MICROSOFT MONOPOLY?

October 19, 1998

The Justice Department's anti-trust suit against Microsoft went to trial today. The suit alleges that Microsoft used unfair business practices to stamp out rivals. Phil Ponce has the story.

PHIL PONCE: The case against Microsoft, the world's largest software company, can get very technical, but it boils down to a simple charge: that Microsoft has become a monopoly that uses its dominance to illegally stifle competition and innovation. The case revolves around Microsoft's control of the so-called operating system, the basic software that acts as the brains of today's computers. More than 90 percent of computers today use Microsoft's Windows operating system. The Justice Department alleges that Microsoft tried to use that dominance to gain control over the market for so-called browsers, the software that connects users to the Internet. The Justice Department's case accuses Microsoft of acting illegally by attempting to tie its Internet Explorer browser to Windows, thereby fighting unfairly with its main competitor in the browser business, Netscape; making Internet companies, such as America OnLine, distribute Microsoft's browser in order to get promotional space in Windows; prohibiting computer makers from modifying the first screen a user sees after turning on his or her computer; and pushing programmers not to use a version of the Java programming language created by rival Sun Microsystems. Assistant Attorney General Joel Klein announced the case last May. JOEL KLEIN: Let me be absolutely clear. Nothing we are doing here will or should prevent Microsoft from innovating or competing on the merits. What cannot be tolerated and what the antitrust laws forbid is the barrage of illegal, anti-competitive practices that Microsoft uses to destroy its rivals and to avoid competition on the merits. That, and that alone, is what this lawsuit is all about. PHIL PONCE: The government is focusing on a 1995 meeting at which Microsoft officials allegedly offered to divide up the browser market with its chief competitor, Netscape. Microsoft has repeatedly denied any illegal acts, saying that in the competitive computer world it has offered customers more services and better prices. Microsoft attorney William Neukom spoke outside the courtroom in Washington this morning. WILLIAM NEUKOM, Microsoft General Counsel: The software industry itself is intensely innovative and competitive. Every year, there are thousands of new products brought to market; there are thousands of new companies that are being formed; and the benefit of that competition and that ability to innovate means better and better technology, quicker and quicker to market, at lower and lower prices. PHIL PONCE: Joining us now is Susan Garland, who's covering the trial for BusinessWeek as its Washington legal affairs correspondent. Welcome, Susan. SUSAN GARLAND, BusinessWeek: Thank you. PHIL PONCE: First of all, before we get into some of the specifics of the case - and you were in court today hearing the opening arguments-why should people on Main Street care about this case? What is at stake? SUSAN GARLAND: Well, this is really a battle over who is going to be controlling the Internet and computer technology into the 21st century. That's no small matter because computers and technology and the Internet will be so much a part of our lives, we'll be conducting billions and billions of dollars of commerce on the Internet over the next 100 years perhaps. The Justice Department is basically saying do we want one company to have that - too much control over so much of our lives, because Microsoft right now has a big stake in a lot of different technologies, and the Justice Department is saying, that right now, Microsoft is stifling innovation and competition, and prohibiting other, better products from coming out. Microsoft is saying no, if you - if you harm us - if you stop us, you're actually going to be hurting the economy, because we are fueling so much of what's good in the economy right now. PHIL PONCE: You were at court today and the Justice Department made its opening statement, so what points did they make today? SUSAN GARLAND: Well, they went back to the - to bare basics, and let me just step back for a second. Microsoft controls the operating system, which is the sort of connective tissue of the - of the computer, and - PHIL PONCE: The Windows system. SUSAN GARLAND: The Windows operating system and application writers write to specific operating systems. They can write to the Windows system or to Mac's Apple system, and what Justice is saying is that - and they had about 90 percent of these - of the operating system - the market out there - PHIL PONCE: So there are other companies out there that are making software that is compatible. SUSAN GARLAND: Except most applications are written to Windows because Windows has the most customers and it has the most customers because most applications are all written to Windows. What happened back in around 1995 was that Microsoft saw a big threat to its