Sun, Netscape lawyers slam Microsoft's business practices

Companies try to set the stage for Department of Justice investigation

By James Niccolai

March  1998
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San Francisco (March 2, 1998) -- Lawyers for Netscape Communications and Sun Microsystems today slammed rival Microsoft as a monopolistic entity that stifles innovation in the software industry and strongarms PC makers and Web content providers into supporting its software.

The accusations were made at National Press Club press briefing in Washington, D.C., one day before the U.S. Senate Judiciary Committee is due to begin a hearing titled "Market Power and Structural Changes in the Software Industry."

Sun's Scott McNealy, Netscape's Jim Barksdale, and Microsoft's Bill Gates are due to testify at the hearing, which takes place against the backdrop of the U.S. Department of Justice's investigation into whether Microsoft violated a 1995 consent decree by using its market dominance to force PC makers to install Microsoft browser software on their systems.

"Ninety-five percent of all computers shipped today have Microsoft operating systems in them," said Roberta Katz, general counsel and a senior vice president for Netscape. "What that means is...if you are a PC manufacturer you have a sole-source supplier -- that is, a monopolist."

Far from promoting innovation, Microsoft's dominance has stifled software development, said Michael Morris, general counsel and a vice president of Sun. Software innovation in recent years has not been in the area of operating systems but in Internet technologies, where open protocols like HTML put the medium beyond Microsoft's monopolistic reach, Morris said.

In addition, "We are well aware that a lot of the new products Microsoft has come up with have been copied from other products," Katz said.

She quoted from an alleged e-mail exchange between two unnamed Microsoft executives which she said is cited in a DOJ reply brief in the consent decree case. According to Katz, the e-mail states: "We have copied everything Netscape has done, including products and marketing, and that hasn't got us where we want to be. We are now going to have to leverage our dominance in Windows."

"That is not innovation," Katz said.

Microsoft vehemently denies the DOJ's charges.

The attorneys said Microsoft has cajoled leading Web sites worldwide into optimizing their sites for Internet Explorer (IE) software by offering, in return, a preferred link to the site through Microsoft's desktop channels. Morris cited The Times newspaper of London as one example of this practice.

The lawyers also mused over the timing of Microsoft's decision last week to alter cross-promotional contracts with Internet service providers in a way that allows the ISPs to promote other browsers besides IE. "Well, that's a strange coincidence of timing," given the investigations into Microsoft being conducted by the Justice Department and the European Commission, Katz said.


Software market not a "jungle"
There is an urgent need to curtail Microsoft's influence before it spreads from the desktop to the Internet, the attorneys said. The Internet's potential as a prime medium for communications and commerce makes the issue of monopolistic control a social problem, not just a business one, Katz said.

Enforcing antitrust laws now will preempt the need to enforce sweeping regulation of the software industry in the future, the lawyers said. Such regulation might require a company's operating system and software applications divisions to operate as separate divisions, or even be partitioned into separate companies, Sun's Morris speculated.

"[The software] market is not a jungle; it has rules just like a football game," Morris said.

Microsoft's alleged practices are not confined to the U.S., the lawyers said. "There is no native European PC business, or a Japanese PC business. They're all reselling Wintel-type technology," Morris said.

The lawyers speculated that the Justice Department will expand its investigation into whether Microsoft violated a 1995 consent decree into a much broader antitrust probe. The investigation may consider "exclusionary licensing, exclusionary practices in general, using the licensing to cut certain companies out of the market," Katz said.

Rumors of a possible broader investigation have been rife, and stem in part from subpoenas the Justice Department has issued to Internet service providers and other companies that have had dealings with Microsoft. The Justice department has declined to confirm any such investigation specifically.

Asked if a long, drawn out investigation of Microsoft could achieve anything given the fast-changing nature of the IT industry, Morris retorted that since the 1950s the software industry has been dominated by only two players: IBM until the early 1980s, and Microsoft thereafter.

"Think about that the next time someone waxes eloquently about the fast-changing nature of the market," Morris said.

James Niccolai is a correspondent with the IDG News Service


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