Microsoft Corp., already under government scrutiny over its behavior
toward competitors, told manufacturers of iPod-like portable audio
devices that under a new marketing program they would not be allowed
to distribute rivals' music player software but pulled back after one
company protested.
The Justice Department said that the incident was "unfortunate," but
that government lawyers decided to drop the issue because Microsoft
agreed 10 days later to change the proposal. The government disclosed
details of the dispute in a federal court document made available
Thursday.
The disputed proposal described in the court document as a "draft
specification" would have affected portable music players that compete
with Apple Computer Inc.'s wildly popular iPod. The plan would have
precluded manufacturers of those devices from distributing software to
consumers other than Microsoft's Windows Media Player in exchange for
Microsoft-supplied CDs.
Legal and industry experts said Microsoft's demands probably would
have violated the landmark 2002 antitrust settlement between the
company and the Bush administration. They expressed astonishment that
Microsoft was not more careful, given its mandatory legal training for
employees about antitrust rules and continued monitoring by the
Justice Department and a federal judge over its business deals through
late 2007.
"One has to be skeptical that either the internal training is not
working, in which case heads ought to be rolling, or that the lessons
of the case are being ignored," said Albert A. Foer, head of the
Washington-based American Antitrust Institute, which supports more
aggressive U.S. antitrust policies.
Howard University law professor Andrew Gavil said he wonders whether
Microsoft's proposal was a genuine mistake or signal the company
intends to revert to its hardball tactics.
"It's somewhat amazing it even happened," said Gavil, who has closely
followed the Microsoft case. "It's troubling that anyone inside
Microsoft was still thinking this was a legitimate business strategy."
Microsoft said it recanted its proposal after lawyers reviewed it and
after an unspecified industry rival complained. "We have a legal
process in place that prevents these incidents from occurring,"
spokeswoman Stacy Drake said.
Drake described the proposal as "only a draft description of the
program we sent to manufacturers for the purpose of getting their
feedback." She said the proposal was not a contract, which is vetted
by company lawyers.
The proposal, part of a campaign Microsoft called "easy start,"
affected one of the rare technology sectors where Microsoft is not
already dominant: handheld music players and online music services.
The software giant and others have struggled to match the runaway
success of Apple iPod player and iTunes music service.
Microsoft wants consumers to use its media software to transfer songs
onto their portable music players from Internet subscription services,
such as those from Napster Inc., RealNetworks Inc. and Yahoo! Inc.
Each company currently offers its own media software.
Before the disclosure of the dispute involving portable music players,
U.S. District Judge Colleen Kollar-Kotelly had set a hearing for this
coming Wednesday to review the adequacy of the antitrust settlement.
It was unclear whether she will challenge lawyers from Microsoft or
the government over the music proposal.
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