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MS changes European ISP deals

Microsoft modifies some of its contracts with European ISPs, a move that it said is likely to end an informal inquiry launched by the European Commission.

Microsoft (MSFT) has dropped some of the requirements it imposes on European Internet service providers, a move that it said is likely to end an informal inquiry launched by the European Commission (EC) ten months ago.

The software giant modified cross-promotional agreements with European ISPs to remove certain provisions relating to browsers, a Microsoft spokeswoman said. The company declined to elaborate but characterized the modifications as routine.

In October, the EC's Directorate General IV, which is responsible for European antitrust enforcement, said it was looking into the contracts. Microsoft said today it received a request for documents last March.

In December, the company modified the contracts and notified the European Commission of the changes, according to Microsoft associate general counsel Brad Smith. Smith said that based on comments an EC official made today, it appears the commission is no longer interested in looking into the matter, but he stressed that Microsoft did not make the changes in response to any investigation.

"We typically do a new version of our contracts every 12 to 18 months," Smith told CNET's NEWS.COM. "This [change in ISP contracts] wasn't unusual. We did so mostly with an eye toward business issues."

In addition to looking into business practices affecting ISPs, the EC is believed to be informally investigating other issues pertaining to Microsoft, including discounts it gives to computer venders that buy its Office suite in high volumes.

Microsoft's practices are also the subject of numerous other inquiries. In the most prominent one, the Justice Department has accused the software company of violating terms of a 1995 consent decree by requiring Internet Explorer be included with its dominant Windows 95 operating system. (See related coverage)

The agency is also in the midst of a broader investigation into other practices, as are at least nine state attorneys general. The Senate Judiciary Committee has also held hearings focusing on Microsoft and has indicated it plans to hold more later.

In addition, Japan's Fair Trade Commission raided Microsoft's Tokyo office, looking for documents pertaining to the bundling of its Internet browser and word processing software. The company also faces a private antitrust suit from Caldera, a Utah company which inherited the rights to Dr. DOS, a now-defunct competitor of Microsoft's DOS.

With Microsoft's agreement to modify its contracts, at least one of those fires appears to have been put out. Karel Van Miert, the commissioner who heads the EC Directorate General IV, told the Associated Press today that he will likely drop his inquiry into company's contracts.

"Microsoft seems to be prepared to offer remedies in due time, so the commission doesn't need to bring the case to final decision," he said in a press conference. He added that the case concerned ISP contracts "flying in the face of competition rules."

While Microsoft declined to discuss exactly what changes it made in the 30 or so cross-promotional agreements it has with European ISPs, an inquiry by the Senate Judiciary Committee may provide some clues. During a hearing last November, Sen. Orrin Hatch (R-Utah) released a cross-promotional agreement ISP EarthLink Network entered with Microsoft.

The agreement carried provisions forbidding EarthLink from telling some of its new customers about the existence of Netscape Communications' Navigator, a competitor to Microsoft's Internet Explorer. The contract also permitted Microsoft to terminate the deal if the number of new customers selecting Internet Explorer fell below a certain provision.

Microsoft counsel Smith said that to the best of his knowledge none of the cross-promotional agreements with European ISPs ever contained quotas.

The contract modification comes on the heels of another agreement change Microsoft made in November with software maker Santa Cruz Operation. Following a separate EC investigation, Microsoft agreed to drop a ten-year-old contract provision requiring its code be included in SCO's Unix products.

Steve Sabbath, SCO's vice president for law and corporate affairs, suggested the contract changes announced today were likely to have a wider impact than the requirements his company had opposed.

"This may be more of a precedent affecting the industry," he said. "There might be a lot of smaller companies that will get some leverage out of this."