Archive for Sunday, May 24, 1998

GOVERNMENT BUILDS STRONG CASE AGAINST MICROSOFT

May 24, 1998

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The software maker will be hard-pressed to explain some of its behavior, experts say.

Philadelphia Inquirer

Legal experts say the Justice Department, in what is shaping up as its most significant antitrust suit in decades, appears to have a strong case against Microsoft Corp.

Its outcome will affect how technology companies market their products and deal with their competitors in the fastest-growing segment of the U.S. economy.

The government is accusing the software maker of anti-competitive conduct and is basing much of its suit on the written words of the company's top executives in documents and e-mail.

Microsoft will find itself hard-pressed to defend some of its behavior, particularly agreements with Internet service and content providers restricting the use of competitive Web browsers, say legal scholars and practicing attorneys from around the country.

The company will be on firmer ground when it tries to defend its right to bundle its Web browser with the new Windows 98 operating system, but it will have to prove that joining the products is a technological advance rather than just an attempt to eliminate competition unfairly, the experts say.

``I think the government has a strong claim on the merits. It has revealed a wealth of smoking guns, indicating anti-competitive intent and conduct,'' said Hillard Sterling, special litigation counsel in information technology and antitrust at the Chicago law firm of Gordon & Glickson.

Microsoft's legal problems could be just starting with the lawsuits filed last week in Washington by the Justice Department and attorneys general of 20 states, the experts predict.

Competing software makers, who feel themselves injured by Microsoft's behavior, likely also will file suits.

``It is virtually a certainty that plaintiffs' lawyers are drafting petitions even as we speak,'' Sterling said in an interview after the government filed its lawsuit.

``There are a lot of private plaintiffs who are cheering on the government,'' said Einer Elhauge, a law professor at Harvard University in Cambridge, Mass.

If the government wins the case, the private plaintiffs could use that decision as evidence of Microsoft's wrongdoing, he said.

``Not only can they sue them, they can collect triple damages,'' said Elhauge, noting Microsoft's liability could run to billions of dollars.

Recalling the government's 13-year, antitrust probe of IBM, William Kovacic, a law professor at George Mason University in Virginia, said that, at one point, IBM found itself battling not just the Justice Department but also 40 private plaintiffs.

Microsoft says it is innocent of any wrongdoing and has said it will prevail, just as IBM did in its battles against the

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government and the private plaintiffs.

IBM prevailed in part because the computer market became more competitive as the lawsuit dragged on, due, ironically, to a new major player in the field, Microsoft.

The government alleges that Microsoft used its ``valuable'' monopoly in Windows operating systems against potential competitive threats, acting both to protect that monopoly and extend it into other software markets, particularly that for Internet browsers.

In its complaint, the government said Microsoft's Windows systems are installed on more than 80 percent of personal computers using Intel processors and that they come preinstalled on more than 90 percent of PCs.

The government quotes from documents in which Microsoft Chairman Bill Gates called the Internet ``the most important single development to come along since the IBM PC was introduced in 1981.''

It also quotes Gates calling Netscape a new competitor whose browser, Netscape Navigator, could loosen Microsoft's monopoly.

Netscape designed its browser to run on any computer platform, not just Windows, and could potentially supplant Windows as a new type of operating system. Netscape designed its browser so that other software could run from it, using Java programming language. The government said Microsoft feared these programs could potentially supplant Microsoft's software.

The Justice Department's suit cites documents in which several Microsoft officials said they had to leverage the Windows operating system so that the company's own browser, Internet Explorer, could gain market share on Netscape. Microsoft executives said in internal memos they were in ``a jihad,'' or holy war, over browsers.

``All of the management comments about leveraging `our powers' in Windows, squashing all of those threats to Windows, is exactly the kind of stuff that your antitrust lawyers beg you not to say,'' said Kovacic of George Mason. ``I think a lot of the company's `We are the king of the world' attitude really comes through in the papers.''

According to the suit, the company took several actions, including requiring computer makers to install Internet Explorer on their machines as a condition of getting a license to install Windows, that raised Microsoft's share of the browser market from less than 4 percent in 1996 to 50 percent or more today.

Other steps, the government's lawsuit contends, included entering into agreements with Internet service providers, such as America Online, to give their software prominent display within Windows, provided they primarily offered Microsoft's browser to their users. In addition, Internet content providers were given prominent ``channels buttons'' that would lead users to their Web pages as long as they didn't promote Netscape's Navigator.

``The gist of monopolization cases is that a particular firm both possesses power and has done something anti-competitive to maintain that power,'' said Beth Farmer, an assistant law professor at Pennsylvania State University.

The arguments against Microsoft are ``pretty classic,'' she said. The company is charged with using its power to force computer makers and others who want access to Windows to do other things that would hurt Netscape and other potential competitors.

``We want to reward good, tough competition, but we also want to make sure the playing field is level,'' she said.

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