US Report: Microsoft offers first formal response to Court

For the last three months, executives at Microsoft have let the world know what they thought of the antitrust lawsuit filed against the company by the Justice Department.

On Tuesday, the company issued two legal filings, marking its first formal response in what is emerging as a landmark antitrust case. The bottom line: Microsoft claims innocence -- on all counts. In papers filed with the U.S. District Court in Washington, D.C., Microsoft denied all the government's allegations of wrongdoing brought against it by the Department of Justice and 20 state attorneys general last May.

As part of its response, Microsoft also counter-sued 20 state attorneys general, saying the lawsuits unconstitutionally undermine the company's intellectual property rights under federal law. The company said it planned to file a more complete restatement of its position by Aug. 10 when it responds to the government's motions for a preliminary injunction. The government has until Aug. 24 to respond.

The central points of its filing included the following:

  • It planned to integrate Web browser technologies into the Windows operating system "long before rival Netscape Communications Corp. even existed." The government has contended that the software maker only incorporated its browser technologies into Windows as part of a wider assault on Netscape.

  • The decision to include Internet Explorer technologies in Windows 95 was made before Netscape was founded. The company said it decided to integrate Web browsing functionality to satisfy consumer demand for Internet-enabled operating systems as well as to remain competitive with IBM's OS/2 Warp and the Apple Macintosh.

  • Internet Explorer has gained share on its own merits and not because the company exploited its desktop operating system monopoly to cut exclusive deals with Internet service providers and others. Recent market surveys estimate Microsoft controlling about 45 percent of the Internet browser market.

  • It did not attempt to "illegally divide the browser market" with Netscape in the spring of 1995. The document says officials from the two companies met twice in June 1995 "to explore ways in which the two companies could work together to improve their respective products.... Microsoft has never attempted to divide the market for Internet browser software."

Though the filings consisted mostly of denials, they also contained a notable admission: Microsoft acknowledged that its executives have called its attempt to garner market share from Netscape a "jihad," a term that's angered Netscape executives.

In the filing, Microsoft acknowledged that it has restricted computer makers from altering the boot-up screen on the computer, claiming that the "consumer appeal of the product would be eliminated if OEMs were licensed to develop their own idiosyncratic versions of Windows." However, Microsoft said users were free to alter that main "desktop" interface screen.

The filing also offered clues to Microsoft's emerging defence strategy, as it prepares to face state and federal trustbusters in court Sept. 8. In its filings, the company repeatedly cites a May appellate court decision that reversed a lower court order for Microsoft to untie Internet Explorer from Windows 95. The company already has hinted it would draw on that ruling, which stemmed from a separate case filed in October.

During a meeting with stock market analysts last week, Microsoft attorney Brad Smith said that ruling was a good sign for the company as it heads for trial. "We have before us a test that Windows 98 seems certain to pass," Smith said.

By filing the intellectual property counterclaim, the company also may be trying to slow down the legal process, according to legal experts.

It's not unusual for companies to claim intellectual property protection in an attempt to prevent their rivals from obtaining information, but it is unusual for a company to name government regulators in such a suit, according to Warren Grimes, a professor at the Southwestern University Law School in Los Angeles and a former FTC attorney. He said the company may be trying to trump state antitrust laws with complaints about federal intellectual property violations. "Anything that Microsoft can do to cloud the issues, to slow down the complaint, makes good sense from their perspective," Grimes said.

Microsoft already had asked that its deadline for the response filed today be delayed until December, but those hopes were dashed when Judge Thomas Penfield Jackson set a September trial date. A Department of Justice spokesperson reacted critically. "Microsoft's response to our complaint contains numerous misstatements and mis-characterisations," Gina Talamona said, adding that details would come out at the trial. She said DoJ officials would continue to pursue their case against the company.