Aug. 30 (Bloomberg) -- Microsoft Corp. will soon be free of a U.S. court decree imposed for anti-competitive behavior, just in time for a showdown with Google Inc. and others seeking domination in the ever-changing software industry.
At stake are billions of dollars in advertising and software sales as technology companies mine the Internet for profit. The court order expires Nov. 12, ending restrictions on how the company treats Internet services and content as well as personal computer makers and software developers.
Once the decree expires, Microsoft's changes to Windows won't be supervised by a committee of technical experts getting complaints and advice from rivals. The company also won't have to charge the top 20 computer makers a uniform price for Windows subject to a volume discount.
``They will use whatever they can to exclude competitors'' as long as ``the rewards are there'' and ``the punishments are slight,'' said Harry First, a New York University law professor and former state antitrust enforcement chief.
That doesn't necessarily mean a bonanza for Microsoft shareholders, analysts said. ``Google is clearly a threat to the Microsoft core business,'' said Bill Whyman, of International Strategy and Investment, a Washington-based investment advice firm. ``The big challenge for Microsoft is to move from the PC to the Web.''
Google and companies such as Salesforce.com, which makes Web-based business software, have mounted well-financed challenges to Microsoft, which retains its Windows monopoly. The system powers 95 percent of personal computers.
Shares Since 2001
Microsoft shares have fallen 8 percent since the Redmond, Washington-based company settled the government's antitrust case in 2001 and have dropped 4.7 percent this year. Microsoft fell 14 cents to $28.45 at 4 p.m. New York time today in Nasdaq Stock Market composite trading.
The company will follow ``Windows Principles'' announced last year embodying the ``lion's share'' of the decree, Brad Smith, Microsoft general counsel, said in an interview. ``The regulators are not ceasing to be regulators, and they are not going to stop watching us,'' Smith said.
One provision was extended two more years because Microsoft was slow to implement it to the court's satisfaction. It requires the company to license interface information letting servers communicate with Windows-powered PCs.
European Union
Microsoft also faces constraints from the European Union. The EU's antitrust regulator fined the company $686 million in 2004 and ordered it to offer a version of Windows without a video and music player and share software data with competitors.
Microsoft appealed. A European Union court will rule Sept. 17. The company is also awaiting a decision on its appeal of a similar ruling by Korean authorities.
Under the 2001 accord, Microsoft agreed to give computer makers freedom to promote software on desktop computers that compete with Microsoft products, such as RealNetworks Inc.'s music player.
The settlement's ``overall effect seems to have been questionable at best,'' said Richard Blumenthal, attorney general of Connecticut, one of nine states that challenged the settlement. ``A weak decree has yielded few results and met with resistance at points.''
In the Marketplace
In a court filing today, Connecticut, California and four other states said they are prepared to discuss at a Sept. 11 hearing ``what, if any, changes the court might consider'' making to the remedy because the decree ``has had little or no discernible impact in the marketplace.''
Smith, the company general counsel, said the decree was designed to promote ``dynamic change by many new market entrants,'' not ``dictate who would get what market share.''
``Google itself was neither a company nor a name that anyone ever heard of'' during Microsoft's battles with antitrust enforcers, the lawyer said.
Thomas Barnett, the Justice Department's antitrust chief, said the decree stopped Microsoft from trying to maintain its monopoly by discouraging computer makers from promoting competing software. He said ``there are definite signs of competition,'' such as the sale by Dell Inc., the world's second-largest PC maker, of machines powered by Linux software instead of Windows.
Google, the world's largest Internet search provider, complained in June that Vista, the latest version of Windows, deliberately makes it difficult to use Google's program for searching a computer's contents. It asked that the court decree be extended. U.S. District Judge Colleen Kollar-Kotelly, overseeing the case, rejected the request by Mountain View, California-based Google.
Reconfiguring Vista
Microsoft said it wasn't obligated to make the changes sought by Google. It agreed to reconfigure Vista ``in the spirit of cooperation,'' it said.
``Microsoft would prefer to stay out of court,'' said Matt Rosoff, an analyst at Directions on Microsoft, an independent Kirkland, Washington, firm that tracks the company.
Each time a competing product gains popularity, Microsoft counters by tying ``its own product to the operating system,'' said Ken Wasch, president of the Software and Information Industry Association, a Washington-based trade group representing rivals such as Novell Inc. and Sun Microsystems Inc.
Microsoft says adding new functions benefits consumers. A federal appeals court in Washington that threw out a lower-court Microsoft breakup order said the benefits of bundling to consumers should be weighed against any harm to competition.
Illegal Restrictions
It upheld findings that Microsoft illegally restricted efforts by computer makers and Internet services to promote Netscape Communications Corp.'s Web browser, Navigator.
``Our business as we know it is at risk,'' Microsoft's Ray Ozzie wrote in a 2005 memo entitled ``Internet Services Disruption.''
The latest Internet threat is reminiscent of one Microsoft Chairman Bill Gates identified in a 1995 memo that became an exhibit in the antitrust case. Gates wrote that Netscape wanted to use Navigator to ``commoditize'' Microsoft's operating system.
``Microsoft is being successfully challenged today by companies like Google, Apple and Salesforce.com,'' Marc R. Benioff, Salesforce.com's chief executive officer, said in an e- mail. ``We all have to work together to transform the industry away from Microsoft's PC monopoly.''
Microsoft told the Federal Trade Commission Google's proposed $3.1 billion purchase of DoubleClick Inc., maker of software that manages online advertising, would harm Internet advertising competition.
That complaint ``tells you how threatened Microsoft feels by Google,'' Whyman said.
To contact the reporters on this story: James Rowley in Washington at jarowley@bloomberg.net ; Karen Gullo in San Francisco at kgullo@bloomberg.net .
Last Updated: August 30, 2007 16:14 EDT--
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Ed Lu, who flew on two Shuttle flights and spent 6 months on the International Space Station after the Columbia disaster, will be moving to balmy California to start his next mission at Google.