Legal Storm Brewing Over MicrosoftÕs Hailstorm
By Aaron
Pressman and Keith Perine
Issue Date:
Mar 19 2001
AOL TW and Sun are among the competitors quietly talking to
antitrust regulators.
------------------------------------------------------------------------
EXCLUSIVE
WASHINGTON Ñ Even
before Microsoft (MSFT ) announced its new online services plan Ñ dubbed
Hailstorm Ñ on Monday, some of the company's leading competitors were quietly
registering complaints about the effort with government antitrust regulators.
The
competitors, including AOL Time Warner (AOL) and Sun Microsystems (SUNW ),
allege that Hailstorm and other pieces of Microsoft's .Net initiative are
designed to limit their access to customers and further leverage Microsoft's
dominant Windows market share.
On
Friday, AOL TW officials had a breakfast briefing with several state attorneys
general involved in the government's pending antitrust lawsuit against
Microsoft, which is under review by the U.S. Court of Appeals for the District
of Columbia. AOL TW raised concerns that Microsoft's new products could create
a choke point on the Internet for e-commerce, instant messaging and
downloadable music.
An AOL TW
official told TheStandard.com on Monday that Microsoft's latest offerings were
an effort "to make sure that eventually there is no reason to use anything
but the versions of programs that Microsoft gives you."
In many
ways, the complaints surround the same kinds of behavior that prompted the 1998
government lawsuit against the Redmond, Wash.-based company. At that time,
Microsoft battled Netscape by integrating a Web browser into Windows and
striking deals with computer makers and Web sites to give its own product a leg
up.
"We
need to review the details, but some of the same kinds of antitrust issues seem
to be raised," says Connecticut Attorney General Richard Blumenthal, who
listened to the AOL breakfast briefing by phone. Blumenthal declined to comment
on whether or how Friday's briefing would factor into the states' tactics in
the ongoing case. "We really need to think and learn more about it before
we can even reach a tentative conclusion."
But he
pointedly described such briefings by Microsoft's competitors as just one of
many sources of information for state officials, which also include academics,
pro-Microsoft advocates and the states' own technical experts.
Microsoft
denies that anything in its .Net plan is improper. The company's new HailStorm
product is not limited to Windows and can be accessed by consumers running
Linux, Apple's Macintosh operating system or even on a Palm (PALM) handheld
device, Microsoft notes.
The
company also said HailStorm is built on open standards and is available for use
by any Web sites, including AOL. However, Microsoft plans to charge consumers,
developers and participating Web sites.
Microsoft
spokesman Vivek Varma said the company has not been formally notified of the
latest allegations. When asked about some of the complaints, however, he
dismissed them as inaccurate.
"Special-interest
competitors would be mischaracterizing the vision Ñ which is an open-access,
open-design process vision Ñ unlike AOL's walled-garden, proprietary approach
to instant messaging," Varma said.
The next
version of Windows, called XP, will integrate HailStorm services into the
operating system, encouraging consumers to sign up when they start their
computers for the first time. The operating system also features an integrated
media player and a copyright-protection scheme to prevent users from
distributing copies of music purchased online.
Competitors
complain that XP won't allow consumers to choose a competing media player as
the default program for playing music on their PCs. That could disadvantage not
only AOL, which has grand designs on the music market, but also media software
firms such as RealNetworks (RNWK) and Musicmatch. At least so far, those
companies are trying to negotiate with Microsoft instead of going to the
government.
Microsoft's
Varma said the software would allow consumers to alter the default media
player.
Sun and a
few others have been in intermittent contact with state officials since Jackson
ruled in the 1998 case, but after Monday's HailStorm announcement, they plan to
step up their efforts.
"It's
kind of amazing that with this verdict sitting against them, they're getting
more aggressive on this path," said Sun general counsel Mike Morris, who
compares the current situation to Microsoft's browser wars with Netscape.
"These people are reprobates. They never learn."
Morris
said Sun, which has always kept its lines of communication with regulators and
lawmakers open, plans to redouble its anti-Microsoft lobbying efforts with the
state attorneys general and key members of Congress, such as the Senate
Judiciary Committee, which eventually will hold confirmation hearings for
Charles James, Bush's prospective Justice Department antitrust chief.
Sun plans
to wait until new antitrust personnel are in place at the DOJ before actively
lobbying the department against Microsoft. Morris said Sun wasn't involved in
Friday's briefing for the states because "we knew AOL was going to carry
the ball on this one."
The
latest allegations could be used by the states to defend the position that a
strong remedy be imposed on Microsoft if, as is widely expected, the appeals
court upholds some of the charges against Microsoft but throws out U.S.
District Judge Thomas Penfield Jackson's plan to split the company in half. The
states also could use the information as the basis of an entirely new case if
the appeals court rejects all of the charges against Microsoft.
Many
trial observers expect that the Bush administration would not pursue a Supreme
Court appeal if the appellate court rules for Microsoft. If the court sends the
case back down for further proceedings, James and U.S. Attorney General John
Ashcroft are seen as more ready than their predecessors to reopen settlement
talks. The states, however, have vowed not to drop the case.
Regardless
of which side is right about .Net, Windows XP and Microsoft's motives, the
software giant undisputedly is steaming ahead without regard to Jackson's order
breaking up Microsoft.
The
breakup, and various conduct restrictions on the operating systems company that
Jackson also ordered, would make the marriage of Windows XP and .Net
impossible. For example, Jackson's order forbids Microsoft from
"binding" any middleware Ñ such as Web browsers or media playing
software Ñ to Windows unless the company offers a Windows version that allows
the middleware to be removed by computer makers or end users.
The
appeals court verdict on Jackson's rulings is expected within a few months. But
Microsoft's announcement Monday is a clear signal that the company is
optimistic about its chances with the appeals court.
"I
think there is a basic confidence here that their legal argument on integration
is going to prevail," said William Kovacic, a George Washington University
(dossier) law professor.
-30-