MICROSOFT HAS SPARKED controversy by issuing a letter to computer suppliers, offering them prizes for turning in businesses who may have "misunderstood" their licensing agreements regarding operating systems.

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Redmond, Wash.-based Microsoft issued a letter last week to thousands of companies that assemble PCs to sell directly to businesses, also known as "system builders," offering them prizes, including game titles, a Fossil-brand watch, and a Fast Cook & Grill Combo and Travel chair, for turning in customers who were requesting PCs be shipped "naked," without the operating system.

The prize itself depends on how many "naked" PCs the customer requested, with 250 computers worth five Microsoft games and more than 1,000 worth the grill and chair.

However, Microsoft says it was not trying to single out companies wanting to install Linux or another non-Microsoft operating system; rather, it was trying to stop companies who believe that they have a "site license" with Microsoft that allows them to install a single copy of Windows onto multiple PCs. Microsoft says no such license exists.

"There is a lot of confusion around our enterprise agreements," Microsoft spokesman Matt Pilla said. "In fact, we don't offer any enterprise agreements that cover new computers. They cover upgrades, but not new copies of the operating system."

As of Wednesday afternoon, Microsoft was unable to provide a list of companies who had received the letter. The company said that although mostly small system builders had been on the list, some OEMs had probably received the letter as well, Pilla said. Microsoft OEMs include Compaq Computer and Dell Computer.

"We're just trying to eliminate the confusion," Pilla said. PCs shipped without an operating system installed had become a headache for system builders, too. "It made it complex for them because they were shipping boxes without operating systems, which caused testing problems for them as well," Pilla added.

One analyst thinks Microsoft may be getting a little ahead of itself with this strategy, though. "I think that the OEM team could certainly be deemed over-enthusiastic by this program," said Chris Le Tocq, principal analyst at Guernsey Research in Los Altos, Calif.

However, Microsoft might not have to worry about the issue for too much longer, Le Tocq said. "They're addressing this with a number of technologies," he said. "Windows XP and Office XP both contain forced registration technologies designed to combat this kind of activity."

If Microsoft would make volume licenses available, it would help a lot of the small companies that buy PCs from system builders, Le Tocq said.

"For a lot of organizations, the ability to clone PCs is a very useful management technique, but the license you get when you license the [Windows] operating system doesn't let you," he said. "Microsoft has had this problem before of people feeling that they're essentially being charged twice, and it believes it can get away with it."