The Government Sues Microsoft Again

(May 19, 1998)  The U.S. Department of Justice filed a broad Sherman antitrust action against Microsoft on Monday in the U.S. District Court in Washington, DC, with much fanfare.  Twenty states and the District of Columbia also filed a parallel suit.

The Department of Justice (DOJ) asks the Court impose a long list of restraints on Microsoft.  It seeks to compel Microsoft to include the latest Netscape browser along with MSIE, to bar Microsoft from tying the sale of its operating systems to MSIE, to bar "exclusionary practices" by Microsoft, to bar Microsoft from restricting licensees from altering certain parts of its operating system software, and many other things.

Attorney General Janet Reno stated, "Today, we are taking another step to keep our marketplace competitive. The Justice Department has charged Microsoft with engaging in anticompetitive and exclusionary practices designed to maintain its monopoly in personal computer operating systems, and attempting to extend that monopoly to internet browser software."

The Department of Justice, several state Attorneys General, and other Microsoft opponents waged a full court publicity campaign on Monday.   Attorney General Janet Reno, Assistant AG for the Antitrust Division Joel Klein, New York AG Dennis Vacco, Connecticut AG Richard Blumenthal and Iowa AG Tom Miller all spoke at a mobbed press conference at the Department of Justice in Washington DC.  Afterwards industry opponents of Microsoft held a press conference on the front steps of the Department of Justice.  Later in the day, Judge Robert Bork, who has been hired by Netscape, and other lawyers and lobbyists, held another press conference at the National Press Club.

Joel Klein alleged that:

"The lawsuit we filed today seeks to put an end to Microsoft's unlawful campaign to eliminate competition, deter innovation, and restrict consumer choice. In essence, what Microsoft has been doing, through a wide variety of illegal business practices, is leveraging its Windows operating system monopoly to force its other software products on consumers."

Microsoft issued a press release stating that the lawsuit "is without merit and will hurt consumers and the American software industry, a leading contributor to the U.S. economy."  Microsoft said it will "vigorously defend the freedom of every American company to innovate and improve its products, a principle that lies at the heart of this case."

Microsoft also said that the lawsuit "will set a harmful precedent in which government intervention into a healthy, competitive and innovative industry will adversely impact consumers and a U.S. company's ability to improve its products," and that "it appears that the lawsuit is more in the interest of a single Microsoft competitor than in the interest of American consumers."

Microsoft also announced today that it has released Windows 98 code to PC manufacturers. The product is on schedule for the June 25 consumer launch.

Bill Gates, speaking from Washington state, stated that the DOJ's demand that Microsoft include Netscape's browser was tantamount to demanded that Coke ship a six pack of Pepsi with each six pack of Coke.

Later in the day Robert Bork offered his own metaphor: "It is like a grocery store that has been told to sell only Coke, and it is now told to sell Pepsi as well."  Bork stated that "the crucial fact here is that Microsoft is a monopoly.  Everything starts and goes back to that."  Judge Bork focused his comments on Microsoft's use of "exclusionary policies."

The DOJ asserts four claims in its Complaint.

