Netscape to DOJ: Stop Microsoft before it's too late

Rohit Khare (
Wed, 21 Aug 96 10:56:36 -0400

Here is the combined coverage I've found. Bottom line is that against
Microsoft, even with 80% share, you're fighting for your life... they're not
about to give up the title of "most popular desktop application in history".

> In fact, Netscape has learned that Microsoft is charging
> $3 more per copy for Windows 95 if the OEM places the
> Netscape icon alongside Microsoft Internet Explorer on
> the desktop, according to the letter.

> Microsoft has offered to buy out the contracts that larger
> ISPs (Internet service providers) have signed with
> Netscape and, in some cases, has offered up to $400,000
> to other international ISPs not to sell Netscape software.

> Microsoft offered to pay international telecom customers
> $5 for each Navigator installation replaced with a copy
> of IE.

> "These APIs, which have a very significant impact on
> Internet server performance, were only disclosed by
> Microsoft in late 1995 in its Service Pack 3 but were
> already incorporated into the beta of IIS released shortly
> thereafter," he wrote. "Plainly, the IIS developers had
> been given these APIs months before the rest of the
> industry."

> "In short, it is plain that Microsoft intends to 'zero
> out' the markets for Internet servers and Internet tools
> [like Internet browsers], and drive all other competitors
> out of these markets," he wrote.

And of course, the NT Workstation TCP/IP limit controversy thunders on...

I'll keep an eye out for copies of the actual complaint letter... wait, got
it! it's at the end... nope, it's only a complaint to the Wall Street Journal,
not the actual DOJ letter... keep searching!

Rohit Khare


August 20, 1996 7:47 PM ET * PCWEEK

Netscape to DOJ: Stop Microsoft before it's too late

By _Michael Moeller_ and _Charles Cooper_


A lawyer representing Netscape Communications Corp. late today said that
Microsoft Corp. was guilty of making under-the-table payments and
strong-arming OEMs, and urged the Department of Justice to press an
investigation into the software giant's marketing practices. (See related
story, _"Netscape to present DOJ with Microsoft antitrust info.")_

In an eight-page letter to Deputy Assistant Attorney General Joel Klein that
was made public today, Gary Reback ticked off a laundry list of abuses that he
said violated antitrust laws and the consent decree Microsoft reached with
the Justice Department two years ago.

"The allegations are wild and untrue," said Brad Chase, vice president of
Microsoft's Internet Platform and Tools Division. "I think they are trying to
manufacture controversy to divert attention from the fact Internet Explorer
3.0 is being acknowledged as the better product."

Mike Homer, Netscape's senior vice president of marketing, countered, "We
just want a fair and level playing field."

In the letter, which was sent to the Justice Department on Aug. 12, Netscape
claims that Microsoft has discounted Windows licenses to OEMs that featured
Internet Explorer and made other browsers, such as Netscape Navigator, "far
less accessible."

In fact, Netscape has learned that Microsoft is charging $3 more per copy for
Windows 95 if the OEM places the Netscape icon alongside Microsoft Internet
Explorer on the desktop, according to the letter.

The letter cites specific examples as well. For example, Hitachi PC Corp. has
refused to bundle Navigator on its laptop computers because it is prohibited
from carrying the product under its license with Microsoft. What is more,
Reback asserts that Hitachi has decided not to sell other software that
incorporates Netscape Navigator because it breaks the Microsoft license.

Among the other charges in the letter were the following:

Microsoft has offered to buy out the contracts that larger ISPs (Internet
service providers) have signed with Netscape and, in some cases, has offered
up to $400,000 to other international ISPs not to sell Netscape software.

The TCP/IP limitations within the NT Workstation 4.0 license infringed upon
the spirit and the letter of the 1994 consent decree.

Microsoft also withheld several key APIs that are part of its NT Server
software for other Internet server software vendors that had a drastic impact
on the performance of third-party World Wide Web servers running on the NT

Netscape was not able to release a final version of its Internet server until
June 1996 because it did not have access to the two new NT Server APIs. As a
result, the version of the server that was on the market suffered in
head-to-head comparisons between Microsoft and Netscape Web server software.

Microsoft has offered to provide a range of free products and services to
corporate customers who use Internet Explorer. In one instance, Microsoft
offered to pay international telecom customers $5 for each Navigator
installation replaced with a copy of IE.

In the letter, Reback asserts that Microsoft has threatened OEMs, contending
that their users may be violating the license agreement if companies bundle NT
Workstation with Netscape's Internet server.

