Microsoft, DOJ strike deal
Partial settlement allows PC makers to ship Windows without Explorer icon
NEW YORK (CNNfn) - Microsoft Corp. reached a partial settlement with the Justice Department Thursday that allows personal computer makers to remove or hide its Internet software on new versions of Windows 95.
Industry analysts said the partial settlement removes one area of uncertainty for Microsoft but falls short of resolving the larger, and more complicated issue, of whether Microsoft uses Windows 95's dominance to force its way into the Internet browser market.
"It's far from over, but I think they're working in the right direction," said Christopher Galvin, an analyst at Hambrecht & Quist. "The fundamental issues haven't really been discussed or resolved."
Under terms of the deal, personal computer makers will have the option of removing Microsoft's Internet Explorer files and its icon from the software or simply removing the shortcut icon from the on-screen menu but leaving the Explorer files still hidden in the computer. The browser allows PC users to navigate the World Wide Web.
The settlement must still be approved by U.S. District Court Judge Thomas Penfield Jackson, who has been overseeing the case between Microsoft and Justice.
Microsoft said it will notify computer makers when the additional Windows 95 licensing options are available however, company officials said no PC maker has expressed interest in any of the versions of Windows 95 with missing or hidden Internet Explorer files.
"We're all pleased to put the compliance question behind us," said Bob Herbold, Microsoft's chief operating officer. "Rather than allow the controversy to continue, we're offering options to resolve the dispute."
Microsoft officials said they were unsure what effect, if any, the settlement would have on Windows 98 -- an upcoming version of the operating system that promises to tightly integrate the browser.
In December, Judge Jackson temporarily barred the software company from requiring personal computer makers to distribute Internet Explorer web browser with Windows 95. The Justice Department charged Microsoft with contempt when the software giant offered to ship an outdated version of Windows 95, without the browser functions, in order to comply with the order.
The move drew sharp criticism from the government, which charged Microsoft with trying to make a mockery out of the justice system.
At a news conference Thursday, Microsoft officials said they would continue to defend the software industry's right to add new features to their products without government regulation.
"The real issue that is central to this lawsuit is whether software companies can continue to have the ability to improve their products, to add new features that customers want and expect in those technology products," William Neukom, Microsoft senior vice president said.
"As we have been saying all along, our Internet technologies are integrated parts of our operating system product. Many applications rely on Internet Explorer behind the scenes to run properly. Under the new options, software developers can continue to write software programs that call upon Internet Explorer."
Hambrecht's Galvin believes the pact won't change the rate at which Microsoft has been gobbling up Netscape Communications Corp.'s share of the browser market. As of the third quarter of 1997, Microsoft's share had grown to nearly 40 percent.
Netscape Thursday announced plans to start offering its Navigator browser for free in an effort to boost sales.
Netscape said the proposed agreement will allow market forces to determination which browser is best.
"The decision is an important step in accomplishing what we all believe is necessary -- giving consumers choice," said Roberta Katz, senior vice president and general counsel at Netscape.
The new options aren't expected to change the software's pricing or licensing fee for the PC makers.
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Microsoft still plans to appeal Jackson's Dec. 11 preliminary injunction. An expedited hearing will be held by the court of appeals on April 21.
The case erupted in October when the U.S. agency asked a federal court to look into whether or not the software giant violated a 1995 consent decree with its Internet browser software, which is included free-of-charge with the Windows operating system. The government has argued that Microsoft strong-arms PC makers into offering the product.
However, Microsoft has contended that adding Internet browser capabilities merely represents updating an "integrated" product, rather than product-tying.
Assistant Attorney General Joel Klein described the settlement as a big win for consumers. "This [proposal] will increase consumer choice and will also send precisely the right message to the market," he said in a statement.
Microsoft shares rose 1-3/4 to 138-3/4 while Netscape was up 5/16 to 18-3/16.
-- by staff writer Robert Liu