Microsoft under pressure on Windows XP

WASHINGTON--Lawmakers, trustbusters and competitors are turning up the heat on Microsoft, indicating they could seek to delay the company's Windows XP operating system, due to ship in October.

On Wednesday, a privacy group said it plans to file a formal complaint with the Federal Trade Commission over privacy concerns regarding Windows XP. During a Tuesday press conference, Sen. Charles Schumer, a New York Democrat and member of the Senate Judiciary Committee, asked federal and state trustbusters to consider taking action that would delay Windows XP's release. He also called on Judiciary Committee Chairman Sen. Patrick Leahy, D-Vt., to hold hearings on the matter.

Also Tuesday, software maker InterTrust amended an existing lawsuit against Microsoft, asking for an injunction against Windows XP. The Santa Clara, Calif.-based company charges that controversial product-activation technology found in Windows XP violates four InterTrust patents.

Previously, state attorneys general said they, too, would consider an injunction to delay Windows XP's launch so that the U.S. District Court for the District of Columbia could probe potential consumer harm and anticompetitive issues posed by the new operating system.

Microsoft is not taking potential Windows XP delays lightly. The company is pushing hard for settlement talks, seeking to drag out court proceedings and scrambling to get Windows XP to PC makers ahead of schedule.

The privacy group, the Electronic Privacy Information Center, posted a notice to its Web site on Wednesday stating that it plans to file a complaint with the FTC in relation to Windows XP, alleging that Microsoft uses unfair and deceptive trade practices.

Schumer's attack and InterTrust's injunction come at sensitive times for Microsoft, particularly as the Justice Department and 18 states weigh their next step in the antitrust case. In late June, the U.S. Court of Appeals for the District of Columbia Circuit upheld eight separate antitrust claims against Microsoft.

Microsoft and government negotiators are said to be here this week conducting preliminary settlement negotiations.

"A lot of this may be posturing about settlement," said Andy Gavil, an antitrust professor with Howard University School of Law. "Both sides are rattling sabers. The government has hired a serious litigator to lead up their team...they're going to have hearings. Is it all going to be smoke and mirrors, or is everyone ready to sit down and discuss some serious resolution?"

Senator seeks XP delay Sen. Charles Schumer, D-NY

But Schumer, whose state is home to Microsoft competitors including AOL Time Warner, IBM and Eastman Kodak, called on Assistant Attorney General Charles James to "not settle with Microsoft unless they agree to a global settlement providing open access for competitors to offer their software application products on an equal basis with Microsoft applications."

Microsoft spokesman Vivek Varma brushed aside Schumer's anticompetitive concerns.

"While we respect the opinion of Senator Schumer and all members of the Senate Judiciary Committee, Microsoft does not believe the complaints of AOL (Time Warner) and Kodak merit a congressional hearing," he said. "Contrary to AOL's self-interested lobbying, Windows XP is designed to enable user choice and partner opportunity."

Pushing the states
The Democratic senator also said he had encouraged state attorneys general to seek an injunction delaying Windows XP's release. "Last night, I spoke with New York State Attorney General Elliot Spitzer, and I am calling on him, along with the other state attorneys general, to bring suit enjoining the release of Windows XP unless Microsoft agrees to make significant changes to XP either as part of a global settlement or on their own initiative," Schumer said.

Schumer largely attacked Windows technologies affecting AOL and Kodak. In a letter sent to Schumer on Tuesday, Jack Krumholtz, Microsoft's director of federal government affairs, expressed frustration that his company could not demonstrate Windows XP as planned.

"I had hoped to address the issues you raised in a meeting that was scheduled for 11:00 a.m. (EDT) today in your office," he said. "We were obviously disappointed that your office canceled this meeting last night, opting instead to hold your press conference this morning without benefit of a briefing by Microsoft."

Bill Jeansonne, a computer consultant from Bethesda, Md., slammed any legislative act against Microsoft. "I think the senator's actions are reprehensible," he said. "The idea of a U.S. senator impeding technological developments is absolutely outrageous. The senator is obviously grandstanding for his constituents and probably doesn't even know what Windows XP is."

Legal experts are divided over whether the government could actually delay Windows XP's Oct. 25 launch.

"Odds are very good," Gavil said. "I think Microsoft has been trying as hard as possible to make the shipment of Windows XP seem like an inevitability and nothing can stop it, but I don't see that at all. I think the government is going to have to make a decision pretty soon about it, probably based on how the settlement discussions are going with Microsoft."

But Jonathan Jacobson, an antitrust lawyer with Akin, Gump, Strauss, Hauer & Feld in New York, disagreed. "The idea (that) a District (Court) judge would enjoin XP based on what's out there right now is exceedingly remote. What's going to happen on the Hill is purely political pressure that could be important and significant, but it would have no legally binding effect on Microsoft."

This would not be the first time Microsoft ran afoul of the Senate Judiciary Committee. Sen. Orrin Hatch, the Republican senator from Utah, conducted hearings on Microsoft in March 1998.

"One of the interesting facts about the case all along has been the bipartisan support," Gavil said. "This isn't the kind of case where you see ideological lines clearly drawn."

Clock is ticking
The government must decide within just a few weeks whether to request an injunction against Windows XP, said Dana Hayter, an attorney with Fenwick & West in Palo Alto, Calif. If the trustbusters wait too long, there wouldn't be time before the new operating system's release.

"The best shot at stopping XP is that the release of XP would somehow entrench the damage that has been already done by Microsoft," Hayter said. The government must show that XP's release "would cause irreparable harm to competitors," something Hayter isn't confident the trustbusters can pull off, even with the appeals court victory.

Jacobson said an injunction against the release of a new product was "if not unprecedented, highly unusual. I certainly cannot think of an instance. Since so much of what antitrust is about is encouraging innovation, there is a strong presumption against enjoining the release of a new product."

Playing for time?
Microsoft, apparently not waiting for the government to act, is stalling for time and pushing hard to get Windows XP out the door quickly.

Jacobson described Microsoft's request for rehearing one portion of the case as a "stalling tactic for thwarting any possible injunction against XP."

The company may also be accelerating plans to complete Windows XP, which is in the final testing stages. Though Microsoft had given partners and customers a tentative Aug. 29 release date of final--or gold--Windows XP code, PC makers have been given targets of between Aug. 15 and Aug. 20.

That means direct-PC makers could conceivably start selling Windows XP systems no later than mid-September--five weeks or more before the official launch. If Microsoft makes its target, it could make getting an injunction much harder, Gavil said.

"The sooner Microsoft can get Windows XP out the door, the more likely they are able to protect it in some sense," he explained. "Certainly it won't be easy to recall it. I think if the government doesn't act, some competitor will."

The requests for a Windows XP injunction--by InterTrust or the government--share one thing in common: potential harm to Microsoft and partners.

"Microsoft would weigh in pretty heavily on the impact to the computer industry as a whole, and frankly I don't know how a judge will react to that," Gray said.

Microsoft could show lots of harm to partners and the PC industry, said NPD Intelect analyst Stephen Baker.

"It's pretty obvious you have irreparable harm," he said. "Retailers, PC makers and all are ramping up, spending money, formulating their plans for Windows XP. If it doesn't ship, that's lost time, effort and money on their part."

With PC makers already trimming inventories of existing models for Windows XP's anticipated launch, a delay could leave some manufacturers with periods of no stock on the shelves during the holidays.

"What could cause more harm than not having PCs in November and December?" Baker asked.

Less Hill, a Windows user from Orem, Utah, summed up the sentiments of many consumers. "I feel that postponing the release of Windows XP would do a great disservice to the consumer," he said.