"And Netscape believes that independent software vendors writing products to
run on Netscape's or other third parties' Internet servers have received the
same implicit or explicit threat," he wrote.

Reback returned to a familiar theme, charging that Microsoft had an unfair
advantage over its competitors because of its unique, near monopolistic
domination in the operating systems market.

Specifically, he said Microsoft had used secret APIs in Windows NT Server in
a bid to gain a speed advantage for IIS (Internet Information Server).

"These APIs, which have a very significant impact on Internet server
performance, were only disclosed by Microsoft in late 1995 in its Service Pack
3 but were already incorporated into the beta of IIS released shortly
thereafter," he wrote. "Plainly, the IIS developers had been given these APIs
months before the rest of the industry."

Reback warned in the letter that the absence of federal intervention would
allow Microsoft to maintain its monopoly of desktop operating systems to
increase the installed base of its Internet software and to inhibit the
continued growth of competition through conduct of the very type addressed by
the decree.

He also contended that Microsoft had engaged in predatory pricing and
bundling behavior in violation of antitrust laws. He pointed to Microsoft's
marketing strategy to give away many products and services to customers who
use the company's Internet Explorer browser software.

"In short, it is plain that Microsoft intends to 'zero out' the markets for
Internet servers and Internet tools [like Internet browsers], and drive all
other competitors out of these markets," he wrote.

Clearly, the stakes are enormous. Industry analysts have written extensively
about the threat the Internet poses to Microsoft's desktop monopoly.

"That is the reason, Netscape believes, why Microsoft has resorted to such
desperate measures in trying to eliminate its Internet software competitors,"
Reback wrote.

August 19, 1996 6:30 PM ET * PCWEEK
Netscape to present DOJ with Microsoft antitrust info

By _Michael Moeller_

Netscape Communications Corp. is gathering information about Microsoft
Corp.'s Internet practices and plans to present its findings to the Department
of Justice within the next couple of weeks, according to people familiar with
the informal investigation.

Netscape hopes to convince investigators that Microsoft's distribution and
bundling arrangements have broken the law.

Specifically, Netscape wants to shine a light on Microsoft's bundling of
Internet software with NT Server 4.0, as well as the marketing and
distribution partnerships the company has struck to promote Internet Explorer
3.0. Additionally, Netscape contends that the Justice Department should also
investigate Microsoft's TCP/IP limitation on Windows NT Workstation 4.0
software, the sources said.

Netscape believes that Microsoft's new browser promotion involves direct
payments to content providers, according to the sources. Last week, Microsoft
announced a free subscription to The Wall Street Journal Interactive through
the end of this year as part of a promotional deal for Internet Explorer 3.0.
Non-Internet Explorer users who don't subscribe to The Wall Street Journal's
print edition are required to pay $49 per year to access the site.

Netscape contends that Microsoft's decision to increase its market share by
giving its browser away for free is analogous to pricing its product below the
cost of manufacturing, sources said.

Market-leader Netscape charges Microsoft with anti-competitive browser practices

By Elinor Mills
InfoWorld Electric

Posted at 6:51 PM PT, Aug 20, 1996
Netscape Communications Corp. is asking the U.S. Department of Justice to act
immediately on new evidence that it says illustrates Microsoft Corp.'s
anti-competitive practices, including allegations that Microsoft is offering
money and other incentives to hardware vendors and Internet service providers,
an attorney for Netscape said Tuesday.

Microsoft is either barring companies from offering Netscape's Navigator
browser or offering incentives to companies that provide Microsoft's Internet
Explorer instead of Navigator, according to Netscape spokeswoman Rosanne

Microsoft denies the allegations.

The complaints from Netscape follow an eight-month battle between the two
companies over the blossoming market for Internet software. The acrimonious
charges between the two companies has taken a more serious turn with the
letter to the Justice Department, which has an on-going investigation of
Microsoft for its largely dominant position in PC operating systems and
applications markets.

The charges from Netscape on the browser front, however, come with a hint of
irony. Netscape holds some 80 percent of the worldwide browser market compared
to some 5 percent for Microsoft.

Nonetheless, in addition to outright payments, Netscape charges that
Microsoft is offering vendors discounts on licensing prices, free hardware,
free advertising, a place on the Windows 95 desktop screen, as well as
prohibiting customers from entering into licensing and other agreements with
Netscape, according to an Aug. 12 letter from Gary Reback, outside legal
counsel to Netscape, to Joel Klein, deputy assistant attorney general for
international and policy matters at the Justice Department.

