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U.S. Pursues Microsoft Allegations

Times Staff Writer

WASHINGTON -- The Justice Department is investigating allegations that Microsoft Corp. continues to hide details about its flagship Windows operating system from competitors, a tactic that could unravel a proposed settlement to the 4-year-old antitrust case against the software giant.

The probe focuses on whether Microsoft is refusing to share technical information that would allow rivals to write programs that work as well with Windows as Microsoft’s own software does, according to executives whose companies have been in contact with investigators.

Such behavior would violate key provisions of the accord that the company reached with federal antitrust enforcers in November to bring the landmark case to an end. U.S. District Judge Colleen Kollar-Kotelly is expected to rule on the settlement any day -- and legal scholars say she could well take Microsoft’s current conduct into account as she makes her decision.

A spokesman for Redmond, Wash.-based Microsoft said Wednesday that the company’s actions did not violate the proposed settlement.

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Meanwhile, California and eight of the states that sued Microsoft in 1998 are trying to persuade the judge to reject the deal, which they believe is too soft on the company. That Kollar-Kotelly has yet to make a ruling four months after testimony was wrapped up in the penalty phase of the long-running case makes them optimistic that she is inclined to agree.

After a 19-month trial, Microsoft was found guilty in June 2000 of violating state and federal antitrust laws by using its monopoly power in the crucial market for operating-system software to crush rivals and extend its dominance to Web browsers, multimedia software and other emerging technologies. Its Windows software runs on more than 90% of all personal computers.

Microsoft’s alleged use of restrictive and discriminatory business agreements was a key element in the dispute, which is widely considered the most important business case since the breakup of Standard Oil Co. nearly a century ago.

Appeals to higher courts failed to overturn the decision, but by the time they were exhausted, George W. Bush had replaced Bill Clinton in the White House. Under new management, the Justice Department was more eager to bring the marathon case to a close.

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The settlement, reached in November, called for Microsoft to give competitors access to so-called software communications protocols in Windows so they could write programs that connect PCs to the Internet and with one another, even if they run on disparate operating systems. The company has been implementing changes in its business conduct in advance of Kollar-Kotelly’s ruling as a show of good faith.

But rivals including Sun Microsystems Inc. and Red Hat Inc. have complained during the last two months that Microsoft has been less than forthcoming. Justice Department officials began actively pursuing the complaints in recent days.

Michael H. Morris, general counsel for Santa Clara, Calif.-based Sun, said Justice Department investigators agreed to meet with him next week to discuss the company’s concern that Microsoft’s nondisclosure agreements, or NDAs, are overly restrictive when it comes to the communications protocols.

Other companies also have been contacted, according to industry sources.

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In an Oct. 22 letter addressed to Justice Department antitrust division head Charles A. James, a lobbyist for a group of Silicon Valley firms opposing Microsoft complained that the software giant is imposing onerous terms for the technical data it is willing to share by requiring payment before companies can evaluate and test the software code.

“Surely prepayment for protocols not yet technically evaluated cannot be reasonable,” Mitchell S. Pettit, head of Project to Promote Competition & Innovation, a Washington, D.C.-based lobbying group that opposes Microsoft, wrote in the letter.

Morris said that under the NDA, Sun cannot even detail its grievances in public.

“Under the terms of the NDA, I can’t talk to you about the terms of the NDA,” he said. “It’s quite bizarre.”

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Microsoft says its nondisclosure agreements and other conditions it imposes on those who want access to its intellectual property are widely used in the industry.

“We agreed to license our intellectual property as part of the settlement agreement with the Justice Department,” said Microsoft spokesman Jim Desler. “We set up a straightforward process, using industry standards for people to do so. It’s a confidential process.”

However, companies that sign NDAs are permitted to disclose any problems to the Justice Department and the nine states that endorsed the proposed settlement, Desler said.

Justice Department spokesman Mark Corallo said he could not comment on the matter because “all of this is pending before the court.”

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Some legal experts say the Justice Department probe is unfolding so late that it is unlikely to influence Kollar-Kotelly’s ruling. The 59-year-old jurist has conducted a painstaking and methodical examination of the Microsoft case during the last 12 months, going so far as to carry case work home and phone lawyers at odd hours to ask questions about the case.

Still, the Justice Department inquiry has heartened officials from the holdout states, who for months had complained that the federal government was ignoring their concerns.

Some of these same officials add that the longer Kollar- Kotelly considers her ruling, the stronger the likelihood that she is seriously considering the reservations that the holdout states have long voiced about the proposed settlement.

“If she wanted to rubber-stamp the consent decree, she would have been done a long time ago,” said one state lawyer, who requested anonymity.

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The federal Tunney Act limits Kollar-Kotelly’s freedom to impose sweeping new sanctions.

Legal experts said that in order for Microsoft to face harsher punishment, Kollar- Kotelly would have to reject the settlement as not being in the public interest -- something even state officials believe she is unlikely to do.

But some experts say Kollar-Kotelly could use the new allegations of Microsoft’s unfair business conduct as leverage to encourage Microsoft and the Justice Department to modify their proposed settlement.

“She might call the parties in and say, ‘I would approve the settlement if you agree with the following changes,’ ” said Andrew Gavil, an antitrust expert and law professor at Howard University.

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