• Unlawful Exclusive Dealing and Other Exclusionary Agreements in Violation of Section 1 of the Sherman Act.  "Microsoft's agreements with ISPs, ICPs, and others pursuant to which such companies agree not to license, distribute, or promote non-Microsoft products (or to do so only on terms that materially disadvantage such products), and its agreements with OEMs restricting modification or customization of the PC boot-up sequence and screens, unreasonably restrict competition and thus violate Section 1 of the Sherman Act. These agreements unreasonably restrain trade and restrict the access of Microsoft's competitors to significant channels of distribution, thereby restraining competition in the Internet browser market, among other markets.  The purpose and effect of these agreements are to restrain trade and competition in the Internet browser and PC operating system markets. These agreements violate Section 1 of the Sherman Act, 15 U.S.C. §1.  After the commencement of the United States' investigation of Microsoft's exclusionary agreements, Microsoft modified certain of those agreements. However, the continuing anticompetitive effect of the agreements is substantial; the modified agreements are themselves anticompetitive and there is a serious threat that, unless enjoined, Microsoft will reimpose the unlawful terms that it has only recently expressed an intention not to enforce."
• Unlawful Tying in Violation of Section I of the Sherman Act.   "Windows operating systems and Microsoft's Internet browser software are separate products. They are sold in different markets; their functions are different; there is separate demand for them; and they are treated by Microsoft and by other industry participants as separate products. It is efficient for Microsoft not to tie them and/or to permit OEMs to distribute Windows 95 and Windows 98 without Microsoft's Internet browser software. Microsoft has tied and plans again to tie its Internet browser to its separate Windows operating system, which has monopoly power, in violation of Section I of the Sherman Act, 15 U.S.C. §1.  The purpose and the effect of this tying are to prevent customers from choosing among Internet browsers on their merits and to foreclose competing browsers from an important channel of distribution, thereby restraining competition in the Internet browser market."
• Monopolization of the PC Operating Systems Market in Violation of Section 2 of the Sherman Act.  "Microsoft possesses monopoly power in the market for PC operating systems. Through the anticompetitive conduct described herein, Microsoft has willfully maintained, and unless restrained by the Court will continue to willfully maintain, that power by anticompetitive and unreasonably exclusionary conduct. Microsoft has acted with an intent illegally to maintain its monopoly power in the PC operating system market, and its illegal conduct has enabled it to do so, in violation of Section 2 of the Sherman Act, 15 U.S.C. §2."
• Attempted Monopolization of the Internet Browser Market in Violation of Section 2 of the Sherman Act.  "Microsoft has targeted software products that have the potential to compete with or facilitate the development of products to compete with PC operating systems and thereby to erode Microsoft's Windows operating system monopoly. Microsoft has willfully engaged, and is engaging, in a course of conduct, including tying and unreasonably exclusionary agreements, in order to obtain a monopoly in the Internet browser market, and there is a dangerous probability that, unless restrained, it will succeed, in violation of Section 2 of the Sherman Act, 15 U.S.C. § 2. Microsoft has acted with a specific intent to monopolize, and to destroy effective competition in, the Internet browser market."

The DOJ requests a wide range of remedies, in the nature of both declaratory and injunctive relief.  It asks for declarations that various of Microsoft's alleged business practices constitute violations of Sections 1 and 2 of the Sherman Act.

The Government also asks that Microsoft be preliminarily and permanently enjoined from:

• Tying MSIE to any MS OpSys.  "Requiring any person to license or distribute Microsoft's Internet browser software or any other software product or service as a condition of licensing or distributing any Microsoft operating system product."
• Exclusionary Practices.  "Requiring or inducing any person to agree not to license, distribute, or promote any non-Microsoft Internet browser software or other software product, or to do so on any disadvantageous, restrictive or exclusionary terms."
• Retaliation.  "Taking or threatening any action adverse to any person in whole or in part as a direct or indirect consequence of such person's failure to license or distribute Microsoft's Internet browser software or other software product, of such person's licensing or distributing any non-Microsoft Internet browser or other software product, or of such person's cooperation with the United States."
• Restricting Licensees from Modifying MS OpSys.  "Restricting the right of any person to modify the screens, boot-up sequence or functions of any Microsoft operating system product which such person has licensed so as automatically or otherwise to add non-Microsoft Internet browser software or other software products, including but not limited to alternative user interfaces, or automatically or otherwise to substitute such non-Microsoft Internet browser software or other software product for Microsoft's Internet browser software or other software product, so long as such addition or substitution does not materially impair the performance of such Microsoft operating system product."
• Microsoft Must Include Netscape.  "For a period of three years ...  its operating system (with its) browser software, unless -- i. Microsoft also includes ... the most current version of the Netscape Internet browser, and ii. each OEM is permitted at its option to delete the software that provides the Internet Explorer icon and the other means by which users may readily use IE to browse the web, the software that provides the icon and the other means by which users may readily use the Netscape Internet browser, or both."
• "Distributing at a single price a version of Windows 98 bundled with the software that provides the Internet Explorer icon and the other means by which users may readily use IE to browse the web unless: i. Microsoft makes available to any OEM that licenses the operating system a practical and commercially reasonable option of deleting (after first installation) or not installing (at first installation) the software that provides the Internet Explorer icon and the other means by which users may readily use IE to browse the web, and ii. for any OEM that deletes (after first installation) or does not install (at first installation) the software that provides the Internet Explorer icon and the other means by which users may readily use IE to browse the web, Microsoft deducts from that OEM's Windows 98 royalty an amount equal to the OEM's reasonable cost of deleting or not installing such software or its functions.