Mighty Microsoft Stalled By Federal Judge Sporkin

Antitrust settlement against computer-software giant is in limbo

WHEN Microsoft Corporation and the United States Justice Department reached an antitrust settlement last July, it appeared that a grueling four-year investigation had ended in the computer giant's favor.

Rivals of the world's largest software company hoped to see restraints put on the titan's market influence, but they were disappointed at the limited terms of the consent decree.

But Stanley Sporkin, a persnickety, book-reading US Federal District judge in Washington, D.C., rejected the settlement on Tuesday, opening the door again for tougher measures against the Redmond, Wash., company.

''The picture that emerges from these hearings is that the US government is either incapable or unwilling to deal effectively with a potential threat to this nations economic well-being,'' wrote Judge Sporkin in his decision.

Sporkin rejected the settlement, which barred certain marketing practices that gave computer manufacturers an incentive to put Microsoft's operating-system software on all computers they ship, hurting competition. An operating system is a computer's core software, on top of which run ''applications'' programs for various tasks. Some 85 percent of all computers sold use the Microsoft operating system.

Sporkin's ruling reflects ''a growing appreciation of technology and its impact,'' says Chris Letocq, an analyst with SoftTracks Inc., a Los Altos, Calif., research firm.

It is unclear, however, whether the judge's ruling will stand and ultimately have much impact on the industry.

A follow-up hearing is scheduled for March 16. Among the possible results:

*The Justice Department and Microsoft's lawyers may fight back, arguing that the judge overstepped his authority by labeling the agreement ''too little, too late.''

*New negotiations between the parties could lead to a broader settlement agreement, possibly including some restrictions on Microsoft's moves into the area of applications software.

*If a satisfactory deal is not reached, the Justice Department could file a lawsuit against Microsoft. Neither side relishes this lengthy, messy option.

*The Justice Department could walk away from the matter, as the Federal Trade Commission chose to do when it investigated Microsoft. It could focus instead on Microsoft's $1.5-billion buyout of Intuit, Inc., the leading personal-finance software company. Microsoft is awaiting Justice Department approval of that deal.

At a minimum, analysts expect Microsoft to continue to voluntarily comply with the consent decree reached in July.

While all this is being sorted out, analysts say Microsoft may choose to act somewhat more cautiously. But it is not expected to abandon its aggressive style. Nor will it retreat from its efforts to expand onto the so-called information highway.

''They may have to tread a little more lightly in terms of conquering this new frontier,'' says Karl Wong, an analyst with Dataquest Inc. of San Jose, Calif.

The purchase of Intuit and the creation of its own ''on-line'' service, two moves that have occurred since the July consent decree, add to existing concerns that Microsoft's lock on operating systems gives it unfair leverage to compete in applications software.

Microsoft is creating its own ''on-line'' service to compete in the fast-growing area of dial-in networks for sharing information. The Microsoft Network will be bundled in with Microsoft's Windows operating system later this year.

Analysts say this means that the vast majority of computer buyers will be offered the Microsoft Network before they consider any other on-line service.

This is just one example of a prominent trend: By incorporating more and more features into its operating systems, analysts say Microsoft often crowds out applications software made by others. But the company says it is natural for operating systems to become progressively richer, and that consumers benefit from this.

Microsoft is feared and often resented, but it has succeeded by a combination of savvy and the mistakes of rivals, as well as practices that have been dubbed unfair by competition.

Some observers call for a ''Chinese wall'' to be created separating Microsoft's applications and operating-systems divisions.

But Andrew Schulman, author of several books on operating systems, says this would be hard to enforce. A more practical approach would be to better ensure that outside companies that develop applications get the same information as the in-house teams employed by Microsoft.

One option is for Microsoft to spin off applications as a separate company, as Apple Computer did several years ago to form Claris.

Unless such a move is forced, Mr. Gates may be reluctant to do this, since applications are currently an even larger part of Microsoft's revenue stream than operating systems.

Referring to Sporkin's next courtroom hearing, Mr. Letocq speaks for many: ''I am waiting for the 16th [of March] with a lot of interest.''

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