Microsoft to Offer Windows Without Internet Browser
Averting a possible contempt citation, software giant Microsoft Corp. on Thursday agreed to license its popular Windows 95 operating system to computer makers without requiring them to include the firm’s Internet browser program.
The agreement marks Microsoft’s first major legal concession since the Justice Department renewed charges last year that the firm had engaged in anti-competitive practices. But Thursday’s deal resolves only a small portion of much larger antitrust issues in the case and does not address how this would affect future versions of Windows.
The government is attempting to break Microsoft’s alleged practice of bundling software products and forcing computer manufacturers to accept the entire package. The Justice Department contends that the company is violating terms of a 1994 antitrust settlement.
Microsoft vowed to continue fighting the broader suit. But the legal deal comes after a series of courtroom and public-relations setbacks in recent weeks in what many experts regard as the most important antitrust case in the last decade. In the process, Microsoft’s vaunted reputation has been left tarnished.
“I think it’s significant that they blinked,” said Kevin Arquit, a New York antitrust lawyer and former general counsel of the Federal Trade Commission. “Microsoft is not used to responding to anyone or anything. They must have seen the handwriting on the wall. I think this really strengthens the government’s hand.”
Although Microsoft made important concessions to the government, the legal agreement will do little by itself to reduce the firm’s market power or to bolster the fortunes of rivals, experts cautioned Thursday. The extent of damage to Microsoft will hinge on the final outcome of the antitrust dispute.
Under the settlement, Microsoft, whose Windows software runs more than 90% of the world’s personal computers, must make available the most up-to-date version of Windows 95 without forcing personal-computer makers to license its Internet Explorer Web browser as well.
The complicated deal would permit Microsoft to offer computer makers two versions of Windows 95 without Internet Explorer. The version most likely to be used involves simply deleting the Internet Explorer icon, the picture that launches a program with the click of a mouse. That leaves the Internet Explorer program in the computer but not visible to the average user.
The other version would delete the icon and about two dozen computer files that help operate the Internet Explorer system. But that option would impair certain Internet software and is therefore unlikely to be used, software experts said.
Of course, computer makers are free under the ruling to include the Microsoft browser if they choose, and at least one major manufacturer has already indicated it will do so.
In a brief court hearing Thursday, U.S. District Judge Thomas Penfield Jackson immediately accepted the agreement, triggering sighs of relief from Microsoft officials. Jackson had expressed increasing skepticism about Microsoft’s contention that his orders would damage the operation of Windows 95.
“Rather than allow the controversy to continue, we decided to offer new [browser] options to resolve the dispute,” said Bob Herbold, chief operating officer of Microsoft. “We want to put the focus back on the substance of the case. . . . We believe that consumers should decide what goes into software products, not the government.”
Despite the settlement, Microsoft has asked a federal appeals court for an expedited hearing of the broader charges that it is not in compliance with the 1995 consent decree. The U.S. Court of Appeals in Washington is expected to hear the case in April, said William Neukom, Microsoft’s general counsel.
Joel I. Klein, assistant attorney general in charge of antitrust, expressed his satisfaction at reaching a settlement with Microsoft, saying it would result in consumers having “more choice.”
Microsoft is engaged in a high-stakes battle with archrival Netscape Communications Inc. and other software developers to dominate the Internet by marketing browsers that help users navigate the increasingly important worldwide computer network.
But the ability of software makers to survive the deep pockets of Microsoft again came in doubt Thursday when Netscape announced that it would give away its Communicator and Navigator browser products--which it now sells for anywhere from about $30 to more than $100. The effort matches Microsoft’s practices.
Indeed, some analysts said the settlement doesn’t repair the damage caused to Netscape, which has been forced to lay off 13% of its workers and report an expected quarterly loss.
“In the real world, Microsoft has already succeeded in nailing Netscape,” said Gary Arlen, a technology analyst with Arlen Communications in Bethesda, Md. “The damage may have already been done. Microsoft may have already accomplished its goal in defeating its competitors.”
At a press briefing, Microsoft officials said they doubted that the settlement would have much effect on its business because computer makers are not required to remove the Internet Explorer icons.
Herbold said the settlement would have “very, very little, if any at all” financial impact on the company.
Microsoft’s shares rose $1.63 to $138.63 on Nasdaq.
The government launched the current case against Microsoft last fall, after the company threatened to withhold Windows 95 from Compaq Computer Co. and some other PC makers. Compaq had sought to replace Internet Explorer with Netscape’s browser on its Presario line of personal computers.
But Microsoft responded in a June 6, 1996, letter to Compaq that the computer maker would have to restore the Internet Explorer icon or it would terminate its license agreement for Windows 95.
A Compaq spokeswoman said Thursday, however, that the company has “no plans” to substitute rival browsers and will continue to offer Internet Explorer.
“That’s what our customers want,” she said, speaking about Microsoft’s Internet Explorer browser program, which is used by about 40% of all Web surfers, up from less than 20% a year ago.
Rob Enderle, a senior analyst at the Santa Clara-based consulting firm Giga Information Group, predicted Thursday that most PC makers would follow Compaq and continue to license Internet Explorer along with Windows 95.
But he speculated that IBM Corp. and Gateway 2000 Inc., which have sometimes faced off against Microsoft over the company’s software licensing agreements, could be encouraged by the settlement to strike browser licensing deals with Netscape.
Although a recent Fortune magazine poll found that Americans still hold Microsoft in high esteem, Brad Chase, vice president of Microsoft’s application and Internet client group, has acknowledged in recent days that Microsoft faces a growing image problem that could make it tougher to sell its software products.
“This is the first time the government has gone to bat against Microsoft and actually gotten something; this is a significant victory that could have real consequences in the marketplace,” said Gary L. Reback, a Palo Alto lawyer who has represented Netscape and remains an outspoken critic of Microsoft.
But others believe that the government will have to bring a far broader case against the company to do any real damage.
“There are so many other ways that Microsoft has to monopolize the browser platform that the government has to do more than this settlement to have any long-term impact,” said James Love, a Washington economist who heads Consumer Project on Technology. “I hope this is just the opening round. . . . The government shouldn’t let Microsoft remain in a strategic position to” control the Internet, he said.
Times staff writer Leslie Helm in Seattle contributed to this story.
* NETSCAPE’S NEW STRATEGY: Netscape is giving away its Internet browser software--and its source code. D1
