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Justice Department Fires Back at Microsoft

Government aims to rebut Microsoft's claims in antitrust suit.

By Nancy Weil, PCWorld   

The 86-page response from the Justice Department and 20 state attorneys general who also have filed suit against Microsoft contends that the software monolith misstates the plaintiff's claims and evidence, and relies on inferior case law in its motion for summary judgment filed last month. Microsoft's motion asked U.S. District Court Judge Thomas Penfield Jackson to dismiss the federal lawsuit. Such motions, standard in civil cases, generally contend that the plaintiff does not have sufficient grounds for a suit.

The heavily edited public version of the DOJ's response also brought out allegations that were not spelled out in the original complaint. For instance, it accused Microsoft of using its monopoly power to induce Apple, Intel, Real Networks, and Intuit to "limit or reduce their use of and support for Netscape's browser" or other technologies competing with Microsoft's.

"Microsoft's conduct with respect to Java and browsers is part of a broad pattern of anticompetitive conduct designed to eliminate competition, to maintain and strengthen Microsoft's core monopoly over PC operating systems, and to monopolize key applications markets," the DOJ filing said.

The document then refers to allegations that Microsoft proposed to Netscape that the two companies divide the browser market and eliminate competition. That "is part of a pattern that includes similar discussions with Intel (concerning Intel not continuing software development), Apple (concerning Apple agreeing to stop marketing QuickTime for use with Windows), and a small company called Real Networks (concerning a Real Networks assurance that it would get out of the base streaming media platform business and not share its technology with Microsoft's competitors)."

Netscape rejected the alleged plan to divide the browser market, and Apple refused to withdraw its QuickTime software and cede the video software market to Microsoft's NetShow product, the filing said. In retaliation, Microsoft used its operating system monopoly power to "make competing products operate, or appear to operate, less effectively, a pattern that began at least as early as the Microsoft code designed to disrupt the use of DR-DOS," the filing said.

Microsoft also "used its power to intimidate both customers and distributors not to adopt or support Netscape's browser (as well as non-Microsoft Java technology). Microsoft's dealings with Apple are illustrative of how far Microsoft was willing to go to limit Netscape's opportunities and to stifle Java," the filing said.

The Justice Department and 20 state attorneys general filed suit in May, alleging that Microsoft has violated federal antitrust laws, using its monopoly power in the operating system market to dominate other markets, notably Internet browsers.

Microsoft said in its summary judgment motion that the government's lawsuit contains factual errors. The document cites a U.S. appellate court decision in a separate but similar federal lawsuit, arguing that the decision undermines the current contention that the software maker is illegally "tying" the Internet Explorer browser to its Windows operating system.

The government's filing said that Microsoft has systematically set out to destroy competition, and the development of the Java programming language by Sun Microsystems and the emergence of Netscape Communications' Navigator browser threatened to erode Microsoft's operating system monopoly. When Netscape's browser became the main means of enabling Java components to be distributed, the threat was underscored and Microsoft Chief Executive Bill Gates directed the campaign to ruin its rival, according to the response.

Exempt From Antitrust?
Microsoft's motion "asks this court to create a virtual exemption from the antitrust laws for Microsoft [and the entire computer software industry] and to permit a software monopolist such as Microsoft to use anticompetitive means to entrench and extend its monopoly without fear of judicial intervention," the response said. It termed the requests made in the software maker's filing "extraordinary propositions."

Much of the government's response reiterates facts already well known in the case, including contractual agreements with Internet service providers and content providers to promote Microsoft's Internet Explorer browser, and with system vendors (requiring that IE be installed on computers shipping with Windows operating systems).

"Microsoft's summary judgment argument is largely premised on the fact that putting the ISP, [system vendor, and Internet content provider] channels aside, other distribution channels remain available to Microsoft's rivals. But the alternatives are decidedly and demonstrably inferior. Most significantly, Microsoft itself has repeatedly recognized that ISPs and [system vendors] are the most important browser distribution channels," the government said.

The software maker further continues to argue that consumers benefit from its exclusionary agreements with ISPs because those make it easier for Windows 95 users to access the Internet, but "this argument is both misleading and disingenuous," the response said. "On their face, the exclusionary provisions harm consumers by making it more difficult for them to obtain non-Microsoft browsers, and Microsoft has not explained how their exclusions might benefit consumers."

The day before Gates was scheduled to testify before the U.S. Congress about such agreements, Microsoft announced that it had waived such contracts, making the issue moot. Regarding that "courthouse conversion," the government contends that case law requires that the courts "beware of efforts to defeat injunctive relief by protestations of repentance and reform."

Furthermore, Microsoft has not waived all such agreements, including a deal it has with America Online, said the response. The Justice Department also argued that the software maker relies on "limited and rather obscure" cases regarding the "moral right" of copyright owners regarding the integrity of their works.

Gates and other Microsoft executives have repeatedly argued that the company seeks to foster innovation and by doing so has kept PC prices low. The government takes on that claim as well, saying that the argument is futile and irrelevant.

"Whether operating system technology has advanced in the past several years (itself a subjective judgment which Microsoft makes no effort to substantiate) is immaterial," the response said. "The courts have consistently held that a firm may possess monopoly power in an industry notwithstanding the fact that innovation has continued to occur and prices have not increased."

Jackson will hear attorneys for both sides make their arguments during a hearing on the motion for summary judgment set for September 11. The trial on the Justice Department and states case, which was delayed by Jackson after requests from both Microsoft and the Justice Department, is scheduled for September 23. Microsoft officials were not immediately available for comment.