Damage from Microsoft break-in may be more than some suggest

SEATTLE - If valuable computer secrets stolen from Microsoft Corp. are disseminated, they could hurt the company more than it is letting on, some analysts say.

During the past several weeks, hackers broke into Microsoft's system and got a look at - but did not corrupt - a valuable software blueprint, or ''source code,'' for a computer program under development, the company said Friday.

The FBI is investigating; the company will not identify the program under development.

''For Microsoft, that's a significant loss of intellectual property and a significant loss of a competitive edge,'' said Simon Perry, a computer security expert with Computer Associates of Islandia, N.Y.

''What we would expect is that code now either will appear on the Internet or it will be sold off to the highest bidder, probably overseas.''

Microsoft's source codes are the most coveted in the multibillion-dollar industry. With access to them, competitors could write programs and challenge Microsoft's products.

Hackers also could use the codes to identify software flaws, making break-ins and virus-writing easier.

Microsoft, while acknowledging the seriousness of the attack, downplayed its long-term significance. Company officials said the program won't be finished for years and will go through many changes before then.

Microsoft's chief executive, Steve Ballmer, said during a visit to Stockholm, Sweden, ''You bet this is an issue of great importance.''

But asked by a reporter how damaging the break-in was, he said, ''Not very. But we want to make sure it doesn't get that way, and that's why we called in the FBI.''

Company spokesman Mark Murray said the investigation revealed no evidence the intruders gained access to existing products, such as Windows 2000, Windows ME or Office.

Microsoft learned of the break-in Wednesday, and planned to handle the investigation itself. On Thursday, however, it called the FBI. A source familiar with the case said hackers had access to the code for up to five weeks.

No motive for the break-in has been disclosed, but hackers in the past have tried to extort money from companies by threatening to publish stolen information on the Internet.

Investors did not seem too concerned. Microsoft stock rose $3.25, or 5 percent, on Friday to $67.69 on the Nasdaq Stock Market.

The break-in adds to the woes of a company now appealing a federal judge's ruling ordering that it be broken up for engaging in predatory business practices.

Microsoft found that passwords used to transfer source codes were being sent from the company's computer network in suburban Redmond to an e-mail account in St. Petersburg, Russia.

''You can operate there as a hacker with a fair level of confidence you won't get caught,'' Perry said. ''The technology doesn't exist to track them down. Also, the laws don't exist to prosecute them.''

The hackers appeared to have accessed Microsoft's system by e-mailing software, called QAZ Trojan, to the company's network and then opening a so-called back door through the infected computer.

A ''trojan'' is a hacker's term for a device similar to the Trojan horse of Greek mythology. It looks like a normal attachment in an e-mail, but contains a hidden code that can take control of the recipient's computer.

Bruce Schneier, chief technical officer of Counterpane Internet Security Inc. of San Jose, Calif., said the break-in highlights companies' lack of network traffic monitoring.

''If you're not watching your logs 24 hours a day, seven days a week, this is the kind of thing that happens,'' he said. ''Microsoft got whacked and it made the news. But this could have happened to anyone.''

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