Microsoft can pay a fine or take a chance
US government plays monopoly card over software giant's bundling of browser with Windows 95.
The US government wants Microsoft to be fined $1 million a day forf browser with Windows 95. alleged anti-competitive practices in bundling its Internet Explorer (IE) browser with its operating system and shipping it through PC suppliers.
With only hours to go before the release of Microsoft's first quarter results last week, the US Justice Department accused the company of being in contempt of a 1995 court order that the government obtained to clamp down on the software giant's anti-competitive licensing 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 US attorney general Janet Reno, 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 its customers' needs by bundling Internet Explorer with Windows 95. In a prepared statement, CEO Bill Gates said: '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.'
Microsoft is accused of violating a 1995 consent decree that prevents the company from tying the shipment of software applications 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 functionally an integrated component of the operating system. William Neukom, Microsoft senior vice president for law and corporate affairs, said: 'All software vendors are entitled to improve their products. 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 Justice Department that Microsoft intended to added browser capabilities to 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. This price tag is the single largest contempt fine sought by the Justice Department, which usually limits such claims to about $10,000 a day.
The government wants Microsoft 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,' said Klein. 'We have no way of knowing whether these agreements have deterred people from voluntarily coming forward. 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 has been 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 Justice Department petition was filed in the US District Court for the District of Columbia, where the 1995 consent decree was entered.
Microsoft has 11 days to respond to the petition in writing, after which a judge will decide whether a hearing is appropriate.
The Justice Department is also examining the company's recently announced stake in Apple, 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.
Microsoft's trading practices are also under investigation in Europe.
The EU Executive Commission is 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 must be addressed.
One US lawyer felt that the supplier was almost certain to lose its current 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 - unless its intent was to drive Netscape out of business.
'The Federal Court in the US will side with the Justice Department. Microsoft will have to pay the $1 million fine for every day it violated the contract.'