The Federal Trade Commission is investigating Microsoft in a wide-ranging investigation that will examine whether the company’s business practices violate antitrust laws, according to people familiar with the matter. In recent weeks, FTC lawyers have been negotiating and setting up meetings with Microsoft’s competitors.
One of the key areas of interest is how the world’s biggest software providers combine popular Office products with cybersecurity and cloud computing services, said one of the people, who asked not to be identified discussing the confidential matter.
This so-called overlap was the subject of a recent investigation by ProPublica, which detailed how, starting in 2021, Microsoft used this practice to increase its business with the US government while boxing rivals out of lucrative federal contracts.
At the time, most government employees used a software license that included the Windows operating system and products such as Word, Outlook and Excel. After several devastating cybersecurity attacks, Microsoft offered to upgrade those bundles to free licenses for a limited time, giving the government access to its most advanced cybersecurity products. The company also provided consultants to implement improvements.
A large number of federal officials were recruited, including all military services in the Department of Defense – and began to pay for those advanced services when the free trial ended. Previous marketing leaders involved in the effort likened it to a drug dealer hooking a user with free samples, as they knew the organization’s customers would be effectively locked into the development once they were on board. Microsoft’s offering not only displaced existing cybersecurity vendors but also took market share from cloud providers such as Amazon Web Services, as the government began using products that run on Azure, Microsoft’s cloud platform.
Some experts told ProPublica that the company’s tactics could violate laws governing contracts and competition, and the news organization reported that even some of Microsoft’s lawyers had antitrust issues with the deals.
Microsoft said its offer was “designed to avoid antitrust concerns.” “The company’s sole purpose at this time was to support the Administration’s urgent request to improve the security posture of government agencies that have been targeted by state actors,” Steve Faehl, Microsoft’s government business security leader, told ProPublica.
Some of these intrusions were the result of Microsoft’s security lapses. As ProPublica reported in June, Russian government-sponsored hackers in the so-called SolarWinds attack used Microsoft product vulnerabilities to steal sensitive information from the National Nuclear Security Administration and the National Institutes of Health, among other victims. Years before the attack was discovered, a Microsoft engineer warned product leaders about the flaw, but they refused to fix it for fear of alienating the federal government and losing competitors, ProPublica reported.
While the developer’s proposed fix would keep customers safe, it would also create a “speed bump” for users logging in to their devices. Adding such “contradiction” was unacceptable to the management of the product group, which at the time was in a fierce competition with its competitors in the market for so-called identity tools, the news agency reported. These tools, which ensure that users have access to cloud-based applications, are important to Microsoft’s business strategy because they often lead to the need for the company’s other cloud services.
According to a person familiar with the FTC investigation, one such identity product, Entra ID, formerly known as Azure Active Directory, is another target of the agency’s investigation.
Microsoft has defended its decision to address the SolarWinds-related bug, telling ProPublica in June that the company’s assessment included “multiple updates” at the time and that its response to security issues was based on “potential customer disruption, exploitation, and limited availability.” ” It promised to put safety “above all else.”
The FTC is looking at the fact that Microsoft won a lot of federal business while leaving the government vulnerable to hacking as an example of the company’s problematic market power, a person familiar with the investigation told the news organization.
The commission is not alone in this view. “These guys are kind of the ‘too big to fail,'” Sen said. Ron Wyden, the Oregon Democrat who chairs the Senate Finance Committee and a longtime critic of Microsoft. “I think it’s time to step up the antitrust side of the house, deal with antitrust abuses.”
The FTC’s investigation of Microsoft, first reported by the Financial Times and Bloomberg, is far from the company’s first brush with federal regulators over antitrust issues. More than two decades ago, the Justice Department sued the company in a landmark antitrust case that almost led to its breakup. Federal prosecutors allege that Microsoft maintained an illegal monopoly in the operating system market through anticompetitive conduct that prevented competitors from gaining ground. Ultimately, the Justice Department agreed with Microsoft, and a federal judge approved a consent decree that placed restrictions on how the company could develop and license software.
John Lopatka, a former FTC counsel who now teaches antitrust law at Penn State, told ProPublica that Microsoft’s actions described in the news agency’s latest report follow a “common pattern” of behavior.
“It’s like the Microsoft case” decades ago, said Lopatka, who wrote a book about the case.
In the new investigation, the FTC sent Microsoft a public inquiry request, the agency’s version of a subpoena, forcing the company to hand over information, people familiar with the investigation said. Microsoft has confirmed that it has received the document.
Company spokesman David Cuddy would not comment on the details of the investigation but said the FTC’s demand is “broad, broad, and asking for things that are not in the context to be reasonable.” He declined to provide examples on the record. The FTC declined to comment.
The agency’s investigation follows a public comment period in 2023 in which it sought information about the business practices of cloud computing providers. When that ended, the FTC said it had a continuing interest in whether “certain business practices impede competition.”
Microsoft’s latest demand represents one of FTC Commissioner Lina Khan’s last moves as chairman, and the investigation appears to be gaining momentum as the Biden administration loses power. However, the new leadership of the commission will decide on the future of the investigation.
President-elect Donald Trump said this month he would nominate Commissioner Andrew Ferguson, a Republican, to lead the agency. After the announcement, Ferguson said on the X website, “At the FTC, we will end Big Tech’s retaliation against competition and free speech. We will make sure America is a global leader in technology and the best place for innovators to bring new ideas to life.”
Trump also said he would nominate Republican attorney Mark Meador as commissioner, describing him as an “antitrust enforcer” who has worked at the FTC and the Department of Justice. Meador is also a former aide to Sen. Mike Lee, a Utah Republican who introduced legislation to break up Google.
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