As Gary Reback, a high-profile Silicon Valley lawyer who has frequently crossed swords with Microsoft remarks: "It's not just our lunch, but our carcasses that Microsoft wants to eat."
In July 1994, Microsoft signed the consent decree with the US Department of Justice in which it agreed "to end its illegal, monopolistic practices" in "unfair contracts with PC manufacturers" that "choked off competition and preserved its monopoly position".
Bill Gates' comment in an interview with the Washington Post was reminiscent of a bully kicking sand in the face of a weakling: "None of the people who run divisions are going to change what they do or think or forecast. Nothing. There's one guy in charge of licences. He'll read the agreement."
As it turned out, the consent decree was not confirmed until August 1995, because Judge Stanley Sporkin considered -- like most other observers -- that the consent decree was too tame, and refused to enter it. Eventually, his decision was overruled in the Court of Appeals, although recent events have vindicated his stance.
As a result of complaints last year by Netscape and others that Microsoft was breaching the terms of the decree, Joel Klein (who took over from Ann Bingaman as the DoJ antitrust chief) recently petitioned the federal court in Washington DC to enforce the consent decree against Microsoft.
Although the DoJ says it is continuing to investigate Microsoft's business practices on a wide front, the particular hot button at the moment is Microsoft's insistence that PC manufacturers that wish to license Windows 95 must also include Internet Explorer, whether they wish to or not. The DoJ does not have to prove that Microsoft's behaviour is anticompetitive, merely that Microsoft has broken its promises to the court not to act in contravention of the consent decree.
Although Microsoft is only allowed 11 days to respond to the Petition, or face a hearing, inevitably legal processes are too slow to deal successfully with transgressors.
It was clearly not a coincidence that Karel van Miert, the EC Commissioner in charge of competition law, was in Washington at the time the petition was presented: it was a signal to Microsoft that there was close collaboration again between the US and the EU under the terms of the international treaty on unfair competition.
The Memorandum accompanying the Petition contains some damning indictments of Microsoft's practices. In July 1995, a month before the release of Windows 95, an email from Chris Jones, a Microsoft Internet manager, to Brad Silverberg, a Microsoft vp, says that: "So far no major objections to including Internet Explorer. Some [OEMs] want to remove the icon from the desktop -- our response should be that this is not allowed."
Compaq wanted to load Netscape's browser on certain models, but Microsoft formally wrote saying that unless Compaq installed IE, Microsoft would revoke Compaq's licence for Windows 95. Compaq gave in. Gateway and Micron was also denied permission to remove IE and the icon.
An internal memo to Microsoft marketing managers from Brad Chase, VP of developer relations and marketing, noted that although the browser is a "no revenue product . . . you should worry about your browser share, as much as BillG because: we will loose [sic] the Internet platform battle if we do not have a significant user installed base. The industry would simply ignore our standards. Few would write Windows apps without the Windows user base. . . . if you let your customers deploy Netscape Navigator, you loose [sic] the leadership on the desktop."
As is widely realised, Microsoft's problem is that its operating system monopoly was threatened should Netscape's browser continue to have a significant market share, and Windows could become legacy software. Bill Neukom, Microsoft's general counsel, denies that Microsoft has done any wrong, and says that Microsoft is ?operating in a completely lawful manner. Microsoft "vowed to defend its product innovations" and said it would "vigorously defend its practice of rapidly improving its new products' and that ?product improvements were always pro-competitive".
One problem is that since IE is "free", this could be construed as predatory pricing, which is illegal where the objective is to ruin a competitor whose pockets are not as deep as those of Microsoft. Primarily, Microsoft is relying on a provision in the consent decree -- considered by many to have been inserted at Microsoft's insistence -- that allows Microsoft to develop integrated products. The thinking at the time, long before Microsoft realised that browsers could be important (and before it tried to buy a stake in Netscape, which had just been set up), was that if Microsoft could integrate MS-DOS sufficiently into Windows 95, it would not face competition from DR DOS substituting for MS-DOS.