Microsoft has made such offers to original equipment manufacturers (OEMs),
internet service providers (ISPs), value-added resellers (VARs), telephone
companies, systems integrators, and large corporations, Reback charges.

These offers not only limit customer choice, but are in violation of a 1994
consent decree designed to prevent anti-competition, Reback and Siino said.
The decree prohibits Microsoft from tying the licensing of its operating
system with licensing of other Microsoft products and prohibits Microsoft from
conditioning the licensing of its operating system on OEM agreements to not
license or distribute rival products.

Microsoft spokesman Greg Shaw called the allegations wild and untrue.

"We all go to OEMs and ISPs and others and try to make a compelling case for
why our product is a great product to offer to their customers, but we do so
in a way that's fair and certainly competitive," he said. "Our licensing
arrangements with OEMs and ISPs are completely in the interest of customers
and completely fair and competitive, so it's very unclear to me what they're
talking about."

Reback and Siino complained that Microsoft's alleged activities are limiting
customer choice and hurting the industry by preventing competition. "We want
to see a level playing field on which we can sell our product," said Siino.
"Customers don't stand for it. Whether they like one company or another, they
want a choice of products."

Reback suggested that if the Justice Department won't act quickly on its
ongoing investigation, that the investigation be turned over to the Federal
Trade Commission, which he said is concerned with antitrust issues in the
Internet market.

"Much of Microsoft's conduct appears to violate the letter and spirit of the
existing consent decree entered in U.S. vs. Microsoft," said Reback in the
letter. "Indeed, Microsoft's behavior is, if anything, more anti-competitive
and pernicious than the conduct addressed specifically in the decree. In
engaging in the far-reaching anti-competitive behavior, MS hurts consumers and
restricts consumer choice," he wrote.

Bill Brooks, a spokesman for the Justice Department's antitrust division,
said he could not comment on the allegations.


Netscape Accuses Microsoft
Of Violating Antitrust Pact


_Netscape Communications_ Corp. accused _Microsoft_ Corp. of offering
improper payments and other inducements to persuade personal-computer makers
and Internet service providers to use Microsoft's World Wide Web software.



* Join the _discussion_ about the battle of World Wide Web browsers.
* The _full text_ of the letter from attorney Gary Reback to the Wall Street
Journal Interactive Edition.


Netscape, based in Mountain View, Calif., asked the Justice Department to
investigate whether Microsoft's Web marketing tactics violate a 1994 antitrust
settlement with the government. The company's allegations are contained in an
Aug. 12 letter to the agency released Tuesday by a Netscape lawyer.

Microsoft flatly denied the charges, branding them a desperate response by
Netscape to counter Microsoft's momentum in the marketplace. "They are trying
to divert attention from their products with a PR stunt," said Brad Chase, a
vice president of developer relations in Microsoft's Internet platform group.

A Justice Department spokesman declined to comment. Even if true, some
antitrust attorneys questioned whether Microsoft's alleged tactics would be
regarded by courts as anticompetitive.

Escalating Tensions

But Netscape's allegations significantly escalate tensions between the two
software makers and raise the odds that the agency will expand a long-running
investigation of Microsoft to include Web software.

The two companies are locked in a battle of competing Web browser programs,
and Netscape complained to the Justice Department earlier this month about
Microsoft's attempt to place limits on the number of Microsoft Windows NT
Workstation software for competing Web server programs.

Netscape's letter was written by Gary Reback, a Palo Alto, Calif., antitrust
attorney who has tangled with Microsoft on several fronts for two years. He
alleged that Microsoft is using "clandestine" incentives and penalties to
convince PC makers to use Microsoft's free Internet Explorer browser, and to
make Netscape's Navigator program less accessible to users.

Claims of Financial Incentives

Mr. Reback said PC makers that try to display the two companies' browsers
equally have been told by Microsoft that they must pay $3 more for a copy of
Microsoft's Windows 95 operating system than those that give favorable
treatment to Microsoft's software. Most weren't named, but the letter says
Hitachi Ltd. has refused to bundle Netscape Navigator with a laptop computer
because its operating system license with Microsoft prohibits it. A spokesman
for that company's U.S. subsidiary declined to comment until it had consulted
with legal counsel in Japan.

