NEW YORK (Reuters) -- Microsoft Corp. chairman Bill Gates, locked in a legal battle with the U.S. government over domination of the software market, was quoted Sunday as saying he insisted on the right to determine what goes into the company's widely used Windows operating system.

Gates was interviewed by Time news magazine after a federal judge ruled last week that Microsoft was a monopoly that had bullied rivals and hurt consumers by stifling competition, a ruling that analysts said could have drastic consequences including a possible break-up of the company."We'd love to resolve this thing, and we're going to be pragmatic about it," Gates told Time when asked if he was ready to settle.

But Gates said he could not agree to a settlement that restricted what new applications could be added to Windows.

"Let's face it. Without innovation, given the intense competition out there, Windows would become irrelevant. Not only would that be a tragedy for the shareholders, it would be a tragedy for consumers."

But Gates refused to be drawn into discussing details of a possible settlement.

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"The only thing that we know for sure that would be bad for consumers is anything that blocked us from being able to innovate Windows or anything that made is so that when people buy Windows they don't know what is in it.

"Beyond those two principles, we'll be as pragmatic as we can."

Gates said it was ironic U.S. District Judge Thomas Penfield Jackson found Microsoft to be a monopoly when in fact it faced "serious competition."

"You're not supposed to have a court telling you that you have no competition when you have competition. They are trying to change the rules of the game in a way that would be very chilling, very damaging," Gates added.

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