MS/DOJ: What are the charges

WHAT'S THE CHARGE?The U.S. Department of Justice and 20 states are claiming Microsoft is conducting business in violation of the Sherman Antitrust Act of 1890.
Written by ZDNET Editors, Contributor on

The U.S. Department of Justice and 20 states are claiming Microsoft is conducting business in violation of the Sherman Antitrust Act of 1890. The act is designed to protect consumers and to guard against businesses fixing prices, rigging bids or allocating customers.

PREDATORY CONDUCT: The Justice Department claims Microsoft has engaged in predatory conduct by giving away its Internet Explorer browser. It's illegal to use a monopoly in one business to undercharge for other products with the purpose of driving competitors out of business. The Justice case states, "As Paul Maritz, Microsoft's group vice president in charge of the Platforms Group, was quoted in the New York Times as telling industry executives [regarding Netscape]: 'We are going to cut off their air supply. Everything they're selling, we're going to give away for free.' "

TYING: The Justice Department claims Microsoft's conduct includes agreements tying other Microsoft software products to Microsoft's Windows operating system -- specifically, the bundling of the Internet Explorer Web browser with Windows. In a classic case on this point, a copier company was found guilty of tying when it required consumers to purchase a maintenance plan along with its copier. According to the Justice Department, "Microsoft executives have repeatedly recognized the significant advantage that Microsoft (and only Microsoft) receives by tying its Internet browser to its operating system."

EXCLUSIONARY AGREEMENTS: It's illegal to leverage a monopoly position in one product to force companies to agree to distribute another of the monopoly owner's products at the expense of a competitor. Justice claims Microsoft talked Internet service providers such as America Online into distributing Internet Explorer instead of Netscape Navigator by exchanging that "favor" for a promise that Microsoft would include a link to America Online as part of the Windows operating system. According to Justice, "Microsoft's anticompetitive agreements with ISPs have substantially foreclosed competing browsers from this major channel of browser distribution. Over 30 percent of Internet browser users have obtained their browsers from ISPs."

Generally, Microsoft maintains the lawsuit will hurt consumers by distracting the company from technological advances. It argues that Netscape's longtime dominance in the browser market proves the company had no difficulty distributing its product, and that Netscape's recent slip in market share is the result of that company's own corporate mistakes and consumer choice, not monopolistic practices.

PREDATORY PRICING: Microsoft says the market price for browsers was set at zero by Netscape. The company argues in a statement: "In addition, and perhaps most crucially, Netscape raised its prices at critical junctures and attempted to charge many of its customers supra-competitive prices after having set the market price for its Web browsing technology at zero dollars."

TYING: Microsoft claims that Internet Explorer and the Windows operating systems are effectively one integrated product. "A large body of case law holds that technically interconnected products are immune from tying claims, as long as the interconnection achieves some technologically beneficial result."

EXCLUSIONARY CONTRACTS: Microsoft argues that partners pick its products because they are better. For example, in the case of AOL, Microsoft argues, "In the words of AOL chairman and chief executive Steve Case '[T]he more we learned about the Microsoft technology and their strategy and their commitment to the space, and particularly their modular architecture, we felt it would allow us to better meet the needs of our consumer audience.' "

GOVERNMENT: Microsoft is a monopoly.

MS RESPONSE: Because production costs are so low, at any time in the software business, one person can create an operating system - like Linux - which can become a competitor overnight.

GOVERNMENT: Microsoft's behavior has been bad for consumers.

MS RESPONSE: An appeals court has found, "among many other advantages, Windows offers clear technological benefits 'as compared to an operating system combined with a stand-alone browser such as Netscape's Navigator.'"

GOVERNMENT: Microsoft entered into unfair and illegally restrictive contracts with PC makers (boot-up screens, browser icons), Internet Service Providers (the Internet connection wizard), and Web publishers (optimizing for IE, including in channel bar).

MS RESPONSE: PC makers, for example, can put any software they want on their machines. "Microsoft's contracts give computer manufacturers and PC users great flexibility to customize the Windows desktop screen. Computer manufacturers can install whatever software programs they like (including Netscape Navigator and Communicator)."

GOVERNMENT: Microsoft's bundling of IE into Windows 98 was illegal and done only to drive Netscape out of business.

MS RESPONSE: "The Department of Justice cannot prove that Microsoft has done anything to restrain trade in the market for the alleged 'tied' product, because the design of Windows 98 does not in any way foreclose Netscape's ability to distribute its Web browsing software to customers. In fact, Microsoft has devoted considerable effort and resources to ensure that Netscape's Web browsing software runs flawlessly on Windows 98."

GOVERNMENT: Microsoft illegally attempted to "pollute" Java, to eliminate it as a potential threat to Windows.

MS RESPONSE: "Microsoft's Java strategy offers developers the choice of writing programs in Java that exploit the features of the Windows platform, or writing and running least-common-denominator, cross-platform Java programs."

GOVERNMENT: Microsoft tried to convince Netscape to divide the browser market.

MS RESPONSE: A 1995 meeting with Netscape was designed "to explore the possibility of forging a strategic partnership in some areas of the two companies' businesses, while understanding the areas in which they would continue to compete. Such 'co-opetition' relationships are pervasive in the industry."

GOVERNMENT: Microsoft tried to convince Apple to back off on its QuickTime multimedia project.

MS RESPONSE: "Microsoft and Apple simply discussed Microsoft's adoption of the QuickTime file format; the sharing of codecs between the companies; the idea that they cooperate on, and integrate, their respective authoring technologies; and working together on multimedia standards for the Internet. All this was aimed at reducing complexity for end-users."

GOVERNMENT: Microsoft used technological bribes to get America Online and Intuit to bundle Internet Explorer with those companies' products.

MS RESPONSE: It convinced AOL and Intuit to pick the best browser available.

GOVERNMENT: Microsoft wrote software to intentionally disable RealNetworks' RealPlayer media player because it competes with Microsoft's NetShow product.

MS RESPONSE: The source of the problem is a bug in RealNetworks software.

GOVERNMENT: Microsoft attempted to deter Intel from developing "native signal processing," or NSP, in an effort to keep Intel from developing independent operating system-related software initiatives.

MS RESPONSE: "Microsoft identified a number of technical shortcomings in NSP, raised these directly with Intel, and elected not to support Intel's technology -- primarily because it was incompatible with Windows 95."

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