Let me see if I have this right.
Fact #1
- Microsoft gives away it's browser - no charge.
Fact #2
- Netscape does the same with it's browser.
Fact #3
- Window's 98 as expected to be released by Microsoft will contain the browser
that they now give away for free. No additional charge for the browser. It's included as a
feature.
Fact #4
- Anyone who wants to use Netscape's browser with Window's 98 can do so - no
charge.
So what is wrong with this picture?
Evidently our government appears once again to think it knows better than we what is
good for us.
God help us all.
May 8, 1998
Government Suit Against Microsoft
Now Appears to Be Just Days Away
By JOHN R. WILKE
Staff Reporter of THE WALL STREET JOURNAL
WASHINGTON -- The Justice Department is tightening the
noose on Microsoft Corp.
Within days, barring a last-gasp settlement, Joel Klein, chief
of the Justice Department's antitrust division, is expected to
file a historic antitrust action against the Redmond, Wash.,
software giant. The department is expected to allege that
Microsoft engaged in a pattern of predatory conduct to
protect its Windows personal-computer operating system's
dominant market position and to extend that dominance to
Web-browsing software.
Department lawyers are putting the
finishing touches on the lawsuit
and haven't made a final decision
on their legal tactics -- such as
whether to seek a potentially
market-jarring injunction that might
delay the introduction of Windows
98, Microsoft's next-generation
Windows product. The Justice
Department is also debating what
remedies to seek, but it can file a
suit without spelling them out.
Settlement Hopes Dim
The prospect of a settlement seems to be growing dimmer.
Microsoft has already given ground on some controversial
contract terms and business practices. But in a two-hour
meeting Tuesday, Mr. Gates told Justice Department
officials that Microsoft simply isn't willing to compromise
on certain matters. Chief among them is unfettered freedom
to add new features to Windows, features that often are
already being sold by smaller software makers as standalone
products. Microsoft calls this innovation; government
investigators believe that it also can represent illegal "tying"
of a competitive product to a monopoly product, and that
Microsoft used just such a tactic against Netscape
Communications Corp. to try to eliminate a potential
competitor.
The lawsuit would likely be
filed in U.S. District Court in
Washington, and would allege
broad violations of the
Sherman and Clayton antitrust
acts, people close to the case
say. Neither the Justice
Department nor Microsoft,
which has always denied that
it violates antitrust laws,
would comment on the
likelihood of a suit, or the
prospect of a settlement.
Thursday, Microsoft slipped
$3 a share to close at $83.375
on the Nasdaq Stock Market. Since April 22, Microsoft
shares are down 16%, as concerns over government action
have risen.
Short-Term Order Possible
People close to the case say that if the government
proceeds with the suit, it would likely seek a preliminary
injunction or other court order to force Microsoft to offer a
version of Windows 98 without its Web browser, and to
avoid certain other practices the department considers
anticompetitive. The Justice Department is unlikely to try to
block the introduction of Windows 98 outright, as some
investors -- and Microsoft allies in the computer industry --
have feared.
Microsoft has made it clear that it will use all of its
resources to defend itself in court. And it is far from certain
that the Justice Department, if it files a case, would prevail.
A court probably wouldn't be persuaded by a case that
relies too heavily on evidence that comes from aggrieved
competitors of Microsoft, such as Netscape. And it may be
difficult for the Justice Department to show that consumers
have suffered from Microsoft's actions, which have
resulted in computer users getting added features free. Also,
courts have been reluctant to meddle with companies'
product-design decisions.
The new case against Microsoft would spotlight a series of
actions investigators believe show a pattern of
anticompetitive behavior, focusing on an alleged three-year
campaign by Microsoft to crush Netscape. That campaign,
prosecutors will seek to show, allegedly began in a May
1995 meeting in a Netscape conference room, at which
Netscape claims that Dan Rosen, Microsoft's director of
strategic relationships, warned its upstart competitor to stay
out of the Windows market for Internet browsers.
Offer of 'Special Relationship'
Microsoft furiously denies that, and prosecutors are relying
in part on notes of the meeting taken by Marc Andreessen,
the whiz-kid programmer who developed Netscape's crown
jewel, Navigator, its Web-browser software, while a
student at the University of Illinois. Those notes assert that
Mr. Rosen offered to cut Netscape in on a "special
relationship" if Netscape would cede the Windows browser
market. According to Mr. Andreessen's notes, which the
Justice Department has had for at least a year, Microsoft
made an "explicit threat" to withhold critical information
needed to develop Windows-based products, a move that
could have been disastrous for Netscape. According to
Netscape, Microsoft also offered to buy a 15% to 20%
stake in Netscape and sought a seat on its board.
Microsoft has called Mr. Andreessen's account "distorted
and fictional," and some observers question how much
weight notes from one of Microsoft's chief enemies should
carry.
But people close to the case say federal investigators have
additional evidence, including documents and depositions,
that bolster Netscape's account of the meeting. Moreover,
the government's case goes well beyond that meeting.
