[Am-info] U.S. Pursues Microsoft Allegations

[Mitch Stone]

http://www.latimes.com/business/la-fi-
micro24oct24011440,0,5704896.story?coll=la%2Dheadlines%2Dbusiness

U.S. Pursues Microsoft Allegations
Justice Dept. looks into claims that the software giant is hiding Windows 
details from rivals.

By Jube Shiver Jr., Times Staff Writer

WASHINGTON -- The Justice Department is investigating allegations that 
Microsoft Corp. continues to hide details about its flagship Windows 
operating system from competitors, a tactic that could unravel a proposed 
settlement to the 4-year-old antitrust case against the software giant.

The probe focuses on whether Microsoft is refusing to share technical 
information that would allow rivals to write programs that work as well 
with Windows as Microsoft's own software does, according to executives 
whose companies have been in contact with investigators.

Such behavior would violate key provisions of the accord that the company 
reached with federal antitrust enforcers in November to bring the landmark 
case to an end. U.S. District Judge Colleen Kollar-Kotelly is expected to 
rule on the settlement any day -- and legal scholars say she could well 
take Microsoft's current conduct into account as she makes her decision.

A spokesman for Redmond, Wash.-based Microsoft said Wednesday that the 
company's actions did not violate the proposed settlement.

Meanwhile, California and eight of the states that sued Microsoft in 1998 
are trying to persuade the judge to reject the deal, which they believe is 
too soft on the company. That Kollar-Kotelly has yet to make a ruling four 
months after testimony was wrapped up in the penalty phase of the 
long-running case makes them optimistic that she is inclined to agree.

After a 19-month trial, Microsoft was found guilty in June 2000 of 
violating state and federal antitrust laws by using its monopoly power in 
the crucial market for operating-system software to crush rivals and 
extend its dominance to Web browsers, multimedia software and other 
emerging technologies. Its Windows software runs on more than 90% of all 
personal computers.

Microsoft's alleged use of restrictive and discriminatory business 
agreements was a key element in the dispute, which is widely considered 
the most important business case since the breakup of Standard Oil Co. 
nearly a century ago.

Appeals to higher courts failed to overturn the decision, but by the time 
they were exhausted, George W. Bush had replaced Bill Clinton in the White 
House. Under new management, the Justice Department was more eager to 
bring the marathon case to a close.

The settlement, reached in November, called for Microsoft to give 
competitors access to so-called software communications protocols in 
Windows so they could write programs that connect PCs to the Internet and 
with one another, even if they run on disparate operating systems. The 
company has been implementing changes in its business conduct in advance 
of Kollar-Kotelly's ruling as a show of good faith.

But rivals including Sun Microsystems Inc. and Red Hat Inc. have 
complained during the last two months that Microsoft has been less than 
forthcoming. Justice Department officials began actively pursuing the 
complaints in recent days.

Michael H. Morris, general counsel for Santa Clara, Calif.-based Sun, said 
Justice Department investigators agreed to meet with him next week to 
discuss the company's concern that Microsoft's nondisclosure agreements, 
or NDAs, are overly restrictive when it comes to the communications 
protocols.

Other companies also have been contacted, according to industry sources.

In an Oct. 22 letter addressed to Justice Department antitrust division 
head Charles A. James, a lobbyist for a group of Silicon Valley firms 
opposing Microsoft complained that the software giant is imposing onerous 
terms for the technical data it is willing to share by requiring payment 
before companies can evaluate and test the software code.

"Surely prepayment for protocols not yet technically evaluated cannot be 
reasonable," Mitchell S. Pettit, head of Project to Promote Competition & 
Innovation, a Washington, D.C.-based lobbying group that opposes Microsoft,
  wrote in the letter.

Morris said that under the NDA, Sun cannot even detail its grievances in 
public.

"Under the terms of the NDA, I can't talk to you about the terms of the 
NDA," he said. "It's quite bizarre."

Microsoft says its nondisclosure agreements and other conditions it 
imposes on those who want access to its intellectual property are widely 
used in the industry.

"We agreed to license our intellectual property as part of the settlement 
agreement with the Justice Department," said Microsoft spokesman Jim 
Desler. "We set up a straightforward process, using industry standards for 
people to do so. It's a confidential process."

However, companies that sign NDAs are permitted to disclose any problems 
to the Justice Department and the nine states that endorsed the proposed 
settlement, Desler said.

Justice Department spokesman Mark Corallo said he could not comment on the 
matter because "all of this is pending before the court."

Some legal experts say the Justice Department probe is unfolding so late 
that it is unlikely to influence Kollar-Kotelly's ruling. The 59-year-old 
jurist has conducted a painstaking and methodical examination of the 
Microsoft case during the last 12 months, going so far as to carry case 
work home and phone lawyers at odd hours to ask questions about the case.

Still, the Justice Department inquiry has heartened officials from the 
holdout states, who for months had complained that the federal government 
was ignoring their concerns.

Some of these same officials add that the longer Kollar- Kotelly considers 
her ruling, the stronger the likelihood that she is seriously considering 
the reservations that the holdout states have long voiced about the 
proposed settlement.

"If she wanted to rubber-stamp the consent decree, she would have been 
done a long time ago," said one state lawyer, who requested anonymity.

The federal Tunney Act limits Kollar-Kotelly's freedom to impose sweeping 
new sanctions.

Legal experts said that in order for Microsoft to face harsher punishment,
  Kollar- Kotelly would have to reject the settlement as not being in the 
public interest -- something even state officials believe she is unlikely 
to do.

But some experts say Kollar-Kotelly could use the new allegations of 
Microsoft's unfair business conduct as leverage to encourage Microsoft and 
the Justice Department to modify their proposed settlement.

"She might call the parties in and say, 'I would approve the settlement if 
you agree with the following changes,' " said Andrew Gavil, an antitrust 
expert and law professor at Howard University.