Microsoft faces a legal fury

To escape the bonds of an island prison, Icarus fashioned wings of wax and feathers to fly to freedom. His flight was a successful one, until, lifted ever higher on the winds of hubris, he flew too close to the sun. His well-fashioned wings, it is said, collapsed and sent him plunging into the sea. So the Greek legend tells us. Is Microsoft listening?

The last month has been difficult for Microsoft, from both a legal and political perspective. As outlined in November’s, ahem, perceptive column “Sun makes ‘The Big Move’,” Microsoft’s most recent Java initiative in Internet Explorer (IE) 4.0 may draw a combined action on the part of the U.S. government, the European Union, and a strong corporate user group. Two of those constituencies were heard from in the last month. However, as governments have been known to do, they got it partly (actually, that should be “mostly”) wrong.

The suit by the U.S. Department of Justice was timely but off the mark. Rather than waiting for the outcome of Sun’s Java licensing litigation, the Dept. of Justice is contending in court that Microsoft is using its monopoly in the operating systems arena to unfairly bundle additional software that computer vendors must ship with their systems. The government’s contention is that bundling Internet Explorer with Windows 95 unfairly limits competition in the browser software market: IE and Windows shouldn’t be bundled but sold separately.

The case against the U.S. government

Many in the software community have hailed the legal action. However, simply bundling a browser with Windows is an obvious, well-documented, and much needed action. Anyone who has used the software combination will tell you that the integration is well done and extremely useful. With the bundled product suite, the Internet becomes a seamless extension to the local computer’s file system and local area network. Combined with Outlook Express (the new mail program) and version 2.5 of the Microsoft Network, the new Windows environment is elegantly constructed and easy to use.

To attack Microsoft on the bundling issue is dangerous for several reasons:

• It could effectively legally mandate and enforce an inflexible and outdated view of product categories. Product categories have a temporal dimension: they have traditionally been created, obviated, and destroyed by the relentless competition that is an innate part of technical innovation. To try to freeze for all time a definition of distinct product categories is to try to legislate a level of technological innovation. What’s next? Will we remove networking from Windows and Unix because networking software used to be a separate category? Will we remove messaging, graphical user interfaces, and audio and video from operating systems? Will relational databases be prevented from supporting objects? Is it time to remove the modem from your computer and return to acoustic couplers? Perhaps it’s time to eliminate computers altogether and return to typewriters, slide rules, and Telex machines! Like the Hindu god Vishnu, innovation both creates and destroys. To eliminate the god of destruction is to destroy the god of creation.

• It could give the U.S. government the right to define product categories and set the industry’s technological agenda. If this was such a great idea, everyone would be speaking Russian. Government control of industries generally has proven to be a bad idea. That is what markets are for.

• As chronicled in an earlier column, the notion of a “browser” inaccurately describes the function of both Internet Explorer and Netscape Communicator. Shall we sue Netscape next for adding HTML editing, collaboration software, and electronic mail to its browser? Do we expect both Netscape and Microsoft to halt their work on netcasting? Aren’t these separate product categories? Is Netscape using its monopoly power in browsers to stifle innovation?

The technical basis for the Justice Department’s action (and M-a-day fine) appears to be misguided. Legal experts point to a 1984 Supreme Court decision that could provide a foundation for a decision against Microsoft. In

Jefferson Parish Hospital vs. Hyde

, the court found that it was possible to determine whether an item is one product or the bundling of two separate products. The criteria “turns not on the functional relation between them (the two products), but rather on the character of the demand for the two items.” Again, in the software industry, demand patterns follow innovation and pricing. Did the demand pattern for Microsoft Excel change when it was bundled with Microsoft Office? The objections outlined above still hold.

Whatever the technical merits of the Microsoft case, the legal and political implications make it an interesting one. There certainly may be grounds for legal action based on a violation of Microsoft’s 1995 consent decree with the government (see last month’s column), and there are serious questions about the way Microsoft writes and enforces contracts — especially nondisclosure agreements — with computer companies. Microsoft and the Justice Department will face off in front of U.S. District Court Judge Thomas Penfield Jackson on December 5th. Mark your calendars.

Other groups lob legal grenades at Microsoft

While Judge Jackson gathers information for a decision, other groups are raising Microsoft’s legal bills precipitously. The European Union announced in October that it was investigating Microsoft’s licensing practices. Ralph Nader’s Consumer Project on Technology (CPT) is keeping pressure on the Federal Trade Commission. “We’ve always found [the antitrust division] to be accessible when we want to talk,” said James Love, the executive director of CPT in an interview with MSNBC. Nader is holding a two-day conference in mid-November called, “Appraising Microsoft and its Global Strategy.” Not to be outdone, the U.S. Congress recently entered the fray. The Senate Judiciary Committee hearings on Internet commerce led by Senator Orrin Hatch (R-Utah, home of Provo-based Novell) have quickly turned into an examination of Microsoft’s practices. Hatch outlined the contents of an agreement between Microsoft and Earthlink, an Internet service provider. Some claimed this agreement was the “smoking gun” that proved Microsoft is unfairly and illegally preventing competition. “The government certainly should not use antitrust law to make winners and losers,” said Hatch in is opening statement at the hearings. It should, however, “ensure that it is the consumers who get to pick the winners and losers.”

Microsoft speaks up

All in all, it has been a tough month for Microsoft. Microsoft’s response to the U.S. government’s lawsuit was that it “retains unfettered freedom” to add new functionality to Windows and that Internet Explorer 4.0 is simply another of these functions. This position will ring true to the few unbiased minds in the software industry. Sen. Slade Gorton’s (R-Washington) chief-of-staff summed up the situation well: Microsoft “just has not put the same level of brainpower behind politics that they’ve applied in the world of software production.” Obviously, that is changing. While we await the court’s decision, here is some unsolicited advice for the Justice Department: Focus on reality, not politics. If you want to clip Microsoft’s wings, focus your investigations on Internet Explorer for the “enhancements” it has made to Java. Innovation is an avenue open to every company, but when the innovation is at odds with the contractual obligations by which a company is bound, then it is illegal.

Questions remain about the exact nature of Microsoft’s contractual obligation to Sun. The contract and licensing agreement for Java have been posted on the Web. To the eye untrained in legal matters, these documents are somewhat open and confusing. However, the Java issue appears to be a much more fruitful ground for government action than the path it has chosen.

Of course, politics aside, Internet Explorer 4.0 and a host of other Microsoft products continue to fly off the shelves and set new records for Internet downloads. The legal (and political) systems of the U.S. and Europe eventually will provide some resolution to the current claims against Microsoft.

Whatever else happens, Sen. Hatch is right: Ultimately, the market will decide who wins and who loses. Public sentiment seems to want to make Microsoft fly a little closer to the ground. However, sentiment is different from both the market and the law. Until companies stop standardizing on Windows products, or until corporations provide a strong endorsement for a unified Java, Microsoft will continue to soar ever closer to the sun.