Microsoft pushes to extend power - again

As software giant appeals antitrust ruling, Windows XP offers 'all inclusive' package.

As it appeals to the Supreme Court, Microsoft is not really looking back at the anti-trust case against it as much as it is focusing on the future. In the short term, experts say, last week's appeal is a no-risk move with three primary goals in mind: delay, delay, delay.

The reason appears to go beyond the legal goal of overturning a lower-court ruling against the software giant. Also at stake is the success of new software that Microsoft is about to release.

Rivals and government regulators worry that the program, Windows XP, will only further entrench the company's power - and will do so using a practice known as "bundling" that helped spawn the major antitrust case in the first place.

When Microsoft bundles new features into its core product, it can be devastating to makers of niche software. But Microsoft has argued that it's natural to keep augmenting Windows, the basic software in most personal computers.

The question, for the company, is whether the legal landscape might shift before the new product gets established in the marketplace.

"The thinking is, once they get it out there, it's very hard to pull it back," says Richard McKenzie, a professor at the University of California at Irvine, who has written on the case.

The release of Windows XP comes after a federal appeals court has ruled that Microsoft violated anti-trust laws, but disapproved of the remedy proposed - a company breakup - and sent the case back to district court.

New-generation programs

The battle over the new software is much more than a simple fight to get out a new program. The system is the first in a new generation of Microsoft systems that further integrates the many capabilities of the Internet. As the Internet becomes more and more integrated with other forms of media, like radio and television, and Microsoft comes up with new versions of Windows, it increasingly runs the risk of upsetting a whole host of companies.

The companies unhappy with XP, for example, are not just software companies, or even big computer companies like IBM, but businesses like Eastman Kodak, which doesn't appreciate XP's inclusion of a system to manage digital photos, and AOL/Time Warner, which doesn't like the inclusion of a rival to its instant messenger application.

"The biggest headache [for Microsoft] is over. They're not going to be broken up," says Richard Epstein, a professor at the University of Chicago Law School. "But there is still a big mess out there. They are now facing a completely different environment."

In fact, perhaps in a sign that the company understands the potential problems that lie ahead, Microsoft reportedly pushed back the release date of a future, further-integrated operating system, code-named "Blackcomb," for fear it would upset antitrust regulators.

The bundling question is a difficult one for jurists.

Every computer must have an operating system, such as Windows. Without an operating system, a computer is just a collection of wires and chips with no interface. Microsoft is the dominant player in operating systems.

But the operating system has evolved into more than just the interface. It also includes things like Web browsers and word-processing software. The initial antitrust ruling against Microsoft argued that, through bundling, the company was threatening to corner several markets. Bu the appeals court was skeptical, and called for a new judge to consider the issue.

Even as Microsoft rushes XP out the door, new bundled capabilities there are creating a whole new list of big-money enemies. That is not inconsequential.

"In the end, judges pay more attention to bigger, more-established firms," Mr. McKenzie says. "They ... get media attention, and they are more likely to have friends on Capitol Hill."

In this way, Microsoft's case resembles the Napster debacle. That case was about intellectual property, whether the company could essentially give away music owned by others for free, while the Microsoft case centers on antitrust. But the cases are beginning to look similar in that they both involve technology companies bumping heads with well-financed, old-line media giants.

In some ways, these clashes are unavoidable. As media convergence becomes a reality, the old divisions have gotten blurry.

"It is very much like what happened with banks and insurance companies," says law professor Epstein says. "We don't have banks and insurance companies anymore, we have financial-services companies." In the end, all the convergence could help Microsoft, he adds. "Other large competitors will form, and how can you be a monopoly with that kind of competition?"

Still 'Microsoft's world'?

But Bert Foer, president of the American Antitrust Institute, believes such a challenge would be difficult. Even if new large media conglomerates challenge Microsoft, he says, they will need some sort of operating system like Windows on which to run.

"It might be a very nice world, but it will be Microsoft's world," he says.

Mr. Foer, who has had the opportunity to try XP, says the new system is so integrated that Microsoft's rush to release it could backfire if and when a district court judge considers remedies against the firm.

"I think XP makes a structural remedy more likely," Foer says, referring to a possible breakup - the penalty the firm thought it had escaped.

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