Long left to its own devices, the computer industry -- notably PC superstars Microsoft and Intel -- is fast feeling the impressive weight of government regulation.
Thirteen states plan to file suit against Microsoft this week, alleging that the software giant engages in a variety of anti-competitive business practices, sources close to the investigations said this week.
The state attorneys general will seek to block the release of Windows 98, a time sensitive move because Microsoft plans to ship the next-generation OS to manufacturing by May 15 in order to launch the product June 25.
The move, along with the Federal Trade Commission's increased scrutiny of Intel, indicates that regulators and government officials are taking a more proactive approach to industry heavyweights.
"I think both Intel and Microsoft will be subjected to scrutiny because of their exceptionally dominant market position, and I think that is the right and proper thing to happen," said Michael Slater, founder and editor of the industry publication Microprocessor Report, in Sebastapol, California.
"These companies are finally large enough to be on the Feds' radar screens," said Angelo Matthews, director of equity research at CIBC Oppenheimer, in San Francisco.
Massachusetts, Texas, New York, and Connecticut have been driving the state-level action vs. Microsoft. California, Ohio, Florida, Illinois, Iowa, South Carolina, Minnesota, Wisconsin, and West Virginia also plan to file, a source close to one of the state investigations said.
The states have been working with the U.S. Department of Justice, and are counting on the Justice Department to file its own, broader antitrust case, the state source said. Federal government officials would not comment.
The Justice Department's participation is crucial, said Simon Lazarus, an antitrust lawyer at Powell, Goldstein & Frazier, in Washington.
"Everything really turns on whether the government goes forward on a new case and what kind of case it is," Lazarus said. "It is very unlikely that a federal district court is going to go further than the Justice Department is willing to ask them to go. This is jumping off a big cliff for a court."
If successful, a court case against Microsoft would have an immediate impact -- the delay of Windows 98, for example -- and it would set a regulatory action precedent in the fast-expanding computer industry.
However, legal hassles are unlikely to change Intel's product plans or jolt its stock price because a successful suit would force Intel to share more information with competitors, rather than halt product shipments, noted Christine Traut, a strategist at Andersen Worldwide SC, in Chicago, and a member of InfoWorld's Corporate Advisory Board.
The FTC is still viewing Intel with increased focus. Concern stems from Intel's command of nearly 90% of dollar sales and nearly 85% of microprocessor unit sales, according to FTC estimates, and its dominant position in the market for CPUs that run Windows NT.
The FTC said last September that it was investigating some of Intel's business practices. This week reports circulated that the FTC would launch two suits accusing Intel of anti-competitive practices.
A court has already ordered Intel to provide advance product information to workstation maker Intergraph, which accused Intel of using nondisclosure agreements and contracts to coerce it into trading patents.
"The Intel-Intergraph is a sweeping remedy, the kind that would [be] appropriate for Microsoft, a way more important decision than the Microsoft thing," said Jamie Love, director of the Washington-based Consumer Project on Technology.
Love, a frequent Microsoft critic, was referring to US Judge Thomas Penfield Jackson's injunction requiring the company to provide OEMs with a version of Windows 95 without the Explorer icon.
"The danger is [the Justice Department] trying to win yesterday's battle," Love said. "Regulators should think about how important and productive their decisions can be in the future."
Windows 98 is of particular concern to investigators because of its integration of Internet Explorer into the OS. Microsoft is accused of using Windows' dominance to force PC makers to offer Explorer.
"We're looking at restraint of trade and anti-consumer actions," said one source close to the investigations, who spoke on condition of anonymity. "The states want to file the complaints before Microsoft is taking irreversible steps. To forestall computer makers installing Windows 98 [on new systems], we have to file" next week.
The goal of any antitrust investigation action -- either on the state or federal level -- is to increase consumer choice and to enable smaller companies to compete with Microsoft.
"Massachusetts, with its concentration of top-flight academic institutions and high-tech businesses, would be especially hard-hit by any software monopoly that attempts to squash competition to preserve its market power," said Attorney General Scott Harshbarger, in Boston.
However, some critics contend that regulation won't necessarily bring lower prices.
"Look at [government regulation of] AT&T -- we haven't seen any reduced phone call costs because of it," said John Dunkle, a consultant at Workgroup Strategic Services, in Portsmouth, New Hampshire.
"The government is adequate at regulation and inadequate at understanding technology -- and that's just existing technology," Dunkle said. "What is even more mind-bending for them is future technology."
Twenty-six companies tied to the Wintel industry called on the Department of Justice to ease off Microsoft this week.
"Interfering with the release of Windows 98 would drag down the entire industry's efforts to deliver value to customers and returns to shareholders," stated officials from a variety of companies, including Compaq and Symantec, in a letter to the Department of Justice.
"We think that once they take a look at it, they will see a competitive, healthy industry" said Microsoft representative Adam Sohn. "We are competing in the industry vigorously, and within the law."
Meanwhile, any delay of Windows 98 will not be traumatic for most corporate users, many of whom are c urrently migrating to Windows 95 or Windows NT 4.0, Microsoft's recommended corporate desktop OS.
"I'm sure there are some people somewhere who will be affected by a wait for Windows 98. I am not one of them," said an IT manager at a large corporation. "If NT 5.0 ever ships, we'll go that route."
(Bob Trott is a senior editor and Andy Santoni is a senior writer at InfoWorld. James Niccolai, a San Francisco correspondent for the IDG News Service, an InfoWorld affiliate, contributed to this article.)
SIDEBAR: Circling Around Wintel
By Bob Trott
-- The U.S. Department of Justice files a lawsuit charging violation of 1995 consent decree into alleged anti-competitive business practices with PC OEMs.
-- Several states investigate Microsoft, with 13 planning to file antitrust suits.
-- The U.S. Senate Judiciary Committee holds a hearing about industry competition that focuses on Microsoft.
-- The European Commission investigates Microsoft.
-- Japanese trade officials allege exclusionary contracts with partners.
-- The Federal Trade Commission investigates potential monopolistic practices.
-- Intergraph wins a preliminary injunction against Intel in April stemming from a suit alleging patent infringement and anti-competitive behavior.
-- As a condition on Intel's settlement of Digital's patent-infringement suit, the FTC demands multiple manufacturers for Alpha chip.