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Washington Journal: Department Of Justice Accuses Microsoft Of Anti-Competitive Practices

Washington, 20 October 1998 (RFE/RL) -- A trial that many say could determine the future of computer software development in the United States opened Monday in Washington.

The U.S. Department of Justice, joined by 20 American states, charged that software giant Microsoft had conspired to abuse the 90 percent market share its Windows program holds in computer operating systems to knock out smaller competitors.

Justice department counsel David Boies opened the trial saying that Microsoft, and most especially company founder and chairman Bill Gates, were predators trying to take even larger market shares in every area of the computer industry. He said that if Microsoft's "predatory, anti-competitive practices" are stopped, markets will be truly open again and consumers will reap the benefits.

Microsoft countered that the government is upset by a company that is extremely successful and one that has pushed innovation and software development that has benefited consumers most of all. Microsoft is a "vigorous, but fair competitor," said company general counsel William Neukom, in a statement before the trial opened.

The case as a suit over whether it was proper for Microsoft to combine or bundle its internet explorer program into its Windows operating system. Competing internet explorer developers said that was an unfair practice, but one federal court has already ruled that it was not. But now the trial is a review of whether Microsoft is too large and an uncontrollable giant that should be broken up to preserve competition in the market.

Federal Judge Thomas Penfield Jackson, who is hearing the case without a jury, will decide whether to dismiss the charges entirely, as demanded by Microsoft, order the company broken up, as demanded by the government, or something in-between. It is a civil suit, not a criminal charge, so there are no financial penalties involved.

The U.S. bases its charges on a law written more than half a century before computers were even invented, the 1890 Sherman anti-trust act -- named for Senator John Sherman of Ohio who sponsored it. It makes it illegal to conspire to restrain trade or commerce, monopolize or attempt to monopolize the entire output of a particular good or service.

It's most famous use was by trust-busting President Theodore Roosevelt just after the turn of the last century when the government eventually won the break-up of John D. Rockefeller's Standard Oil company. It has been used many times since.

But it is also a vaguely worded law and so has been used selectively. New York University Law School professor Eleanor Fox says the Sherman act has "always been an elastic piece of social legislation, used to attack perceived exploitation and the aggregation of power."

Bill Gates, who's building of Microsoft took him from rags to being one of the richest men in the world, could fit that view. That's why much of the extensive press coverage of the case in the U.S. calls it the battle of the Goliaths -- the government against Bill Gates.

The government doesn't prosecute that many cases every year. Just last week, for example, the Justice Department dropped an antitrust investigation against the country's largest brewer, Anheuser-Busch. The department had charged that the company engaged in "anti-competitive practices" by preventing independent wholesalers from distributing other beers -- especially those brewed by small, microbreweries. It's actions, the government originally charged, would shut many of the smaller brewers out of many markets and cut consumers choices everywhere.

But in dropping the investigation, the government decided it did not have a strong enough case.

Anheuser-Busch said it was just an incentive program which offers wholesalers lower beer prices, more money for advertising, and extended credit if they stop selling competitors beers.

The Microsoft case involves exactly the same kind of question over whether incentive programs to get independent wholesalers to drop other manufacturer's products is unfair competition. But in computer software programming, the stakes are in the thousands of millions of dollars.

Microsoft's Windows operating system is used in 90 to 95 percent of all personal computers, continually growing and absorbing what were once stand-alone products and programs into one integrated system that is usually included with new computers.

Consumers, especially those less computer literate, have flocked to this concept as a quick and easy route to a fully equipped machine. Microsoft's web browser was one such stand-alone program that was included with Windows at no additional cost.

Developers of competing stand-alone programs, such as the other major web browser-maker, Netscape, say that's unfair. Not only does it kill competition and reduce consumer options, argues Netscape, but it ends innovation.

Los Angeles Times computer writer Charles Piller says the Windows program is seen by many in the industry as a ponderous hodgepodge of mediocrity that absorbs software functions like a giant amoebae, retards competition and reduces options.

Microsoft's manager for developer relations, Tod Nielsen, however, argues that while this bundling may put some software vendors out of business, it frees others from having to constantly reinvent the basic operating system. He said this allows developers to focus on building new and better products for specific functions that can work along side or within the Windows system.

It results in better software with fewer incompatibilities, he says. The Windows system does allow the purchaser to add any compatible program. Nielsen says the company briefs all software makers well in advance of the release of new versions of the operating system so that they can make sure their products are compatible. If some failed to adopt to change in a volatile industry, he says, that's not Microsoft's fault.

In the meantime, he says, Microsoft can use its size and competitive position to push software and computer development far beyond what any smaller and less innovative firm can do. Some of those firms argue it has the exact opposite effect.

The trial is expected to take six to eight weeks.