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United States: The Microsoft Case --The Government's Role In Free Markets

Washington, 22 October 1997(RFE/RL) - This week's U.S. Justice Department anti-trust action against the computer software producing giant Microsoft left many people wondering anew about the government's proper role in ensuring that markets generally remain free and open to all competitors.

U.S. Attorney General Janet Reno said Monday that Microsoft has abused the virtual monopoly it holds in personal computer operating systems to force computer manufacturers -- and therefore consumers -- to use the company's software for browsing the internet as well.

Microsoft, whose "Windows" computer operating system runs about 85 percent of all personal computers in the U.S., says this is nonsense and that it is being punished for vigorously competing by constantly improving its system -- adding new features and improving its functioning.

What is at stake are some important questions over where one product ends and another begins and -- particularly significant -- does the government have a right to limit a company's development of new products simply because it is already powerful in the market.

To understand the dispute, one must keep these basic facts in mind.

A personal computer requires a software program for each basic function it performs and Microsoft became a rich and successful company from its development and refinement of a system to "operate" and direct all of those programs in a single coordinating system it calls Windows.

Experts agree the Windows program was what has allowed average people to be able to handle increasingly complex computers.

When a computer is hooked up to the world wide internet system, it needs a program to search through the millions of possible connections to see what is available. It's something like an automated telephone directory. That program is known as a "browser" and another American company -- Netscape -- made its success by developing and constantly improving the most used internet browser.

There are other companies which have their own operating systems, although Microscoft's Windows is by far the most popular, and there are other companies with internet browsers, but Netscape's is far and away the most used.

Microsoft President Bill Gates says his company's fundamental principle is that Windows must get better and make using personal computers (PCs) easier with each new version. "Today, people want to use PCs to access the internet and we are providing that functionality in Windows."

Microsoft Senior Vice President William Neukom says the original concept of the Windows operating system was to locate and retrieve information from within the computer itself, then was improved to collect information from discs, CDs and other sources outside the computer and most recently from the world wide internet.

"It's the most local next extension of functionality that one can imagine in the world of personal computer operating system technology," he told reporters from the company's Redmond, Washington headquarters via a national telephone press conference.

Brad Chase, Vice President for Microsoft4s Internet Client Group, says "The natural evolution of an operating system is that it allows PC users to access information, whether it be on a local area network, a wide area network or today, the internet."

He says that Microsoft's decision in September to add its own internet browser program to its Windows system was merely the next logical step in a fiercely competitive industry. "The integration of these valuable features into the basic product makes for a better solution at a more attractive price for consumers."

Not so fast, said Attorney General Reno. "Microsoft is unlawfully taking advantage of its Windows monopoly to protect and extend that monopoly and undermine consumer choice."

Joel Klein, Assistant U.S. Attorney General for antitrust matters, said what the government objects to is Microsoft requiring in effect that computer manufacturers who install Windows include Microsoft's internet browser as part of the package, although at no additional cost.

He told reporters that these are two separate products and that Microsoft should be forced to notify consumers who use Windows that they are NOT required to use Microsoft's browser, called Internet Explorer, and that they are free to remove its little symbol from the screen and use any compatible internet browser.

Klein said only Microsoft is able to force use of its browser because it has such a huge advantage in the underlying operating software. "This kind of product forcing is an abuse of monopoly power and we will seek to put an end to it," said Klein.

But experts say this is difficult legal ground and that the government can't go after a company simply because it is extremely successful.

Klein acknowledges the point, noting that "if you develop a monopoly through the use of your own talents, foresight, (and) abilities, the law doesn't stop you from having such a monopoly."

It is only if someone abuses that monopoly that the law can be invoked, he said.

Microsoft says it is successful by popular demand. Since introducing the browser in September, it says more than two million customers have acquired it on their own to add to their computers and 10 manufacturers have voluntarily included the browser in their machines. The head of one computer manufacturing company, Michael Dell of Dell Computer Corporation, agrees it is consumer demand. "If you didn't put it on there, you'd have customers saying, 'hey, I didn't get the browser.'"

This is not the first time the U.S. government has gone after Microsoft. In 1995, the company was forced to drop its purchase of another major software firm under justice department pressure. The current legal action is in fact based on whether the company is obeying an agreement reached with the government in 1994 on how it would develop future systems.

The company is required to respond in court in 11 days, although legal proceedings will no doubt go on for months. In the meantime, the stock market wasn't shaken by the government's action. It bid up the price of Microsoft stock even as the justice department asked for a one-million dollar per day fine as punishment against the firm.