Microsoft Should Withstand Preliminary Injunction Ruling
By DON CLARK 12/15/97
Staff Reporter of THE WALL STREET JOURNAL
Microsoft Corp. is unlikely to delay any products or lose much in the way
of short-term profit because of last week's preliminary injunction by U.S.
District Judge Thomas Penfield Jackson.
The ruling, in response to a lawsuit by the
Justice Department, prohibits Microsoft from
forcing personal-computer makers to bundle
Microsoft's Internet Explorer browser with any
Microsoft operating systems, including the coming version called Windows
98. That product, which tightly integrates the browser technology, is
expected to generate roughly $3 billion in revenue in its first two years and
is the issue of most concern to investors.
But on Friday, a Justice official said the agency would be satisfied if
Microsoft offers a simple and economical way for PC makers to delete
Internet Explorer, even if the product is shipped together with the current
Windows 95 or with Windows 98. He said he expects the two sides to
meet in the next few days to agree on an approach to satisfy the order.
Choice for PC Makers
Such a move would give PC makers a choice between Microsoft's product
and Netscape Communications Corp.'s browser, which is rapidly losing
market share. But many PC makers don't appear interested in having a
choice.
Indeed, most major manufacturers, including Compaq Computer Corp.,
Hewlett-Packard Co., Dell Computer Corp. and Packard Bell NEC, said
they plan to keep using Internet Explorer along with Microsoft's operating
systems. For one thing, the Microsoft browser is free, while Netscape
charges them an estimated $1 to $10 a copy for its browser.
A Microsoft spokesman said over the weekend that it is still studying
whether to appeal the ruling, but the company believes the preliminary ruling
shouldn't cause it to delay the shipment next spring of Windows 98 in any
case.
In Nasdaq Stock Market trading Friday, Microsoft stock declined $2.3125
to $136.75 Friday, in its first trading session after the ruling which came
after markets closed Thursday. Netscape's shares rose $1.625 to $27.875.
Though the short-term impact is likely to be small, Judge Jackson's ruling
contains language that could eventually limit Microsoft's most potent
strategies for moving into new markets, or embolden the Justice Department
to sue Microsoft over other practices.
Microsoft had argued that the consent decree allows it to "integrate"
products with its operating systems. But the judge said that antitrust laws
pose limits on Microsoft's ability to unilaterally decide what has been
integrated into its operating systems.
Judge Jackson ruled that the test of an integrated product is whether a
product such as Internet Explorer is marketed separately and has separate
consumer demand, not necessarily whether it is functionally joined, as
Microsoft argued. Those findings, if they become part of a final ruling, could
be used by the Justice Department in bringing cases under its broader
investigation of Microsoft's Internet activities.
Licensing Pacts Investigated
Since September 1996, the agency has been examining Microsoft's tactics
in areas that include its deals with Internet service providers. During a
Senate hearing last month, Sen. Orrin Hatch (R., Utah) cited a licensing
agreement between Microsoft and Earthlink Network Inc., a Pasadena,
Calif., service provider that licensed Internet Explorer.
The agreement requires Earthlink not to "express or imply that an alternate
browser is available" when talking to its customers. Though some antitrust
experts questioned the legality of the arrangement, both Microsoft and
Earthlink said such provisions are customary in cross-promotion agreements
and don't preclude Earthlink from offering Netscape.
The Justice Department also has acknowledged it is investigating
Microsoft's activities in Internet video technology, including its purchase of
VXtreme Inc. and minority investments in VDOnet Corp. and
RealNetworks Inc.
One executive at a Microsoft competitor familiar with the investigation said
the browser ruling might deter Microsoft from requiring PC makers to use
Microsoft video software called NetShow, but he doubted that it will keep
the company from pushing aggressively in the field.
However, Gary Reback, a Silicon Valley lawyer who represents Netscape
and other Microsoft foes, predicts the government will be emboldened by
language in the ruling to step up other aspects of its antitrust investigation,
using civil investigative demands to solicit information from Microsoft
business partners. "CIDs are going to be flying so thick they will choke the
postal system," he said.
In the meantime, Netscape plans to step up its marketing activities to PC
makers, now that they have a choice not to use Microsoft's Internet
Explorer. "People will be less intimidated by Microsoft and more willing to
listen to our offerings," said James Barksdale, its chief executive officer.
PC makers also might now ask Microsoft for marketing subsidies or other
concessions to take Internet Explorer along with Windows 98. "The key
right now is for companies doing business with Microsoft to press and to try
and take advantage," said Barry Weiss, a Chicago attorney who has
negotiated a number of deals with Microsoft on behalf of software
licensees.
Microsoft also faces a short-term technical problem -- how to separate the
latest version of its browser software, Internet Explorer 4.0, and a previous
version called 3.0, from future renditions of Windows 95 and Windows 98.
Simply deleting the browser could cause the operating systems to stop
working, the company contends. The Microsoft spokesman said it expects
to find ways to let PC makers delete Internet Explorer 3.0 and 4.0 files and
still allow Windows 95 or Windows 98 to function.
--John R. Wilke and Kara Swisher contributed to this article. |
