The Microsoft Probe Looks Like A Bust For The Trustbusters

With their three-year-old probe of Microsoft Corp.'s business practices in limbo, staffers at the Federal Trade Commission could use a little levity. So their spirits were lifted by a recent National Enquirer "expose" detailing Microsoft Chairman William H. Gates III's computerized courtship of his fiancee, company executive Melinda French. The story said French received Gates's proposal as an electronic message, delivered at the end of an interactive computer game. Microsoft officials dismissed the tabloid's "bombshell" as pure nonsense. No matter. A few FTC staffers have posted the story on their office doors. Says one staffer: "It gave everyone around here a good chuckle."

But Chairman Gates may have the last laugh. Nearly three months have passed since four FTC commissioners were deadlocked over a staff recommendation that a federal antitrust complaint be brought against the software giant. Now, it looks as if Microsoft may walk away from the probe in better shape than anyone had expected. "It's less of a case than it was before," says one FTC official.

The commission has ruled out bringing a federal court complaint, staffers say. That means when the FTC next considers the case--perhaps in June--its choices will be narrow. The commission could drop the matter entirely, or it could seek to negotiate a consent agreement under which Microsoft would refrain from some practices. But Microsoft could reject such a pact. If so, the FTC could launch an administrative proceeding that could drag on for years--and the issue could be moot by then. "Microsoft is in a very strong position right now and may have already won," says Terry Calvani, a former FTC commissioner.

DEADLOCK. If the commission does decide to proceed, the heart of its case could likely be a charge that Microsoft builds features into its software for the sole purpose of creating incompatibilities with other products. The FTC's Bureau of Competition is now collecting examples of this. Microsoft Vice-President Brad A. Silverberg denies that the company makes arbitrary changes to its programs and calls such ideas "scurrilous charges without any basis."

But FTC insiders suggest one case in point: Novell Inc.'s DR-DOS operating system is a struggling alternative to Microsoft's MS-DOS. When Microsoft produced a version of its Windows 3.1 program last year, it wouldn't run with DR-DOS 6.0. Novell had to scramble to fix the problem. Silverberg says it's not Microsoft's duty to assure that DR-DOS is compatible with its software.

The FTC's effort to compile new evidence comes in response to a request for more information by Commissioner Mary Azcuenaga, seen as the key swing vote in any decision to proceed. Staffers delivered some data on Apr. 6 and are expected to produce more by the end of May.

By seeking to bolster its case against Microsoft, the FTC staff appears to have shifted its focus. It now looks less likely, sources close to the probe say, that the FTC will pursue what was considered a few months back to be the heart of its case: a charge that Microsoft restrained trade by offering big discounts to computer makers that would agree to pay a fee for every computer they ship, even if they don't install MS-DOS and Windows on each machine. One FTC official says staff lawyers believe that the contracts don't necessarily violate the law.

Such complexities have the FTC in gridlock. In February, the commissioners spent nearly an hour haggling over a two-sentence press release that didn't even mention Microsoft by name. Two commissioners want to bring action, but two, including Azcuenaga, don't believe they have the goods to proceed. The fifth member, Roscoe B. Starek III, has recused himself, citing a financial conflict. "The commission is paralyzed," says an agency insider. "They're having a tough time deciding what's worse, closing the case or bringing a case."

SAVING FACE. A lack of clear signals from the Clinton Administration on antitrust may not be helping matters. President Clinton has yet to appoint a Justice Dept. antitrust chief. Moreover, barring a resignation, Clinton won't get a chance to appoint an FTC commissioner until September, 1994. For the FTC, perhaps the ideal end to the saga would be a consent agreement. That would give the commission something to show for its work. Indeed, the FTC may be willing to accept any deal just to save face. "If I were Microsoft and the issue was fairly narrow--namely incompatibilities--I would take a consent," says a senior FTC lawyer.

Microsoft, however, may not want the stigma of any consent agreement. William H. Neukom, Microsoft's vice-president for law and corporate affairs, declined to comment on the possibility of a consent decree. He did, however, say: "It appears as though the issues have narrowed somewhat."

If the FTC can't shake itself loose from its deadlock, Microsoft would be left to worry about possible lawsuits from competitors. Software rivals such as Novell, Borland, and Lotus continue to discuss the possibility of a joint civil antitrust suit. Other rivals are reluctant. "This industry is not going to win against Microsoft by suing, but by being better than Microsoft," says a rival's attorney. If there's no private suit and no FTC action, Gates would have more to celebrate than his engagement.

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