Originally created 05/14/98

Justice, states could sue Microsoft

WASHINGTON -- Culminating a high-stakes investigation into the world's most influential software maker, the Justice Department and at least 18 states will file federal antitrust lawsuits Thursday against Microsoft Corp., barring last-minute concessions from the company, sources familiar with the plans said Wednesday.

The states, at least, will ask a federal court in a 48-page complaint to force Microsoft to relax many of its agreements with computer makers, giving them more freedom to install competitors' products over Microsoft's and to customize the versions of Windows they sell, the sources said.

If Microsoft doesn't agree, the states may ask the court Thursday to block the latest upgrade to the company's widely used operating system, Windows 98, which is expected to be shipped to computer makers Friday.

One source, a person familiar with the states' case, said the lawsuit was a certainty "unless (Microsoft Chairman) Bill Gates makes an offer." The antitrust case will not seek monetary damages, at least initially, and will not ask Microsoft to re-engineer its software, that source said.

"We can't speculate about what the states may or may not do," Microsoft spokesman Mark Murray said. "We've been working closely with the states. ... We think a lawsuit would be damaging to consumers and to future innovation in the high-tech industry."

The Justice Department and the states contend that Microsoft, which makes the Windows software used on virtually all home computers, has wielded its monopoly status to illegally crimp competition, especially in the market for Internet browsers, the software that people use to view information on the World Wide Web.

Microsoft has included its browser free in the latest versions of Windows.

Its decision to bundle the browser devastated the market for its biggest competitor, Netscape Communications Corp., which saw its own share of the world's browser use fall from 90 percent to 60 percent -- to about 68 million copies -- in just a few years.

Microsoft earned some congressional support Wednesday, when House Majority Leader Dick Armey, R-Texas, said an antitrust case "could send shock waves throughout the economy, as the unprecedented nature of the government's intervention weighs on the mind of every new investor."

The states that have agreed to sue Microsoft were identified as: California, Connecticut, Florida, Illinois, Iowa, Kansas, Kentucky, Louisiana, Maryland, Massachusetts, Michigan, Minnesota, New Mexico, New York, South Carolina, Utah, West Virginia and Wisconsin, plus the District of Columbia. Other states could join.

One source said the Justice Department "made it clear they intend to file a parallel action," filing a separate lawsuit simultaneously with the states in U.S. District Court in Washington.

It was unclear how much the complaint by Justice will overlap with the states' complaint. A Justice spokesman declined comment Wednesday.

The states will pursue Microsoft on at least these fronts, those familiar with the case said:

  • Requiring the company to relax restrictions that force computer makers to install Microsoft's Internet browser with Windows. Microsoft contends the browser is tightly integrated with the latest versions of its software and can't be completely separated without wrecking Windows.
  • "Microsoft has never, in any way, prevented computer makers from shipping Netscape Navigator or any other competitor browser," Murray said.

  • Forcing Microsoft to relax limits on how computer makers can modify the opening Windows screen, which is a potentially valuable billboard for companies. Microsoft's Murray said some computer makers who designed customized "shells" that work alongside Windows "were actually breaking the Windows product and eliminating some of the features."
  • Some of Microsoft's biggest critics also complain about the "channel bar," a list of about a dozen Internet sites placed conspicuously when the latest versions of Windows first begin running. Microsoft allows computer makers to reserve only one of those "channels" for themselves; others are tuned by default to companies that have contracts with Microsoft, such as Disney and MSNBC.

  • Making Microsoft end allegedly restrictive contracts with Internet companies that until recently weren't allowed to prominently promote rival Netscape's Navigator. Microsoft has described the contracts as legal cross-marketing agreements but voluntarily relaxed many of the restrictions last month. Under those revised agreements, the companies can promote Netscape but no more prominently than they promote Microsoft's browser.
  • Chronology

    Key dates in the antitrust investigation of Microsoft Corp., the largest maker of personal computer software:

    1975 -- Microsoft founded by Paul Allen and Bill Gates, friends who had co-written a programming language for the Altair hobby-kit personal computer a year earlier.

    1980 -- IBM selects Microsoft to create operating system for its first PC. The software, which runs the machine's basic functions, is called MS-DOS.

    1991 -- Federal Trade Commission begins to investigate claims that Microsoft monopolizes the market for PC operating systems.

    1993 -- The FTC deadlocks on two votes to file a formal complaint against Microsoft and decides to close the investigation. Justice Department and European Commission antitrust investigators begin independent probes.

    July 1994 -- Microsoft in a consent decree agrees to change contracts with PC makers and eliminate some restrictions on other software makers, ending the U.S. antitrust investigation. The Europeans also end their antitrust probe.

    August 1995 -- Microsoft launches Windows 95.

    November 1995 -- Microsoft releases Internet Explorer 2.0 for Windows 95, giving it away for free in a challenge to Netscape's competing Navigator.

    December 1995 -- Gates details shift in Microsoft strategy to focus on the Internet, closely weaving PCs with the public computer network.

    September 1997 -- Microsoft launches Internet Explorer 4.0 in stepped-up challenge to Netscape, whose share of browser market slips to less than two-thirds of Internet users.

    October 1997 -- Justice Department sues Microsoft, alleging Microsoft violated the 1994 consent decree by forcing computer makers to use its Internet browser as a condition of selling its popular Windows operating software.

    Dec. 11, 1997 -- U.S. District Judge Thomas Penfield Jackson in Washington, D.C., issues preliminary injunction forcing Microsoft to stop, at least temporarily, requiring manufacturers who sell Windows 95 "or any successor" to install its Internet Explorer on PCs.

    Dec. 15, 1997 -- Microsoft appeals court order but says it will sell modified versions of Windows to comply with preliminary injunction.

    Jan. 14, 1998 -- Judge rejects Microsoft's effort to remove Harvard University law professor Lawrence Lessig as a court-appointed "special master" to review technical issues in the dispute. Microsoft claimed the professor was biased, citing his electronic mail correspondence with Microsoft rival Netscape Communications. Microsoft appeals judge's ruling.

    March 3, 1998 -- Gates and other top technology executives testify before the Senate Judiciary Committee, whose members ask Gates about monopoly power and restrictive licenses with computer makers.

    May 5, 1998 -- Microsoft asks a federal appeals court to rule that Judge Jackson's Dec. 11 preliminary injunction imposing restrictions on Windows 95 "or any successor" do not apply to Windows 98.

    May 12, 1998 -- Appeals court agrees that the Dec. 11 injunction should not extend to Windows 98.


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