Microsoft case to take shape today

The final pieces of what might be the defining anti-trust action of the Information Age will take shape Sunday.

Representatives from at least 20 states attorneys general offices will participate in a conference call Sunday, to discuss what course of action to pursue against Microsoft Corp. Microsoft (MSFT) on Saturday abruptly withdrew from talks held with the states and the Department of Justice that were meant to avoid an anti-trust action. The states will meet to discuss details of the case, and which states will participate.

The stakes in the case are enormous, potentially affecting what almost every computer user sees on his PC, and how that machine is operated.

'That would be a lot like asking Coca-Cola to ship three Pepsis with every sixpack.' -- Greg Shaw, Microsoft spokesman, on the government's request that Netscape's browser be shipped with copies of Windows 98.

Barring a last-minute recapitulation by Microsoft, the DOJ is expected to file its case on Monday, with however many states choose to sign on to the case. More than 20 states may end up joining the federal case against Microsoft. A source close to the states' indicated that state attorneys general felt betrayed by the big software maker.

"There was a feeling that (negotiating) was a publicity stunt" by Microsoft to draw attention to Windows 98, said the source, who declined to be named. "It seemed like we were making some progress (beforehand)."

For its part, Microsoft on Saturday released a statement expressing disappointment in the collapse of talks, and saying the government wants to stifle product innovation.

Do you think the government is stifling innovation? Add your comments to the TalkBack page.

"We worked hard to try and resolve this, but the government demands went too far with no basis in law and, most important, were not in the best interest of consumers," said Bill Gates, Microsoft's chairman and CEO, in the statement. "What the government is asking would significantly hamper us from competing through innovation and would put everything we've worked for and built for the last 23 years at risk. We unfortunately had no other choice but to resolve this matter in court. We are confident that what we are doing is entirely pro-competitive and in the best interest of consumers."

Microsoft said the talks broke down over several points:

* Federal and state lawyers asserted that making Windows work well with the Internet is somehow illegal.
* The governments asked Microsoft to surrender the Windows user interface seen when consumers turn on a new PC for the first time.
* Microsoft was asked not to display the Web-browsing functionality that is a core part of Windows. Microsoft says this will make it hard for consumers to use those technologies.
* The governments asked that Microsoft include Netscape Communications Corp.'s competing browsing software in every copy of Windows.

The government had not responded to Microsoft's statement as of this writing.

Lawyers for the software maker are digging in their heels and readying themselves for a protracted court fight. The company, which has cast the looming showdown as a battle over principle, says that every American company should remain free to build better products for consumers.

"The government is not acting in the interests of consumers or anybody but the narrow interests of Netscape. It's disgusting," said one Microsoft executive, who asked to remain unidentified. "It makes me think the term 'Netscape client' refers not to Navigator software but rather, to the DOJ."

"Had the government been semi-reasonable, it would have been settled," the executive continued. "Bill does not want a lawsuit and made some proposals that went far beyond what should have been accepted. It wasn't a matter of hiding the IE icon, or the contracts -- it was a vicious assault by the government to promote the proprietary interests of a single competitive company, industry and the consumer be damned."

Collapse of the talks
The talks broke apart around noon ET on Saturday.

The Justice Department confirmed in a brief statement on Saturday that the talks were over.

"The discussions between the Justice Department, a coalition of State attorneys general and Microsoft ended today without resolution," it said. "At this point they are not expected to resume."

Officials said that the talks deteriorated after Microsoft had apparently withdrew a major concession it had offered Thursday to allow computer makers to modify the startup screen consumers see when they switch on their computer for the first time.

The Justice Department and 20 states had been poised to file antitrust suits Thursday but held off and agreed to hold talks in return for Microsoft agreeing to delay the shipment of its Windows 98 operating system until Monday.

Microsoft: we made significant offers
A Microsoft spokesman said the company had worked hard to make the negotiations succeed because the company believed a lawsuit would be bad for consumers, taxpayers and whole high-tech industry.

