TOP 10 STORIES / JULY 16-20

Officials Consider Dropping Microsoft Issue

Antitrust officials are debating whether they should drop one of the last unresolved issues in their lawsuit against Microsoft Corp. so they can move directly to punishing the software giant. A federal appeals court ruled June 28 that several of Microsoft’s practices broke federal law, but it also reversed the break-up order and remanded a third issue to a lower court for review.

State and federal officials are considering dropping the third issue--related to Microsoft’s linking of its Internet Explorer Web browser and Windows operating system.

Meanwhile, the government named a new lead trial attorney in the case. Philip Beck, who led President Bush’s efforts to stop a recount of disputed presidential election ballots in Florida, will replace David Boies, who represented former Vice President Al Gore in that legal battle.

Separately, Microsoft reported a steep decline in net income in its fiscal fourth quarter and warned that its first-quarter profit and revenue will fall short of expectations because of the personal computer sales slump.

Edmund Sanders

Firestone Rejects Wider Recall Request

Bridgestone/Firestone Inc. got more potentially devastating news last week: Federal regulators want it to issue a formal recall of more Wilderness AT tires beyond those it recalled for tread separation problems in August. Firestone refused, and the National Highway Traffic Safety Administration is proceeding with steps that could lead to a forced recall.

NHTSA would not say which tires are at issue, but Bridgestone/Firestone Chief Executive John Lampe acknowledged that 15- and 16-inch Wilderness ATs are the likely targets. These are among the tires Ford is replacing voluntarily on its vehicles because of tests that show they might fail.

A formal recall would open Firestone to more lawsuits over accidents and would mean it probably would have to pay for Ford’s replacement program, which the auto maker says is costing it $2.1 billion after taxes.

Terril Yue Jones

Argentina Austerity Plan Sets off Strike

With Argentina’s economy hanging in the balance, President Fernando De la Rua enlisted the critical support of the nation’s 24 governors for his $1.5-billion austerity program, which he characterized as the last opportunity to avoid collapse. But labor unions took issue with the program’s 13% cut in pensions and government salaries by calling a general strike Thursday that shut down much of the nation.

Questions remained on whether the spending cuts would save the nation from defaulting on $128 billion of external debt. What seemed clear is that the economy, which entered its fourth year of recession this month, will worsen before getting better.

Chris Kraul

USA Networks to Buy 75% Stake in Expedia

USA Networks Inc. agreed to acquire 75% of Expedia Inc., the Internet travel services company controlled by Microsoft Corp., for about $1.4 billion in stock.

The deal pushes USA, which is controlled by media mogul Barry Diller, one step closer to its goal of becoming the leading Internet commerce company. The Expedia acquisition would vault USA over Priceline.com Inc. to become the second-largest Internet retailer after Amazon.com Inc.

For Microsoft, the sale is part of an effort by President Steve Ballmer to redirect resources away from content development and toward the company’s core technology and software businesses.

In addition to Expedia, USA also said it plans to buy online travel company National Leisure Group Inc. and to start a travel channel for cable.

Sallie Hofmeister

Merrill Lynch Settles Case With Investor

In a case that could unleash a flood of new legal actions against Wall Street, Merrill Lynch & Co. said it has settled a high-profile arbitration case with an investor who claimed he was duped by the firm’s Internet-stock analyst.

The nation’s largest brokerage agreed to pay $400,000 to settle a New York doctor’s claim that he lost money by following the recommendations of analyst Henry Blodget. Debasis Kanjilal claimed that he wanted to sell his shares of InfoSpace Inc., a money-losing Internet company, but held on because of Blodget’s bullish pronouncements.

Walter Hamilton

AT&T; Rejects Comcast’s Bid for Cable Unit

The board of AT&T; Corp. unanimously rejected Comcast Corp.’s unsolicited $40-billion bid for its cable television unit as inadequate and instructed management to explore alternatives.

The company also postponed its planned spinoff of the cable unit, AT&T; Broadband, in what analysts and investors interpreted as a victory for Comcast.

Comcast, which is far smaller than AT&T;’s cable unit, noted that investors have shown support for its offer by boosting AT&T;’s shares 21% since the bid was made July 8. Speculation continued to circulate on Wall Street that another cable operator, such as second-ranked AOL Time Warner, might jump into the bidding.

Sallie Hofmeister

Arbitron Gets Static From Clear Channel

Clear Channel Communications, the nation’s largest owner of radio stations with nearly 1,200 outlets, said it could survive without Arbitron, the dominant ratings service for the radio industry. The statement came as the companies reached a stalemate on a contract to cover about 720 stations in 130 media markets after nine months of negotiations.

Both sides say they want to reach an agreement. Still, Clear Channel said it was exploring other options, including financing a competitor to Arbitron.

Clear Channel is trying to use its dominance to substantially lower the rates paid to Arbitron, analysts say. The company also has demanded that Arbitron measure listeners who fall outside a metropolitan area but still pick up signals from strong stations.

Meg James

Programmer Arrested in E-Book Case

A Russian computer programmer who helped design software to make copies of electronic books was arrested by FBI agents in Las Vegas in a case that underscores the looming battle between copyright holders and consumers in the digital era.

Dmitry Sklyarov was charged with distributing tools to crack the encryption on electronic books that is designed to let publishers limit what consumers can do with a purchased text, such as make copies.

Even though Sklyarov is not accused of actually duplicating copyrighted material, the mere distribution of digital copying tools violates the 1998 Digital Millennium Copyright Act. Critics complain the law limits rights guaranteed by generations of court rulings--such as making a copy of CD onto a tape or recording a TV show on a VCR.

Dave Wilson

Home Values Continue to Grow at Rapid Pace

Home values in Los Angeles and Orange counties continued growing at a vigorous pace last month, led by sharp gains among moderately priced houses, according to Data Quick Information Systems Inc.

The median price of all homes sold in Los Angeles County jumped more than 12% from a year ago to a record $228,000, and the median price of homes sold in Orange County rose 10% to $301,000, also a record, the research firm said.

Sales of homes in Los Angeles County also exceeded expectations as consumers brushed aside concerns about the sluggish economy to take advantage of low mortgage rates. Analysts said the latest results suggest that the region’s housing market will hold up well during the peak summer home-buying months.

Daryl Strickland

Internet Sites Honored at Annual Webby Awards

Internet sites--large, small and bankrupt--were honored at the fifth annual Webby Awards in San Francisco, the World Wide Web’s gala equivalent of the Oscars.

Winners in 30 categories included search engine Google for Best Practices, Inside for News, and Peter Pan’s homepage for Weird. Nonprofit VolunteerMatch won two awards.

The festivities drew a record 3,000 but had a more sedate tone than last year’s awards, which were given out before hundreds of Internet firms failed. Several 2001 nominees were dead or crippled by the time of the ceremony, and one winner, online magazine Plastic, has been run by volunteers since its parent company ran out of money.

Joseph Menn

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Please see Monday’s Business section for a preview of the week’s events.