Prosecutors would seek to show that the software giant
went to great -- and allegedly illegal -- lengths and
extraordinary expense to promote its own Explorer browser
and beat Netscape. It showered money on Internet-service
providers and sites that offered "content" and entertainment
with free software and computer systems, documents and
depositions gathered by the Justice Department show. One
enterprising Microsoft manager even approached the
"Dilbert" site on the Internet, trying to get the popular comic
feature to promote Explorer exclusively.
'Legal and Commonplace'
A Microsoft spokesman says the agreements it struck with
Internet-service providers "were completely legal and
commonplace across many other industries. But they were
being misrepresented by competitors to divert attention
from the real issues in this case. We voluntarily revised
those provisions to eliminate any potential concerns."
The case would also allege that Microsoft sought to control
the start-up screen of Windows, so its own Internet
partners and other features would be displayed when the
machine is turned on. Prosecutors are likely to cite this as
another unfair leveraging of the Windows monopoly, since
it inhibits PC makers from making deals of their own with
Internet companies. For example, Gateway 2000 Inc.,
North Sioux City, S.D., has a thriving business selling
Internet access to new customers, whose computers bring
up Gateway's Web site as soon as they're turned on. The
restrictions that come with Windows 98 could derail that
business.
The Microsoft spokesman said: "We already give PC
makers a great deal of flexibility on the first screen to
differentiate their product. The majority of the desktop
screen is still available for them to add their own branded
content, including links to their own products and services."
Exclusionary Contract Terms
Federal investigators have also uncovered what they are
expected to allege were exclusionary terms in contracts
Microsoft made with the nation's Internet-service providers;
in most cases, those providers agreed not to promote or
distribute Netscape Navigator. It allegedly struck similar
deals with Internet "content" providers, companies that
provide entertainment or information on the Web. In
exchange for exclusivity, many of them were allegedly
promised high-profile placement in Microsoft's "channel
bar," a Windows banner that offers valuable one-click
access to its partners.
Microsoft believes that its agreements with content
providers are legal and standard cross-promotional deals.
Prosecutors believe the most damaging step Microsoft took
-- and the one that first drew the attention of federal
investigators -- was forcing its most important distributors,
the PC makers who pre-install Windows on new
computers, to take Explorer as well.
The government is expected to allege in the new lawsuit
that that was an illegal "tying" of a monopoly product,
Windows, to Explorer, shutting out competing products like
Netscape's Navigator. That was also the point of a
narrower case against Microsoft last year, alleging that it
violated a 1995 decree that settled an earlier antitrust
investigation of the company. A federal judge in Washington
found in favor of the government in December, but the
ruling is under appeal -- and would probably be superseded
by any new lawsuit the government might file.
Navigator Seen as a Threat
Microsoft did all this, investigators believe, because it saw
Netscape's browser as a threat to Windows' dominance,
something that could "commoditize" the operating system,
Mr. Gates wrote in a 1995 internal memo that is likely to be
cited as evidence in the new case. Increasingly, he saw that
creativity and new investment in software were shifting
away from familiar stand-alone desktop programs, which
Microsoft dominated, to creating programs for the Internet
-- and Netscape was the preferred vehicle for cruising the
Web.
Netscape's browser also threatened Microsoft because it
was the key means of distribution for a new software
language, Java, developed and widely licensed by Sun
Microsystems Inc. of Mountain View, Calif. Java was
becoming popular among this new generation of Internet
programmers and could run on any operating system,
freeing the programmers from their long dependence on
Windows. (See an Interactive Journal issue briefing on
Java.)
Microsoft has clearly hurt Netscape in the marketplace --
fair and square, Microsoft says. Netscape's stock has fallen
to a third of its peak value three years ago, as the
company's revenue growth slowed and it posted a string of
quarterly losses. Two years ago, Netscape had more than a
70% share of the browser market, almost as dominant as
Windows' share of the PC operating-system business.
Thanks to the heavy Microsoft competition and, industry
analysts say, some of Netscape's own strategic blunders,
Netscape's market share has slipped to 55% and is still
declining.
At first, people close to the case say, PC makers and other
potentially vital witnesses were reluctant to cooperate. They
were skeptical that the government would act and feared
retribution from Microsoft. After being compelled by
subpoenas to testify, however, PC makers including
Compaq Computer Corp. told the Justice Department that
Microsoft threatened to cut them off from Windows if they
didn't also install Microsoft's browser.
Now, some witnesses in the case say PC makers have
poured out stories of years of bullying by Microsoft. "Even
some companies that Microsoft believes are their allies have
been working against them" with state and federal
law-enforcement officials, said a senior executive of one
major PC maker who asked not to be identified. "It was the
culmination of years of sitting across the negotiating table
from Microsoft and feeling like we're playing with a loaded
deck ... because you have to have Windows or you're out
of business."
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