"We've made a number of significant offers to address the government issues but the government is making unreasonable demands that would threaten our product design and our ability to innovate," company spokesman Greg Shaw said.

"We're still willing to negotiate further but we cannot agree to the governments' unreasonable demands," he said.

Shaw termed the request that computer makers be forced to ship Windows 98 with Netscape's browser "a lot like asking Coca-Cola to ship three Pepsis with every sixpack."

Microsoft also said it will ship Windows 98 to PC makers on Monday, and that the program is ready for general release on the scheduled date of June 25. It was unclear whether the DOJ would ask a court to block the shipment of Windows 98 when it files suit against Microsoft, though sources indicated they would not.

Joel Klein, the DOJ's assistant attorney general for antitrust, along with officials from Texas, Iowa and

Connecticut represented the government during the talks. Microsoft was represented by Bill Neukom, the company's head lawyer, and other officials.

Clinton supports suit
President Bill Clinton was said to support the DOJ's move to sue Microsoft.

"The President . .. fully supports the Justice department officials handling this case," said White House economic adviser Gene Sperling, at the Group of Eight summit of industrial nations in Birmingham, England. If a suit is filed against Microsoft, it would rank in importance with historic antitrust lawsuits previously filed against AT&T and IBM.

The states and the DOJ have been investigating Microsoft for more than a year, with sources close to the case saying that the issues likely to be part of a suit against the company include: the integration of Internet Explorer with Windows 98, restrictions placed on PC makers about how they might alter the Windows desktop interface, contractual relationships Microsoft has with Internet service providers, the integration of software applications into Windows, and Microsoft contracts that limit and control the types of software or content that can be added to the desktop interface shipped with each copy of Windows on a PC.

Microsoft has fought back, holding a rally in New York and sending letters to the DOJ and Wall Street analysts, even publishing essays arguing that it should be free to innovate as it sees fit.

ZDNN's Charles Cooper, Inter@ctive Week's Will Rodger, PC Week's Mike Moeller and Reuters contributed to this report. The final pieces of what might be the defining anti-trust action of the Information Age will take shape Sunday.

Representatives from at least 20 states attorneys general offices will participate in a conference call Sunday, to discuss what course of action to pursue against Microsoft Corp. Microsoft (MSFT) on Saturday abruptly withdrew from talks held with the states and the Department of Justice that were meant to avoid an anti-trust action. The states will meet to discuss details of the case, and which states will participate.

The stakes in the case are enormous, potentially affecting what almost every computer user sees on his PC, and how that machine is operated.

'That would be a lot like asking Coca-Cola to ship three Pepsis with every sixpack.' -- Greg Shaw, Microsoft spokesman, on the government's request that Netscape's browser be shipped with copies of Windows 98.

Barring a last-minute recapitulation by Microsoft, the DOJ is expected to file its case on Monday, with however many states choose to sign on to the case. More than 20 states may end up joining the federal case against Microsoft. A source close to the states' indicated that state attorneys general felt betrayed by the big software maker.

"There was a feeling that (negotiating) was a publicity stunt" by Microsoft to draw attention to Windows 98, said the source, who declined to be named. "It seemed like we were making some progress (beforehand)."

For its part, Microsoft on Saturday released a statement expressing disappointment in the collapse of talks, and saying the government wants to stifle product innovation.

Do you think the government is stifling innovation? Add your comments to the TalkBack page.

"We worked hard to try and resolve this, but the government demands went too far with no basis in law and, most important, were not in the best interest of consumers," said Bill Gates, Microsoft's chairman and CEO, in the statement. "What the government is asking would significantly hamper us from competing through innovation and would put everything we've worked for and built for the last 23 years at risk. We unfortunately had no other choice but to resolve this matter in court. We are confident that what we are doing is entirely pro-competitive and in the best interest of consumers."

