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Wednesday, July 25, 2001 - Page updated at 12:00 AM

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Senators again target Microsoft for hearings

Seattle Times Washington bureau

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WASHINGTON — Key Democrats used their party's newfound control of the Senate yesterday to tentatively schedule antitrust hearings on Microsoft and to urge the government to block the debut of the company's latest operating system.

The development threatened early settlement talks between Microsoft and the government.

One day after Microsoft and Justice Department officials met to discuss the procedure for settlement discussions, Judiciary Committee Chairman Patrick Leahy, D-Vt., said he planned to hold hearings in September, one month before the Oct. 25 release of Microsoft's Windows XP.

The Senate involvement followed substantial lobbying by two New York-based companies, AOL Time Warner and Kodak, both of which say that software included in XP will compete unfairly with their own products.

The hearings would be the first since 1998, when Republican Sen. Orrin Hatch of Utah, whose state includes Microsoft rival Novell, oversaw a congressional debate on Microsoft's competitive practices.

A memo yesterday outlining the proposed hearings did not name Microsoft, but committee sources said the hearings were intended to target Microsoft. The memo specifically cited "desktop issues" — an area dominated by Microsoft — and "Web and Internet issues," the target markets of upcoming Microsoft products. The hearings will be "forward-looking" and also examine licensing issues, exclusive contracting and bundling of separate products, said the memo by Leahy spokesman David Carle.

The criticism by Democrats, who recently gained control of the Senate and its hearing schedule, could hardly have come at a worse time for Microsoft, whose executives have increasingly spoken favorably about settling the antitrust case out of court. Legal observers say Microsoft appears to be biding its time until the debut of XP, reasoning it would be harder for the government to recall the product once it's on the market.

In June, the Court of Appeals for the District of Columbia found some of Microsoft's marketing practices illegally exclusive and sent the case to U.S. District Court to fashion a remedy.

Microsoft last week opposed the government's effort to speed the case back to District Court before August, asking an appeals court to reconsider a technical issue and pondering whether to seek a Supreme Court review. The clock may run out before the Oct. 25 product launch because computer makers and retailers can begin selling XP as soon as they get their master copies.

"Bargaining is difficult as it is. It's best to be done in secret," said Nicholas Economides, a New York University economist. "It would be inappropriate and not beneficial for anyone if the bargaining stage becomes a Senate hearing. It is important (in reaching an agreement) for people to have the flexibility to step back."

A Microsoft spokesman said the company "does not believe the complaints of AOL and Kodak merit a congressional hearing," noting that more than 50 software makers in New York have products that will run on XP.

"We have repeatedly expressed our willingness to work with the government to resolve the remaining issues in this case," the spokesman said.

AOL and Kodak drew substantial support from committee member Sen. Charles Schumer, D-N.Y., who more than a year ago questioned a government plan calling for the breakup of the company. Schumer canceled a meeting with Microsoft officials to hold a news conference yesterday in which he urged Justice officials and state attorneys general to refuse to settle with Microsoft until the company agrees to change XP.

He cited what he said were "hard-wired preferences for Microsoft applications" over rival products by AOL, Kodak and others.

"I am writing today to urge you to expand your ongoing settlement negotiations with Microsoft to include negotiations over Windows XP," Schumer wrote to Justice Department antitrust chief Charles James yesterday. "It seems that Microsoft intends to maximize its monopolistic power, using XP to enter new lines of businesses — such as digital photography, media players, and messenger services — while limiting the choices consumers have."

Schumer has an ally in New York Attorney General Eliot Spitzer, a fellow Democrat whom Schumer on Monday urged to seek an injunction barring XP's debut.

The senator explained his change of heart over the past year or two in a separate letter to Microsoft Chief Executive Steve Ballmer. In it, he described himself as a "supporter of Microsoft" who had believed it to be "a consumer friendly company" until he learned details about XP.

He asked the company to voluntarily delay the XP launch until it made appropriate changes.

The initial settlement discussions in this round occurred Monday as Microsoft Chairman Bill Gates was in town for Washington Post Publisher Katharine Graham's funeral. Capitol Hill officials reported seeing an unusual number of Microsoft executives.

Kodak had complained that XP makes it difficult for consumers to use Kodak's digital-imaging software by presenting them with a "Scanner and Camera Wizard" that requires additional steps to gain access to the Kodak program and steers them instead to a Microsoft-approved vendor. Kodak and Microsoft remain in negotiations over the way the programs work together. Microsoft noted that America Online's Internet software includes only Kodak's photofinishing service.

AOL recently broke off talks with Microsoft over including AOL's service in XP, claiming the company insisted that AOL favor Microsoft's Windows Media Player over RealNetworks' rival RealPlayer, software that handles the playing of audio and video over the Web.

The two companies have also disagreed over the compatibility of their competing instant-messaging technologies.

Microsoft lobbyist Jack Krumholtz offered a point-by-point critique of AOL and Kodak complaints and suggested AOL was being hypocritical.

"Microsoft has urged AOL to open up its closed instant-messaging systems so that they could interoperate with others, but despite public commitments to the contrary, AOL has steadfastly refused," Krumholtz wrote.

John Hendren can be reached at 206-464-2772 or jhendren@seattletimes.com.

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