Judge Halts Web Browser Strategy of Microsoft
Throwing a rare obstacle in the way of Microsoft Corp.’s march to computer software dominance, a federal judge Thursday ordered the company to stop requiring computer makers to install its Internet Explorer Web browser on their machines as a condition to offering its popular Windows 95 operating system.
The temporary restraining order issued by U.S. District Judge Thomas Penfield Jackson in Washington was a victory for the Justice Department, which charged in October that Microsoft had been violating a 1995 antitrust order barring such allegedly anti-competitive licensing of its programs.
But Jackson turned away the agency’s requests that Microsoft be held in contempt of the order and fined $1 million a day for the alleged violations. He also refused to strike down nondisclosure agreements in Microsoft’s licensing contracts with computer makers, which the department argued would keep people from cooperating with its investigation.
Jackson said his order would remain in effect at least until May 31, when he is expected to receive a report on the case from Special Master Lawrence Lessig, an Illinois lawyer who recently joined the faculty of Harvard University. And he specifically held that the Redmond, Wash.-based software giant’s marketing practices threatened to give it an illegal dominance over the market for Web browsers--programs allowing users to view and navigate among sites on the Internet’s World Wide Web.
“The probability that Microsoft will not only continue to reinforce its operating system monopoly by its licensing practices, but might also acquire yet another monopoly in the Internet browser market, is simply too great to tolerate indefinitely until the issue is finally resolved,” he said in a 22-page ruling, which was issued after the close of the stock markets. Shares of Microsoft closed at $139.06, down $3.19 Thursday on the Nasdaq stock market.
A Microsoft spokesman said that the company was pleased at the judge’s rejection of parts of the federal agency’s petition, and said it expected to prevail on the other issues over time.
“We think it’s a pretty balanced decision and we’re grateful,” said Adam Sohn, the spokesman.
Justice Department attorneys greeted the ruling as a significant and potentially far-reaching victory.
“No consumer should be denied the browser of his choice,” said Antitrust Division Chief Joel Klein. “Starting tomorrow, choice will be restored to the market.”
He suggested that the ruling was his agency’s strongest blow against Microsoft since mid-1995, when it blocked the company’s proposed acquisition of Intuit, maker of the popular Quicken personal finance program. And he said it should put to rest the notion “that there were no real teeth to the 1995 consent decree.”
Klein also speculated that the ruling might force Microsoft to remove Internet Explorer from its forthcoming Windows 98 operating system upgrade, at least as an integrated feature. That could theoretically make Windows 98, which is expected to reach retail shelves early next year, a less compelling product for existing owners of personal computers.
Industry analysts said the court’s decision could be the first sign of a trend toward tighter regulatory control over Microsoft. The company has in recent months been drawing increasing public criticism for its ruthless marketing tactics and their impact on smaller competitors in several software fields.
“When you succeed so much you become like a utility, you get regulated like a utility,” said Chris LeTocq, an analyst at San Jose-based Dataquest. “This is the first tendril of that regulation.”
At the center of the latest conflict between Microsoft and the Justice Department is the marketing of Web browsers. With more than 50 million users and a growth rate of more than 10% a year, according to a resent survey by Neilson Media Research, the World Wide Web is a burgeoning and critical market for software makers.
Until recently that market was dominated by Netscape Communications Corp., developer of the pioneering Netscape Navigator browser. But Netscape’s market share has been steady dwindling from 73% in 1996, when Microsoft issued the first version of its own browser, Internet Explorer, to 57.6% in September, according to a Dataquest survey.
Meanwhile Microsoft’s market share had doubled in nine months to 39.4%, the firm said.
Microsoft has long argued that its share of the browser market is well short of a monopoly and thus should not prevent it from marketing Explorer aggressively.
The company’s rivals and the Justice Department, however, have focused their complaints on Microsoft’s more than 90% share of the market for operating systems for personal computers.
That share effectively renders those operating systems, including Windows 95 and Windows NT, indispensable in allowing PCs to run most application software, the opponents say. The market share thus is a potent weapon--and a potentially illicit one--with which to coerce computer makers into bundling Explorer, rather than Netscape Navigator, into their machines.
None other than Compaq Computer, the nation’s top PC manufacturer, was forced to bow to such market mathematics, according to documents the federal agency filed with its lawsuit. Compaq had begun shipping its Presario model computers with the Internet Explorer and Microsoft Network icons deleted from the system displays to make room for Netscape.
When it learned of the move, Microsoft threatened to terminate Compaq’s right to offer Windows 95 at all, a Compaq executive told the agency.
Other documents indicated that Microsoft had also prevented Gateway 2000 and Micron Electronics, two other leading PC makers, from offering Netscape’s browser software to customers.
“They [Microsoft] have been illegally tying the browser with the operating system and this is a big step forward in leveling the playing field,” said Lori Mirek, senior vice president of marketing at Mountain View-based Netscape.
She added that a number of Microsoft’s contracts with computer manufacturers are set to expire in the coming months, and that Netscape aims to win much of its business back.
“We’re looking at a whole new round of competition,” Mirek said.
Microsoft also contended in its response to the Justice Department complaint that Internet Explorer was an integral feature of Windows 95, which meant the two programs’ co-licensing would be acceptable under the 1995 decree.
That argument has drawn ridicule from many professionals in the software industry, who note that Microsoft commonly markets the two programs separately and that Windows 95 functions as well without Explorer as with it.
Moreover, Judge Jackson said such a broad interpretation of the 1995 settlement would make it “essentially meaningless.” Microsoft’s ability to fold new functions into its dominant operating system software “stops at least at the point at which it would violate established antitrust law,” he wrote.
Whether Jackson’s ruling will have an immediate impact on the market success of Internet Explorer is uncertain. Much of its growth had been the result of Microsoft’s decision to offer it free to most users--itself a possibly illegal anti-competitive maneuver, some antitrust experts say--and to persuade such online services as America Online to offer it to customers as a preferred browser. Neither practice is specifically addressed in the Justice Department action.
Industry analysts also note that Microsoft so dominates the PC software market that it may not need an explicit licensing tie-in to make Explorer a success.
Most smart manufacturers “are going to include [Explorer] to keep Microsoft sweet,” LeTocq said.
Times wire services contributed to this story.
