ISPs subpoenaed in Microsoft case

With today's confirmation of four requests for documents, antitrust enforcers appear to be blanketing the Internet provider industry with subpoenas, searching for evidence that Microsoft is using its dominance in the operating system arena to corner new markets created by the Net.

Online providers America Online, MCI Communications, EarthLink Network, and Sprint all said they have received subpoenas--also known as civil investigative demands, or CIDs--seeking information that could be used against Microsoft in court.

Word of the CIDs--some of which were issued just this week--comes on the heels of recent revelations that content companies--including Disney, AudioNet, and Wired Ventures--also have received demands to turn over documents relating to Microsoft.

While most of the ISPs said the CIDs originated with the Justice Department, EarthLink said it had received subpoenas from more than one state attorney general's office. It was unclear whether EarthLink also had been subpoenaed by federal officials.

All of the companies subpoenaed declined to specify exactly what information the CIDs sought, but a Senate Judiciary Committee hearing on competition in the software industry last November provides some important clues. At the hearing, Sen. Orrin Hatch criticized an agreement in which Microsoft agreed to promote EarthLink in a section of Windows 95 in exchange for EarthLink promoting Internet Explorer to its subscribers.

The contract allowed Microsoft to immediately suspend the deal if the percentage of EarthLink subscribers using Internet Explorer fell below a certain level. It also forbade EarthLink from telling some of its new subscribers that they had the option of using browsers made by Microsoft's competitors.

An article in today's Wall Street Journal reported that an unnamed AOL executive said a cross-promotional deal between Microsoft and the No. 1 online service contained a similar quota requirement. It was unclear whether the contract allowed AOL to tell subscribers that alternatives to Internet Explorer existed.

It also was unclear whether either of those clauses were imposed on MCI or Sprint, but both companies have deals in place with the Redmond, Washington, software giant. In January 1996, for instance, MCI and Microsoft announced a cross-promotional agreement in which MCI made Explorer its preferred browser in exchange for Microsoft marketing certain MCI services. Sprint, for its part, has licensed versions of Explorer for some time.

Microsoft spokesman Jim Cullinan declined to discuss specifics of the deals, but defended the contracts as "procompetitive. These kinds of mutual promotional agreements are common in the software industry," he said. "They benefit both sides and are completely voluntary."

Antitrust experts, however, said that the quotas and gag rules appeared to fall into a gray area that may or may not be found to violate the law, depending on certain circumstances. Generally speaking, they said, antitrust laws hold companies that command monopolies in a given market to a higher standard than their smaller competitors.

"The more significant your position in the market, the more clauses of that kind might seem to be principally motivated to exclude rivals," said William Kovacic, a professor specializing in antitrust issues at the George Mason University School of Law. "For somebody who has a 5 percent share, nobody would care. If you have 95 percent, on the other hand, it mighty be seen as a mechanism to barricade entry against a rival. I suspect that is the hypothesis that the Justice Department might be working with."

Rich Gray, an antitrust attorney with Bergeson, Eliopoulos, Grady, & Gray, agreed.

"Since there is a strong argument that Microsoft has monopoly power in [the operating system] marketplace, it is appropriate, then, to impose restrictions on Microsoft that would not be imposed on anyone else," he said. "That's one of the burdens of having monopoly power."

Gray added that guidelines established by the Supreme Court require the Justice Department to demonstrate two things in order to challenge the contracts successfully: first, that Microsoft in fact possesses a monopoly power in a given market, and second, that the contracts constitute a "willful acquisition or maintenance of that power."

Because courts generally give dominant companies wide latitude in promoting and pricing their products, the burden of making the case that the contracts are illegal would be extremely difficult.

"You're talking about behavior that is OK in 99 percent of the cases," said one antitrust attorney who asked not to be named. "Trying to prove that you've got the 1 percent that ought to be illegal is a tough case."

That may explain why the Justice Department seems to be casting such a wide net in investigating Microsoft. In addition to ISPs and content companies, the agency reportedly is also looking into Microsoft's foray into Web broadcasting. The idea seems to be to establish an illegal pattern of behavior, all three antitrust experts interviewed for this story said.

"What the DOJ is trying to do, I believe, is reach out broadly and gather all the facts that would then be part of a mosaic, no one element of which is critical by itself," Gray said. "But when you put them together, it meets the test of willful acquisition of power."

Scott Martin contributed to this report.