Judge Raises Questions on Microsoft Decree : Technology: On the eve of federal hearing, antitrust settlement is criticized as being too limited.

NEW YORK — The federal judge overseeing the antitrust settlement between the government and Microsoft Corp. sharply questioned the limited scope of the agreement late Thursday, raising issues at the heart of the software company’s dominant role in the computer industry.

In an order signed just a day before Microsoft and the Justice Department planned to seek final approval of the settlement, U.S. District Judge Stanley Sporkin in Washington said he would ask the two sides to explain why certain business practices were excluded from the accord.

Sporkin’s order is not itself a sign that he will reject the agreement. But it presents a tough agenda for winning his approval, which is required because Sporkin is responsible for overseeing the Microsoft settlement.

It also indicates that the judge has taken into consideration many criticisms of the settlement, which was forged last July after a four-year government investigation of Microsoft over its top position in the multibillion-dollar software industry.

The settlement largely preserves Microsoft’s dominance. If Sporkin finds it unacceptable, he could ask Microsoft and the Justice Department to try again. That raises the prospect of much harsher restrictions on Microsoft and, at its most extreme, splitting up the company in much the same way telephone monopolist AT&T; Corp. was dissected more than a decade ago.

In his order, the judge said he wants to know why Microsoft was not required to establish a barrier between the development of operating software, which runs the basic functions of a personal computer, and applications software, programs that handle such functions as word processing and spreadsheets.

Critics have charged that the absence of such a barrier has allowed Microsoft to use its dominance in operating systems to control another key market, giving it unparalleled strength.

The computer industry has been transfixed by the Microsoft case, awaiting the outcome in what could prove to be a pivotal point in the story of a phenomenally successful company with an awesome reach.

Sporkin, performing the required judicial review of antitrust cases, conducted two hearings last fall. He had previously indicated that today’s hearing would be the final one, but he also invited comment from interested parties.

Two outside parties are expected to get a chance today to show why they should be heard in the case. Microsoft and the Justice Department have protested, saying the outsiders brought their objections too late. The order late Thursday gives no indication whether the outsiders will be permitted to take a role.