May 18, 1998 2:00 PM PDT

DOJ, states file suits

Attorneys general from 20 states and the District of Columbia today joined the Justice Department in filing parallel historic antitrust suits against Microsoft.

The states coordinated their actions with the DOJ and filed the lawsuits in U.S. District Court in Washington.

See special report: Microsoft sued "The Justice Department alleges that Microsoft has engaged in a series of anticompetitive practices," U.S. attorney general Janet Reno said at a press conference in Washington. "In short, Microsoft used its monopoly power to develop a chokehold on the browser software needed to access the Internet."

According to Assistant Attorney General Joel Klein: "What the evidence shows is that Microsoft, from [Microsoft chief executive] Bill Gates on down, quickly realized that Netscape's Internet browser posed a real threat to Microsoft's Windows monopoly."

DOJ suit against Microsoft
Janet Reno announces today's action with, from left, Assistant Attorney General Joel Klein and attorneys general Dennis Vacco of New York, Tom Miller of Iowa, and Richard Blumenthal of Connecticut. AP Photo.

In a press conference, Gates responded that the suit is without merit. "There isn't an industry in America today that is more competitive [and] more alive, and the amazing thing is that has all happened without any government intervention," he said. "This suit is all about Microsoft's right to innovate on behalf of consumers."

Klein said today's lawsuit is being filed to address "time-sensitive aspects" of the shipment of Windows 98, but added, "Our investigation of other Microsoft practices is ongoing."

The two lawsuits contain almost identical allegations and seek similar remedies. They rely on Microsoft internal memos, including email from Gates, as well as electronic mail, interviews, and depositions from other high-tech executives as evidence in the case.

"On several occasions, Gateway asked [Microsoft] to remove the icon for IE from the desktop, but [Microsoft] representatives have refused each request, saying the browser cannot be removed or sold separately," a Gateway representative allegedly said, according to the suit.

The states' complaint--echoing the language in the federal lawsuit--asks the court to prohibit Microsoft from requiring computer makers to include Microsoft's separate Web browser on new machines, and from dictating to manufacturers how they configure browser and other software options presented on initial screens.

Joel Klein and Dennis Vacco
Top Justice Department trustbuster Klein, left, with Vacco, Miller, and Blumenthal. AP Photo.
The complaints also seek to block agreements that require manufacturers and online services to feature Microsoft products and avoid competitors' products.

Both the states and the DOJ also asked the court to conduct a hearing and then "issue a preliminary injunction ordering Microsoft to provide its Windows 98 operating system either with no browser or with alternative browsers."

The states' action stands out from the DOJ's in that it also takes aim at Microsoft Office, a suite of programs that includes word processing, spreadsheet, and calendar software. It claims Microsoft makes it "economically impractical" for computer vendors to license other so-called office productivity programs.

In a statement, New York attorney general Dennis Vacco said, "With over 90 percent of all computers using Microsoft operating systems, the company retains a virtual monopoly over the computing industry. Our actions today aim to protect consumers from a single power controlling and dominating an information infrastructure that one day may be our primary link to communication, commerce, and information."

The states joining in the suit are California, Connecticut, Florida, Illinois, Iowa, Kansas, Kentucky, Louisiana, Maryland, Massachusetts, Michigan, Minnesota, New Mexico, New York, North Carolina, Ohio, South Carolina, Utah, West Virginia, and Wisconsin. The District of Columbia also is listed as a plaintiff. In addition, other states may later join the action.

Reno, Klein, and attorneys general Vacco, Tom Miller, and Richard Blumenthal of New York, Iowa, and Connecticut, respectively, were present at today's briefing.

State officials held a telephone conference yesterday, where they decided to go forward, the sources said.

"Microsoft is wholly within its rights to ensure that Windows boots fully the first time it runs," Microsoft said today. "Asking Microsoft to display another company's wares on the very first screen is like telling McDonald's that consumers who want a Big Mac must visit a Burger King before buying."

DOJ vs. Microsoft
The suit asks the court to prohibit Microsoft from requiring PC makers to include Microsoft's "separate" Web browser.   The company calls this a "free ride" for Netscape that is unreasonable and not supported by law.
Regulators want to block the company from "dictating" to PC makers how they can configure software options shown on initial "boot" screens.   Consumers can customize the desktop any way they like after the first boot, Microsoft says.
The action seeks to prohibit agreements requiring PC makers and online services to feature Microsoft products and "avoid competitors'" products.   Microsoft says its agreements are legal and commonplace.

The filings come after 11th-hour negotiations between Microsoft and antitrust regulators collapsed on Saturday, clearing the way for the legal actions.

The states' suit alleges that Microsoft is using anticompetitive practices to maintain its monopolies in operating systems and office-related applications and to establish a new monopoly in Internet software.

The state's antitrust allegations include a pricing scheme that "wrongfully hampers competition" among office productivity software by making it unfeasible for computer makers to offer rival programs.

The suit also alleges that Microsoft still uses contractual requirements that prevent online service providers--including America Online--from promoting rival browsers.

Among the allegations are the following:

  • Microsoft engages in a pricing scheme for Microsoft Office that makes it difficult for original equipment manufacturers to ship machines that carry office productivity programs made by rivals of the software giant. The scheme, which encourages OEMs to license Microsoft Office on a "per system" basis, inhibits competition among makers of such programs, which typically include word processor and spreadsheet software.

    Microsoft, for its part, said it has never prevented a computer maker from loading or shipping a competitor's office productivity program. Murray pointed out that the current pricing scheme had been approved by the Justice Department.

  • Microsoft continues to impose contractual requirements on some online service providers listed on an "Internet Connection Wizard" directory, which prevents the services from promoting Netscape's Navigator. Although Microsoft relaxed the restrictions for many of its partners, the prohibitions remain for America Online, AT&T WorldNet, and CompuServe. Microsoft said the agreements are "completely legal and procompetitive."

  • In mid-1995, Microsoft tried to persuade Netscape not to build browsers that would run on Microsoft's Windows platform. When Netscape refused, Microsoft engaged in "anticompetitive and exclusionary conduct" designed to lock out Netscape. Microsoft spokesman Mark Murray called the allegations "a complete fable."

    In a harshly worded statement on Saturday, Microsoft said that talks fell apart this weekend because of unreasonable demands by the government.

    As first reported by CNET's NEWS.COM, antitrust prosecutors from some states met in February with Justice Department officials to discuss strategies for legal action against Microsoft. Since then, the talks have been on-again, off-again, as a self-imposed deadline of May 15--the shipping date of Windows 98 to computer makers--loomed.

    An announcement on state and federal antitrust actions against Microsoft had been scheduled for Thursday but was canceled after the parties agreed to hold the 11th-hour talks. Attorneys for the software giant flew in to Washington late last week for the negotiations, which began in earnest on Friday.

    Microsoft was originally scheduled to ship Windows 98 to computer makers Friday but delayed that release until today while the discussions continued.

    Though the European Commission is not conducting its own investigation, the European Union's executive is "cooperating very closely" with the Justice Department on the issue, a commission spokesman said today.

    Separately, President Clinton said through a spokesman yesterday that he has "full confidence and fully supports the Justice Department officials handling this case."

    Jeff Pelline and Suzan Revah contributed to this report.

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