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Microsoft actions getting closer?

Speculation mounts that regulators will take legal action against the software giant. Whether a last-minute settlement will be reached remains unclear.

Speculation is mounting that regulators will take legal action against Microsoft as soon as next week.

Officials won't comment on the record, but they have been circulating drafts of potential lawsuits they might file against the software giant. They also have been questioning Microsoft, its competitors, and its partners about the company's business practices.

Whether they will file a lawsuit--or reach a last-minute settlement--remains unclear. But some of the potentially anticompetitive practices that regulators have been probing include the following:

  • The bundling of Microsoft's Internet Explorer browser with Windows 98. If regulators can prove Microsoft is a monopolist, such tying could be challenged under the Sherman Act, which governs the nation's antitrust laws.

  • The integration of certain features into Windows 98 as a way of using its dominant operating system to promote applications. One company, TV Host, which makes software that provides online television listings, says Microsoft is integrating similar software into Windows 98 as a way to gain an unfair advantage. The Harrisburg, Pennsylvania, company says regulators have been talking to it on "almost a daily basis."

  • Control of the screen that users see when they first turn on their computers, dubbed the "first boot." Because Microsoft uses the screen to promote content and Internet providers, trustbusters could argue that Microsoft is extending its dominance in desktop operating systems into new markets, in violation of antitrust law.

  • Microsoft's alleged attempts to sabotage the "write-once, run-anywhere" promise of Java. Sun Microsystems, which develops and markets Java, claims in a pending lawsuit that Microsoft is trying to fragment the programming language by implementing a version that will run only on Microsoft platforms.

  • The company's contracts with partners that allegedly are lock-out competitors. Many of the provisions with Internet service providers and Web sites have been dropped, but a few allegedly remain. The provisions prohibited partners who enter into certain agreements with Microsoft from promoting Netscape Communications and other Microsoft competitors.

    In some cases, Microsoft has agreed to relax restrictions that lawmakers and regulators have found objectionable. Most recently, Microsoft dropped plans to force computer vendors to carry a menu of pre-selected Web sites on the opening screen of Windows 98. Regulators were concerned that the so-called Active Channel Bar unfairly circumvented deals that vendors had struck with content partners.

    A week earlier, Microsoft backed away from a controversial provision in contracts it had with hundreds of content partners that limited their ability to promote competing Web browsers. Antitrust investigators had been investigating the legality of the restrictions, but, in both cases, Microsoft said its decisions to drop them were made in the ordinary course of business.

    Microsoft denies any wrongdoing on all of these fronts, and consistently has declined to speculate on what actions regulators might take next.

    "Clearly, every day, we have heard many different comments about what many different parties are doing," said Microsoft spokesman Jim Cullinan. "I think it's wise for us to remain focused on our primary mission, which is shipping Windows 98 to our customers, and that is what we continue to do."

    But outsiders, including Rich Gray, an antitrust attorney with Bergeson, Eliopoulos, Grady, & Gray, continue to speculate. Gray said he remains doubtful that regulators will be able to prevail on a claim of tying Web browser technology to Windows 98.

    Explained Gray: "There is very little law that suggests it is improper to bring new products into an existing product."

    He noted, however, that the government may have a stronger case when it comes to allegations that Microsoft has tried to "balkanize" Java, especially following a federal judge's decision in March that largely sided with Sun. Another strong case for regulators is Microsoft's restrictions on computer vendors, which prevent them from altering the opening screen of Windows.

    Both the U.S. Justice Department and at least 13 state attorney generals are seriously considering filing a lawsuit against Microsoft, and they may coordinate their actions. Officials from a number of those offices have said that they have not yet decided whether to file.

    The Justice Department filed an action last October that alleged Microsoft's requirements that Windows 95 be shipped with the Internet Explorer browser violated the terms of a 1995 consent decree forbidding the tying of separate products. Microsoft strenuously has argued that the decree expressly permits it to integrate new features into the Windows operating system. In December, U.S. District Judge Thomas Penfield Jackson issued a preliminary injunction requiring Microsoft to offer Windows and Internet Explorer separately. That injunction is now on appeal with a higher court.

    In a speech today in Washington, Joel Klein, head of the Justice Department's antitrust division, said that "Microsoft, like any corporation, would benefit from strong domestic competition," according to Bloomberg.

    When asked if the intricacies of the high-tech industry in which Microsoft competes would affect his decision to take action, he answered that he "would not let complexity deter me from engagement."