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No rest for Microsoft
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April 10, 1998: 3:11 p.m. ET
Company meets with DOJ; computer makers angry over Internet money deal
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NEW YORK (CNNfn) - When you're the world's biggest software company and you're battling antitrust lawsuits from every front, there's no such thing as a holiday weekend.
Microsoft Corp. attorneys spent Good Friday meeting with Assistant Attorney General Joel Klein and other top antitrust lawyers from the Justice Department. This comes a day after reports that 11 states may be pursuing their own antitrust suits against the software giant.
Last week, the Justice Department issued new subpoenas to computer makers, presumably to determine how to proceed with new charges against Microsoft.
Also, CNNfn has learned that computer makers on Friday complained to the Justice Department that Microsoft is trying to force them to give up certain revenues if they want to include Microsoft's Windows 98 operating system on their machines.
Computer manufacturers currently earn a bounty for referring their customers to Internet service providers (ISPs). Microsoft wants to change the system so that it, not the computer makers, collects the money for referring customers to ISPs.
The Justice Department and the 11 states need to move quickly. Microsoft has a U.S. Appeals Court hearing scheduled for April 21 regarding a settlement under which computer makers would no longer be required to show the Internet Explorer web browser icon on the Windows 95 opening screen.
More important, Windows 98, the next version of Microsoft's computer operating system, is due to ship to computer manufacturers next month. (It's scheduled for consumer release in June).
"There's been speculation that the Justice Department needs to bring their case quickly if they want to stop Windows 98," said Brian Goodstadt, a technology analyst at S&P Equity Group. "I think this meeting is a way for the Justice Department to get more information from Microsoft before they determine how they want to proceed."
A Justice Department spokesman would not comment on the meeting.
Microsoft spokesman Mark Murray, while not giving specific details about the meeting, said the company is "working very closely with the Justice Department to answer questions and provide the information they need."
As for the investigation being pursued by the 11 states, Goodstadt said the Justice Department's case is the bigger fish that Microsoft needs to fry.
"I've been hearing for a long time that the states were planning to do something," he said. "I'm not sure where that will lead."
Meanwhile, some of Microsoft's foes are on the warpath. Ken Wasch, president of the Software Publishers Association, told CNNfn that he is sending a letter to the Justice Department to persuade it to take antitrust action against Microsoft.
"We think that the operating system should be sold on its own and as part of a package," he said. "Each Microsoft product should succeed or fail on its own merits and shouldn't be tied to any other product or service."
Wasch added that computer makers are angry with Microsoft's practices but are reluctant to speak out for fear of damaging their business relationships with the company. (195K WAV) or (195K AIFF)
Wasch also commented on the new reports about Microsoft's attempt to take Internet revenues from computer manufacturers. He said it amounts to another example of Microsoft wielding its power to stifle competition.
"Computer companies used to share in the revenue from the ISPs when people signed up," he said. "Now that revenue goes to Microsoft.
"In addition," Wasch continued, "the consumer is deprived of the choice of the channels they otherwise could have if the computer manufacturer were able to select the channels themselves." (657K WAV) or (657K AIFF)
Meanwhile, Microsoft has been on a campaign of its own. The company announced on Thursday that it was modifying its contracts with hundreds of content providers who provide material for the Active Channel bar on Microsoft's Internet Explorer. (The Active Channel bar organizes content from different sites to provide easy access for web surfers.)
Specifically, content providers are no longer barred from featuring Netscape Communications Corp.'s logo on certain pages, nor do they have to distribute Internet Explorer exclusively with materials promoting their sites. Certain premium channel partners will also be allowed to pay Netscape to place its own channel bar, Netcaster, on their sites.
Microsoft's agreements with its channel bar partners was a point of contention for both the Justice Department and the Senate Judiciary Committee under Orrin Hatch (R.-Utah), which held hearings in March to discuss competition in the personal computer industry.
"Microsoft is acknowledging in a way that they do have some power -- although they won't say monopoly -- and that they're willing to make some changes," Goodstadt said.
Also on Thursday, Microsoft launched a series of newspaper ads to sway public opinion that the company innovates rather than dominates.
"They've been fairly quiet up until now, and I think the ads are a way of Microsoft saying it's important to improve their public image," Goodstadt said.
"When the public is asked in polls which company they respect the most, Microsoft is always on the top of the list. They're just trying to make Congress and the government aware that they're not some big, bad company."
Friday's Los Angeles Times, however, reported that Microsoft was taking its spin control a step farther, stating that the company was secretly planning a media blitz that some view as unethical.
The report said the campaign will include the planting of articles, letters to the editor and opinion pieces to be commissioned by Microsoft's top media handlers but presented by local firms as spontaneous testimonials.
The Times said the targets of the campaign are attorneys general and politicians in the 11 states that may be considering antitrust action against Microsoft.
According to the Times, Microsoft spokesman Greg Shaw acknowledged that the plan exists but was "not something we are moving on."
Microsoft spokesman Murray, however, told CNNfn.com that the report was "quite exaggerated."
Microsoft also made clear Thursday that regardless of what goes on outside its Redmond, Wash. offices, business is going along as usual inside. The company announced that it had acquired Firefly Network, a developer of Internet software that customizes web sites to user preferences. 
-- by staff writer John Frederick Moore
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