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  Microsoft Told To Suspend Software Link

By Rajiv Chandrasekaran
Washington Post Staff Writer
Friday, December 12, 1997; Page A01

A federal judge moved to blunt Microsoft Corp.'s market dominance yesterday, telling the company that it cannot force makers of personal computers to distribute its Internet-browsing software until a court-appointed official has fully examined the controversial practice.

The decision hands at least a temporary victory to the Justice Department, which has long sought to mute Microsoft's power in the technology industry. The ruling, also a boon to many of the software giant's competitors, could hinder Microsoft's ability to create new versions of its popular Windows computer operating system, some legal specialists said.

The Justice Department had asked U.S. District Judge Thomas Penfield Jackson to hold Microsoft in contempt of court for making PC manufacturers install its Internet Explorer software as a condition of licensing Windows 95. The department argued that Windows and Internet Explorer are two separate products and that by distributing them together, Microsoft was violating the terms of a 1995 agreement with the government that attempted to constrain some of the company's business practices.

Justice insisted that quick action was needed to halt Microsoft's practices before the company gained dominance of the browser market. If it did, the government warned, Microsoft effectively would be able to dominate commerce and content on the Internet.

Though declining Justice's request to hold Microsoft in contempt and fine the company $1 million a day, Jackson issued a preliminary injunction preventing Microsoft, starting today, from forcing Internet Explorer on PC makers.

"The probability that Microsoft will not only continue to reinforce its operating system monopoly by its licensing practices, but might also acquire yet another monopoly in the Internet browser market, is simply too great to tolerate indefinitely until the issue is finally resolved," Jackson wrote. "Those practices should be abated until it is conclusively established that they are benign."

Jackson appointed a "special master," Harvard law professor Lawrence Lessig, who will report back to the judge in May on the legal and factual issues raised in the case. "Disputed issues of technological fact, as well as contract interpretation, abound as the record presently stands," Jackson wrote.

Officials at the Justice Department were elated by the decision. "No consumer should be denied the browser of their choice because Microsoft made their computer vendor an offer they couldn't refuse," said Joel I. Klein, the department's antitrust chief.

Microsoft spokesman Greg Shaw said the firm was pleased it was not found in contempt: "It was a preliminary decision. . . . The court has agreed with Microsoft that more facts are needed."

Shaw rejected the notion that yesterday's ruling would delay the company's effort to develop new versions of its operating software. The company can choose to appeal Jackson's decision.

Several analysts said the ruling is likely to have little effect on what software consumers find already installed on the personal computers they buy. Internet Explorer, for now, is free – a common tactic for software companies trying to win acceptance of a new product – and as a result PC makers will continue to install it on their machines, the analysts predicted.

"It doesn't cost them anything, so most of them are going to continue doing what they've been doing," said Rick Sherlund, an analyst with investment bank Goldman, Sachs & Co.

But Sherlund said the decision could have other drawbacks for Microsoft. PC makers could gain new leverage in negotiating contracts with Microsoft, potentially forcing the software company to pay manufacturers to install its browser. Microsoft also could be dragged into a bidding war with its chief browser rival, Netscape Communications Corp., over exclusive installation deals, analysts said.

Nevertheless, legal specialists and industry observers said the decision could have a host of broader ramifications for competitors and Microsoft's future products.

Microsoft plans to release a new version of Windows next year that will more closely integrate Internet browsing into the operating system. In his decision, however, Jackson said Microsoft would be prevented from requiring browsing software to be distributed with "any successor version" of Windows 95.

The ruling "indicates that Microsoft is not going to be allowed to run roughshod over competition in the future," said Steve Newborn, a former Federal Trade Commission lawyer who now is a managing partner at the Washington firm of Rogers & Wells.

Klein, whose lawyers continue to investigate other Microsoft business practices, called the judge's language "very significant for the future."

Microsoft is expected to argue that its new product, to be called Windows 98, will so closely integrate browsing that the browser and operating system cannot be viewed as two separate products.

Microsoft had argued that Windows 95 is unable to perform some crucial tasks – including word-processing and drawing functions – unless Internet Explorer is installed with it. "If you remove [Internet Explorer], Windows is completely inoperable," Shaw said.

But Klein said in an interview yesterday that removing browsing functions from Windows without compromising the operating system would be "very easy." He said he planned to meet with Microsoft officials within a week to discuss ways to let PC makers "uninstall" Internet Explorer.

On a related matter, the judge upheld Microsoft's right to include "non-disclosure" provisions in contracts with other companies that require them to notify Microsoft when disclosing information to the government. Although Microsoft has maintained that those agreements do not prevent the companies from talking to federal regulators, Justice argued that the wording may have had a chilling effect on people wishing to complain about the software giant.

Jackson said there was no evidence that the company used the non-disclosure provision to prevent its business partners from speaking with government investigators.

Lessig, the special master whom Jackson appointed, is a professor at the University of Chicago Law School and is currently a visiting professor at Harvard Law School. A noted specialist in technology law, he is to deliver a report to Jackson by May 31, 1998.

Lessig, who graduated from Yale Law School and clerked for Supreme Court Justice Antonin Scalia, teaches a course in Internet law at Chicago.

Staff writers Mark Leibovich and Mike Mills in Washington and Elizabeth Corcoran in Palo Alto, Calif., contributed to this report.

© Copyright 1998 The Washington Post Company

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