Existing Decree Alters Rules in Microsoft Case
When the Justice Department settled its antitrust suit against Microsoft in 1995 with a consent decree, pundits said the action was little more than a slap on the wrist.
Now that’s not so clear.
The department on Monday alleged that Microsoft violated the decree by requiring computer makers to include Internet Explorer, its Web browser, as a condition for putting its Windows 95 operating systems on their computers.
U.S. Atty. Gen. Janet Reno has asked the federal District Court in Washington to fine Microsoft $1 million a day until it agrees to specific conditions: that Microsoft end the practice of tying sales of the browser to the operating system; that it tell consumers they have the option of using other browsers; and that it end nondisclosure agreements with computer makers, making it easier for officials to monitor future allegations against the software company.
If the court agrees, the decree could turn out to be the first major constraint on the Redmond, Wash.-based software giant’s growing power in the computer industry. It could also mark the beginning of heavy regulatory scrutiny of Microsoft--the kind once faced by IBM and AT&T.;
“When [the consent decree] said do not bundle any additional applications with the operating system, they established a clear line in the sand,” says Garth Saloner, professor of economics and strategic management at Stanford Business School. “Microsoft went over that line.”
At issue is whether Microsoft is using its substantial Windows monopoly--the operating system is used on about 85% of the world’s computers--to give it an advantage in the browser market. If that is found to be true, the action--in antitrust terms--would be considered illegal “tying.”
Microsoft insists the practice is legal because the decree allows the company to “integrate” new features into its operating system. Microsoft argues that adding the browser merely continues a natural evolution in the operating system that goes beyond files on their PCs or on the corporate network.
“Today people want to use PCs to access the Internet. We are providing that functionality in Windows,” Microsoft Chairman Bill Gates said Tuesday.
It’s no different than when Microsoft added new functions to Windows in the past--to the dismay of smaller rivals, says Harry Fenik, vice president of Zona Research, a Redwood City-based marketing research firm. “Each time, several companies went bankrupt. But nobody complained because Windows got easier to use.”
Indeed, by bundling Explorer with Windows 95, Microsoft has given computer users easy access to the Net, sparing them from downloading and installing a browser. Consumers, if they choose to, have the option of using a rival browser, such as Netscape Communications’ Navigator software.
With Windows 98, which will be released early next year, the browser will be fully integrated into the operating system and the transition will be complete, the company says.
Consumers will still have the option of downloading and installing an alternative browser, although most are not expected to do so.
Observers say a greater government role in deciding what should or shouldn’t go into software will only slow innovation. Even critics of Microsoft question whether political motives are behind this action.
“I wonder about the Justice Department,” says Jeff Tarter, editor at SoftLetter, a Watertown, Mass.-based computer industry newsletter. “They’ve had their head handed to them before. I’m surprised they would take on this battle.”
Although Microsoft has been the subject of numerous antitrust investigations, many legal experts say this time is different. The reason? The consent decree.
In a normal antitrust case, the Department of Justice would have to prove “tying” by building an elaborate case that included evidence to show that Microsoft had an “intent to monopolize” the browser market. In its defense, Microsoft would be able to justify its actions in terms of improved consumer efficiency.
Not so this time.
The Justice Department now has the much lighter burden of simply showing Microsoft violated the decree.
“The consent decree sets out different rules of the road,” says Samuel Miller, a Silicon Valley lawyer who headed the antitrust investigation of Microsoft that led to the decree. “It is a tradition in antitrust that dominant firms are subject to different rules.”
Since Microsoft has admitted it is requiring computer makers to bundle Internet Explorer with Windows 95, U.S. District Judge Thomas P. Jackson needs to rule only on the Justice Department’s argument that the browser is a separate product and therefore subject to the decree.
The department’s evidence on that score are persuasive:
* Microsoft has marketed Internet Explorer as a separate product and spoken repeatedly of its gains in market share against Netscape’s Navigator.
* The browser was developed as an independent product, unlike previous upgrades to the operating system.
* Microsoft sells the Internet Explorer on other operating systems besides Windows 95.
* Windows 95 users with browser questions recently have been referred to a separate help desk that deals with Internet Explorer.
If the government prevails, Microsoft could be forced to break Explorer from its operating system.
That would hardly mean Microsoft has lost the war. The company likes to boast that millions of people are downloading the latest version of Explorer from the Net. Even if it loses in court, Microsoft could still win in the marketplace.
But it won’t be a foregone conclusion.
“Any time Microsoft sees a potential threat, they do everything they can to push it out of the arena,” Miller says.
The consent decree could prove to be just the tool the Justice Department needs to slow down Microsoft.
