In a potential new front in Microsoft's long-running battle with regulators, European Union antitrust officials are pursuing charges from rivals that the latest desktop operating system is designed to help extend Microsoft's dominance into new markets such as instant messaging, E-mail and handheld devices like mobile phones.
Following up a complaint filed in February, the European Commission has sent fact-finding letters to "market participants" about the allegations, sources close to the situation said, speaking on condition of anonymity. The move indicates the complaint is being taken seriously.
A Microsoft spokeswoman refused to comment, but the company dismissed it as "nothing new" when it was filed earlier this year by Microsoft competitors including Sun Microsystems Inc., Oracle Corp., and Nokia Corp.
Commission spokeswoman Amelia Torres also refused to comment, but did say that such letters are a "normal" part of its investigations.
"The Commission may indeed be looking into other subjects," she said, "but that is totally separate" from the nearly 5-year-old case that reached a new level Wednesday with the start of a three-day, closed-door hearing.
A cavalcade of Microsoft lawyers faced off with competitors, EU regulators, and observers from the 15 EU governments as well as the U.S. Department of Justice, which settled its own antitrust case against Microsoft in 2001.
U.S. and EU officials often work closely on cases of mutual interest.
Microsoft entered the hearings expressing optimism that it could still reach a settlement.
"Hope springs eternal," said Brad Smith, Microsoft's senior vice president for law and corporate affairs. The hearing is "another opportunity to continue our discussion" with European officials, he said.
After a brief Commission presentation, Microsoft launched into what is scheduled to be a day and a half of testimony, including PowerPoint presentations that even a Microsoft ally, Jonathan Zuck of the Association for Competitive Technology, called "stultifying" by lunchtime.
The hearing ended Wednesday evening. Tom Burt, Microsoft's deputy general counsel, said he thought the presentations went well.
Microsoft said the company's technical and economic experts presented information on server operating systems and multimedia playback technologies, and "provided context around existing consumer choice and interoperability in the marketplace."
The company reiterated that it remained open toward working with the commission.
"It was a nice fancy presentation. I don't think there was anything terribly new," said Ed Black, head of the Computer and Communications Industry Association, a trade group critical of Microsoft.
EU officials also say a settlement is still possible, but Microsoft is under pressure to offer more concessions.
Microsoft faces charges that it is illegally trying to extend its Windows operating system dominance into the market for servers, which tie desktop computers together, as well as into so-called media players, which play music and video on computers.
The Commission warned in August it was prepared to levy potentially hefty fines for past misconduct and demand its own remedies, such as forcing Microsoft to remove its built-in Media Player from Windows or to include rival players as well.
The company also may have to disclose more software code to competitors in the server market.
The European Commission is expected to issue its decision in the case next spring--unless a settlement is reached.
Microsoft's main concern is defending its longstanding practice of keeping Windows on top by incorporating new features in the operating system--which it sees as benefiting consumers and rivals view as unfair competition.
Its next generation of Windows, code-named Longhorn, will have a built-in search engine that could threaten Google, Yahoo!, and other companies.
The Media Player dispute echoes the browser war in the United States, in which a court found Microsoft guilty of monopolistic practices to crush rival Netscape. Microsoft eventually reached a settlement with the Bush administration that allowed it to keep Internet Explorer in Windows, but had to allow computer companies to add competing products as well.
A U.S. appeals court is reviewing whether the settlement adequately protects consumers and competitors.
What makes the Windows XP case so threatening to Microsoft is that the rivals want European regulators to split up the company. In the United States, a proposed breakup of the company was thrown out on appeal.