More on MSFT and the Feds from WSJ Interactive. I have to say the gov't case appears to be pretty convoluted. The demands they're making seem weird. The software market benefits from hiding the Windows "start" button? That seems to be a hell of a stretch.
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May 16, 1998
Microsoft Negotiations Collapse;
Lawsuits Are Expected Monday
An INTERACTIVE JOURNAL News Roundup
High-stakes negotiations between Microsoft Corp. and government
lawyers aimed at averting antitrust lawsuits collapsed Saturday, putting the
U.S. Justice Department and 20 states back on a collision course with the
world's most powerful software company.
The Justice Department said talks, which broke up at midday, weren't
expected to resume. The next step for the government and the states is to
file two separate but similar federal antitrust lawsuits Monday morning in
U.S. District Court in Washington.
Those lawsuits could have a profound impact
on how people will buy computers and
software, and what features Microsoft is
allowed to include within Windows, the
operating system used by almost all desktop
computers.
Microsoft said it will now press ahead with
plans to ship Windows 98, the latest upgrade
of its flagship software, to computer makers
on Monday. It said it will include none of the
concessions it had offered during the failed negotiations.
"We still have an open mind," Microsoft spokesman Mark Murray said.
"We'll negotiate further if the government is willing to drop some of these
unreasonable demands."
Gates Calls Impasse 'Disappointing'
In a statement Saturday, Microsoft Chairman and Chief Executive Officer
Bill Gates called the impasse "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," Mr. Gates said, adding that "we unfortunately had
no other choice but to resolve this matter in court."
An official with one of the state attorneys general said only that talks broke
down because Microsoft made no "substantial offers" to keep them
moving forward.
Federal lawyers and state attorneys general contend that Microsoft has
illegally used its market power to suffocate competition, especially in the
market for Web browsers.
A person familiar with the negotiations said federal and state officials made
at least three demands that Microsoft bitterly refused:
That Microsoft hide its proprietary screen that customers use to
access programs under Windows, called the interface, which
consists of items like the Start button and Taskbar. Under the
regulators' proposal, other companies could design interfaces. "It's
like requiring the New York Times to wrap the front section of The
Wall Street Journal around the newspaper," Mr. Murray said.
That Microsoft hide "every way" that consumers could use
Microsoft's bundled browser to view information on the Web.
That Microsoft include a copy of rival Netscape Communications
Corp.'s browser in every copy of Windows it sells. Netscape's
browser is used by about 60% of computer users. Microsoft
spokesman John Pinette called that demand "unreasonable and
unprecedented."
A requirement that manufacturers include a competitor's product is usually
reserved for cases in which a monopoly owns the sole method of
distribution, such as a vital pipeline or electrical lines.
The heart of the dispute is that "the Justice Department wants to make it
illegal for us to be able to put new functions into our operating system,"
Mr. Gates told Time magazine Saturday night
"When we asked them, 'What will you let us put in?' they never had an
answer," he said in an interview to be published Monday. He contended:
"There is no precedent for taking a technology product and breaking it into
pieces."
Some experts questioned whether the government would try to force
Microsoft to include still other browsers.
"Indeed, it would be unfair to these mini-market-share companies if you're
going to include Netscape and Explorer," said Warren Grimes, a law
professor at Southwestern University and former chief antitrust lawyer for
the House Judiciary Committee. "I'm a little surprised to hear people
talking about that kind of remedy."
The Public-Opinion Battle
In recent weeks Microsoft has fought furiously to sway public opinion and
put pressure on the states and the Justice Department. The company used
newspaper ads, public appeals by its allies, and even a Gates-led pep rally
in Manhattan to argue that an antitrust suit would stifle innovation in
America's booming high-tech industry. The company even argued that
delaying Windows 98 -- heretofore billed as a minor software upgrade,
and already delayed by Microsoft itself -- could hurt the nation's economy.
Microsoft continued that campaign Saturday.
"We negotiated in good faith from the beginning, always with an eye
toward what our customers would want today and in the future," William
H. Neukom, senior vice president for law and corporate affairs at
Microsoft, said in a statement. "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."
The company said in the Saturday statement that the expected lawsuit "is
without merit and would hurt consumers and the American software
industry." Such legal action, it added, would also "set a harmful precedent
in which government intervention into a healthy, competitive and innovative
industry adversely impacts consumers and U.S. companies' ability to
improve their products."
So far, the results of the software giant's campaign have been decidedly
mixed.
Microsoft took heat from many who said its statements were wildly
exaggerated, but the company's toughest critics also worked to turn the
campaign against it. If Microsoft was correct that any action against it
could indeed hurt the economy, they argued, then the company clearly had
too much power and influence.
But at least two states that had considered suing Microsoft -- Texas and
Indiana -- backed out of the lawsuits, at least for the moment, last week.
People familiar with the negotiations said Microsoft had made new offers
early in the week to relax restrictions in its sales agreements with computer
makers and Internet companies. On Thursday, Microsoft offered to delay
shipping Windows 98, the latest version of its dominant operating-system
software, to personal-computer makers until at least Monday. In return,
federal and state regulators had agreed not to file suits while discussions
continued.
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