The DoJ anticipated that Microsoft would try to use the defence that IE falls into the category of "an integrated product" rather being in the "other product" category: "Microsoft's business conduct in licensing, distributing and tracking IE in the marketplace tells the true story. IE is a separate product, and it does not become an 'integrated product' simply because Microsoft chooses to force OEMs to accept it as part of a package of software . . . or chooses to call IE a feature of Windows 95 for some purposes . . .".
Only when Microsoft became aware of the DoJ's concern did it start to suggest that IE is an integrated feature of Windows 95, rather than a separate product. Only the most slavish supporter of Microsoft would attempt to argue that IE -- all 70MB of it -- is a 'feature' of Windows 95.
From February 1998, Microsoft will insist that OEMs include IE4 with Windows 95. Microsoft's strategy is to make it impossible for Netscape Navigator to substitute for IE. A problem for Microsoft at the moment is that IE3 is aggressively identified by Microsoft as a separate product available for several platforms that need not be included with Windows 95. Indeed, many people have decided to substitute Netscape Navigator and delete the IE icon.
The DoJ's petition asks for a fine of up to a $1 million/day for contempt of court, if Microsoft continues to violate the court's order, and asks that:
1 Microsoft stops requiring PC manufacturers to include Internet Explorer with Windows 95, as a condition of licensing Windows 95 from Microsoft. Janet Reno, the US Attorney General, said : "Microsoft is unlawfully taking advantage of its Windows monopoly . . . to undermine consumer choice." Joel Klein, the new antitrust chief, claimed -- referring to Internet Explorer -- that "Microsoft is using an unlawful advantage [known as tying] to beat back an important competitive challenge to its Windows monopoly." Klein added that Microsoft's action was designed to undermine its major competitor, Netscape.
2 Microsoft notifies PC users having Windows 95 that they can use any compatible browser, and tells users how to remove Internet Explorer form their desktop, if the user wishes this.
3 Microsoft waters down the non-disclosure agreements that it uses to prevent OEMs and business partners from giving information in response to formal requests from the DoJ as part of various on-going investigations of Microsoft's business practices, thereby stopping "any fear of intimidation or reprisal" by Microsoft.
4 Microsoft sets up compliance procedures for executives and managers, and complies with the consent decree in future -- or suffers "imprisonment or fine".
On past form, Microsoft will do everything possible to stall, and when necessary will use its considerable powers of persuasion to influence the media coverage in an attempt to limit the damage. If things look bleak, Microsoft will most likely enter into very protracted negotiations about the DoJ's demands, in the hope that by the time anything happens, Windows 98 -- with some further features removed if necessary to get it out quickly -- would lessen the impact of giving way. Nearly all new PCs would then have an integrated version of IE and Windows 98.
With a major antitrust case being brought by Caldera; antitrust actions believed to be underway in three or four US states; around six cases being brought through the European Commission DGIV competition directorate; a separate investigation of the browser wars by DGIV; and the recent announcement that Japan is investigating Microsoft's IE tying as well, Microsoft is suddenly very hard pressed indeed.
The Sun action over Microsoft's alleged breach of the Java licence terms is also active. The number and scale of these actions means that Microsoft is now short of its greatest resource: executive time.
No court finding, and no financial penalty, will matter to Microsoft as much as the chilling of the esteem in which the company was once held. Microsoft anarchically brought about the decentralisation of computing by empowering users, but it has now lost its radical chic and encouraged a new wave of anti-Microsoft sentiment by not maturing gracefully. This time around, Gates golfing with Clinton -- as he did shortly before he was required to testify to the DoJ -- will not get Microsoft off the hook.
Klein appears to have the bit well between his teeth, and has a well-argued petition. Ironically, whatever happens in the federal court, Microsoft has alienated itself in the court of public opinion.
Graham Lea is a computer industry analyst with [email protected], and edits Microsoft Monitor. [He was an advisor during the antitrust case against Microsoft in Europe and the US.]
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