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States looking at Texas MS probe

An investigation by the Texas attorney general into Microsoft's business practices has piqued the interest of attorneys general in other states.

An investigation by the Texas attorney general into Microsoft's (MSFT) business practices has piqued the interest of other attorneys general, even in the software giant's home state of Washington.

This evening, Tina Kondo, an official in the Washington attorney general's antitrust department, said that the agency had contacted the Texas attorney general this week seeking more information about that state's investigation of Microsoft's practices in the area of Internet software and online commerce. Kondo would not comment on whether Washington plans on joining the Texas investigation.

The Texas investigation may have sparked interest in another state. According to a published report, the commonwealth of Massachusetts has been contacted by the Texas attorney general regarding Microsoft and is considering joining the probe.

On Monday, Microsoft received a civil investigative demand--a governmental subpoena for information--from the Texas attorney general's office. Although a Microsoft spokesman wouldn't discuss the details of the subpoena, he did confirm that it was related to Microsoft's business practices on the Internet. "We can't comment on the specifics, but it appears to be a request for information from Microsoft as part of an examination into competition on the Internet," Microsoft spokesman Mark Murray said.

Reports have suggested that the Texas attorney general's investigation is focusing in part on whether Microsoft is leveraging its dominance in the desktop operating system market to become dominant in interactive services. A Microsoft airline ticketing service, Expedia, competes with Travelocity, a airline, hotel, and auto reservation Web site run by the Sabre Group, a company based in Dallas-Fort Worth.

However, a Sabre Group spokeswoman said that the company has not been contacted by the Texas attorney general, and that it is not involved in the investigation of Microsoft. "The reports were a surprise to us," said Jennifer Hudson, a spokeswoman for the Sabre Group.

Ward Tisdale, spokesman for the Texas attorney general's office, would not elaborate on the allegations that sparked the investigation but said the probe has no relation to the antitrust case conducted by the Justice Department. Microsoft has about a month to respond to the Texas subpoena for information. Until then, it may not be clear exactly what the state is investigating or why.

In the meantime, Texas investigators appear to be feeling out other attorneys general for information regarding Microsoft's business practices. States will frequently cooperate on cases that affect consumers or business in their respective areas. Recently, more than 40 attorneys general banded together filed suite against America Online due to customer complaints about the online service.

Netscape attorney Gary Reback said Texas has issued Netscape a subpoena for information about Microsoft several months ago. Reback speculated that the Texas attorney general is concerned about preserving competition for high-tech companies in the state.

"Texas has a very robust start-up community around Austin and a very sophisticated high-tech community in North Dallas," Reback said.

According to the Greater Austin Chamber of Commerce, the city has about 120 high-tech companies employing more than 33,000 people. It is unclear how many of those are Internet start-ups, but presumably Texas officials perceive the Internet as an important growth area for state businesses.

An official with the attorney general's office in California, a state with huge high-tech operations, said he could neither "confirm nor deny" whether the state has been contacted by Texas investigators regarding Microsoft.

Antitrust experts say a Texas challenge to Microsoft's business practices actions could affect how the software giant does business in the other 49 states and even internationally.

"It raises some interesting jurisdictional issues," said Rick Rule, a partner with Washington law firm Covington & Burling and former head of the Justice Department's antitrust division. "In this area, it's going to be pretty hard to limit any action to the state itself."

That's if Texas actually ends up taking formal action. The Justice Department would not comment on whether it had been contacted by Texas authorities on the matter.

Rule, for one, believes that it will be difficult for Texas to prove that Microsoft is impeding competition in the Internet market. The federal government has already spent a fair amount of time and energy trying to come up with concrete evidence that supports this argument. Proving that Microsoft is bullying its competitors is difficult when Netscape still dominates in market share for browsers.

"The one area where antitrust needs to be exercised with the greatest care is in software and computers," Rule added. "The market moves so rapidly, if you target something today you have to make sure it will be around in a couple of years. That works fine in some industries, but not with computers."

The Justice Department last year began looking into allegations by Netscape Communications that Microsoft was unfairly using its might in the desktop operating systems to gain an advantage in the Internet software market. In a letter to federal investigators in August, Netscape attorney Gary Reback accused Microsoft of pressuring PC hardware manufacturers to drop Netscape's Navigator browser in favor of Internet Explorer, among other things.

The department hasn't taken any action on the charges but is continuing to gather information about Microsoft, according to Netscape and Microsoft representatives.