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U.S. set to sue Microsoft
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May 18, 1998: 10:05 a.m. ET
Talks over, state and federal officials to file antitrust suit Monday morning
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NEW YORK (CNNfn) - In what may be the opening salvo of a lengthy legal battle, the Justice Department and 20 state governments prepared to file antitrust suits against Microsoft Corp. late Monday morning seeking to force the software giant to include rival web browsers with its new system software.
The agency has scheduled a press conference for noon.
Meanwhile, a Microsoft spokesman said the company began shipping Windows 98 to computer manufacturers on Monday morning.
The lawsuits, to be filed in federal court in Washington, D.C., are expected to accuse the software company of illegally trying to leverage its monopoly in operating software through its Windows system.
President Clinton expressed confidence in the way the Justice Department is handling its investigation..
"Based on what I know today, I have confidence in the way the antitrust division has handled it," he said, speaking to reporters at a news conference after a summit of world leaders in London.
According to a state source, the lawsuit will seek to force Microsoft to include at least two rival Internet browsers along with its Microsoft Internet Explorer browser when the company ships the new, highly touted Windows 98 software to PC makers.
Microsoft Chairman Bill Gates said in an interview that that insistence is unreasonable because it doesn't benefit consumers. (175K WAV) or (175K AIFF).
Gates personally pulled the plug on talks Saturday, yanking a set of concessions sought by the government officials off the table.
A prosecution source told CNNfn Gates was "taking his company over the abyss."
The government lawsuits, presented by Attorney General Janet Reno, among others, won't to seek to hold up the shipment of Windows 98, the source said.
The software is expected to be available to consumers June 25. Microsoft last week agreed to delay shipment for three days while talks continued, and government officials agreed to put off their scheduled lawsuit temporarily.
Besides the browser issue, friction developed in the negotiations over a concession on the screen that users first see when booting up their PCs. The software titan had offered to allow the operating system to open on a blank screen, rather than one with the "Microsoft Windows 98" logo, but apparently withdrew the offer after the government failed to yield on other issues.
"The discussions between the Justice Department, a coalition of state attorneys general and Microsoft ended today without resolution," the Justice Department said Saturday. "At this point they are not expected to resume."
Microsoft spokesman Greg Shaw said Saturday that the software company had made "a number of offers" but added the government was being "unreasonable."
"We've been in serious discussions for 10 days,'" Shaw said. "We've worked hard to make these negotiations succeed because we think a lawsuit would be bad for consumers, taxpayers and the entire high-tech industry. We are willing to negotiate further, but we cannot agree to the government's unreasonable demand that would undermine our ability to innovate for consumers."
Antitrust experts said in order for the parties to reach a settlement, Microsoft would have to offer major concessions that go beyond the browser issue.
"The Justice Department would require an agreement by Microsoft to banish all contracts that prevent equipment manufacturers and Internet service providers from promoting competitors' products," said William Kovacic, a professor at George Mason University School of Law. "The is the non-negotiable minimum for the Justice Department."
Kovacic added the Justice Department would also likely require Microsoft to make a version of Windows 98 that "readily permits the use of a competing Web browser," such as Netscape Communications Corp.'s Navigator product.
States targeting other issues
Sources close to the case have said the states are more aggressive in their demands than the Justice Department. Kovacic noted the state attorneys general are especially interested in Microsoft's WebTV for Windows product.
"The states have suggested they want limits on Microsoft's development of WebTV, which they view as an extension of [Microsoft's] products to other new media," Kovacic said. "The states want to forestall Microsoft capturing those technological paths as well." WebTV for Windows provides TV capabilities on a PC.
Various press reports Friday said the talks involved a general willingness by Microsoft to alter its marketing arrangements. For example, Microsoft would give up its insistence that computer makers feature its products over those of rivals on their PCs.
But Microsoft has held firm to its unwillingness to separate its Internet Explorer from the industry-dominant Windows, insisting the browser is an essential part of its system software.
That is a key sticking point because U.S. officials have long sought to force Microsoft to let computer makers put in rival browsers on their machines.
Microsoft has repeatedly said its Internet Explorer is a fundamental part of Windows 98 and it would be impossible to separate from the browser without totally revamping the software.
Microsoft shares (MSFT) closed at 89-7/16, up 1/2 in trading Friday.
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