Is Justice Dept. Devising Covert Windows 98 Case?
Investors Business Daily)
Date: 10/27/97
Author: Lisa Wirthman
At the heart of the dispute between Microsoft Corp. and the federal
government is a fundamental question. What is the Justice Department
really seeking?
Last week, the department filed civil contempt charges against Microsoft.It says the software giant is violating a legal agreement that sets limits on how the company can license its software to PC makers. It wants Microsoft fined $1 million a day for the violation.
But is Justice going after Microsoft's current practices, or is it really intent on laying the groundwork for future actions? The department has been dogging Microsoft for years ee story opposite page).
The consent decree - agreed to by both parties in '94 and approved by a federal court in '95 - prohibits Microsoft from protecting or expanding its Windows operating system through anti-competitive means.
At issue in '94 was Microsoft's practice of charging Windows licensees by how many processors they sold. That meant Microsoft profited from PC sales regardless of whether they had Windows installed.
At issue today is whether Microsoft can require its Windows 95 licensees to also license its Internet Explorer browser.
On its face, the legal case is defined by the language of a single paragraph that appears to support both sides. It states that Microsoft can't enter into any license agreement that conditions the licensing of another product. But it also says that Microsoft isn't barred ''from developing integrated products.''
This ambiguous language will be at the heart of Microsoft's defense in this action. Microsoft says Explorer is an ''integrated'' feature of Windows and that it has the right to expand Windows 95 to include browsing.
''I cannot emphasize strongly enough Microsoft's continuing commitment to. . . including in an operating system the useful technology and functionality that we believe deserves to be there,'' said William Neukom, Microsoft's senior vice president for law and corporate affairs.
Justice says the browser and operating system are two separate products. And according to the court petition filed by Justice: ''Microsoft can develop whatever products it chooses, but it cannot leverage the monopoly power of Windows 95 to force OEMs to take a non-integrated Internet Explorer if they do not want it.''
Two years ago, critics said the consent decree didn't have enough of a bite to deter Microsoft's alleged anti-competitive tactics. Which is why antitrust experts say enforcing that decree today won't do much good, either.
''The first consent decree really is a toothless one,'' said Ronald Katz, a partner at Coudert Brothers in San Francisco and a former Justice Department prosecutor. ''What Justice discovered is that (Microsoft) controls this operating system, and unless (the department) makes it an operating-system issue, it's not going to solve the problem.''
Why? Because even if Justice succeeds in stopping Microsoft from linking Internet Explorer and Windows 95 licenses, the company's forthcoming operating-system successor will put them back together.
When Microsoft's Windows 98 debuts next summer, it will offer a
combined browser and desktop interface.
And after two years of linking its browser to Windows, Microsoft will
have already achieved its goal of establishing market share for Explorer. According to a September survey by Zona Research Inc. of Redwood City, Calif., Microsoft's browser share grew from 3% to 36% in 18 months.
So what is the Justice Department trying to accomplish? The likely answer: a first step.
Windows 98 is not specifically addressed in the contempt petition. So for Justice, the real value in shoring up the consent decree may be to use it as a foundation for further proceedings against Microsoft.
''If Microsoft is doing things in Windows 98 that it can't do in Windows 95, that wouldn't make sense,'' said Katz. ''This is (Justice's) first step.And if they succeed with this then I think they will say, 'Aha! These are two separate products,' and then apply that to Windows 98 or bring a separate action.''
Justice officials confirmed that Windows 98 is not out of the picture.
''It's pretty clear in our thinking that we are very concerned about what is going to happen in Windows 98,'' said a Justice official. ''Our goal is to regulate what in the marketplace is a fair fight.''
Justice also could use measures other than the consent decree to
investigate Windows 98, he adds.
Another reason why the consent decree may be a good first move:
Contempt matters are typically resolved much faster than other antitrust matters, said Katz. Microsoft and the Justice Department, for example, will have their first hearing with Judge Thomas Penfield Jackson in Washington on Monday. And the overall case? ''This could be
(completed) in 30 days,'' Katz said.
That's a necessity in the fast-moving technology industry, which many say moves too quickly for antitrust legislation. When Justice investigated Microsoft for including online access software in Windows 95, the company shipped the product before investigators finished their review. Justice closed the inquiry in '95 without filing any charges. But with a speedy contempt hearing, the department may be able to get the ball rolling in time to take action against Windows 98 before it ships.
And a closer look at the intent of the consent decree - rather than just the language - seems to indicate that the department is already paving the investigative path to Windows 98.
In the petition it filed last week, the Justice Department outlined the purpose of the '95 decree. And it's not about the browser wars.
Justice is trying to protect the browser's ability to emerge as an Internet platform - or a virtual operating system - that could compete not with Explorer, but with Windows.
''Unfettered competition among browser markets could lead to the
development of an operating system in which business and consumer
applications would work regardless of which operating system was
installed on the PC,'' the petition states.
(C) Copyright 1997 Investors Business Daily, Inc.
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