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  Microsoft's Aid to Apple Is Examined

By Rajiv Chandrasekaran
Washington Post Staff Writer
Wednesday, August 20, 1997; Page D09

The Justice Department said yesterday that it is scrutinizing Microsoft Corp.'s $150 million investment in Apple Computer Inc. to determine whether it could squelch competition in the technology industry.

Federal antitrust regulators also are examining three recent deals between the software giant and smaller companies that have developed technology to transmit video images over the Internet, a Justice Department spokeswoman said.

The actions follow other antitrust investigations into the world's dominant maker of personal computer software. The Justice Department, for example, has spent more than a year looking into whether Microsoft's joint sale of computer operating system software and Internet browsing software violates antitrust laws.

Microsoft's investment in Apple earlier this month has been viewed by many industry analysts as important financial and symbolic aid for the company that helped popularize the personal computer but recently has fallen on hard times. Microsoft said its investment – which gives the software maker a 7 percent stake in Apple but no voting rights or representation on the board of directors – will keep alive its lucrative business in selling software for Apple Macintosh computers.

Legal specialists said the Justice Department's decision to look into the purchase is a departure from standard practice and may reflect a heightened scrutiny of technology issues by the department's antitrust chief, Joel Klein. The companies were not required under antitrust laws to submit information to federal regulators before consummating the deal because of the size of the investment and nonvoting nature of the agreement.

"It appears that Justice is sort of confused and wants to find out what's going on here," said William F. Baxter, a former chief of the antitrust division and now a law professor at Stanford University.

Microsoft and some industry observers maintain that helping Apple preserves some competition in the market and gives consumers an alternative to the Windows operating system. But some analysts question whether closer ties with Apple allow Microsoft to control the activities of a competitor.

"It appears that the Justice Department wants to determine if this is going to be a mechanism for removing a competitor from the marketplace by suppressing their independent decision-making," said William E. Kovacic, a law professor at George Mason University and a former Federal Trade Commission attorney.

A Microsoft spokesman, Mark Murray, said yesterday that the company had not received a request for information relating to the Apple deal, which he defended as a "passive investment."

"We believe our investment in Apple is good for consumers and it's pro-competition," Murray said. He said the deal closed two weeks ago.

The company, based in Redmond, Wash., has denied suggestions by critics that it invested in Apple to diffuse other antitrust concerns, namely that there are few competitors to Windows in the personal-computer market.

In addition to the Apple investment, the Justice Department is examining Microsoft's role in technology to deliver real-time, or "streaming," sound and video over the Internet. Microsoft has made three investments in this area:

– Earlier this month, it acquired VXtreme Inc. of Sunnyvale, Calif., which makes Internet video broadcasting software, for an undisclosed amount.

– In July, it purchased a 10 percent, non-voting stake in Progressive Networks Inc., a Seattle company that developed the popular RealAudio and RealVideo software for the Internet.

– Last year, it purchased a reported 5 percent stake in VDONet Corp., another Internet video company.

In a statement, Progressive Networks said it received a request for records from the Justice Department relating to "horizontal merger, monopolization of audio and video streaming software." Progressive said it was "one of several companies" to have been subpoenaed by the department.

Critics have suggested that Microsoft has been making the investments to help dictate standards in the fast-growing but quickly changing world of Internet broadcasting. Microsoft denies those allegations.

"We are confident that once the Department of Justice has reviewed all of the facts, they will agree that competition is strong and healthy in this area," Murray said.

Microsoft is no stranger to antitrust scrutiny. In 1995, it called off a proposed $2.1 billion acquisition of personal-finance software maker Intuit Inc. after opposition from the Justice Department.

The department also recently examined Microsoft's $425 million purchase of WebTV Networks Inc., a company that provides Internet access through a box that sits atop television sets. In that deal, though, the department concluded on Aug. 1 that the acquisition did not stifle competition in that emerging sector.

© Copyright 1998 The Washington Post Company

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