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Integration: the heart of DOJ case

One product or two? That is the question at the center of the Justice Department's charges against Microsoft involving IE and Windows.

One product or two? That is the question at the center of a federal judge's review of the Justice Department's charges that Microsoft (MSFT) has violated a federal court order by requiring that PC makers ship its Internet Explorer browser with Windows 95-based machines.

That court order, issued as a consent decree in 1995 after a lengthy antitrust investigation and negotiations between the Microscope on Microsoft federal government and Microsoft, stipulates that the software maker cannot force PC manufacturers to bundle Microsoft applications such as Word or Excel as a condition of licensing the Windows operating system--a practice known as "tying."

If Judge Thomas Jackson of the U.S. District Court in Washington sides with the government and rules that IE is a separate product, then Microsoft will be guilty of breaking the agreement. If the company can persuade the judge that the browser, like Windows notepads or the file management system, is simply an enhancement of the operating system, then Microsoft wins, because the language of the consent decree allows for such enhancements.

At the heart of the argument is a matter of semantics--and the confusion that often accompanies high-tech buzzwords. In this case, the term in question is integration: Is IE "integrated" enough into Windows that it has become part of the Windows system or does it remain separate?

"If [the combination of IE and Windows] is truly active and integrated and gives the consumer something completely different, then Microsoft is probably OK," said Richard Gilbert, a professor of law and economics at the University of California at Berkeley and a former deputy assistant attorney general. Gilbert, who was part of the Justice Department investigation that led to the 1995 consent decree, noted that DOS and the Windows graphical interface started as separate items.

"I don't think anyone would seriously propose that you should decouple them," Gilbert said.

Still, the question of integration is difficult to define. In its response to the government's action, the company described the upcoming Windows 98 as having a "tightly integrated" IE 4.0 that will make the operating system "more fully integrated with the Internet."

Asked for a basic definition of "integrated," Microsoft vice president Brad Chase cited a large amount of code shared by the OS and the browser: "It would be very hard to take IE out of the OEM [original equipment manufacturer]version of Windows 95."

Chase insisted that Internet Explorer, all the way back to version 1.0, has always been "integrated" into Windows.

A larger question lies beneath the first: Does the government have the right to determine the development of new products in a rapidly evolving marketplace like high technology? Microsoft complains of stifled innovation, as do many NEWS.COM readers responding to coverage of the government's move to fine the company $1 million a day. Others wonder if federal regulators can keep up with the technical details, but the department has its defenders.

"We trust them in every other market, so I guess we should trust them here," said Paul Roeder, an antitrust attorney and partner at the law firm Gray, Cary, Ware, and Freidenrich. "I'm confident they have good information and good people analyzing it."

Besides, other say, specific technical knowledge--in other words, whether IE is technically "integrated" or not--might not be most relevant when it comes to antitrust.

"Sometimes the specifics of the technology don't matter as much as you might think in applying basic antitrust rules," said James May, a historian and professor of law at American University who specializes in antitrust issues.

Roeder agreed: "You don't have to know the mechanics or science of it. You look at the consumer functionality of these things. From a consumer perspective, are these things one product or two products?"

Assistant Attorney General Joel Klein, who heads the Justice Department's antitrust division, said his team has compiled evidence from Microsoft's own marketing and business practices that the company has treated IE as separate from Windows.

Microsoft has its own interpretation of that point. "The confusion [that IE is a separate product] comes from having a separate thing called 'Internet Explorer,' but all sorts of elements of the operating system have been marketed under a separate name," Chase said.

May cited Supreme Court cases from 1984 and 1992 that Judge Jackson is likely to use as precedent. The cases involve tying, the practice in which a company with a dominant position in market A uses that leverage to win share in market B.

Despite explicit language forbidding tying, the 1995 decree also states that Microsoft never engaged in such a practice. Microsoft has denied that the mandatory shipment of IE with Windows 95 was an instance of tying.

In those cases, the court looked at the products in question as consumers would view them: Do they have overlapping uses? Does the price of one rise and fall with the price of the other? Does the accused company market one distinctly from the other?

Critics on both sides of the debate have lambasted the Justice Department. Until yesterday's announcement, the anti-Microsoft camp had accused the agency of dragging its heels in examining the software giant's business practices. Meanwhile, government critics complain that the agency should stand back and let market forces prevail.

"In the Valley, the accidental empires rise and fall so quickly, it's hard for government to get there in time," said an attorney who asked not to be named. "That was the problem with the first investigation. But the browser wars have lasted long enough for the DOJ to catch up."

Former Justice Department attorney Gilbert had this to say about doubts over the agency's technical understanding: "Does anybody completely understand high-tech? IBM gave away the PC, which is now a multibillion-dollar market. There have been plenty of mistakes in the past 20 years; it's preposterous to think that anyone, including the DOJ, can be omniscient."

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