core business, which was a browser, the Netscape browser, and this thing called the Java programming language, and the two of them together had the potential of basically eroding Microsoft's core business, because rather than have an application writer write to Windows, they could write basically one size fits all, write to - they could - with the browser in the Java they could write to one application would fit on any operating system - PHIL PONCE: And completely skirt Windows - you wouldn't need Microsoft. SUSAN GARLAND: You wouldn't need Microsoft; you wouldn't need Windows - you wouldn't need Mac. You could use any - and so what the Justice Department is saying is that Microsoft went to Netscape and said, we have a deal for you - how about - we're starting our Internet browser products too, why don't you folks take the non-Windows window operating systems - we'll take the Windows Operating System - and we'll give you something else - we'll go invest in your company, and of course, Netscape said, why would we do that, we have a big share of the browser market right now? They didn't go along, and the Justice Department said that at that point just - Microsoft went out to try to kill off Netscape. PHIL PONCE: So tomorrow, Microsoft - it's Microsoft's turn. What is Microsoft expected to do - to argue? SUSAN GARLAND: Well, Microsoft - it was very interesting. Today there was a lot of e-mail that came in that showed how Microsoft's intent to go and sort of cut off Netscape's air - air supply. Microsoft is basically going to argue that we put out great products; if Netscape is doing poorly now, it's because they don't have a good enough product; that we don't even have a monopoly, even though they have 90 percent of the market right now. They are claiming we don't even have a monopoly because the computer technology area is very dynamic. All you need is a computer and you know how - you know - just knowing how to operate it and you could sort of - it's not like steel or oil where you need to build big buildings, you just - you know - anybody could topple us at any time, and they're going to say that there are still many ways for Netscape to get out there, that we did not do anything to foreclose the distribution. PHIL PONCE: So they're saying that their competitors can still operate in the free market, notwithstanding any allegations about what Microsoft has done. What does the government want Microsoft to do? SUSAN GARLAND: Well, at this point they're being mum on their remedies. They had - when they first filed their complaint, they wanted Microsoft to carry Netscape on its operating system basically, asking one company to carry its competitor's products on the screen. PHIL PONCE: So the screen pops up-you can either use the Microsoft product, or the Netscape product, even though Netscape is a competitor. SUSAN GARLAND: And Microsoft didn't buy that, so right now, what the Justice Department has done is broadened their case. This is not just a browser case anymore. They're saying that Microsoft went out and with a number of companies - Apple, Intel - American OnLine - engaged in a number of anti-competitive acts to try to kill off some other competing technologies too. PHIL PONCE: Again, this is the Justice Department's - SUSAN GARLAND: This is the Justice Department's side. PHIL PONCE: Their allegations. SUSAN GARLAND: And so even though Justice is denying at this point, you never know, they may seek the break-up of the company if they win this case. PHIL PONCE: The actual break-up of Microsoft along the lines of what - what happened to the Baby Bells in '84? SUSAN GARLAND: This remedy - possible remedy is a work in progress, but there's some talk and speculation of requiring them to perhaps divest some of their technologies. PHIL PONCE: And as far as the trial is concerned, how long is it expected to be? How much testimony? Is Gates going to show up? SUSAN GARLAND: Well, Gates actually is not going to be a witness, although he did make a sort of cameo appearance today of Justice Department - showed about 2 minutes of his 20 hours of depositions back in August, and there was - it was sort of the - the highlight of the day was very dramatic because you basically had Bill Gates denying that he really knew anything about this Netscape market collusion meeting, and after their - Gates basically denied that he knew about it - or had any idea of what was going on in it - David Boise, the trial counsel for the Justice Department, then, you know, in a sort of dramatic flourish almost, presented a whole bunch of e-mail and internal documents from Microsoft from before the meeting and after the meeting showing that, in fact, he not only knew about the meeting but encouraged certain - encouraged the supposed - some offers to Netscape. PHIL PONCE: Well, presumably, Microsoft will be putting their foot in there, giving it their perspective tomorrow, starting tomorrow. Susan Garland, thank you so much for being with us. SUSAN GARLAND: Thank you.

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