Microsoft has forged a series of agreements with Internet service providers,
including _America Online_ Inc. and _AT&T_ Corp., that give preferred
treatment to Microsoft's browser. Without naming specific services, Mr. Reback
alleged that Microsoft has offered such companies sweeteners that include
free hardware, free advertising and free software. Some international services
have been offered as much as $400,000 in marketing funds on condition that
they won't sell Netscape or other competing Internet software, he said.

The letter cites other alleged violations of antitrust laws by Microsoft to
woo large corporate customers. Some international communications companies
were offered $5 for every copy of Netscape Navigator that they removed from
their corporation and replaced with Internet Explorer, he said.

'Pot Calling Kettle Black'

Microsoft's Mr. Chase denied that any of its marketing agreements
discriminate against Netscape. Microsoft executives contend that Netscape has
been manipulating Internet standards processes to hurt Microsoft and other
competitors. "This is really the pot calling the kettle black," Mr. Chase

In its July 1994 consent decree with the Justice Department, Microsoft agreed
to drop a discounting practice that discouraged PC makers from installing
rival operating systems. Mr. Reback contends Microsoft's tactics violate a
separate provision of the settlement in which Microsoft agreed that sales of
Windows 95 can't be conditioned on the PC maker's agreement not to use a
competing product.

"Microsoft's enemy is not Netscape; its enemy is consumer choice," Mr. Reback
said. "They don't want consumers to choose another way of getting to the

Contempt of Court Order

If Netscape can convince the Justice Department that Microsoft is violating
the consent decree, the agency may be able to seek a contempt of court order
more quickly than the agency or the company could mount an entirely new
antitrust case. Samuel Miller, a San Francisco antitrust attorney who worked
on the Justice Department's investigation, said Microsoft's alleged tactics
fall in a gray area of antitrust law but could nonetheless be damaging to
Microsoft if proven. "If it can be shown that this is not just an isolated
instance but part of a pattern, then Netscape is raising serious issues," he

Along with the letter to the Justice Department, Mr. Reback also distributed
a letter that he sent to The Wall Street Journal Interactive Edition, which
asks the publication to disclose terms of a recent arrangement under which
Microsoft paid the electronic publication to offer Internet Explorer users
free access to the interactive edition until the end of the year.

A spokesman for _Dow Jones_ & Co., publisher of the Journal and its
interactive edition, declined to comment on terms of the agreement.


The full text of the letter from Gary L. Reback:


Mr. Budde:

I have read the postings that the WSJ has received regarding its recent deal
with Microsoft. WSJ's decision to prevent its readers from receiving content
unless they use a Microsoft browser obviously has struck an angry chords, as
its readers plainly believe that they should be able to choose which browser
they want to use, rather than have their choice dictated for them. WSJ's
readers seem to have taken particular offense at the fact that, based on WSJ's
reporting of the deal, Microsoft has paid WSJ to limits its readers' ability
to use the browser of their choice.

As you no doubt are aware, this is not the first time that Microsoft has
attempted to use its market power to limit user choice. For example, a few
weeks ago, Microsoft tried to strong-arm Netscape into cooperating with it in
a scheme to prevent customers from being able to use Windows NT Workstation as
a platform for Web servers. We reported Microsoft's conduct regarding NT to
the Justice Department, but this exclusionary behavior turns out to be just
the tip of the iceberg. Netscape has received numerous additional complaints
from customers and others in industry, and it has retained my firm to
investigate these incidents. We have found what we believe to be a wide range
of serious antitrust violations, some of which we documented in another letter
last week to the Justice Department.

As Netscape made clear when it rejected Microsoft's NT Workstation scheme,
Netscape believes that consumers should get to choose what products they want,
rather than have their choices dictated for them. We hope that WSJ will
promote consumer choice, rather than be on the side of those who would
restrict it.

We would also appreciate it if WSJ will disclose to its customers whether it
already has entered into terms that put it on the side of exclusion -- for
example, whether WSJ is precluded from giving Netscape Navigator equal status;
whether it is prevented from displaying the Netscape NOW logo or linking to
Netscape's site; whether WSJ is required to use Microsoft's browser for its
internal use; and whether WSJ's decision to use ActiveX was one that it made
on the merits, or whether it was required in order to get the Microsoft
payments. Finally, if WSJ believes that it is prevented from disclosing these
terms because it has agreed to "nondisclosure" -- one of Microsoft's favorite
tactics -- I would urge it to reconsider whether it properly can honor such a
term, if in the process it must suppress reporting on what is obviously an
important issue of great interest to its readers.

Gary L. Reback,
Wilson, Sonsini, Goodrich & Rosati