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Hatch: Microsoft may control Net

The Senate Judiciary Committee chairman says if Microsoft takes over the Net, it runs the risk of being overseen by a federal "Internet Commerce Commission."

WASHINGTON--The government's ongoing antitrust case against software giant Microsoft (MSFT) has sparked a public scrap between Republican leaders.

At a morning conference here, Senate Judiciary Committee chairman Orrin Hatch (R-Utah) said that if Microsoft attempts to take control over Internet standards and software, it runs the risk of being overseen by a federal "Internet Commerce Commission."

Hatch made his remarks here this morning in a speech delivered to the Progress and Freedom Foundation as part of a day-long conference entitled, "Competition, Convergence, and the Microsoft Monopoly: The Future of the Digital Marketplace." At the conference, antitrust economists, legal experts, and public officials are debating whether antitrust law enforcement or other forms of government intervention are needed to control the Redmond, Washington-based software giant.

Republican leaders came to Microsoft's defense, claiming the company has been the target of unwarranted attacks. Sen. Slade Gorton (R-Wash), for one, defended Microsoft against what he called "attacks" from competitors and anti-Microsoft factions.

"The question of whether [Microsoft] has violated antitrust laws is something of an abstract question that has been posed, not by American consumers, but by Microsoft's competitors, Gorton said in a statement. "I believe that to be the key of this entire discussion, and why I feel so strongly that Microsoft is being treated unfairly. This isn't an effort led by those who purchase software products?this fight was started by those who must compete with Microsoft."

Gorton's comments were echoed by former Representative Jack Kemp, who issued a statement today criticizing the federal government and individual states for what he deemed unwarranted attacks on Microsoft.

"It is hard to imagine a more wrongheaded, misguided, and potentially harmful use of government's power under the guise of antitrust enforcement," said Kemp, cofounder and codirector of Empower America, a right-wing grassroots organization.

Hatch, however, sounded an alarm that Microsoft may attempt to control the Internet via its software and through competitive measures. He said that the possibility of a Microsoft takeover of the Internet can be prevented if vigorous antitrust enforcement preserves competition online.

"It seems far better to have antitrust enforcement today than heavy-handed regulation of the Internet tomorrow," Hatch said. "So let me suggest to those of you who abhor the regulatory state that you give this some thought."

Hatch, who argued in his speech that Microsoft is aggressively attempting to dominate the Internet, said he plans to conduct hearings and do whatever he can to assure that competition rules "are being applied both fairly and effectively." The congressional committee Hatch chairs oversees antitrust matters.

"Just how much control over the Internet Microsoft will exercise is anyone's guess," he said, noting that many people believe the company is trying to achieve "in effect, a proprietary Internet."

Hatch said that if there is proprietary control of the Internet, and it becomes a critical medium for commerce, news, and information, "rest assured that we will be hearing calls from all corners for the heavy hand of government regulation, for a new 'Internet Commerce Commission.' "

He said that de facto monopolies, as well as "a significant degree of installed base lock-in," is not in itself "anticompetitive when it results from proper market behavior," and acknowledged that "the fact of the matter is that Microsoft and the success of Windows has been an important ingredient in the innovation and wealth-creation our software industry has produced over the past decade or so."

Hatch said he has confidence that Joel Klein, who heads the antitrust division of the U.S. Justice Department, "is up to the task" of pursuing antitrust enforcement to prevent a takeover of the Internet by any one company. Such action, he said, would prevent the need for government regulation.

"Microsoft has all the right in the world not to be asleep at the switch and allow fundamental, structural technology shift from undermining its current dominance of the software market. Its shareholders no doubt would demand as much," Hatch said. "At the same time, this is precisely where the practices of a currently dominant firm, such as Microsoft, must be scrutinized, and where the appropriate rules of the road must be clarified and enforced."

"Tying arrangements, free product offerings, licensing or marketing practices that are effectively exclusionary--these and other practices may be entirely appropriate in most instances," he added.

After his speech, Hatch told a gathering of reporters that he has met with Microsoft chairman Bill Gates and has told him that his office is always open to him and any Microsoft representative who wants to discuss the antitrust issues.

"I like Bill Gates. I think he is a credit to the country. I hope his company is successful," Hatch said. "But if Microsoft violates antitrust law, we ought to step in. We have to ask whether the complaints from others in the industry are valid. If they are, we should look into them."

Hatch said he wasn't happy with Microsoft's initial response to the government's efforts to probe into its business practices. "They were belligerent," he said. "Now they are more friendly, that works better."

Meanwhile, reports from last November that the Justice Department may be looking at Microsoft's licensing deals with content partners are resurfacing this week. For example, Wired News reported that its publisher, Wired Digital, was "issued a demand for materials relating to the company's Active Channel and possibly other Microsoft-only media products."

"It's our understanding that [Justice] has been receiving information and reviewing information on these [content] issues for some time. This does not represent any new or recent expansion of their investigation," a Microsoft spokesman said, adding, "We are confident that, when they review all our interactions with content providers, they'll agree that we're competing fairly and completely within the law."

Reuters contributed to this story.