http://www.siliconvalley.com/mld/siliconvalley/3582259.htm

July 01, 2002

WASHINGTON (AP) - Microsoft should be careful that its new software
security plan doesn't shut out competitors, the European Union's new
antitrust enforcer said Monday.

The European Union will ``ensure that competitors have the capacity to
offer the range of services they want to provide, including
security,'' Philip Lowe said. Lowe starts work as the EU's Director
General for Competition on Sept. 1.

``We have always emphasized that there should be an emphasis on
interoperability,'' Lowe said.

European officials have their own antitrust investigation pending
against Microsoft, which is separate from the U.S. case.

The European case has focused more on whether Microsoft has illegally
changed commonly used industry standards in order to shut out
competitors.

Microsoft's new security product, called Palladium, would use
Microsoft's Windows operating system and custom computer chips to
encrypt data, like documents or music files, so that only the intended
recipient could use them.

That has raised questions among technologists and consumer advocates,
who wonder whether a file encrypted using Palladium would be
accessible on computers running Apple's Macintosh operating systems or
the free Linux operating system.

A Microsoft official, speaking on condition of anonymity, cautioned
that work on Palladium is still in its infancy but said it wouldn't
prefer Microsoft's operating system over competing software.

Hardware specifications for the Palladium chip would be fully
disclosed so other software makers could use it, the official said.

But that use may not come for free. Another Microsoft official warned
that competitors may have to pay license fees.

Lowe's remarks were made after a speech to the American Antitrust
Institute in Washington.

Microsoft's competitors have told European officials that Microsoft
has used its desktop monopoly in order to horn in on the market for
servers, which link personal computers on networks like the Internet.

Microsoft has offered some concessions -- such as disclosing more
technical data to consumers -- that go beyond its proposed settlement
with the U.S. Justice Department.

However, the British-born Lowe said the European Union won't finish
its analysis of the case until the end of the year -- after U.S.
courts decide whether to approve the Justice Department settlement or
impose harsher antitrust sanctions sought by nine states.

``Until Microsoft has more clarity on the U.S. side, we're not in a
position'' to take action, Lowe said. ``We will be in close
consultation with the U.S. on the issues it has addressed and is
addressing.''

Decisions in both the federal settlement and the states' case are
expected in late summer.

Unlike the U.S. lawsuits, which involve changes in the way Microsoft
does business, penalties in the European action could include fines of
up to 10 percent of Microsoft's annual revenue. In Microsoft's case,
that could add up to over $2 billion.

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