From: "Rich Gauszka" 

"The generous and noncynical view is that there has been a fundamental
change in philosophy about the degree to which antitrust should be used to
regulate business activity,"

http://www.nytimes.com/2007/06/10/business/10microsoft.html?ei=5065&en=a6f3dd79
c5258b91&ex=1182052800&partner=MYWAY&pagewanted=print

WASHINGTON, June 9 - Nearly a decade after the government began its
landmark effort to break up Microsoft, the Bush administration has sharply
changed course by repeatedly defending the company both in the United
States and abroad against accusations of anticompetitive conduct, including
the recent rejection of a complaint by Google.

The retrenchment reflects a substantially different view of antitrust
policy, as well as a recognition of major changes in the marketplace. The
battlefront among technology companies has shifted from computer desktop
software, a category that Microsoft dominates, to Internet search and
Web-based software programs that allow users to bypass products made by
Microsoft, the world's largest software maker.

In the most striking recent example of the policy shift, the top antitrust
official at the Justice Department last month urged state prosecutors to
reject a confidential antitrust complaint filed by Google that is tied to a
consent decree that monitors Microsoft's behavior. Google has accused
Microsoft of designing its latest operating system, Vista, to discourage
the use of Google's desktop search program, lawyers involved in the case
said.

The official, Thomas O. Barnett, an assistant attorney general, had until
2004 been a top antitrust partner at the law firm that has represented
Microsoft in several antitrust disputes. At the firm, Justice Department
officials said, he never worked on Microsoft matters. Still, for more than
a year after arriving at the department, he removed himself from the case
because of conflict of interest issues. Ethics lawyers ultimately cleared
his involvement.

Mr. Barnett's memo dismissing Google's claims, sent to state attorneys
general around the nation, alarmed many of them, they and other lawyers
from five states said. Some state officials said they believed that
Google's complaint had merit. They also said that they could not recall
receiving a request by any head of the Justice Department's antitrust
division to drop any inquiry.

Mr. Barnett's memo appears to have backfired, state officials said.
Prosecutors from several states said they intended to pursue the Google
accusations with or without the federal government. In response, federal
prosecutors are now discussing with the states whether the Justice
Department will join them in pursuing the Google complaint.

The complaint, which contends that Google's desktop search tool is slowed
down by Microsoft's competing program, has not been made public by Google
or the judge overseeing the Microsoft consent decree, Colleen
Kollar-Kotelly of the Federal District Court in Washington. It is expected
to be discussed at a hearing on the decree in front of Judge Kollar-Kotelly
this month.

The memo illustrates the political transformation of Microsoft, as well as
the shift in antitrust policy between officials appointed by President Bill
Clinton and by President Bush.

"With the change in administrations there has been a sharp falling
away from the concerns about how Microsoft and other large companies use
their market power," said Harry First, a professor at the New York
University School of Law and the former top antitrust lawyer for New York
State who is writing a book about the Microsoft case. "The
administration has been very conservative and far less concerned about
single-firm dominant behavior than previous administrations."

Ricardo Reyes, a spokesman for Google, declined to comment about the complaint.

Bradford L. Smith, the general counsel at Microsoft, said that the company
was unaware of Mr. Barnett's memo. He said that Microsoft had not violated
the consent decree and that it had already made modifications to Vista in
response to concerns raised by Google and other companies.

He said that the new operating system was carefully designed to work well
with rival software products and that an independent technical committee
that works for the Justice Department and the states had spent years
examining Vista for possible anticompetitive problems before it went on
sale.

He said that even though the consent decree did not oblige Microsoft to
make changes to Vista in response to Google's complaint, Microsoft lawyers
and engineers had been working closely with both state and federal
officials in recent days in search of an accommodation.

"We've made a decision to go the extra mile to be reasonable,"
Mr. Smith said. "The discussions between the company and the various
government agencies have been quite fruitful."

Microsoft was saved from being split in half by a federal appeals court
decision handed down early in the Bush administration. The ruling, in 2001,
found that the company had repeatedly abused its monopoly power in the
software business, but it reversed a lower court order sought by the
Clinton administration to split up the company.

