HailStorm faces new blitz

Microsoft Corp.'s competitors are gathering their forces to resist Bill Gates's Internet software service, HailStorm, which was announced last week.

Oracle Corp., Sun Microsystems Inc. and other members of the coalition that pressed the still-pending anti-trust case against the Redmond, Washington, company in 1998 have hired the law firm which played a key role in persuading the Clinton Justice Department to sue Microsoft three years ago.

Silicon Valley legal firm Wilson Sonsini Goodrich & Rosati has been enlisted to lobby anti-trust regulators to take a stand against the new software.

They already seem to have won over one important group: the state attorneys general who took on Microsoft three years ago. AOL Time Warner Inc. representatives met them on 16 March and had little trouble selling the argument that HailStorm would give Microsoft an unfair advantage in the emerging market for online services.

HailStorm and the forthcoming Windows XP operating system would integrate an assortment of products in markets that Microsoft does not yet dominate, including instant messaging and streaming media. Consumers would be prompted to sign up for HailStorm services when they use Windows XP, which will probably reduce demand for competing products from AOL, RealNetworks, Yahoo and others.

HailStorm also incorporates Microsoft's Passport software, which stores consumers' credit card numbers, designed to make online shopping easy. Competitors claim that Microsoft could take a small cut of every commercial transaction processed through Passport.

The Bush administration is not expected to press for the break-up of Microsoft as ordered by Judge Thomas Penfield Jackson during the last months of President Clinton's term - it doesn't have the same concerns over competition and monopoly.

However, even if the appellate court overturned or modified Jackson's order, the Justice Department might find it harder to let Microsoft off the hook with the state attorneys general and the likes of AOL Time Warner sounding the alarm over HailStorm.

Iowa Attorney General Tom Miller said that HailStorm "may point out the need for a strong remedy if Microsoft has [monopolistic] power".

He said he was anxious to thrash out a workable and long-standing solution: "I would not want to settle for something that didn't work and would doom all of us to repeat history."

The Justice Department declined to comment on HailStorm.

What's clear is that the anti-trust action has not left Microsoft chastened. William Kovacic, a law professor at George Washington University, says that HailStorm shows the firm's fundamental strategy has remained the same.

"They'll keep using the Windows platform as the fortress from which they just fire away at all of these other software threats," he said.

Company executives deny any wrongdoing, noting that HailStorm is built on open standards that allow users to reach services provided by competitors. They also stress that HailStorm can be used on other operating systems, such as Linux and Mac OS.

Microsoft appears to be confident that the appellate court will either throw out Jackson's break-up order or, more likely, send it back to the district court for a less restrictive remedy. The case is likely to be assigned to another judge, given the appellate court's recent harsh criticism of Jackson's public comments denigrating Microsoft.

But if Microsoft continues to act as if it has already won the case, the days ahead may be stormy indeed.

Elizabeth Wasserman contributed to this report

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