D-Day for Microsoft

Govt. files suit, but focus is ISPs and content providers, not desktop.

By Adam Gaffin
Network World Fusion, 5/18/98

As expected, the federal Department of Justice and 20 states today filed an anti-trust suit against Microsoft Corp.

But the suit doesn't try to get Microsoft to unbundle Internet Explorer from the upcoming Windows 98 operating system. Instead, the government is trying to break contracts between Microsoft and Internet service and content providers.

The suit, filed in U.S. District Court in Washington, D.C., says that under these agreements, the ISPs and content providers will make IE their exclusive browser as a condition of getting listed in the Windows 98 desktop "channel bar" and lists that ship with Windows.

Microsoft, however, retorted that the bundling is still the issue and that the government, if successful, would give rival Netscape Communications Corp. an unfair advantage.

The suit, filed in U.S. District Court in Washington, D.C., charges the software company with a pattern of anticompetitive acts, starting with an alleged attempt in 1995 to get Netscape to stop making Windows browsers.

The government also alleges that Microsoft forced PC vendors to license and install Internet Explorer and to use a Microsoft-supplied boot-up screen as a condition of getting copies of Windows 95. The government also charges that the integration of IE with Windows 98 makes it difficult for competitors to license their own Internet browsers.

The government added that Netscape was singled out because its multi-platform support could eventually lead to users deciding to buy a non-Windows operating system.

"Microsoft set out to eliminate this competitive threat and to win at any cost what Microsoft described as 'the browser war," the justice department said in a statement.

"Microsoft's own documents, quoted in the complaint filed today, make clear that Microsoft executives did not believe that Microsoft could win the browser war through competition on the merits and instead had to use its Windows monopoly advantage to tilt the playing field in its favor," the department adds.

"We're disappointed. This is a sad day for consumers and a sad day for the American software industry," said Microsoft spokesman Mark Murray.

Despite the new emphasis on content, the suit would also require Microsoft to bundle Netscape's browser with Windows 98 if it continued to want to integrate its own Internet Explorer with the OS.

Weekend talks reportedly broke down after Bill Gates, Microsoft chairman and chief executive officer, apparently ordered the company's lawyers to withdraw earlier concessions, according to the New York Times.

Microsoft postponed the previously scheduled Friday shipment of its Windows 98 operating system to PC manufacturers but now plans to ship the code to PC makers tomorrow.

The DOJ and state attorneys general demanded that Microsoft stop requiring PC manufacturers to display the Windows user interface "when consumers turn on a new PC for the first time," according to Microsoft. The DOJ also demanded that Microsoft abandon its plan to make Web-browsing functionality a core part of Windows, Microsoft said.

In addition the DOJ demanded that Microsoft include Netscape Communications Corp.'s browser with every copy of Windows, Microsoft said in its release.

"This impasse is disappointing. We worked hard to try and resolve this, but the government demands went too far with no basis in law and, most important, were not in the best interest of consumers," said Gates. "We unfortunately had no other choice but to resolve this matter in court."

Microsoft also said that the company will continue to vigorously defend its right to innovate and improve its products. "We cannot compromise on this principle," Gates said.

The company also said that the lawsuit, expected to be filed by federal and state agencies on Monday, "is without merit and would hurt consumers and the American software industry."

"We negotiated in good faith from the beginning, always with an eye toward what our customers would want today and in the future," said William Neukom, senior vice president for law and corporate affairs at Microsoft. "The government's theories for the personal computer industry were not in the interest of PC users and would have set a bad precedent for other technology companies in the PC industry."

Officials at several state attorneys general offices were not immediately available for comment. Twenty state attorneys general last week had plans to file antitrust lawsuits against Microsoft.

The lawsuits, now expected to be filed tomorrow, expand on an October, 1997 complaint filed by the DOJ in federal court. That complaint asked that the software giant be held in contempt of a 1995 consent decree that resulted from an earlier antitrust investigation.

The DOJ argued that Microsoft was violating the decree by forcing PC makers to include the Internet Explorer browser as a condition of licensing Windows 95.

As that case wound its way through the court system, the DOJ continued its investigation, issuing subpoenas to Microsoft rivals and allies alike. At the same time, various state attorneys general initiated their own investigations, as did the U.S. Senate. The European Union is also continuing an ongoing probe of Microsoft's business practices.