The feds are investigating Microsoft over bundling practices

The Federal Trade Commission is investigating Microsoft in a wide-ranging probe that will examine whether the company’s business practices run afoul of antitrust laws, according to people familiar with the matter. In recent weeks, FTC lawyers have interviewed and held meetings with Microsoft’s competitors.

One of the key areas of interest is how the world’s largest software provider will integrate its popular Office products with cybersecurity and cloud computing services, said one of the people, who asked to remain anonymous to discuss a confidential matter.

This was called thread assembly Recent ProPublica investigationwhich details how Microsoft, starting in 2021, has used this practice to dramatically expand its business with the US government while pushing competitors out of lucrative federal contracts.

At the time, many federal employees used a software license that included the Windows operating system and products such as Word, Outlook, and Excel. In the wake of several devastating cyberattacks, Microsoft has offered to upgrade these license packages for free for a limited time, giving the government access to the most advanced cybersecurity products. The company also provided consultants to install the upgrades.

It accepted broad swaths of the federal bureaucracy, including all of the military services in the Department of Defense — and then began paying for those enhanced services when the free trial expired. Former sales leaders involved in the effort likened it to a drug dealer luring a user with free samples, knowing that federal agents would be effectively locked into upgrades once they installed them. Microsoft’s offering not only displaced some existing cybersecurity vendors, but also took market share from cloud providers like 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 may have violated laws governing contracting and competition, and the news organization reported that even some Microsoft lawyers have antitrust concerns about the deals.

Microsoft said its offer was “designed to avoid antitrust concerns.” “The company’s sole objective during this period was to support an urgent request from the administration to strengthen the security posture of federal agencies that were continually targeted by sophisticated threat actors at the nation-state level,” said Steve Fehl, security lead for Microsoft’s federal business. He told ProPublica.

Some of these intrusions were the result of Microsoft’s own security vulnerabilities. As ProPublica reported in June, Russian state-sponsored hackers carried out the so-called SolarWinds attack Exploiting a vulnerability in a Microsoft product To steal sensitive data 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 address it for fear of alienating the federal government and losing ground to competitors, ProPublica reported.

While the engineer’s proposed fix would have kept customers safe, it would also have created a “speed bump” for users logging into their devices. The news organization reported that adding such “friction” was unacceptable for managers of the product group, which at that time was in fierce competition with competitors in the market for so-called identity tools. These tools, which ensure users have permission to sign in to cloud-based software, are important to Microsoft’s business strategy because they often drive demand for the company’s other cloud services.

One such identity product, Entra ID, formerly known as Azure Active Directory, is another focus of the agency’s investigation, according to a person familiar with the FTC investigation.

Microsoft has defended its decision against addressing the SolarWinds-related flaw, telling ProPublica in June that the company’s evaluation included “multiple reviews” at the time and that its response to security issues was based on “potential customer disruption, exploitability, and available mitigations.” It pledged to put security “above Every consideration.”

The FTC sees the fact that Microsoft wins more federal business even while leaving the government vulnerable to hacks as an example of the company’s problematic market power, a person familiar with the investigation told the news organization.

The committee is not alone in this opinion. “These guys are a version of ‘too big to fail,’” said Sen. Ron Wyden, an Oregon Democrat who chairs the Senate Finance Committee and a longtime critic of Microsoft. “I think it’s time to strengthen the antitrust side of the house, and deal with antitrust violations.”

The FTC’s investigation into Microsoft, which was first reported by Financial Times and Bloombergfar from the company’s first clash with federal regulators over antitrust issues. More than two decades ago, the Department of Justice sued the company in a landmark antitrust case that nearly led to its breakup. Federal prosecutors alleged that Microsoft maintained an illegal monopoly in the operating system market through anticompetitive conduct that prevented competitors from gaining a foothold. Ultimately, the Department of Justice reached a settlement with Microsoft, and a federal judge approved the settlement Consent decree Which imposed restrictions on how the company could develop and license software.

John Lopatka, former counsel to the Federal Trade Commission He knows now Pennsylvania antitrust law told ProPublica that Microsoft’s actions detailed in the news organization’s recent reporting followed a “very familiar pattern” of behavior.

“It mirrors the Microsoft case” from decades ago, said Lopatka, who co-authored a book on the case.

In the new investigation, the FTC sent Microsoft a request for a civil investigation, the agency’s version of a subpoena, forcing the company to hand over information, people familiar with the investigation said. Microsoft confirmed that it had received the document.

Company spokesman David Cody did not comment on the details of the investigation but said the FTC’s request is “broad and broad in scope and asks for things outside the realm of possibility to even make sense.” He declined to provide recorded examples. The Federal Trade Commission declined to comment.

The agency’s investigation comes after a public comment period in 2023 during which it requested information about cloud computing providers’ business practices. When that ended, the FTC said it had continuing interest in whether “to be sure Business practices hinder competition.”

Microsoft’s latest order marks one of FTC Commissioner Lina Khan’s final moves as chair, and the investigation appears to be gaining steam as the Biden administration nears its end. But the committee’s new leadership will decide the future of the investigation.

President-elect Donald Trump said this month that he would elevate Commissioner Andrew Ferguson, a Republican lawyer, to lead the agency. After this announcement, Ferguson He said in a post on X“At the FTC, we will end Big Tech’s vendetta against competition and free speech. We will ensure that America is the world’s technology leader and the best place for innovators to bring new ideas to life.

Trump also said he would nominate Republican lawyer Mark Meador for commissioner, describing him as a man of commission “Antitrust enforcer” Who previously worked at the Federal Trade Commission and the Department of Justice. Meador is also a former aide to Sen. Mike Lee, a Republican from Utah who introduced legislation to break up Google.