Microsoft, U.S. agree to talks
Software maker won't ship Windows 98 Friday, government holds off suit
NEW YORK (CNNfn) - The Justice Department agreed to delay filing a massive antitrust lawsuit against Microsoft Corp. Thursday after the software titan offered a new round of concessions.
While it was not immediately clear what concessions were contained in Microsoft's last minute offer, one official said the proposal was intriguing enough for the Justice Department and a coalition of states to hold off until at least Monday. In return, Microsoft pledged not to ship copies of Windows 98 until then.
Microsoft said the delay would not affect the June 25 release date of Windows 98 to consumers. Microsoft originally had planned to ship Windows 98 to manufacturers Friday.
Meeting scheduled for Friday
A delegation of Microsoft officials, including chief attorney William Neukom, were heading to Washington to meet Friday with the Justice Department and the state attorneys general.
According to a source close to the case, New York Attorney General Dennis Vacco, Wisconsin Attorney General James Doyle and Texas Attorney General Dan Morales were formally invited to participate in the meeting.
Other state attorneys general, including Richard Blumenthal of Connecticut, will also be in Washington on Friday to lend a hand with the negotiations.
Texas' inclusion is noteworthy because Morales said Tuesday his state was backing off the investigation because of concerns from the local computer industry.
Texas is home to Compaq Computer Corp. and Dell Computer Corp., two of the largest makers of PCs in the United States.
News of the last minute negotiations sent shares of Microsoft (MSFT) up 2 to 88-15/16 at Thursday's close.
The source said a high-level Microsoft official "made an overture" to Assistant Attorney General Joel Klein early Thursday morning just as the government was preparing to file its legal assault.
According to the source, Vacco, Blumenthal and Attorney General Tom Miller of Iowa met with the Justice Department lawyers to consider the Microsoft offer. He said Vacco was leading the investigation on behalf of the states.
The government has long been investigating Microsoft's business practices and was believed to be preparing a massive lawsuit against the Redmond, Wash.-based software maker.
Last year, the Justice Department sued Microsoft over the company's decision to force PC makers to ship its Internet Explorer browser with copies of Windows 95.
The government argued the move gives Microsoft an unfair advantage over rival browser maker Netscape Communications Corp. because Microsoft has a virtual monopoly in the operating system software market and few PC makers are willing to defy Microsoft.
(Click here to see a chart outlining Microsoft's increasing share of the browser market.)
However, other sources said the government was prepared to broaden its case beyond the browser issue to include what it deemed as predatory business practices by Microsoft.
The government had been investigating Microsoft's contracts with computer companies, Internet service providers and Internet content providers.
Because the government was looking into Microsoft's general business, not just Windows 98, the source said the complaints the government planned to file Thursday would not have attempted to block shipment of Windows 98.
Did Microsoft blink?
"To some extent, you could say they blinked," he said. "This was not just about the browser. This was a symptom of a bigger problem. The browser was one of a number of issues raised, but not the primary one. They were looking to shift the debate from this case being about a piece of software to serious predatory practices."
John Gardner, an analyst at Schwab Research Group, speculated that Microsoft capitulated on issues relating to its dealings with computer makers. (231K WAV) or (231K AIFF)
Gardner added that Microsoft would have to make significant changes in its contracts if it is to reach a permanent settlement with the government.
"Microsoft would have to agree at a minimum to revise its contracts with computer makers to shift some of the negotiating power to them," he said. "But I think most computer makers, most of the time, would take most Microsoft products. They've been pretty happy with the packages Microsoft has offered and see a consumer demand for them."
This isn't the first Microsoft has waged a lengthy battle only to make last-minute concessions. In 1995, the company avoided an antitrust suit by agreeing to a consent decree, which stipulated Microsoft would not require computer makers to include other Microsoft products with its operating system.
Since October, when the Justice Department filed a suit alleging violations of the consent decree, Microsoft has retreated on three other occasions.
- In January, Microsoft agreed to let computer makers remove the files and the icon for the Internet Explorer Web browser from Windows 95
- In March, the company relaxed a set of exclusive agreements with Internet service providers
- In April, Microsoft agreed to modify some of its agreements with hundreds of Internet content providers
Delay not an issue for consumers
The delay is not expected to adversely affect PC makers' plans to implement Windows 98 into their computers.
"We're fully geared for a June 25 shipment of Windows 98," said Jim Finlaw, a Compaq Computer Corp. spokesman.
Finlaw added that the has been offering upgrade coupons to anyone who has purchased a Compaq Presario PC since April 1. Other computer makers, including IBM Corp., Gateway and Dell Computer Corp. have offered free upgrades to the operating system.
Software developers have pointed out that programs written for Windows 98 will run on Windows 95, albeit without many of the new hardware and graphics support features included.
"The issue isn't the compatibility of the software, it's the confusion in the marketplace," said Gordon Eubanks, president and chief executive officer of Symantec Corp.
Eubanks said Symantec, which makes the popular Norton Utilities software program, plans to have its entire line of products Windows 98-compatible in June.
Chris Anderson, corporate planning manager for graphics software developer Jasc Software Inc., said his company "didn't plan for any spike in sales" related to the release of Windows 98. He added that Jasc's photo editing program, Paint Shop Pro, is already optimized for Windows 98.
Senators throw in their two cents
After Thursday's announcement, however, the two U.S. Senators from Washington, Microsoft's home state, came out in support of the software company, saying the government's case is not in the best interest of consumers.
Sen. Patty Murray (D.) expressed concern that the three-day delay in shipment of Windows 98 will hurt consumers and businesses alike. (105K WAV) or (105K AIFF)
"This delay means consumers are going to be hurt," she said. "I'm a consumer of Microsoft products and I know what this means for us - that we don't have the kind of choices we want."
Sen. Slade Gorton (R.) said the Justice Department should not involve itself in matters relating to designing computer products. (204K WAV) or (240K AIFF)
"The state attorneys general have abandoned the slightest precepts that they're representing consumers," Gorton said. "There are no consumer allegations in their complaint, and I doubt very seriously that there will be any in the Department of Justice's complaint because there is no damage to consumers. Consumers aren't asking for this lawsuit."
While calling the Justice Department's investigation "ill thought out," Gorton said other companies should follow the lead of Sun Microsystems Inc., who filed its own antitrust case against Microsoft on Tuesday. (379K WAV) or (379K AIFF)
On CNN's Moneyline with Lou Dobbs Thursday, Haley Barbour, former chairman of the Republican National Committee and currently a consultant to Microsoft, declined to speculate why Microsoft offered last-minute concessions.
He pointed out, however, that the consumers' best interest must be the overriding concern in whatever decision is finally reached. (307K WAV) or (307K AIFF)
-- by staff writers Jamey Keaten and John Frederick Moore