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Microsoft inquiry widens
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February 5, 1998: 6:24 p.m. ET
Justice subpoenas content partners; states focus on Windows 98 bundling
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NEW YORK (CNNfn) - The U.S. Justice Department's inquiry into Microsoft Corp.'s business practices is taking a new turn. New reports show regulators have shifted their focus to include deals the software giant has cut with Internet Explorer 4.0 content partners.
Meanwhile, 11 states are currently looking into whether the software giant is forcing its browser onto computer users.
Several partners, including Wired Digital, the Web site subsidiary of publisher Wired Ventures, as well as Internet audio and video broadcaster AudioNet have been served subpoenas.
Those subpoenas request information relating to the companies' active, or push, channels featured in IE 4.
Although Justice officials refused to elaborate on the investigation, several reports have advanced the theory that the government is concerned Microsoft is trying to leverage its dominance in new markets, like push broadcasting, through exclusive arrangements with its partners.
Several other companies, including CNNfn parent Time Warner Inc., Walt Disney Co., General Electric, News Corp. and Bloomberg LP, also have cut deals with Microsoft, although they have yet to be subpoenaed.
Microsoft competitor Netscape Communications Corp. also includes a form of push broadcasting in its Communicator suite, although its Netcaster isn't compatible with Microsoft's active desktop.
Microsoft spokesman Mark Murray insists that the latest inquiries don't mean the government's investigation has broadened. He says the company has known Justice has been talking with content partners for the past several months.
Microsoft says it doesn't demand exclusivity from its Active Channel partners and that they are free to also offer channels through Netscape's Netcaster.
Although computer users can remove the default active channels that come loaded on new computers, computer makers are required to carry all the default channels.
Speaking on the state probe, New York Attorney General Dennis Vacco predicted Thursday that the states and the federal government will soon more tightly integrate their investigations now that the Justice Department is looking at Windows 98.
"In the not too distant future, you'll see collaboration. The federal probe is broken down in to Windows 95 which is part of the consent decree and now in front of a federal judge.
"Now, [Justice] has a probe concerning Windows 98 which is something we're focused on. The original group of 10 states, including New York, was concerned with bundling Web browser capability with Windows 98," he said.
Vacco told CNNfn his office will send representatives to San Francisco next week to meet with Justice attorneys involved in the federal investigation.
However, he cautioned that what the states are trying to achieve will be more difficult than Justice's efforts because they lack the benefit of a legally-binding consent decree.
"It will be challenging because of the law in these areas. Tying or monopolization are difficult arenas," he said.
In an earlier television interview, he said the states hope their probe will ultimately give consumers greater choice and lower prices. However, bundling the Web browser with the operating system might set a dangerous precedent that could hurt software development.
"We think competition is good for consumers, will stimulate price competition and have an effect on technology as well. With Microsoft's dominance in the marketplace, they have Windows 95 or 98 and now what sits on top has Web capability. This has the possibility of other [software] being written into the Web browser," Vacco said.
The attorney general said protecting consumers while not stifling development will be one of the biggest hurdles regulators will face in the coming years.
"I think this is the single most important issue as we enter the 21st century -- How are we going to not stifle the explosion of technology and the Internet while at the same time continuing to protect consumers whether they are buying goods and services?"
Recently, reports have emerged that Netscape may be courting suitors such as Oracle Corp. or Sun Microsystems Inc.
Vacco said it's unlikely the states would drop their effort even if Netscape is purchased because Microsoft's dominance would still be a threat. (343K WAV) or (343K AIFF)
Microsoft, which took on a confrontational tone during the recent court proceedings, has been making a conscious effort in recent weeks to tone down its criticisms of the government.
Despite that, Vacco said it doesn't mean the states will be swayed.
"I don't think they've conceded anything. It's worthwhile to note that their tone is more cooperative. We put subpoenas on the street because we thought it was important for us to accumulate information. Obviously, we're not going to spend this many resources without coming up with a solution to make the software market more competitive."
--by staff writer Cyrus Afzali
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