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Microsoft Agreements Probed Federal Antitrust Investigation Into Licensing Agreements

In addition to investigating Microsoft Corp.’s new on-line network, the Justice Department is examining licensing agreements for the new Windows software to see if they would unduly limit other companies from filing patentinfringement lawsuits against Microsoft.

If Microsoft wins the ability to blunt competitors’ patent claims, it could more easily expand into new markets without fear of being sued for patent infringement arising from the new Windows 95 software, several analysts said Saturday.

“They would be able to continue to extend their monopoly in other markets without being sued in those other markets,” said Gary Reback, a Palo Alto, Calif.-based attorney representing some of Microsoft’s harshest industry critics.

Microsoft’s attempt to minimize the threat of patent-infringement lawsuits comes just one year after it paid $120 million to settle such a case in California. Stac Electronics Inc. of Carlsbad, Calif., sued Microsoft for infringing on patents by including a compression program in MS-DOS 6.0 that increases the storage capacity of computers.

“The question is whether they protecting their customers here or are they protecting themselves?” asked Ilene Gotts, an antitrust attorney for the Washington firm of Foley & Lardner.

William H. Neukom, Microsoft’s senior vice president for law and corporate affairs, said Friday that the Justice Department has asked the company for information about its agreements to license the new Windows 95 software to computer manufacturers. Justice also has launched an antitrust inquiry into The Microsoft Network, the new on-line service featured in Windows 95.

Computer makers such as IBM Corp. have to obtain a license from Microsoft to sell their machines with the popular Windows software already installed. Windows and the MS-DOS operating system software, which controls a computer’s basic functions such as file management, runs on about 80 percent of all personal computers.

At issue is a provision in the licensing agreement for Windows 95, to be released Aug. 24, that would protect Microsoft, computer makers and others from patent infringement lawsuits involving Windows 95.

Neukom said similar language has been included in some license agreements for earlier versions of Windows and MS-DOS since 1990, but he didn’t specify how widespread the agreements are with its customers.

“This standard provision is designed to create an environment for Windows 95 users in which patent infringement litigation is minimized,” said Neukom.

Microsoft and computer makers that agreed to this language “believe it is in the best interest of consumers, because it lowers prices and allows everyone to focus on building better products without the distraction of costly and time-consuming patent infringement litigation.”

Another aspect of Microsoft’s licensing agreement was at the center of a five-year antitrust investigation that the company and the Justice Department settled last summer. In that agreement, now being appealed, Microsoft agreed to stop certain sales incentives offered to personal computer makers for the MS-DOS and Windows software.

Reback said the Justice inquiry on patent-infringement language has gone to a number of “blue chip companies,” which he declined to name.

Mark Stahlman, an industry analyst president of New Media Associates in New York, said the proposed patent language appears unusually restrictive.

“I think this is going over the line,” he said.