Microsoft blinked first in the battle of wills with the Justice Department, but the two parties are still miles apart as far as reaching a lasting peace is concerned.
In a surprise development on Thursday, Microsoft announced that it would comply with Judge Thomas Jackson?s 11 December injunction banning the supplier from forcing OEMs to carry Internet Explorer as a precondition of licensing Windows 95.
The Justice Department argued Microsoft should have used the Add/Remove utility in Windows 95 to block access to the Internet. It alleged that Microsoft's offer to ship a version of Windows 95 dating back to August 1995 and which did not work, was an attempt to flout the terms of the injunction. This was, it claimed, "senseless and offered OEMs no viable choice at all."
The settlement terms mean that Microsoft will now offer a version of Windows 95 that contains a complete, up-to-date operating system without IE bundled. OEMs will be allowed to market PCs running Windows 95 with a choice of browser - IE or Netscape?s Navigator - or if they choose, no browser at all.
For its part, the Justice Department withdrew a motion that Microsoft should be fined $1 million a day for contempt of court. Judge Jackson had been due to rule on that motion on Thursday. The agreement will stand until Microsoft is no longer licensing Windows 95 or until 60 days after removal of the 11 December injunction.
Joel Klein, assistant attorney general at the Justice Department's antitrust division, welcomed the settlement. "Competitors and innovators should know that their products can compete on their own merits and not be wiped out by Microsoft's use of monopoly power. That's what competition is all about in America.?
But despite backing down, Microsoft remained defiant, insisting that removing all of IE will damage Windows 95. It said that the new options being offered to OEMs will simply hide IE, not remove it, which it claimed was a climbdown by the Justice Department.
William Neukom, senior vice president for law and corporate affairs, said : "These options are essentially a pure hiding, rather than a removing, approach.?
Specifically the options which Microsoft will now offer OEMs include a version of Windows 95 without IE icons and the 26 browser files that can be removed using Windows 95?s Add/Remove feature. This is the favoured Microsoft option, since the supplier claims that virtually all IE functionality remains hidden in the operating system.
The second option is to licence and preinstall a modified version of Windows 95 OSR 2.0. The IE icon will be removed from the desktop and start menu while the IEXPLORE.EXE file is marked as ?hidden? using instructions that will be approved by the Justice Department and Microsoft.
The agreement does not resolve the ongoing litigation involved with this case. Microsoft's appeal of the 11 December injunction has stillto be resolved as does its plea to remove Harvard professor Lawrence Lessig from the role of "special master" to advise Jackson on whether the supplier is in breach of an anti-trust consent decree.
But the settlement does leave a potential window of opportunity for Microsoft rival Netscape, which on Thursday confirmed longstanding speculation that it would begin offering its browser software free of charge.
Netscape is the dominant browser vendor, but Microsoft has stolen some 40 percent of the market share, eroding Netscape's revenue stream and climaxing fourth quarter 1997 losses and the prospect of 400 layoffs.
In a surprise move, the company also announced that it would make the source code for Communicator 5.0 - due out later this quarter - available for free licensing. Developers will be able to use the underlying browser "engine" to power third-party applications. The source code will be available online later this quarter.
Developers will then be expected to post their modifications of the source code on a developer community site.Netscape will incorporate the best third-party enhancements into the core product.
Netscape also unveiled what it called an "aggressive" worldwide marketing campaign in an attempt to regain the initiative in the browser market. Two enhanced subscription programs called Subscriber Advantage and Enterprise Subscription Program for enterprise customers will be offered via the online Netscape Store.
Users will be offered the chance to win big prizes in the "Choose Netscape" sweepstakes. For example, when downloading Communicator and Navigator for free, users can register to win a seven-night trip for two to a tropical resort.
The company has also put in place an Unlimited Distribution program to allow OEMs, Internet service providers and Web content providers to download and redistribute Communicator and Navigator with "no strings attached."
For Microsoft, the battle with the Justice Department continues, with attention increasingly focused on the ?unclear? impact of the ongoing anti-trust action on the release of Windows 98. The Justice Department confirmed on Thursday that it was continuing its investigation of Microsoft?s plans for the operating system, which include bundling IE. Microsoft chief operating officer Robert Herbold cautioned: ?We shouldn?t be speculating what the Justice Department might do. We continue to work on that project vigorously.
?What the implications are in terms of other things we might have to do, it?s unclear at this juncture,? he added. ?We?ll focus on getting Windows 98 out there.?
Short of both sides suddenly conceding major planks of their respective arguments, the next official stage of the proceedings is scheduled for 21 April when an appeals court will hear Microsoft?s challenge to Jackson?s injunction.
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