of Competitive Technology, disagreed. The government has always played a kind of moderating role'' on the states, he said. ``I hope they aren't able to skew this process back off the rails.''

To contact the reporter on this story: James Rowley in Washington at jarowley@bloomberg.net

Last Updated: March 10, 2008 00:44 EDT