MS case boils down to 55 words

The dispute between the Justice Department and Microsoft over possible violation of a 1995 consent decree is likely to boil down to 55 words.

As reported, the Justice Department filed a court memorandum last week accusing Microsoft of violating the court settlement when the Redmond, Washington-based company allegedly required computer manufacturers to carry Internet Explorer as a condition for licensing the Windows 95 operating system on their PCs. Of the several pages that constitute the consent decree, however, only one paragraph appears to address the point of contention directly:

"Microsoft shall not enter into any License Agreement in which the terms of that agreement are expressly or impliedly conditioned upon: (1) the licensing of any other Covered Product, Operating System Software product or other product (provided, however, that this provision in and of itself shall not be construed to prohibit Microsoft from developing integrated products)."

How exactly this passage will be interpreted is the subject of much debate among those involved in the case as well as those watching it. Depending on whose interpretation prevails, Microsoft's alleged deed is either in direct violation of these 55 words or expressly permitted by them.

Legal experts generally agree that the case will hinge on whether Internet Explorer is considered one or two products. (See related story) But antitrust attorneys differ sharply over which side has the better case.

"Based on what we know today, I think [the government] should be able to make [a] showing that the products are distinct," said Sam Miller, a former Justice Department lawyer who headed the original Microsoft investigation. Miller, now at Folger Levin & Kahn in San Francisco, added that the arguments laid out in the government's brief "are the traditional ways courts define what is a separate product, and looking at the evidence available, I would think that the government would be able to prove those points."

But antitrust attorney Ian Feinberg says the government's case is anything but airtight.

"As I understand the consent decree, it says [to Microsoft] you can't tie [two products] but you can integrate," said Feinberg, a lawyer at Gray Cary Ware & Freidenrich in Palo Alto, California. "It doesn't really look at what happens if you are at the same time offering a product separately and integrating that product into a larger one."

Added William Baxter, a law professor specializing in antitrust issues at Stanford University, the question "is purely metaphysical, like how many angels can dance on the head of a pin."

In cases where the parties to an agreement disagree on its meaning, the judge first attempts to make an interpretation looking only "to the four corners of the document," Feinberg said. "If it doesn't obviously mean X or Y, then you have to look at the manifested intent of the parties, meaning what they communicated to each other."

The Justice Department argues that Microsoft was strong-arming PC manufacturers into taking IE along with Windows. "Microsoft issued a formal notice that it intended to terminate the Windows 95 license agreement of one of the nation's largest OEMs [original equipment manufacturers], unless that OEM restored and thereafter continued to preinstall the Internet Explorer (and the Microsoft Network) icons," according to the government's memorandum.

Microsoft, for its part, insists that Explorer merely adds "functionality" to its Windows 95 operating system and that the government has been aware of the integration all along. "The DOJ knew that Microsoft planned to include Internet-related technologies in Windows 95, including 'browsing' functionality, at least by July 1994 when the DOJ and Microsoft were negotiating the consent decree," Microsoft argued in a reply brief filed today.

Thus, Microsoft concludes, both it and the government agreed that the browser and operating system were to be one, and the government cannot now take a contrary position.

The government appears to have anticipated the argument. In its court document it goes on to offer a detailed argument that Internet Explorer is distinct, or in legal parlance, an "other product," from Windows 95. Those arguments include the following:

 • That "substantial OEM and end-user demand exists" for browsers separate from demand for Windows 95.

 • That Microsoft's actions--including its marketing and internal accounting procedures--demonstrate that it "recognizes and responds to the separate demand" for Explorer.

 • That distributing the two products separately is "physically possible," "the commercial norm," and "not necessary to enable Microsoft to 'develop' any 'integrated product.'"

In its reply brief, Microsoft attacked those government arguments saying they were not "predicated on objective, verifiable standards" and relied on "amorphous" considerations such as competitors' and customers' perceptions. "Conduct that cannot be determined to violate the consent decree without weighing a variety of subjective factors is not punishable by contempt," the brief concludes.

Despite the strong focus on whether IE is one or two products, U.S. District Judge Thomas Jackson, the Washington jurist assigned to the case, is likely to consider a number of other factors in his decision, such as economic effects on consumers, antitrust attorney Ronald Katz said.

"It's hard for me to believe that the judge is just going to look at the one product/two product question without looking at what was the purpose of the decree," said Katz, a lawyer at Coudert Brothers in San Francisco. "I think he's going to look under that and try to put some flesh on this analysis."

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