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Justice Monitors New Microsoft Software

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Report: Microsoft
By Jonathan Krim
Washington Post Staff Writer
Tuesday, July 20, 2004; Page E01

The Justice Department has begun looking closely at the next generation of Microsoft's Windows operating system to ensure that it meets the terms of an antitrust settlement reached with the company more than two years ago.

Renata Hesse, the Justice Department lawyer in charge of monitoring Microsoft's compliance with the agreement, told a federal judge yesterday that the government wants to look at the software, code-named Longhorn, early enough in its development so that it is not presented as a "fait accompli" that would be difficult to change.

Microsoft, which has delayed Longhorn's rollout, has not said when it will be released as the successor to Windows XP, the current version of the personal-computer operating system. Several industry analysts have predicted introduction of Longhorn in 2006 or possibly 2007, which is when the antitrust settlement is scheduled to expire.

The new operating system probably will showcase an aggressive push by Microsoft on several fronts, including technology for Internet searching, managing multiple home-entertainment devices, and virus scanning and other security measures. The company also has been expanding its efforts to become an industry standard-setter in how digital entertainment is protected from illegal copying.

Some of these moves will pit the company against competitors with similar products -- such as major search-engine firm Google, for example -- and will again shine a spotlight on Microsoft's well-honed strategy of bundling more and more programs into its operating system. With Windows powering roughly 95 percent of the world's personal computers, it has an automatic distribution system for its programs that others cannot match.

It was the bundling strategy that led to Microsoft's antitrust troubles. Bundling its Internet Explorer Web browser into Windows all but squashed competition from Netscape Communications Inc.'s Navigator browser, which was the market leader but often had to be downloaded separately.

Eventually, federal courts determined that several of Microsoft's business practices broke antitrust laws and were designed to protect its operating-system monopoly. Although the courts found that commingling of the browser code with the operating system was anti-competitive, the deal with the Justice Department stopped short of forcing the company to decouple the programs.

Instead, the settlement gives computer makers and users the ability to mask the presence of certain Microsoft applications if they want to use or showcase competing programs. The Justice Department is particularly concerned that this mandate be followed in Longhorn.

Hesse said Justice Department lawyers would visit Microsoft's headquarters in Redmond, Wash., next week to discuss an array of compliance matters, including Longhorn.

Microsoft spokeswoman Stacy Drake said the company expects Longhorn to be released while the settlement is still in force and that Microsoft will adhere to the agreement in designing the new system regardless of when it comes out.

"All development is being done with full consideration for our obligations and commitments" under the agreement, she said.

At yesterday's hearing, Stephen Houck, an attorney representing several states that helped prosecute the case, agreed with the Justice Department that on most issues, Microsoft has cooperated in ensuring compliance with the agreement.

But he said that beyond simple compliance, it remains unclear whether the agreement has opened up the software marketplace to more competition. For example, he said, Microsoft's share of the browser market has gone from 94.2 percent when the agreement went into effect to 95.48 percent now. He said the states are continuing to assess changes to the marketplace.

U.S. District Judge Colleen Kollar-Kotelly, who approved the settlement and has praised its effectiveness so far, said that it is "going to take some time" to see changes in the broader marketplace. She said that a recent federal appeals court ruling upholding the settlement "added certainty" to the process.

Charles F. Rule, an attorney for Microsoft who helped draft the settlement, disagreed with Houck. He said market competition from media players such as Apple's iTunes music service -- which contains an audio player -- has made significant inroads on Windows machines.

But bundling remains a major issue in Europe, where regulators have ordered Microsoft to pay the largest antitrust fine in history and to offer a version of its operating system with its media player removed. Microsoft is appealing the ruling.


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