Google complained to federal and state prosecutors that consumers who try
to use its search tool for computer hard drives on Vista were frustrated
because Vista has a competing desktop search program that cannot be turned
off. When the Google and Vista search programs are run simultaneously on a
computer, their indexing programs slow the operating system considerably,
Google contended. As a result, Google said that Vista violated Microsoft's
2002 antitrust settlement, which prohibits Microsoft from designing
operating systems that limit the choices of consumers.

Google has asked the court overseeing the antitrust decree to order
Microsoft to redesign Vista to enable users to turn off its built-in
desktop search program so that competing programs could function better,
officials said.

State officials said that Mr. Barnett's memo rejected the Google complaint,
repeating legal arguments made by Microsoft.

Before he joined the Justice Department in 2004, Mr. Barnett had been vice
chairman of the antitrust department at Covington & Burling. It
represented Microsoft in the antitrust case and continues to represent the
company.

In a recent interview, Mr. Barnett declined to discuss the Google
complaint, noting that the decree requires complaints by companies to be
kept confidential. He defended the federal government's overall handling of
the Microsoft case.

"The purpose of the consent decree was to prevent and prohibit
Microsoft from certain exclusionary behavior that was anticompetitive in
nature," Mr. Barnett said. "It was not designed to pick who would
win or determine who would have what market share."

"We want to prevent Microsoft from doing those things that exclude
competitors," he added. "We also don't want to disrupt the market
in a way that will be harmful to consumers. What does that mean? We've
never tried to prevent any company, including Microsoft, from innovating
and improving its products in a way that will be a benefit to
consumers."

Prosecutors from several states said that they believed that Google's
complaint about anticompetitive conduct resembled the complaint raised by
Netscape, a company that popularized the Web browser, that was the basis of
the 1998 lawsuit.

Richard Blumenthal, the Connecticut attorney general, declined to talk
about the substance of the complaint, or which company made it. But he said
the memo from Mr. Barnett surprised him.

"Eyebrows were raised by this letter in our group, as much by the
substance and tone as by the past relationship the author had had with
Microsoft," said Mr. Blumenthal, one of the few state prosecutors who
has been involved in the case since its outset.

"In concept, if not directly word for word, it is the
Microsoft-Netscape situation," Mr. Blumenthal said. "The question
is whether we're seeing d‚j… vu all over again."

The administration has supported Microsoft in other antitrust skirmishes as well.

Last year, for instance, the United States delegation to the European Union
complained to European regulators that Microsoft had been denied access to
evidence it needed to defend itself in an investigation there into possible
anticompetitive conduct. The United States delegation is led by Ambassador
C. Boyden Gray, who had worked for Microsoft as a lawyer and lobbyist.

Robert Gianfrancesco, a spokesman for the delegation, said that Ambassador
Gray had not formally removed himself from involvement in Microsoft issues
but was not involved in the complaint to European regulators, which was
handled by other American diplomats in the delegation.

In December 2005, the Justice Department sharply criticized the Korean Fair
Trade Commission after that agency ordered major changes in Microsoft's
marketing practices in Korea.

And in 2004, the Justice Department criticized the European Commission for
punishing Microsoft for including its video and audio player with its
operating system.

Antitrust experts attribute the Bush administration's different approach to
Microsoft to a confluence of political forces as well as significant
changes in the marketplace.

A big factor has been the Bush administration's hands-off approach to
business regulation. For its part, Microsoft, which spent more than $55
million on lobbying activities in Washington from 2000 to 2006 and
substantially more on lawyers, has become a more effective lobbying
organization.

"The generous and noncynical view is that there has been a fundamental
change in philosophy about the degree to which antitrust should be used to
regulate business activity," said Andrew I. Gavil, an antitrust law
professor at Howard University who is a co-author of the Microsoft book
with Professor First, the New York University law professor. "In the
Microsoft case, you can see how that change has manifested itself."

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