Microsoft said the talks broke down over several points:

* Federal and state lawyers asserted that making Windows work well with the Internet is somehow illegal.
* The governments asked Microsoft to surrender the Windows user interface seen when consumers turn on a new PC for the first time.
* Microsoft was asked not to display the Web-browsing functionality that is a core part of Windows. Microsoft says this will make it hard for consumers to use those technologies.
* The governments asked that Microsoft include Netscape Communications Corp.'s competing browsing software in every copy of Windows.

The government had not responded to Microsoft's statement as of this writing.

Lawyers for the software maker are digging in their heels and readying themselves for a protracted court fight. The company, which has cast the looming showdown as a battle over principle, says that every American company should remain free to build better products for consumers.

"The government is not acting in the interests of consumers or anybody but the narrow interests of Netscape. It's disgusting," said one Microsoft executive, who asked to remain unidentified. "It makes me think the term 'Netscape client' refers not to Navigator software but rather, to the DOJ."

"Had the government been semi-reasonable, it would have been settled," the executive continued. "Bill does not want a lawsuit and made some proposals that went far beyond what should have been accepted. It wasn't a matter of hiding the IE icon, or the contracts -- it was a vicious assault by the government to promote the proprietary interests of a single competitive company, industry and the consumer be damned."

Collapse of the talks
The talks broke apart around noon ET on Saturday.

The Justice Department confirmed in a brief statement on Saturday that the talks were over.

"The discussions between the Justice Department, a coalition of State attorneys general and Microsoft ended today without resolution," it said. "At this point they are not expected to resume."

Officials said that the talks deteriorated after Microsoft had apparently withdrew a major concession it had offered Thursday to allow computer makers to modify the startup screen consumers see when they switch on their computer for the first time.

The Justice Department and 20 states had been poised to file antitrust suits Thursday but held off and agreed to hold talks in return for Microsoft agreeing to delay the shipment of its Windows 98 operating system until Monday.

Microsoft: we made significant offers
A Microsoft spokesman said the company had worked hard to make the negotiations succeed because the company believed a lawsuit would be bad for consumers, taxpayers and whole high-tech industry.

"We've made a number of significant offers to address the government issues but the government is making unreasonable demands that would threaten our product design and our ability to innovate," company spokesman Greg Shaw said.

"We're still willing to negotiate further but we cannot agree to the governments' unreasonable demands," he said.

Shaw termed the request that computer makers be forced to ship Windows 98 with Netscape's browser "a lot like asking Coca-Cola to ship three Pepsis with every sixpack."

Microsoft also said it will ship Windows 98 to PC makers on Monday, and that the program is ready for general release on the scheduled date of June 25. It was unclear whether the DOJ would ask a court to block the shipment of Windows 98 when it files suit against Microsoft, though sources indicated they would not.

Joel Klein, the DOJ's assistant attorney general for antitrust, along with officials from Texas, Iowa and

Connecticut represented the government during the talks. Microsoft was represented by Bill Neukom, the company's head lawyer, and other officials.

Clinton supports suit
President Bill Clinton was said to support the DOJ's move to sue Microsoft.

"The President . .. fully supports the Justice department officials handling this case," said White House economic adviser Gene Sperling, at the Group of Eight summit of industrial nations in Birmingham, England. If a suit is filed against Microsoft, it would rank in importance with historic antitrust lawsuits previously filed against AT&T and IBM.

The states and the DOJ have been investigating Microsoft for more than a year, with sources close to the case saying that the issues likely to be part of a suit against the company include: the integration of Internet Explorer with Windows 98, restrictions placed on PC makers about how they might alter the Windows desktop interface, contractual relationships Microsoft has with Internet service providers, the integration of software applications into Windows, and Microsoft contracts that limit and control the types of software or content that can be added to the desktop interface shipped with each copy of Windows on a PC.

Microsoft has fought back, holding a rally in New York and sending letters to the DOJ and Wall Street analysts, even publishing essays arguing that it should be free to innovate as it sees fit.

ZDNN's Charles Cooper, Inter@ctive Week's Will Rodger, PC Week's Mike Moeller and Reuters contributed to this report.