MICROSOFT REBUKED October 21, 1997 NEWSHOUR TRANSCRIPT

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The Justice Department has charged that Microsoft is building an illegal monopoly around its Web browser, Internet Explorer. The software giant has denied the allegation, and says it will fight the complaint in court. A background report is followed by a discussion with two computer world watchers.

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A RealAudio version of this segment is available. NEWSHOUR LINKS: August 6, 1997 Microsoft takes a bite out of Apple. June 11, 1997: Netscape and Microsoft agreed to limit access to private information online. September 20, 1996: Tom Bearden reports on the cyber war between Netscape and Microsoft. Browse the NewsHour's coverage of cyberspace and the law. OUTSIDE LINKS: U.S. Department of Justice Microsoft and Netscape

TOM BEARDEN: The complaint filed yesterday by the Justice Department charged software giant Microsoft corporation with violating a 1995 anti-trust agreement involving its Internet browser software.

JANET RENO, Attorney General: Microsoft is unlawfully taking advantage of its windows monopoly to protect and extend that monopoly and to undermine consumer choice. The Department of Justice will not tolerate that kind of conduct.

At issue: Windows 95.

TOM BEARDEN: Windows 95, an operating system which controls basic computer functions, such as storing and retrieving files. Microsoft CEO Bill Gates introduced Windows 95 in August of 1995.

Now nearly all personal computers sold in stores come with the operating system pre- installed. The government's federal court complaint says that for the last two years Microsoft has required personal computer makers who installed Windows 95 to also install the company's Internet Explorer browser. A browser is software that allows computer users to access the Internet. Microsoft's Internet Explorer and its chief competitor, Netscape Corporation's Navigator, are designed so that users can point and click with a mouse to "browse" Internet content. The Justice Department's Assistant Attorney General in charge of Anti-Trust is Joel Klein.

JOEL KLEIN: What Microsoft is doing here is requiring PC manufacturers and through them consumers in America to take the Microsoft version of the browser in order to get Windows 95. Now, Microsoft and only Microsoft is able to do that because it alone has a monopoly on the underlying operating system software. This kind of product forcing is an abuse of monopoly power. And we will seek to put an end to it.

Netscape vs. Explorer

TOM BEARDEN: More than one third of all computer users surfing the Internet now use Microsoft's Internet Explorer--a dramatic increase that threatens Netscape's dominant share of the browser market. The justice Department's complaint asks a federal judge to force Microsoft to stop requiring personal computer makers to license and distribute Internet Explorer in order to buy Windows 95; notify Windows 95 users they don't have to use Internet Explorer; give consumers instructions on how to remove Internet Explorer from their computers; and fine Microsoft $1 million dollars a day until the company changes its policy.

Microsoft denies any wrong doing and said they will fight the complaint in court. Their attorney William Neukom said yesterday "Microsoft is competing vigorously and is in full compliance with the consent decrees. Our efforts are benefitting consumers by spurring greater innovation, better products, and lower prices."

TOM BEARDEN: The government has investigated Microsoft's business practices for more than six years and has won two out of court settlements in anti-trust cases. The Justice Department is also investigating Microsoft's recently announced joint venture with Apple Computers. Microsoft has 11 days to respond to the government's complaint. The federal court judge could then rule on the complaint or call a hearing to explore the arguments further.

JIM LEHRER: On now to Phil Ponce.

The Justice Department's argument: right or wrong?

PHIL PONCE: Two computer world watchers are with us now. Don Crabb is senior lecturer in the University of Chicago's Computer Science Department and a regular columnist for the "Chicago Sun-Times." And Jonathan Cohen is an analyst of software and Internet-related business at UBS Securities on Wall Street. Gentlemen, welcome both. Don Crabb, in your opinion, did the Department of Justice do the right thing?

DON CRABB, University of Chicago: You bet. It's long overdue. I'm happy they've finally gotten off their high horse and done something about Microsoft.

PHIL PONCE: Why is that?

DON CRABB: Well, Microsoft, I believe, has been illegally competing for years and forcing out the competition by use of their Windows operating system. And I think the tie-in with the Internet Explorer is another example of that.

