Reno charges Microsoft with acting illegally

Stage set for court battle

THE US Attorney General, Janet Reno, yesterday fired a potent legal missile at Microsoft Corporation, headed by multibillionaire Bill Gates, bluntly accusing of it acting illegally by using its dominant Windows operating system to "develop a chokehold" on the market for Internet browser software.

Opening the page on what may become one of the biggest anti-trust battles between government and a single corporation in American history, the Justice Department joined a coalition of 20 individual US states to launch twin lawsuits against Microsoft for alleged abuse of its near-monopoly position.

In the short term, the suits seek an immediate injunction from the US courts to force Microsoft to loosen its contractual agreements with the manufacturers of personal computers licensed to install Windows in their products, and with on-line service providers such as America Online.

Most dramatically, the injunction, if granted by a judge, would oblige Microsoft either to include the Netscape Navigator browser - the main competitor to its own Internet Explorer - on its new Windows 98 operating platform, or strip the Explorer from Windows 98.

There is no assurance that the courts will find in favour of such an injunction. A decision is likely in days or weeks.

Bill Gates accused the government of trying to stifle competition and innovation. Vowing to fight the suits at a press conference at Microsoft's headquarters in Redmond, Washington, he said: "This is a step backwards for America, for consumers and for the computer industry ... Interfering with the freedom to innovate through lawsuits like these will limit, not expand, choice."

Mr Gates said the suits appeared designed to benefit a single competitor at the expense of consumers. "What they seek is like requiring Coca-Cola to include three cans of Pepsi in every six-pack it sells."

Meanwhile, there was no attempt by the Justice Department or the coalition of states to block the release of Windows 98, which Microsoft began shipping to manufacturers yesterday even as the lawsuits were launched. Windows 98 should be in retail computer shops on schedule on 25 June.

The lawsuits additionally allege that, in a first effort to stave off the Navigator, executives from Microsoft went to Netscape and asked that the two companies collude illegally to divide up the browser market. It was only after Netscape spurned the approach, according to the government, that Microsoft decided to use its dominance in the operating-system market to crush the Netscape browser.

Joel Klein, the assistant attorney general, who has spearheaded the federal government's action, said the intent of the suits was not to hobble Microsoft. But he went on: "What cannot be tolerated and what the anti- trust laws forbid is the barrage of illegal and anti-competitive practices that Microsoft uses to destroy its rivals and to avoid competition on the merits."

In her own brief statement, Ms Reno said Mr Gates was guilty of "anti- competitive and exclusionary practices", and that "no firm should be permitted to keep out competitors or spurn innovations". She added: "We want to make sure that the field is open - open to the next Microsoft."

If the government prevails, the experience of millions of computer users worldwide could rapidly change. Ms Reno is asking that PC manufacturers be freed to offer an alternative to the Windows start-up screen that Microsoft now insists must be the first thing consumers see when they boot up their machines. Windows is now the essential "central nervous system" of 90 per cent of all PCs purchased.

The manufacturers would consequently be liberated to customise that first boot-up screen, the "desktop", with any other applications they might want to offer to their buyers.

Those applications, of course, could be supplied by any player in the software industry, not just Microsoft. As part of that arrangement, the manufacturers would be free to strip out the Explorer themselves.

In similar vein, the government is also hoping to undo what it considers to be exclusionary deals signed by Microsoft with such online providers as America Online, which oblige them to feature the Internet Explorer and other Microsoft applications on their home-page menus.

While Mr Gates is certain to fight the allegations with all his might, there is no certainty that the suits will do much damage to Microsoft's earnings, as its highly profitable NT package for networks and servers was not attacked by the Justice Department.

Nonetheless, shares in Microsoft were trading down yesterday. At the lunch-hour, they were off $37/16 on the Nasdaq at $86.

President Bill Clinton conceded that the lawsuits could send shock waves through the US economy, but added: "I have confidence in the way the anti-trust division has handled it."