AOL-Netscape Deal Could Help Microsoft
After weeks of struggling to hold its own in the government’s antitrust case against it, Microsoft Corp.’s legal prospects appeared much improved Monday with the news of merger talks between America Online Inc. and Netscape Communications Corp.
Many experts believe the discussions between the nation’s largest Internet service provider and the leading seller of Internet browsing software will undercut the government’s claim that Microsoft’s aggressive business tactics have weakened rivals and reduced competition.
“This does take some of the wind out of the government’s case,” said Ernest Gellhorn, a law professor at George Mason University Law School in Fairfax, Va.
“It seems to me the government’s argument that Microsoft . . . will be able to use Windows to roll everybody over in the Internet market seems less likely now,” said Donald I. Baker, a veteran Washington antitrust lawyer.
“Both the merger law and the Sherman [antitrust] Act are concerned about longer-term effects” of business actions, Baker said. “They each ask, in a different way, ‘Does this transaction make monopoly more likely in the long run?’ ” Baker added. Thus a Netscape-AOL deal, he said, would signal that the industry remains highly competitive.
The experts also said any deal between two of Microsoft’s staunchest rivals might prompt U.S. District Judge Thomas Penfield Jackson to consider less draconian penalties for Microsoft should the government win its case against the software giant.
“I think this is likely to diminish the urgency that Judge Jackson feels to impose any sweeping form of remedy,” said William Kovacic, a visiting law professor at George Washington University. “Certainly a breakup of the company becomes less likely. The thinking is going to be, since AOL, Netscape and Sun have devised a strategy [to compete with Microsoft], Judge Jackson doesn’t have to fashion a remedy.”
But an economist testifying for the government said the merger talks don’t undercut his assertion that Microsoft wields monopoly power.
Frederick R. Warren-Boulton said in court here Monday that Microsoft’s aggressive business tactics may in fact have forced Netscape to seek out AOL to avoid being crushed by Microsoft.
This potential merger is the result of Microsoft’s monopolistic actions, Warren-Boulton said. “It is unfortunate to see the disappearance of a firm like Netscape.”
The Justice Department, 20 states and the District of Columbia have charged that Microsoft has illegally used Windows--which runs 90% of all modern personal computers--to extend its dominance to the Internet and other emerging information technology markets.
AOL and Netscape are still finalizing the terms of their proposed $4-billion deal. There remains a chance the deal could fall through if Sun Microsystems Inc. does not agree to a separate proposal to market and develop Netscape’s business software.
The Netscape-Sun deal could put new pressure on Microsoft and give a much-needed boost to Sun’s efforts to establish its Java computer programming language--often touted as an alternative to Microsoft offerings.
One of Sun’s biggest challenges has stemmed from Microsoft’s efforts to make the Java language more Windows-friendly. Those efforts would have hurt the movement to make Java a “universal” programming language that--unlike Windows--could be run on different kinds of computers--from Apple Computer Inc.’s Macintosh computers to machines running the Unix operating system found in large businesses. A court decision last week orders Microsoft to make its version of Java compatible with Sun’s standardized version.
Tracy Corbo, senior research analyst for enterprise software for Cahners In-Stat Group, based in Newton, Mass., said that a joining of Sun and Netscape would strengthen Java. It would give Sun--known mostly for its hardware--the ability to influence the development of Java through Netscape’s expertise in building Web browsers and server software that controls large networks.
“This is a win for the purity of Java,” she said. “This gives Sun the ability to keep Java alive and well.”
Ted Schadler, director of software strategies for Forrester Research, a technology market research firm in Cambridge, Mass., said Netscape’s software products would also help Sun extend its reach beyond the high-end server market it now dominates.
Michael West, research director for Internet strategies for Stamford, Conn.-based GartnerGroup, cautioned that a Netscape-Sun marriage would be no panacea. Microsoft has always been a fierce competitor that can move quickly when it feels threatened, he said.
