Originally created 05/18/98

Justice, states file suit against Microsoft



WASHINGTON -- The Justice Department and 20 state attorneys general sued Microsoft today charging that its illegally thwarted competition to protect and extend its monopoly over personal computing software.

The federal lawsuit sought a preliminary injunction that would force Microsoft to include the major rival to its Internet browser, Netscape's Navigator, on its Windows 98 operating system to give consumers a choice between the two.

The separate lawsuit by the 20 states and the District of Columbia alleged that through a wide variety of illegal business practices Microsoft denied personal computer owners the benefits of a free and competitive market by trying to leverage its monopoly on operating systems into dominance of the Internet browsing market.

The federal and state officials told a Justice Department news conference that Microsoft initially approached Netscape and offered to divide the market rather than compete, but that Netscape rejected that proposal.

"Microsoft used its monopoly power to develop a chokehold on the browser software needed to access the Internet," Attorney General Janet Reno said.

"We're disappointed. This is a sad day for consumers and a sad day for the American software industry," said Microsoft spokesman Mark Murray.

"These lawsuits could set a very harmful precedent of government intervention into a healthy competitive and innovative industry."

Assistant Attorney General Joel Klein said Microsoft could avoid the preliminary injunction by selling its browser, Internet Explorer, separately from the Windows 98 operating software that Microsoft released to computer manufacturers today. But the company has said the browser is now inextricably integrated into the Windows 98 operating software.

Klein said antitrust laws forbid "the barrage of illegal, anticompetitive practices that Microsoft uses to destroy its rivals and to avoid competition on the merits."

The injunction, if granted by a federal court, also would allow computer manufacturers to pick which browser or browsers they want to include on their machines and to alter the first screen that users see from the one designed by Microsoft.

"Consumers and computer manufacturers should have the right to choose the software they want installed on their personal computers," said Reno.

Klein said the phenomenally successful Redmond, Wash., software company had subjected its competitors to "a barrage of illegal conduct."

"Inventors and investors cannot and will not develop and market innovative software programs if they know that Microsoft can use its Windows monopoly to block the distribution of their programs and to force consumers to buy Microsoft's competing products," Klein said.

"We represent the consumers of Amercia," Iowa Attorney General Thomas Miller told the news conference at the Justice Department.

The lawsuits, which could produce one of the largest trials in antitrust history, were filed today after negotiations to avert them broke down over the weekend when Microsoft withdrew some concessions it had offered.

The federal complaint alleged the following illegal conduct by Microsoft:

-- In May 1995, Microsoft proposed to Netscape that Netscape's browser, now used by 60 percent of computer owners, become the sole browser for those with non-Windows operating systems while Microsoft would supply the sole browser for computers operated by Windows. Windows, however, is the operating system on 90 percent of the nation's personal computers, and Netscape rejected the non-competition proposal.

-- Microsoft required computer manufacturers to license and install its browser as a condition of licensing the existing Windows 95 operating system.

-- Microsoft intends to use the same tie-in contracts to force manufacturers to accept its browser with Windows 98.

-- Microsoft forces computer manufacturers to adopt a uniform first screen sequence of Microsoft's design, preventing them from giving more prominent display to a browser from one of Microsoft's competitors.

-- Microsoft reached anticompetitive agreements with nearly all of the nation's largest and most popular on-line service providers and Internet service providers, which link computer owners with the Internet. These contract require the providers to offer Microsoft's Internet Explorer as the exclusive or primary browser through which they distribute their services.

-- Microsoft has illegal contracts with Internet content providers to give them one-button access on the Windows active desktop feature on condition they don't reach agreements for one-button access on competitors' browsers.

-- The alterations that Microsoft recently agreed to make in these contracts are themselves illegal.

Microsoft has said that one solution proposed in the lawsuits -- forcing Microsoft to include Netscape's browser with Windows 98 -- was like forcing Coca Cola to include three cans of Pepsi Cola in every six pack.

The state attorneys general replied today that the existing situation is like a refrigerator manufacturer, who has a monopoly, requiring purchasers to buy a lifetime supply of the manufacturer's brand of soda-pop in order to purchase a refrigerator.

The state lawsuit added some claims not in the federal lawsuit. The states alleged that Microsoft also has used illegal leverage to extend its Windows monopoly to "office productivity suite" products like word processing and spread sheets. As with the browser, they sought a court order that would force these products to be unbundled from the operating system.

The federal lawsuit contained excerpts from Microsoft's internal documents that the complaint said showed the company feared its would lose the browser war in a competition on merits and had to take advantage of its monopoly.

Two examples:

On Feb. 24, 1997, Microsoft's Christian Wildfeuer wrote: "It seems clear that it will be very hard to increase market share on the merits of IE 4 (Internet Explorer) alone. It will be more important to leverage the OS (operating system) asset to make people use IE instead of Navigator."

Microsoft Senior Vice President James Allchin wrote on Dec. 2, 1996 that unless the company were to "leverage Windows ... I don't understand how IE is going to win .... Treating IE as just an add-on to Windows ... loses our biggest advantage -- Windows market share."