Justice Dept. Steps Up Microsoft Investigation : Computers: On-line firms have a week to document their concerns about bundling of Microsoft Network software with Windows 95.
The Justice Department has stepped up its investigation of Microsoft Corp. because of concern that the software giant may use unfair tactics to break into the blossoming on-line computer business.
The department’s antitrust division gave commercial on-line companies--including Prodigy, CompuServe and America Online--one week to document their concerns about Microsoft’s plan to bundle its Microsoft Network software with Windows 95, its blockbuster new operating system due in August.
On-line companies are vigorously competing for the opportunity to be the electronic gateway through which millions of computer users will shop, exchange electronic mail and gather news. They worry that Microsoft will be able take over that role in one fell swoop if every Windows 95 user has easy access to Microsoft Network. Thirty million copies of Windows 95 are expected to be sold in its first year.
Observers speculate that the department is speeding up its current investigation to improve its chances should it decide to go to court to seek an injunction to stop Microsoft from bundling the two products together. If Microsoft has already begun manufacturing its product when the issue comes before the court, the company could persuasively argue that it would be hurt economically by any injunction forcing it to halt distribution of its product.
The Justice Department investigation, the antitrust division’s third of Microsoft, reflects widespread concern over Microsoft’s growing power in the software business and its ability to leverage its control over the computer’s most basic software, the operating system, to boost its share in huge new segments of the market.
A department spokesman declined to confirm that Microsoft was being investigated. He said the department is “looking into the possibility of anti-competitive practices in the computer software industry.”
However, antitrust lawyers say the department would not have issued CIDs (civil investigative demands) asking for information from on-line providers and from Microsoft if it were not conducting an investigation.
Microsoft said Friday that it is cooperating with the department’s requests for information but that it is convinced it is acting fairly.
“We view the offerings that are in the market as offerings we could improve upon with better content and better prices,” Microsoft general counsel William Neukom said. The company’s introduction of new competition to the industry should be “a regulator’s dream,” he said.
Neukom was clearly annoyed, however, at the persistent scrutiny Microsoft has faced from the government.
“It continues to concern me that the assistant attorney general for antitrust seems to be the collecting point for grievances against Microsoft,” Neukom said.
Microsoft was recently forced to scrap plans to purchase Intuit, the dominant provider of personal finance software, after the Justice Department sued to block the $2.4-billion deal on antitrust grounds.
As in that case, Microsoft’s competitors are complaining that Microsoft’s control over the operating system, which manages all basic functions of the computer, give it the tools to put competitors at a huge disadvantage.
Windows 95 users, for example, will be able to sign on to Microsoft Network with the click of an icon. Companies such as Prodigy must pay computer manufacturers to “pre-install” their software on new computers that are shipped.
Microsoft Network is also expected to be easier to use because Windows 95 will probably make it possible to send a document over the network with fewer keystrokes.
“Imagine that one newspaper is thrown on the driveway and another newspaper [company] comes along that has a key to your house and can put the newspaper next to your orange juice,” said Brian Ek, spokesman for Prodigy. “You can still go out to your driveway to get the other paper, but will you?”
Ek and others would like to see Microsoft not only sell its Network Service separately, but also create a separate subsidiary to operate the business.
Microsoft argues that its decision to bundle the service on Windows 95 merely represents a method of distribution and that competitors have alternative ways of distributing their products, including free samples sent in the mail. The company said on-line services would compete on the basis of content, not distribution.
At the same time, Microsoft concedes that the ties between the operating system and the network service are close.
“PCs are becoming more important as communications devices,” said Russell Siegelman, general manager of Microsoft Network. The decision to include the software with Windows 95 was “a recognition that the appropriate place to have this code is as part of the operating system,” he said.
Observers are skeptical about whether the Justice Department can build an effective case against Microsoft.
“They would have to show that other people can’t compete without also being bundled with” Windows 95, said William Baxter, a law professor at Stanford University who once directed the Justice Department case that broke up AT&T.; Proving such a case would be particularly difficult, he noted, because Microsoft has not even begun selling its product yet.
Baxter said the department’s close scrutiny of Microsoft is not surprising.
“Once they got started on Microsoft, they thought it was efficient to look at all aspects of Microsoft. You have all the numbers in your head, so you might as well wrap it up.”
A four-year department investigation led to a consent decree last July in which Microsoft agreed to stop certain practices that pressured computer companies to bundle Microsoft operating systems with all of their machines. That settlement was rejected by a federal judge in February as too lenient and is facing appeal.
