The US government wants Microsoft to be fined $1 million a day for alleged anti-competitive practices in bundling its Internet Explorer browser with its operating system and shipping it through PC suppliers.
With hours to go before the release of Microsoft's first quarter results on Monday afternoon, the US Justice Department accused the company of being in contempt of a 1995 court order which the government obatined to clamp down on the supplier's anti-competitivelicensing practices.
Reflecting the importance that the US government attaches to the alleged violation, the announcement of the Justice Department's actions was made at a press conference hosted by Janet Reno, the US Attorney General, who explained that she wants a federal district court to support the allegations and punish Microsoft.
"Microsoft is unlawfully taking advantage of its Windows monopoly to protect and extend that monopoly," she said. "Forcing PC manufacturers to take one Microsoft product as a condition of buying a monopoly product like Windows 95 is not only a violation of the court order, but it's plain wrong."
But according to Microsoft, it is only ensuring that it meets the needs of its customers by bundling Internet Explorer with Windows 95. In a prepared statement, chief executive officer Bill Gates said: "Today people want to use PCs to access the Internet. It would be a great disservice to our customers if Microsoft did not enhance Windows with Internet-related features and rapidly distribute updated versions of Windows through PC manufacturers."
Specifically, Microsoft is accused of violating a 1995 consent decree which prevents the company from typing the shipment of software applications - in this case IE - to the licensing of Windows. The Justice Department will have to convince the court that IE and the operating system are two standalone products. Assistant Attorney General Joel Klein insisted: "These are two different products. Each of Microsoft's products should compete on its own merits."
Microsoft argues that IE is simply an integrated component of the overall operating system functionality. William Neukom, Micrososft's senior vice president for law and corporate affairs, said: "All software vendors are entitled to improve their products and to do so rapidly. The consent decree explicitly states that Microsoft may integrate new features into the operating system that it licenses to PC manufacturers without violating the decree." He added that when the decree was negotiated in 1994, it was made clear to the Department of Justice that Microsoft intended to added browser capabilities into Chicago, the project name for what later became Windows 95.
The Justice Department motion asks that the US District Court in Washington should require Microsoft to stop forcing PC suppliers to install IE with Windows 95 and to fine the software company $1 million a day if it refuses to comply. The $1 million a day price tag is the single largest contempt fine ever sought by the Justice Department, which usually limits such claims to around $10,000 a day.
The government also wants Microsoft explicitly to inform Windows 95 users that they do not have to use IE, that there are alternative products available and to provide instructions on how to remove the IE icon from their computer desktop if they choose.
Finally, in a bid to make it easier for other companies to testify against the supplier, the government wants the court to limit the authority of the non-disclosure agreements that Microsoft requires its business partners to sign. "We want to clear the air once and for all," explained Klein. "We have no way of knowing whether these agreements have deterred people from voluntarily coming forward with. We've heard this might be the case."
US antitrust legislation does not outlaw the creation of monopolies through "talent and ingenuity", but does forbid any abuse of a monopoly once it is achieved. "Anyone can give away a browser, but no one can force it onto a computer desktop unless you have monopoly power. When you use that power to snuff out a new entrant, that's what's prohibited," Klein said.
The Department of Justice petition was filed in US District Court for the District of Columbia, where the 1995 consent decree was entered. Microsoft has 11 days to respond to the Department's petition in writing after which a judge will decide whether a hearing is appropriate.
Microsoft's trading practices are also under investigation by the European Union, which last week confirmed that the EU Executive Commission was exploring six cases related to the supplier, two of which are based on complaints brought by rival companies. A statement of objections has been sent to Microsoft outlining the antitrust issues that the EU feels the company must address.
The announcement on Monday morning marked the toughest action to be taken by the US authorities in what has become a long running war with Microsoft. The Justice Department is currently examining the company's recently announced stake in ailing Apple Computer as well as three investments in the video streaming market. The supplier was previously investigated for bundling its MSN online service with Windows 95, although this inquiry was later dropped.
But one US lawyer felt that the supplier was almost certain to lose this battle. "It does not take a rocket scientist to understand why Microsoft gave away its browser free of charge," he said. "Microsoft did not need to give IE away, unless their intent was only one to drive Netscape out of business."
"The Federal court in the US will side with the Department of Justice," he predicted. "Microsoft will have to pay the $1 million fine for every day it violated the contract."
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