In brief: Microsoft gets knocked around

Also: Senators move on Internet tax ban; Sun buys Kealia; Oracle to battle in PeopleSoft bid; AOL IM game irks users

• Last week wasn’t a stellar one for Microsoft. The week started off bad when the company had to patch what some experts are calling the most serious flaw ever uncovered in Windows. Patch MS04-007 plugs a vulnerability in Windows NT, 2000, XP and Server 2003 that could allow a hacker to remotely execute code on a user’s computer. The company that reported the vulnerability, eEye Digital Security, said it also has informed Microsoft of seven additional security vulnerabilities that have yet to be patched. The company also criticized Microsoft for taking more than 200 days to issue MS04-007. Microsoft said it had to perform “due diligence” to ensure the patch was ready for release. Then later in the week Microsoft confirmed some of the secret code underlying its Win 2000 and NT operating systems had been leaked on the Internet. Experts say a breach of the Windows source code  – a mix of assembler, C and C++ code – could expose users to an increase in cyberattacks because it would make it easier for hackers to find holes in the operating systems that they can exploit.

• Four U.S. senators plan introduced a bill last week to re-establish by two years a permanent ban on Internet-only taxes that passed through the U.S. House in September. Senators opposed to the permanent ban in the House-passed Internet Tax Non-discrimination Act say the definition of “Internet access” in the bill could result in a ban on taxing many telecom services as carriers of traditional telephone service move more of their traffic to the Internet. Sen. Thomas Carper (D-Del.) and Sen. Lamar Alexander (R-Tenn.) said their two-year extension of a five-year moratorium would continue the ban but define Internet access as not including telecom services. If the Internet Tax Non-discrimination Act eliminates taxes on telecom services, as opponents fear, the losses to state and local jurisdictions in the U.S. could reach $11.7 billion a year, said Sen. Dianne Feinstein (D-Calif.).

•  Sun has agreed to acquire Kealia, a privately held server design company in California, and in the process is rehiring one of Sun’s co-founders to help design the company’s high-volume servers. Andy Bechtolsheim, Kealia’s co-founder and chief executive, helped found Sun two decades ago while studying at Stanford University with Scott McNealy, Sun’s chairman, president and CEO. He led a team that designed Sun’s workstations, which was its mainstay business at the time. He will return to Sun as chief architect of its Volume Systems Products Group, where he will help design Sun’s emerging family of servers based on Advanced Micro Devices’ Opteron processor and Intel’s Xeon chip, McNealy says. Financial terms of the deal were not announced.

• Oracle  is preparing to battle U.S. regulators in court if they move to block the company’s $9.4 billion takeover bid for PeopleSoft, according to a recent report. Oracle CEO Larry Ellison is rallying support from members of the company’s board for a court fight in anticipation of a possible decision by the U.S. Department of Justice to oppose the deal, according to The Wall Street Journal. Last week PeopleSoft said officials from the Justice Department’s Antitrust Division recommended that the department block the proposed acquisition. The Justice Department is expected to make a final decision by March 2.

• A new Web-based game that lets players pretend to catch Osama bin Laden is annoying AOL Instant Messenger users with its virus-like self-promotion. The game, called Osama Found, grabs names from a user’s AIM address book and automatically sends those users instant messages with links to a Web page where the game can be downloaded. AOL is aware of the problem and is considering legal action against the maker of the game, according to a spokesman. Osama Found is not a virus or IM worm, but another example of what some call adware, software that runs in the background on a computer that marketers can use to display advertisements and promotions on a user’s desktop, according to AOL.