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Texas goes after Microsoft

Microsoft is the focus of an investigation in Texas, the first state to conduct its own antitrust probe of the company.

If Microsoft (MSFT) feels that it has enemies everywhere, it may be right.

The company is now the focus of an antitrust investigation launched by the attorney general of Texas, the first state to conduct its own probe of the software giant's business practices. While the federal government has already cast itself as Microsoft's antitrust watchdog, the Lone Star State's involvement could have wide implications beyond state borders.

On Monday, Microsoft received a subpoena for information, a piece of paper called a civil investigative demand, from the Texas attorney general's office. A company spokesman wouldn't discuss the details of the subpoena today, except to say that it was related to its 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.

Published reports have suggested that the Texas attorney general's investigation is focusing in part on Microsoft's plans to offer an online travel agency for booking airline tickets called Expedia. The service will compete 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 today 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.

Attorney Gary Reback said Texas also 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.

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 is, 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.

Already, the federal government has 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 the browser market share.

"The one area where antitrust needs to be exercised with the greatest care is in software and computers," Rule said. "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 market 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.