PHIL PONCE: Jonathan Cohen, your take on the Department of Justice's action.

JONATHAN COHEN, Internet Analyst: I disagree that Microsoft is necessarily using its position within the operating system software market to illegally promote other products. Our view has and continues to be that Microsoft has essentially positioned Internet Explorer Browser software as an integral part of the operating system and that the company is likely in full compliance with the terms of their consent degree.

PHIL PONCE: So you're saying that their browser is an extension of their overall program and just a component of it?

JONATHAN COHEN: There's a history of operating system software, Microsoft operating system software and other people's as well, growing to include additional functionalities and additional services. Over the last 15 years or so that's I think operated as a significant benefit of computer users into the population at large.

DON CRABB: Not to mention Microsoft.

JONATHAN COHEN: Not to mention Microsoft. Absolutely. But, nonetheless, it is our view that Microsoft has successfully integrated browser software functionality inside of the operating systems to the extent that it is essentially a part of the operating system and, therefore, consistent with Microsoft's obligations under the consent decree.

The effect of Microsoft's strategy on consumers.

PHIL PONCE: Don Crabb, why should consumers care about what it is Microsoft was doing and why the Justice Department is attempting to step in?

DON CRABB: Because when you stifle competition, you stifle the selectivity available to consumers. Let's say five years from now Microsoft wins all these battles and they're the only real software company left in the United States, and that's a very real possibility. They will have succeeded in stifling competition for all consumers because no matter how good Microsoft might be they can't make all of the best software. This is a real problem. I see this going far beyond just a particular violation of the consent decree. I see this as an issue of software competition in the United States versus other countries.

PHIL PONCE: But right now consumers are getting this Internet browser for free. How are consumers being hurt by that?

DON CRABB: Because they might be getting something else, so they didn't have to tie in the browser with the Windows operating system. I think that this whole idea that Windows, itself, is evolving, including Internet Explorer, is an interesting one; however, the separate product, Internet Explorer Browser can still be bought, can still be obtained without obtaining Windows. So the idea that Microsoft suddenly just figured out how to do this I think is kind of specious. They've been working towards this ever since Netscape Navigator became a real product three years ago because they saw that as competition to their Windows system, which is dominant on virtually every desktop computer.

"Control and influence over the way people use computers."

PHIL PONCE: Jonathan Cohen, what is at stake here? Why is it that a company would want to dominate or have a good share of the browser end of it?

JONATHAN COHEN: What's ultimately at stake is control and influence over the way that people use computers. The browser software functionality is allowing people to do things on the Internet on their own computers and their local networks that they've previously not been able to do. There had been a notion--and I think there still is a notion that there's just the possibility that that type of software could over time expand and displace traditional operating system software. We think that type of a progression is very unlikely. We don't think it's going to happen. We also think that Microsoft has done an awful lot to improve browser technology. In fact, Internet Explorer Version 3 and now Internet Explorer Version 4 both moved the bar--the competitive bar--significantly higher than had been the case immediately prior to those products released.

So rather than stifling competition specifically within the market for browser software, we see Microsoft as encouraging competition. Prior to Microsoft's entering this market there was one company that had a 100 percent market share of browser software. That company is Netscape. Post Microsoft's entry into this market there are now two companies vigorously competing, improving the product, and improving the quality of choice for consumers. To me that seems pro-competitive, if anything.

"Is Microsoft a business bully?"

PHIL PONCE: Don Crabb, the Department of Justice seems to be saying that Microsoft, in their opinion, is trying to bully its way into the browser market. Do you think Microsoft is acting like a business bully?

DON CRABB: Yes. I think it's been doing it for some time. I mean, Bill Gates is no fool. He saw three years ago that Internet was going to be a lot more important than he originally had conceived it; that Java, the language that Sun Microsystems has developed, that drives the Internet and that Netscape uses was going to become more important. He's tried to figure out a way to keep Windows ahead of the game--if Windows adds an important component, even as software gets rolled out in Java form and the traditional operating systems like Windows may go away, so he is linking in these Internet Explorer features with Windows. I can't disagree that Internet Explorer is a competitive product. It is. My problem is how they sell it and how they build it into Windows and the fine line between the operating system and the browser becomes a blur, and that's the problem for competition because Netscape does not have its own version of an operating system they can sell their browser on top of. And that's the unfair advantage, as far as I'm concerned.

