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Microsoft: DOJ out of bounds

The software giant tells a federal judge that the government's case raises issues that do not fall under the scope of the 1995 consent decree.

    WASHINGTON--In the first hearing of the Justice Department case against Microsoft (MSFT) over its licensing practices, the software giant contended today that the government's case raises issues that do not fall under the scope of the 1995 consent decree.

    The court also reset the clock that started ticking on October 20 when Attorney General Janet Reno gave Microsoft 11 days to respond to her department's charge the software giant had violated the consent decree.

    Microscope on Microsoft Today, U.S. District Judge Thomas Penfield Jackson agreed to give Microsoft ten days to file a formal response to the Justice Department petition. He then gave the department ten days to formulate its own reply.

    Over the weekend, Microsoft submitted a memorandum to the court in which the company stated that the government's petition cannot be resolved by agreement. It stated that additional hearings and discovery procedures would be required to address the issues raised.

    "I wish I could agree with Mr. [Phillip] Malone [Justice Department attorney] that this is a simple matter to resolve," said Richard Urowsky, attorney for Microsoft. "There are two major areas of factual dispute in this case. The first is the nature of the technology at issue: when it was developed, when it was introduced, and what the government knew about it."

    What will illuminate this dispute over the interpretation of the 1995 consent decree, Urowsky added, are the documents that show what was negotiated and agreed to when the agreement was devised by the parties.

    "It will shed a great deal of light on issues of product design," Urowsky said. "It is a fundamental issue for software companies to be able to design new products without government interference."

    Microsoft contends in the memorandum that the government has always known that Microsoft was developing Internet Explorer as part of its Windows operating system and that the department is confused about the technology at issue--whether it is the technologies that comprise Explorer, its "browsing" function, or simply its icon on the desktop.

    "As a result, it is entirely unclear what the DOJ wants Microsoft to remove from Windows 95," according to the Microsoft memorandum.

    Moreover, the document contends that the government's position has two critical flaws. "First, Windows 95 has contained Internet 'browsing' features since it was provided to computer manufacturers in July 1995--more than two years ago and one month before the consent decree was entered. Indeed, the DOJ clearly knew that Windows 95 would include 'browsing' functionality before the consent decree negotiations began."

    "Second, as the DOJ well knows," Microsoft added, "every other major vendor of desktop and server operating systems provides Internet browsing capabilities to its customers, often by bundling Netscape Navigator with the operating system."

    Malone, the lead attorney for the department in the dispute, said today that he disagrees with Microsoft's assertion that the case does not involve a consent decree violation.

    "There is very little factual dispute in two out of three issues," Malone said. "There is no issue that Windows and IE are one product; there is no factual dispute about that issue. Commercial reality clearly establishes that they are a different product."

    He added: "At issue is the meaning of integrated product. At the time of the consent decree, what was meant by integrated product is ambiguous. That issue is addressed in the competitive impact statement."

    Malone urged the court to act quickly. "Because of the upcoming activity of IE 4.0 in February 1998, and since OEMs [original equipment manufacturers, or computer makers] require 60 days lead time, the operative date to address this is sooner than February in order to be effective," he said.

    Jackson expects to hold another hearing toward the end of November. "In the meantime," he said, "there will be no discovery unless it is by consent."

    "Our view is that, once the court has familiarized itself with the issues, it will decide what issues are brought forward," said William Neukom, vice president and chief lawyer for Microsoft. In today's hearing, the judge has asked for additional information in order to know more about the issues."

    In the memorandum, Microsoft argues that "the DOJ's petition raises extraneous issues that do not warrant plenary consideration by the court." For example, the company maintains, the government's challenge to nondisclosure agreements (NDAs) is not properly part of this proceeding.

    "The consent decree addresses certain issues related to NDAs, but not the issues the government is talking about now," Urowsky said. "The consent decree talks about competition issues, not investigative issues, and these are not covered by the consent decree."

    Malone argued that Microsoft's NDAs may "chill" certain people and prevent them from providing the government with information in its broader investigation of Microsoft beyond the issues at this filing.

    Microsoft contends that it provided the Justice Department with a letter four years ago that states that NDAs do not apply to federal investigations.

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