A Tricky Element in the Antitrust Battle: Microsoft's Server Tactics
By John R. Wilke and Ted Bridis
The Wall Street Journal
Page B1
(Copyright (c) 2000, Dow Jones & Company, Inc.)


WASHINGTON -- As federal antitrust enforcers forge a remedy to rein in Microsoft Corp., they are weighing allegations by competitors that Microsoft is again using its monopoly power -- this time in the Internet and network "server" market.

Even as a federal court scrutinizes the company, antitrust enforcers are studying Microsoft's current tactics in the market for industrial-strength software that runs Web sites and corporate networks. The large and highly competitive market is currently dominated by Sun Microsystems Inc., Oracle Corp., Linux and Unix software.

Microsoft's march on Web-server and network markets -- which is already the subject of a broad investigation by the European Commission -- complicates state and federal antitrust officials' efforts to draw up a remedy plan to present to U.S. District Judge Thomas Penfield Jackson on April 28. The officials say that any remedy in the landmark antitrust case must address Microsoft's efforts to wield the Windows monopoly in new markets. If a remedy is imposed by the court, and withstands a likely appeal, it could redraw the rules of competition in the industry.

Microsoft says the server market is competitive and that the company shouldn't be subject to restraints. It also charges that any new state and federal scrutiny is being fueled by its competitors, especially Sun, Oracle and International Business Machines Corp.

Microsoft's effort to integrate new features into its server software is no different from competitors' efforts to woo customers, a spokesman said. The company also contends it would be inappropriate for the court to include in its remedies issues that weren't raised at trial.

Judge Jackson found in November that Microsoft abused its monopoly power and hurt consumers to protect its lucrative franchise in computer operating systems. He formally ruled on April 3 that the company's actions violated the Sherman Antitrust Act. Absent a settlement, which isn't expected, the trial's next phase will focus on remedies that Judge Jackson will impose to restore competition. Microsoft has said it will appeal, a process that could take a year or more.

The market for servers "certainly wasn't a centerpiece of the case," says Glenn B. Manishin, an antitrust lawyer in Washington who has worked with some of the company's fiercest critics. But "the rules on remedies are, you eliminate the monopoly and you prevent it from recurring, and that includes prophylactic remedies to prevent a related monopoly from occurring in other markets."

Some state and federal officials think Microsoft could be playing catch-up in the server market by using the one weapon its rivals can't match: its monopoly control over desktop software. The officials say Microsoft laced crucial features throughout its newest version of Windows that work well only with its own Windows server software.

Microsoft says Windows 2000 doesn't exclude users of other software. "We recognize that the Windows 2000 desktop is going to need to function smoothly in corporate environments with other kinds of servers, and we've built it to work well in that kind of mixed environment," a company spokesman said.

Microsoft's competitors in the server market are working hard to help the government. In a document submitted this week to federal officials, a group of rivals allege that Windows 2000 works well only in an all-Microsoft network.

For example, many companies now use Novell Inc.'s network software to manage printing and file-sharing for desktop machines running earlier versions of Windows. But if they want to run Windows 2000 on those desktop machines, they now have to buy a Windows 2000 server to accomplish those tasks, the document asserts.

The Computer and Communications Industry Association, a trade group backed by many of the industry's big players, including Microsoft rivals, had a major role in preparing the document.

Microsoft has also drawn similar criticism for its Windows Me software (short for "Millennium Edition"), which will be aimed at home consumers when it's released later this year. Though Microsoft initially indicated it didn't plan to include technology to allow consumers to use networking software from its competitors, it reversed itself after a rash of complaints and agreed to restore networking capability for computers running on Novell and Banyan server software.

And last week, a small software-developer group blasted Microsoft for not adhering to industrywide technical standards in parts of Windows Me. The group, the Web Standards Project, says Microsoft's latest version of the Internet Explorer browser -- to be shipped as part of Windows Me -- has certain new features that don't comply with Web standards promulgated by the World Wide Web Consortium, or W3C.

Microsoft says its Internet Explorer 5.0 technologies in Windows are "the most standards-compliant browsing technology shipping today," and that it never said its newest browser, IE 5.5, would comply with all the W3C standards.

Sun Microsystems has already complained about Microsoft's integration tactics to antitrust regulators in Europe. The Palo Alto, Calif., computer maker stepped up its arguments following Judge Jackson's ruling against Microsoft.

"It's not generally known that Windows 2000 takes what Microsoft calls `integration' to a much higher level," said Michael Morris, Sun's general counsel. "If you buy the desktop version of Windows 2000 you almost have to buy the server."

Sun believes Microsoft should be broken up into as many as five pieces to prevent such integration tactics. Failing that, Mr. Morris argues that the federal court should order Microsoft to open up its programming interfaces so that competitors' servers and desktop machines can work together adequately with Microsoft products.

While neither the Justice Department nor states have made final decisions on their remedy plans, it's now clear that what is under discussion is much tougher than the company could have won in settlement talks that failed three weeks ago.

Remedy proposals range from divestiture of Microsoft's Internet browser or Office software, loss of copyrights or other forced disclosure of software code, to wide-ranging restrictions on its conduct. These restrictions would go well beyond those proposed in the government's final offer in the failed talks, officials say.

Eager to see a strong remedy in place soon, some participants in deliberations say they are reluctant to push for a divestiture, which would more likely be delayed or overturned on appeal. Others argue that divestiture or restructuring offer the simplest means of reining in Microsoft's power while minimizing the need for continued court oversight.

Joel Klein, the Justice Department antitrust chief, hasn't made any decisions on remedy. "We are considering a variety of options," he told reporters after a congressional hearing last week.

Compliance with any eventual remedy is a major focus of meetings at the Justice Department here and separate meetings by the 19 states in the case, who gathered at an airport hotel in Chicago last week to map out their options, one official said.

One approach to ensuring compliance that has been under discussion by the states would seek a court-appointed special master to oversee Microsoft's conduct for a limited period, this person said.

Microsoft executives say they are confident they'll win on appeal and have no plans to change their business practices.


Rebecca Buckman contributed to this article.


Journal Link: See an expanded look at the Microsoft antitrust case and join a discussion about the company's future in the online Journal at WSJ.com.


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