PHIL PONCE: Jonathan Cohen, do you think that at times Microsoft's aggressiveness in the market can cross the line into that of a corporate bully?

JONATHAN COHEN: I'm not sure what the definition of a corporate bully is. I know that Microsoft is a very aggressive and focused competitive factor in this market. I think that they've been that way since the company's inception. What I have not seen historically is Microsoft behaving in a manner which has served to significantly limit consumer choice. By including these additional products and services in what Microsoft provides on every computer sold, or on most every computer sold in the U.S., at least a PC standard computer, Microsoft is essentially giving consumers more productivity software, more functionality at an unchanged price point. Consumers don't pay for Internet Explorer. Consumers don't buy Internet Explorer.

The product is completely free. It's available either through a download or when a person buys a new computer they obtain a copy of it. Consumers, though, do have a choice. If a consumer buys a computer with a copy of Internet Explorer already on it, they have the option--again essentially free of charge--to download a copy or to obtain for very little money, if any money, a copy of Netscape Navigator browser software and run that software on top of the Windows Microsoft operating system. So Microsoft hasn't put into place any structural or technological limitations on the ability of their major competitor to function in this market or to function with their software.

PHIL PONCE: Don Crabb, why should consumers care about Microsoft's size if Microsoft is coming up with good products?

DON CRABB: Well, the problem here is not a question of the technological or other road blocks. It's opportunity road blocks. If you control the operating system, the thing that is automatically loaded up on the computer that you buy and that operating system automatically loads your browser as part of its functionality, do you really think that people are going to go out there and find something else? Irregardless of how competitive that product is--right now it's very competitive--but you have to look down the road, a year, or two or three years down the road, and ask yourself what happens when they no longer have 30 percent of the market but they have 100 percent of the market? They're not going to be compelled to innovate whatsoever because at that point they'll have the desktop and they'll have the browser on top of it, and they may have other software that they've built in at that point--the operating system, stifling other categories of software development. That, again, is where I really worry about this anti-competitive nature of the way Microsoft does business.

Bill Gate's aggressive personality.

PHIL PONCE: Don Crabb, to what extent do you think Microsoft's very aggressive stand in the market is a reflection of Bill Gates' personality? Is it an extension as far as the corporate culture in that?

DON CRABB: Everything Microsoft does is an extension of Bill Gates' personality. He's a competitive guy. He's a very smart guy. I wouldn't want to have to compete against him in business because I think he does push it right to the edge of the envelope. Some people think he pushes it beyond that envelope, but I think the company reflects Bill Gates' personality almost to a tee.

PHIL PONCE: Jonathan Cohen, what's your take on the extent to which Microsoft's aggressiveness in the market is a reflection of its founder and leader?

JONATHAN COHEN: I would tend to agree with the previous statements. I think that the limited time that I've spent with Bill Gates and the time that I've spent with the rest of the senior management at Microsoft certainly indicates that this is a company that is driven by a group of people that are enormously competitive, enormously aggressive, and who have successfully changed the landscape for personal computing not only in the United States but worldwide.

I think that's been to the benefit of the computing population, but clearly this is a company that is extremely aggressive. I do think, though, that it's important to differentiate between hypothetical argument about what may or may not happen over the next five or ten years and the issue that's really at hand today, which is the U.S. Justice Department's decision to move ahead against Microsoft on the basis of Microsoft's failure to comply or their alleged failure to comply with the terms and conditions of the consent decree. Reading through the consent degree, which is only about a twelve or thirteen page document, there are some very specific limitations placed on Microsoft's conduct going forward. This is the agreement that was reached between Microsoft and the Justice Department back in 1994.

PHIL PONCE: Gentlemen, I'm afraid we'll have to leave it there. I thank you both for joining us

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