Microsoft to court: We never hurt rivals

Two days of oral arguments in the U.S. antitrust case against Microsoft Corp. opened Monday with the lead lawyer for the software giant arguing that the company never foreclosed Netscape Communications Corp. from selling its browser in any part of the marketplace.

Richard Urowsky told the seven-judge panel of the U.S. Court of Appeals for the District of Columbia that in 1998 Netscape enjoyed "unfettered access to consumers," particularly over the Internet, which Urowsky said was used to download 60 million copies of Navigator out of a total 160 million copies sold that year.

"There is no evidence that there was any impediment to the distribution of Navigator in the marketplace," Urowsky said. "Netscape was able to offer its software literally to every PC user worldwide."

Urowsky's opening remarks were aimed squarely at the crux of the government's case, which is that Microsoft abused its monopoly position in the desktop operating system market and stifled competition and innovation when it combined its browser, Internet Explorer (IE), with Windows.

Urowsky defended Microsoft's decision to offer its browser together with Windows as a move that was not anticompetitive because it improved the product's functionality and did not impede the distribution of Navigator. In addition, Urowsky said Microsoft's deals with PC makers requiring that Windows "start up uninterrupted" as part of licensing agreements for the operating system was not anticompetitive, but rather an attempt to protect its copyright.

The arguments before the appellate court came on the opening day of the company's appeal of the U.S. District Court ruling against Microsoft that was handed down last year, including a proposed break-up remedy sought by the government. The appellate court opened the debate with the question of whether Microsoft's actions constituted monopoly maintenance in violation of the U.S. Sherman Antitrust Act.

The government contends that Microsoft used its monopoly power to stifle competition, taking extraordinary steps and spending extraordinary amounts of money to prevent consumer access to Netscape's product.

Jeffrey Minear, senior litigation counsel for the U.S. Department of Justice, argued that Microsoft's internal documents revealed that it perceived Navigator as a threat to its dominance in the operating system market even though Navigator is not an operating system. The company reacted as it did because if Navigator became widely adopted, the tasks that it carried out as middleware could eventually overtake the tasks of the operating system, Minear argued.

Minear replaced David Boies, the outside council for the government who was hailed by Microsoft opponents for persuading U.S. District Court Judge Thomas Penfield Jackson to rule that Microsoft violated antitrust law.

The seven appellate judges, all of whom posed questions during the two sessions on Monday, showed a thorough understanding of not only the case, but also the relationship between software companies, PC makers and developers. At one point, at least two justices wondered whether the end result of the case might be that Microsoft's monopoly would be replaced by another monopoly, perhaps Netscape combined with the technology of Sun Microsystems Inc., because ultimately consumers want to have just one choice.

During the afternoon session, in which the question of product "tying" was addressed, John Roberts, an attorney hired by the 19 states and the District of Columbia, argued that a key point of the government's case is not whether Microsoft was allowed to combine Windows and IE, but whether Microsoft's actions forced OEMs (original equipment manufacturers) to include IE with their products.

"You can combine to your heart's content , but the problem comes in when you say to the OEMs you can't take that off," Roberts said. "We are not standing in the way of any combination, we are standing in the way of the forcing."

Microsoft documents entered into the court record during the trial showed that the company knew that its browser was not good enough to compete on its merits, so it had to be preinstalled on PCs in order to gain customers, Roberts said. From 1998 forward Netscape steadily lost marketshare, particularly after Microsoft stopped charging for its browser, while IE gained momentum and now has an estimated marketshare of 87 percent.

The decision over which browser OEMs were going to offer was not made as a result of competition, but by illegal tying, Roberts said. The government believes that Microsoft's actions constituted "tying" because they met the definition of tying set out by the U.S. Supreme Court. The definition requires that the products involved are separate and that combining them forecloses competition.

Not all the judges bought Roberts' argument.

"Mere tying does not foreclose Netscape from being a competitor," Chief Justice Harry Edwards said, adding that he thought the record compiled in the district court trial didn't include underlying facts to support the foreclosure claim.

Judge Stephen Williams said some OEMs ship their PCs with two browsers and wondered why the OEMs involved didn't follow this approach. Roberts responded that the district court findings showed that a PC sold with more than one browser can confuse end users, and that such confusion could cost OEMs the entire profit made on the sale of the PC if a user has to call the help desk three or more times to ask questions.

Returning to Urowsky's statement about the number of downloads for Netscape, Justice Douglas Ginsburg said even if the number of downloads is actually much higher than the number of users, the fact that Navigator was downloaded 60 million times "must mean at the very least a significant number in the millions ... downloaded Netscape and used it," he said. If such a significant number of users downloaded Navigator and then chose to use IE, "this is highly suggestive data" that Navigator got a chance to compete against Microsoft's browser, he said.

The justices will continue oral arguments of the appeal on Tuesday. The session will take up the proposed remedy and Jackson's conduct since the trial, including comments he has made publicly criticizing Microsoft management.

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