Investigators call on Microsoft

Microsoft (MSFT) lawyers and executives met today with top Justice Department officials as the U.S. government pondered whether to bring new, broader charges against the software giant.

The meeting came one day after Microsoft agreed to remove controversial exclusivity provisions from contracts with content partners, which promote the company's Internet Explorer browser.

Both Microsoft and the government declined to discuss the 3-1/2 hour meeting, other than to confirm that it had taken place.

Rich Gray, an antitrust attorney at Bergeson, Eliopoulos, Grady, & Gray, said Microsoft's announcement yesterday that it was amending "several hundred" contracts with companies was likely to have a significant effect on the meeting's agenda.

The modification "takes a major club that Justice could have waved during the meeting off the table," noted Gray, adding that the contracts were one of Microsoft's Achilles' heels in its attempt to fight charges that it engages in anticompetitive behavior.

The contracts, signed with companies such as Walt Disney, PointCast, and CNN, have received intense scrutiny from federal and state regulators, the Senate Judiciary Committee, and the European Commission. (CNET, publisher of NEWS.COM, also has signed a contract with Microsoft.)

Today marks the second time that Microsoft has dropped controversial contract provisions before key meetings with government officials. Just days before Microsoft chief executive Bill Gates testified before a congressional committee, the company said it would drop similar restrictions imposed on Internet service providers.

Microsoft general counsel William Neukom arrived at the Justice Department this morning through an automobile entrance, avoiding reporters, according to Reuters. Four other Microsoft lawyers and executives walked in through the Constitution Avenue visitors' entrance before most television camera crews arrived.

Microsoft sought the meeting with Assistant Attorney General Joel Klein and other top antitrust officials to open a high-level dialogue at a time when the company is under increasing scrutiny by state and federal law enforcement for alleged anticompetitive practices.

Some Justice staff lawyers said they believe the federal government now has enough evidence to file charges against Microsoft.

Earlier this week, Microsoft executives said the company was in daily contact with federal antitrust authorities and was providing information to state investigators.

Eleven states are preparing to file antitrust charges against Microsoft, sources close to the investigation have said, as reported earlier. They said the states would accuse Microsoft of using its dominance over computer operating systems to extend its control to related areas, such as the Internet.

In the past, Microsoft has reached agreements with authorities when it faced a serious court challenge.

U.S. District Judge Thomas Penfield Jackson is hearing government allegations that Microsoft violated a 1995 consent decree that was supposed to help ease the way for increased software competition. A hearing in that case is set for April 21 in a Washington federal appeals court.

In related news, the Los Angeles Times reported today that Microsoft secretly has been coordinating a massive media blitz with outside firm Edelman Public Relations. Citing confidential internal documents, the article says that campaign was designed to plant articles commissioned by Microsoft "but presented by local firms as spontaneous testimonials."

Microsoft spokesman Mark Murray said he found it "ironic" that anyone would criticize the company for trying to air its views on the high-profile issues concerning competition in the software industry.

"All of our major competitors, including industry giants like IBM, Sun [Microsystems], and Oracle, are ganging up to launch a major campaign against Microsoft," Murray said. "Of course we're working hard to counter all the negative and misleading information that our competitors are spreading."

Despite Microsoft's contention that the contract provisions were completely legal and common in the industry, Gray said Microsoft's operating system dominance may bring down that argument.

"The extent [to which] they take advantage of the market position that Microsoft has in the desktop operating system marketplace raises serious antitrust concerns under section 2 of the Sherman Act [the nation's statute governing antitrust law]," he elaborated. "I believe that is why they abandoned them."

Reuters contributed to this report.