Analysis: DoJ keeps pressure on Microsoft

The grand opera featuring the US Department of Justice (DoJ) and Microsoft has now reached Act Three, writes Graham Lea. But judging by revelations made by the DoJ in documents deposited at the US federal court in Washington last week, there are still many more acts to follow.

The DoJ complaint was made under the 1890 Sherman anti-trust act, which was designed to break up so-called trusts that bought or forced competitors out of business and then raised prices.

The complaint has grown considerably since it was first suggested. True, the DoJ is not asking the court to break up Microsoft ? as it did with Standard Oil and AT&T. The department is nevertheless asking for a tough, preliminary injunction which obliges Microsoft to include Netscape Navigator, or to unbundle the Internet Explorer browser from the Windows operating system ? which Microsoft maintains is impossible ? so that manufacturers can decide freely which browser(s) to include.

The DoJ has a strong case and some very good evidence. The department claims that Microsoft is incriminated by a succession of its own emails, memos, testimony and public documents, showing the extent to which it feared Netscape?s Navigator as a rival.

The department?s second area of concern is the content of the software giant?s initial screen, which offers users icons from Microsoft?s partners, but which doesn?t generally display icons from rivals at Microsoft. The company insists that it must control the screen.

Act One of the opera started in 1989 when the Federal Trade Commission (FTC) investigated alleged IBM and Microsoft collusion to partition the OS/2-Windows market.

Act Two began after Netscape?s 1996 complaint that it was the victim of unfair competition from Microsoft. In October 1997, the DoJ petitioned the federal court to stop Microsoft tying Windows 95 and Internet Explorer ? Microsoft had made it a condition that to get Windows, Explorer had to be on the desktop.

The DoJ petition was overruled, but Judge Jackson?s federal court decided to impose a temporary injunction, forcing Microsoft to offer a version of Windows 95 without Explorer. On 12 May, Microsoft won an appeal, arguing that Explorer and Windows were so integrated that they could not be separated. Windows 98 could be released as planned.

In the latest Act, the DoJ has demanded the deletion of clauses in Microsoft?s contracts with manufacturers which prevent them from promoting competing browsers. A coalition of attorneys general from 20 states, plus the District of Columbia, has filed a similar anti-trust case against the company. Texas withdrew its suit, at least temporarily, because of alleged pressure from Compaq and Dell. Washington state protected its favourite software company. The states supporting the case are situated mainly in the eastern half of the US, with the significant exceptions of California (Silicon Valley), Utah (Novell, and the WordPerfect part of Corel), and New Mexico.

Microsoft?s response has been to deny all wrong doing, and to get its formidable PR machine into action. The company?s primary defence has been the accusation that the US government has no business designing software, and that Microsoft should be free to integrate its products and to innovate as it pleases. But many of Microsoft?s critics say they find it hard to identify any Microsoft product with any significant innovation.

An immediate concern for Microsoft is to get W98 sold on new PCs, as the upgrade market is likely to be relatively small. The appeals court agreed to this, at least temporarily.

Microsoft has suggested, with very thin evidence, that if Windows 98 does not ship, the US economy will suffer greatly.

In previous cases, Microsoft has backed down at the very last moment ? as with a consent decree in which the company agreed to offer Windows 95 without Explorer ? or has negotiated to negate the effect, as it did with suits from Wang, Apple and Borland.

Bill Gates is taking a greater interest in the present case than previously. He is well aware that the Court of Appeals and the Supreme Court are not in favour of anti-trust actions because they tend to harm successful businesses, even if the competition has been unfair.

Charles Mueller, Editor of Anti-trust Law and Economics Review, believes that previous US Supreme Court cases have destroyed the usefulness of anti-trust actions. He feels that Microsoft?s lawyers have reassured Gates that he has the right under the changed interpretation of the anti-trust laws to monopolise a particular market. Mueller says that the FTC/DoJ and the judiciary have accepted economic theory ? which tends to tolerate monopolies as long as they are private and efficient ? as the standard for deciding cases.

Only explicit price-fixing cases are ever likely to succeed, according to Mueller. It is no longer likely that the coercive exclusion of more efficient competitors would be corrected, at least by the appeals and supreme courts.

Mueller adds that newly-appointed federal judges are invited to attend a two-week indoctrination in free-market economic ideas, and most of them take up the offer. The message is that monopolies are not necessarily bad, claims Mueller. The theory, associated with the monetarist school of economists, is gaining strength, and has its origins in the 1970s, when economists suggested that anti-trust actions had harmed US competitiveness.

The DoJ has yet to sketch the plot for Act Four, but it would have include a proper consideration of whichever version of Windows NT will replace Windows 98. One radical solution would be to declare Windows an ?essential facility? to which all software developers and PC makers have access on equitable terms. This would result in putting the source code of Windows into the public domain.

Sun Microsystems is filing its own case at a federal court in San Jose to get the Java virtual machine distributed with Windows 98, as part of its campaign to prevent Microsoft shipping proprietary versions of Java. The motion is expected to be heard in July.

Microsoft will put up a hard fight, and it will probably win the new case ? possibly in several years? time when the result hardly matters.

The key issues are whether Microsoft can still dominate in the court of public opinion and maintain its growth and share price.

? Report by VNU newswire.