November 4, 1997 5:30 PM PST

Senate reviews IE contract with ISP

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October 23, 1997
In a licensing and cross-promotion agreement involving Microsoft's (MSFT) Internet Explorer, a national Internet service provider was forbidden from telling some subscribers about the availability of competing browsers and was permitted to offer them only if the customer requested them, according to evidence submitted at a Senate hearing today.

The cross-promotion and licensing contract between the software giant and ISP EarthLink Network also said that Microsoft would terminate a key part of the agreement if the ISP's shipment of Internet Explorer fell below a certain percentage of the browsers it distributed.

The contract was released at a hearing held by the Senate Judiciary Committee to discuss competition in digital Microsoft under the gun industries. It specified the terms for a cross-promotional agreement in which Microsoft would list EarthLink in a directory of ISPs on the Windows 95 desktop in exchange for EarthLink carrying IE.

A Microsoft representative said the terms in the EarthLink license were common industry practice and in no way violated antitrust laws. Cross-promotional licenses between companies routinely include terms that forbid the mentioning of competitors' products, according to Microsoft spokesman Mark Murray, and would have little effect because the deal was limited to a relatively small percentage of consumers.

"This is a standard cross-promotion, cross-marketing agreement," Murray added. "We agree to promote their online service, and they agree to promote our Web-browsing technology. There is absolutely nothing in this agreement that prevents EarthLink from giving consumers Netscape's browser if that's what the consumer wants."

But some antitrust attorneys indicated otherwise, saying that, on the surface, the contract appeared to be unlawful. "What you have set forth is a textbook example of an artificial entry barrier," Kevin Arquit, a former top official at the Federal Trade Commission, told members of the Judiciary Committee.

"All this is a deprivation of consumer information so that the Microsoft juggernaut continues," said John Steele, an attorney at Fenwick & West in Palo Alto, California. "Those clauses are probably short of being automatically unlawful," but could possibly be found illegal depending on how broadly they are applied, he added.

Pamela Samuelson, a professor at the Boalt Hall School of Law at the University of California at Berkeley and a noted critic of Microsoft, agreed. "It sounds like the kind of exclusive dealing arrangement that Congress meant to outlaw," she said.

Today's Senate hearing did not specifically focus on Microsoft. But the release of the contract--in addition to criticism Judiciary Committee chairman Orrin Hatch leveled at the Redmond, Washington-based company--may be only the presage of increased scrutiny of the company. The hearing follows last month's accusation by the Justice Department that Microsoft is using its Windows monopoly to force computer makers to install its Internet browser on their computers, in violation of a 1995 antitrust settlement. (See related coverage.)

According to a committee staff member, Hatch is looking into a number of Microsoft practices, including whether its deals with computer vendors, ISPs, content providers, and others violate antitrust laws. In particular, the senator expressed concerns over Microsoft deals with the Walt Disney Company and Time Warner a day after CNET's NEWS.COM reported that the two media giants were offering certain online content to IE 4.0 users only. (See related story.)

Under the terms of its cross-promotion and licensing agreement, EarthLink was forbidden from volunteering information to some subscribers on the availability of competing browsers. The prohibition applied only to customers that Microsoft referred to EarthLink through Microsoft's "Internet Connection Wizard," which offers a directory of ISPs.

When those customers inquired about service, the Pasadena, California-based ISP was required "not [to] express or imply that an alternate browser is available," according to the contract. Furthermore, EarthLink was permitted to provide a competing product "only upon a customer-initiated request."

The contract also forbade EarthLink from advertising any other browser, and permitted Microsoft to drop EarthLink's listing from the Windows 95 desktop directory if the ISP's shipments of IE fell below a certain percentage of the total number of browsers distributed to subscribers. The exact percentage required in the contract was omitted from copies made public.

In addition to Microsoft's licensing and cross-promotion deals, Hatch will scrutinize other conduct by the company, such as its investments in cable companies. A staff member, who spoke on condition of anonymity, said that it "would not be unlikely to have a formal hearing on Microsoft" in the future.

 

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