Massachusetts Attorney General Thomas Reilly is refusing to sign a settlement proposal in the Microsoft antitrust case, saying the pact is riddled with loopholes and does little to change the software giant's competition-quashing practices.

Instead, the Bay State will appeal U.S. District Court Judge Colleen Kollar-Kotelly's approval of settlement terms.

In doing so, Massachusetts was the first plaintiff on record against the deal, which was brokered by the U.S. Department of Justice (DOJ). Other holdouts (California, Connecticut, Florida, Iowa, Kansas, Minnesota and Utah, plus the District of Columbia) will accept the agreement despite lingering reservations.

West Virginia followed Massachusetts' lead, filing its appeal late today.

Reilly said the pact, which will pay the states $28.6 million for legal costs and future enforcement and compliance, "ignored Microsoft's ill-gotten gains" and wouldn't spark competition.

"When Microsoft illegally crushes a new idea, because it threatens Microsoft's monopoly, it is consumers who pay the price," Reilly said in a statement. "Competition is also key to what we are doing. Without competition, our economy has no future. It is what provides choices, spurs on new technology, and creates jobs."

For Massachusetts, which started its investigation of Microsoft anti-competitive practices in 1996, it's been a long fight. In 1998, the Bay State sued the Redmond, Wash., company for monopolistic practices related to its Windows operating system and claimed victories (along with its co-plaintiff states and the DOJ) in trial and appeals courts.

Reilly, however, was disappointed with the remedies portion of the case, in which Kollar-Kotelly rejected stricter measures and approved sanctions that roughly paralleled the agreement hammered out between the DOJ and Microsoft.

Reilly said Massachusetts has the cash and will to proceed alone. If successful, Reilly said Microsoft would be compelled to cover any additional legal fees related to the appeal. The Democrat, who has been one of Microsoft's harshest critics, also used the opportunity to swipe at President Bush, noting that the unpalatable agreement came after a "change in administrations."

For its part, Microsoft said it will comply with the settlement agreement. The pact does not prevent Microsoft from tying software like its Web browser, e-mail client and media player with its operating system -- initially a cornerstone issue in the government's case.

It does, however, require the company to provide software developers with the APIs (define) for its middleware, allowing them to create competing products that can utilize the integrated functions Microsoft includes in its own products.

It also gives computer manufacturers and consumers the freedom to substitute competing middleware software on Microsoft's operating systems -- without fear of retaliation from the industry giant.

Additionally, it requires the company to license its operating systems to PC manufacturers on uniform terms for five years. It also bans Microsoft from entering into exclusive agreements.

Finally, the settlement includes a provision for a panel of three independent monitors, which will work from Microsoft campuses and have full access to the company's books, systems (including source code), and personnel for five years.

The court will have the option to extend that period for another two years if it finds that Microsoft violates the settlement.