TOKYO July 26: US software giant Microsoft Corp. said Monday it would fight the Japanese trade watchdog's warning over its alleged anti-monopoly law violations in licensing deals with manufacturers using its Windows software.

The Fair Trade Commission sent an official warning to Microsoft July 13, demanding the company drop the clause in licensing agreements that it suspects helps Microsoft unlawfully infringe patents.

The clause prevents makers from suing Microsoft or other licensees over suspected cases of patent and copyright infringement in which elements of manufacturers' own software technology may end up in the Windows system.

Microsoft has dropped the clause, although it believes the clause is lawful. But the Fair Trade Commission is demanding the clause be dropped in contracts that were already signed in the past.

Fair Trade Commission officials are not certain any patents have been violated by Microsoft, the world's dominant software company, or other companies who are partners with it. In February, the commission raided Microsoft's offices in Japan.

But several Japanese electronics makers have complained about suspected infringements of patents since December 2000, especially regarding multimedia technologies that are increasingly vital in the industry as audio and video become more widespread on the Internet, according to the commission.

Major Japanese consumer electronics companies that are partners with Microsoft, based in Redmond, Washington, include Sony Corp., Toshiba Corp. and Matsushita Electric Industrial Co., which makes Panasonic brand products.

The disputed contract clause, called the "non-assertion of patents provision," says companies that sign Windows licensing agreements will forgo the right to sue over suspected patent infringements linked to the licensing.

The commission also says the clause is "restrictive" by making it difficult for Japanese electronics companies to obtain royalty fees even when rivals violate their patents. The commission did not levy a fine or issue other penalties.

Microsoft objected to the Fair Trade Commission's findings within hours they were announced. It had until Monday to respond. "We do not believe there is any violation of the anti-monopoly laws in our contractual structure, and we have decided to reject the warning," Microsoft Japan said in a statement, adding that it gave its rejection to the commission Monday.

"We plan to explain our view and continue to try to gain understanding." The commission now holds hearings to listen to Microsoft's view before issuing a ruling. The duration of this process remains unclear. If Microsoft decides to appeal, the case moves to a Tokyo court.

The Fair Trade Commission has no comment on Microsoft's decision to reject its warning, an official said on customary condition of anonymity. But he confirmed he received such a notice from Microsoft Monday. A date will be set for the hearings soon, he said.

Analysts say Japanese authorities are trying to curb possibly monopolistic behaviour in an effort to help its nation's manufacturers and give more opportunities to alternative operating systems such as Linux, an open-source system developed in the public domain.

In 1998, the Fair Trade Commission ordered Microsoft to stop bundling software pre-installed in personal computers in a way that put competitors at a disadvantage. There were no fines.

In March, the European Commission found that Microsoft has abused its "near monopoly" with Windows software, levied a record fine of some US$613 million and demanded changes in how Microsoft operates in Europe to improve competition globally. Microsoft is appealing that decision.

In the United States, an appeals court last month approved an antitrust settlement Microsoft negotiated with the Justice Department that was far more gentle than the EU-ordered sanctions. -APP