We'll see you in court, says Microsoft

By Richard Morochove

First published May 21, 1998

King Kong climbs to the top of the Empire State building and the circling airplanes approach and begin to fire. That could describe Microsoft's uncomfortable position as the U.S. Department of Justice and some 20 U.S. states hit the software giant on Monday with their long-anticipated lawsuits that could have a far ranging impact on the computer business.

Last minute negotiations between Microsoft and U.S. government officials broke down last weekend. After a four-day delay, Microsoft started shipping Windows 98 to computer makers on Monday. According to Microsoft, it's still on track for releasing Windows 98 to consumers on June 25.

Yet Windows 98 won't ship in its present form if the Justice Department has its way. The double-barreled suits ask that Microsoft either remove its Internet Explorer Web browser from Windows 98 or ship competing Web browsers with the operating system, including Netscape's Communicator.

In last week's failed negotiations, Microsoft flatly refused to agree. It contends that Internet Explorer cannot be removed from Windows 98 since it is so integrated with the new operating system. Microsoft CEO Bill Gates balked at distributing Netscape's software, saying he did not believe that using Windows to help promote the product of a competitor would be in the interest of consumers.

Yet U.S. Attorney General Janet Reno contends that Microsoft is looking out only for itself and not for computer users.

"Microsoft used its monopoly power to develop a chokehold on the browser software need to access the Internet," says Reno.

The suits allege that Microsoft has engaged in anti-competitive actions, using its near-monopoly position in PC operating systems with its Windows software to illegally extend its influence into other areas such as Internet software.

The federal complaint alleges that three years ago Microsoft attempted to persuade Netscape to enter into an illegal conspiracy agreement to divide up the browser market. Microsoft would develop a browser for PCs using Windows and Netscape would develop browsers for all other computers. After Netscape rejected Microsoft's overtures, Microsoft began an all-out attack on its rival.

Microsoft's tactics included reaching agreements with major Internet Service Providers (ISPs) and online services to feature Internet Explorer as their exclusive or primary Web browser. Microsoft wouldn't promote services that didn't feature Explorer.

Microsoft also required computer makers to load Internet Explorer on their new PCs as a condition to licensing Windows 95.

As a result of these actions, Microsoft's market share of the Web browser market has soared over the past three years, from 5 per cent to 42 per cent, challenging Netscape's once-commanding position.

The Justice Department wants Microsoft to allow Internet Explorer to compete based on its own merits, without using these anti-competitive and exclusionary contracts.

The suits also ask that computer makers be allowed to modify the initial Windows boot-up screen, so that they could add icons for competitors' products, for example.

Joel Klein, U.S. Assistant Attorney General in charge of the case, said, "What cannot be tolerated is the barrage of illegal, anti-competitive practices Microsoft uses to destroy its rivals."

According to Klein, an investigation into other Microsoft products and business practices will continue.

The action filed by the states also alleges that Microsoft has engaged in anti-competitive behaviour in marketing Microsoft Office, by closely linking its suite of applications that includes spreadsheet and word processing software with the Windows operating system.

For its part, Microsoft believes it has the right to decide what to include in software products such as Windows. The company predicts software innovation will be stifled if government officials are allowed to dictate what should and what should not be included in the operating system.

What does this legal maneuvering mean for computer buyers?

As Microsoft digs in its heels, there's an increasing likelihood that Windows 98 won't ship to U.S. consumers as planned, on June 25. However, Microsoft may very well decide to go ahead and release Windows 98 in other jurisdictions where it faces no such legal challenges. So Canadians might be able to buy the new Windows while it's tied up in legal wranglings south of the border.

Furthermore, this may hold up, for a week or two, the launches of new PCs scheduled for June that are now planned to be loaded with Windows 98.

And make no mistake about it, since both sides appear unwilling to compromise, the legal wranglings will be protracted. The actions are being laid under the provisions of the Sherman anti-trust act, a rarely used piece of legislation that's been called the Magna Carta of the free enterprise system in America.

The Sherman act was used to break up John D. Rockefeller's Standard Oil Trust in the early years of this century. More recently, it led to the breakup of AT&T and a legal battle with IBM that lasted for years.

While no one is calling for the breakup of Microsoft at this time, the states' action could lead to a call to separate Microsoft's operating systems business from its software applications business.