The US Department of Justice, 20 states, and the District of Columbia have filed a coordinated, broad antitrust suit against Microsoft, designed to end the software giant's alleged "barrage of illegal, anti-competitive practices."
The antitrust case -- expected to be long, expensive, and have far-reaching impact -- came after 11th-hour negotiations fell through over the weekend. Microsoft had proposed concessions, but claimed the government wanted too much from them and walked away from the bargaining table on Saturday.
"Microsoft has used its monopoly to develop a choke hold on browser software used to access the Internet," US Attorney General Janet Reno said at a news conference in Washington announcing the cases.
"It has restricted choices available for consumers in America and around the world," Reno said. Justice Department officials said that their investigation would continue.
Investigators are particularly interested in a May 1995 meeting between Netscape and Microsoft representatives. Netscape officials have characterised the meeting as an attempt by Microsoft to carve up the Internet market -- with Microsoft getting the Windows portion and Netscape getting the remainder.
Assistant Attorney General Joel Klein, head of the Justice Department's antitrust division, said that at that meeting, Microsoft tried to enlist Netscape in an "illegal conspiracy agreement to divide up the [Internet] market."
The Justice Department sought an order that would allow OEMs to install their own "boot-up" first screen; require Microsoft to give PC makers additional browser installation options; and forbid Microsoft from using contracts to require ISPs, content providers, and other partners from using and promoting competing browsers.
"Free choice is what these companies are entitled to and what will best serve customers," Klein said.
Microsoft's Windows logo is the first thing users see when they start their computers, providing Microsoft with a valuable marketing tool. Microsoft was willing to cede its exclusivity to the opening view, but not willing to be blocked from bidding for the "first screen" altogether, a source close to one of the state investigations said.
Microsoft Chairman Bill Gates planned his own news conference to rebut the charges later Monday. On Saturday, Gates insisted that Microsoft has done nothing wrong and will vigorously fight the charges.
"What the government is asking would significantly hamper us from competing through innovation and would put everything we've worked for and built for the last 23 years at risk," Gates said in a statement. "We unfortunately had no other choice but to resolve this matter in court. We are confident that what we are doing is entirely pro-competitive and in the best interest of consumers."
President Clinton, in London for a European Union meeting, would not comment on the specifics of the Microsoft case. However, he voiced support for Reno and Klein.
"This is not just an open-and-shut case where one party sues somebody else ... This is something that will have a significant impact on our economy," the president said. "I have confidence in the way the antitrust division is handling it."
The states, in suits filed in the same Washington court, sought to block Microsoft from requiring PC makers to include its Internet Explorer Web browser on their machines.
The filing seeks to stop Microsoft from telling OEMs "how they can configure browser and other software options presented on initial screens when the computer is 'booted-up,'" a statement from the states said. The federal government and states are seeking a hearing and preliminary injunction ordering the company to offer Windows 98 with no browser, or browsers from competing companies, such as Netscape Communications.
"We are here today to make sure there is indeed a free and open market," said Connecticut Attorney General Richard Blumenthal. "Innovation will be chilled and blocked if these predatory practices on the part of Microsoft continue."
"What we are saying to Bill Gates is, 'Stop your 800-pound gorilla from stopping access to the information superhighway," Blumenthal said.
The two sides began weekend negotiations after Microsoft agreed to postpone shipment of Windows 98 to manufacturers until Monday, and the federal government, along with the attorneys general, agreed to delay filing lawsuits. They had planned to file last Thursday.
Microsoft officials said investigators demanded that the company ship Netscape's Navigator browser with Windows 98.
"We don't believe that's a reasonable demand. That's the government getting involved with the design of our product," Microsoft spokesman Jim Cullinan said. "This is like asking Coke to ship three cans of Pepsi with every 12-pack."
If Microsoft includes Internet Explorer with Windows 98, it must also include Navigator, Klein said yesterday. If Microsoft doesn't include Netscape's product, "all it needs to do is unbundle its own browser and let it compete on its own merits," he said.
Justice Department officials also wanted Microsoft to remove the Explorer icon from the Windows 98 desktop and hide the browser, "not leaving any access to the [Explorer] browser at all," Microsoft claimed.
Microsoft, in Redmond, Wash., can be reached at http://www.microsoft.com. The US Department of Justice can be reached at http://www.usdoj.gov. Web sites for states' attorneys general can be found at http://www.echotech.com/ag.htm.