Microsoft Ignores Those XP Tacklers

For Gates & Co., the stakes are too high to bow to trustbusters

On July 24, Senator Charles E. Schumer (D-N.Y.) aimed a gun at Microsoft Corp.'s (MSFT ) future. Calling the company's soon-to-be released Windows XP operating system a threat to America's economic health, he asked trustbusters to seek an injunction halting the launch of the new product. "You can't unring a bell," said Schumer. "If Microsoft proceeds with its current plans and releases XP, there may be no going back."

Schumer's high-profile pronouncement has upped the ante for both sides in the now epic struggle between Microsoft and the government. So far, both state and federal officials have remained mum on whether they'll act on the Senator's call. No wonder. Such a momentous move would roil the tech industry--and it's one that antitrust cops have backed away from in the past. A government source says attorneys general have discussed the possibility of an injunction with Justice Dept. antitrust chief Charles A. James but remain largely divided among themselves. "There are a lot of different points of view," says the source. "Nothing has been resolved."

This much is clear: If the government tries to halt Windows XP and then succeeds, the cost to Microsoft will be enormous. The company has spent years developing the operating system and plans to spend $200 million marketing the product, set to launch Oct. 25. If trustbusters forced the company to remove a key feature--such as instant messaging--it would take a team of engineers several weeks to eliminate the malfeasant code. Then it would take weeks more to test the new operating system. Although the financial hit would be short-term, the blow to Microsoft's strategy of milking more money out of e-commerce, digital media, and other new markets would be far more significant long-term. Business partners also would suffer. The personal-computer industry and peripherals makers, mired in a sales trough, want XP to launch without a hitch.

Serious stuff. Which makes it all the more surprising to outsiders that the company appears to be barreling ahead with XP as if it doesn't have a care in the world. Microsoft has bundled many important new technologies into the operating system, even though it has long been on notice that doing so would inflame trustbusters--and possibly trigger new lawsuits. Despite rulings in two successive courtrooms that it has violated the Sherman Antitrust Act, Microsoft hasn't given any indication it plans to make big changes in the way it does business. And while the company has extended an olive branch to trustbusters, holding preliminary talks on July 23, it doesn't appear to be willing to make any concessions that would reduce its power. On the contrary, the company is still behaving as if it won the lawsuit. That's angering government lawyers, whose resentment about Microsoft's arrogance could make a challenge to XP more likely. Even if they do not ask for an injunction, they could ask for significant modifications to XP as part of any remedy.

GOING ALL OUT. Is Microsoft crazy? Not if you stand in Chairman William H. Gates III's shoes. Technology tends to gravitate toward standards. If Microsoft eases up on instant messaging, for example, it knows AOL Time Warner Inc.'s (AOL ) lead in that market will become insurmountable. Anything less than all-out competition would begin to diminish the importance of Windows and would cause Microsoft to give up ground to rivals. At least that's the way Microsoft sees it. Thus, the company will continue to aggressively bundle new features into Windows until it has exhausted every appeal--or a court finally forces the company to stop.

Moreover, time is on Microsoft's side. With every passing day, the odds diminish that the AGs will seek an injunction. And once Windows XP ships, any remedy that bars the bundling of features would be harder to justify. Many consumers, already having become accustomed to the new technology, would resist being forced to change. What's more, the damage to innocent parties, such as PC makers and Microsoft's other business partners, would increase. That could make an injunction seem like excessive bureaucratic meddling. And even without an injunction, trustbusters might find it harder to convince a judge to force significant changes on XP as part of any eventual settlement. "Once XP is out, it becomes that much more difficult to devise a remedy," says a government source. So Gates is charging ahead, desperate to hit the end zone before state and federal trustbusters can bring him down. It's sure a risky way to play ball.

By Jay Greene, with Dan Carney in Washington and Mike France in New York

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