THE DETAILS OF JUSTICE'S SUIT AGAINST MICROSOFT

Edited by Douglas Harbrecht

Brace yourself for the business court battle of the new millennium. After last-minute settlement talks collapsed, the Justice Department filed a landmark suit on May 18 against Microsoft Corp., charging the software giant with engaging in illegal anticompetitive practices. The government accused Microsoft of using its monopoly in the Windows operating system to improperly maintain its dominance in computer operating systems and to conquer other markets, such as Internet browsers and online commerce. Twenty state attorneys general and the District of Columbia filed a similar action.

At a packed Washington, D.C., press conference, Attorney General Janet Reno, surrounded by Assistant Attorney General Joel I. Klein and state attorneys general, blasted the Redmond, Wash., software giant. "Microsoft's actions have stifled competition in the operating system and browser markets," she said. "But most importantly, (the company) has restricted the choices available for consumers in America and around the world."

The suit focuses on the Windows 98 operating system, which was shipped to computer makers on May 18 for installation in PCs. This new product, which includes Microsoft's Explorer Internet browser, is scheduled to be released to consumers on June 25. The suit claims that by selling the browser as part of its ubiquitous Windows software, Microsoft aims to crush rivals in the browser market.

Such behavior harms consumers because it stifles innovation by potential competitors, Justice alleges. The suit accuses Microsoft of violating the Sherman Antitrust Act of 1890 by engaging in predatory and exclusionary conduct. "This is like having someone with a monopoly in CD players forcing consumers to take its CDs in order to get the machine," said Joel I. Klein, Justice's top trustbuster.

After Justice filed its suit, Microsoft argued that the government's demands would benefit Netscape Communications Corp., a single Microsoft competitor -- but not consumers. Chairman and CEO Bill Gates said: "How ironic that in the United States -- where freedom and innovation are core values -- the government is trying to punish an American company that has worked hard and successfully to deliver on those values."

Justice and state officials are seeking a preliminary injunction to stop some Microsoft practices as the government litigates its case, which could take several years. Justice gave Microsoft two choices: either ship a version of Windows 98 with the Microsoft browser disabled, or bundle Netscape's Navigator with its own. PC makers could then decide for themselves whether to delete either browser.

If Microsoft refuses to include Netscape's Navigator browser, the government wants the court to order the company to remove its browser from the operating system. Microsoft's Internet Explorer browser would then have to compete on its own. To comply with such an injunction, a senior Justice official says, Microsoft could simply remove the browser's point-and-click "icon," not the browser code, which Microsoft says overlaps with the operating-system code. Klein says that such a move would prevent the software industry from irreversibly "tipping" in Microsoft's favor as the government litigates its case.

The government also is asking for a preliminary injunction that would require Microsoft to give computer makers the right to install their own "first screens" -- the desktop that customers see when they boot up their machines. Currently, Microsoft bans manufacturers from altering the Windows screen, which contains icons for products and services owned by Microsoft or by the company's business partners. If a court grants such an action, PC makers could decide for themselves what software products to feature. The suit also would ban Microsoft from entering into contracts that force online service providers, Internet service providers, or Internet content providers to promote Microsoft products.

A key piece of evidence that Justice plans to wield is a May, 1995, document, in which Microsoft executives allegedly tried unsuccessfully to persuade Netscape not to compete with Microsoft and to divide the browser market. If proved true, such collusion among competitors would be considered an agreement in restraint of trade, a violation of the Sherman Act.

Another potentially damaging piece of evidence is a document from a Microsoft executive, who wrote in 1997: "It seems clear to me that it will be very hard to increase browser market share on the merits of (the Explorer) alone. It will be more important to leverage the (operating system) asset to make people use (Explorer) instead of Navigator." Antitrust experts say that Justice has a better chance of winning the case if it can show that Microsoft bundled the browser into the operating system with the intent of fending off competition. Which is what it will now try to prove.

By Susan Garland in Washington, with Amy Cortese in New York