DOJ investigation rockets Netscape stock

Stock in Netscape Communications jumps nearly 12 percent, following news that the Justice Department is about to issue a request for information from Microsoft about alleged anticompetitive practices.

Dawn Kawamoto Former Staff writer, CNET News
Dawn Kawamoto covered enterprise security and financial news relating to technology for CNET News.
Dawn Kawamoto
3 min read
Stock in Netscape Communications (NSCP) today jumped nearly 12 percent, following news that the Justice Department is about to issue a request for information from Microsoft (MSFT).

The government appears to be renewing its investigation of the software giant for allegedly anticompetitive practices.

Netscape's shares climbed 5-3/8 to close at 50-7/8, with 5 million shares trading.

Meanwhile, Microsoft's shares ticked up slightly to close at 138-1/8, up 2-2/8 from yesterday.

Goldman Sachs analyst Rick Sherlund, in a report, said he is not changing his estimates and will maintain his recommened ratings for Microsoft. He noted federal investigators are only requesting information and have not taken any action against the company.

Officials at Microsoft said that the company has been notified that it will receive a civil investigative demand (CID), or a civil subpoena for information from the DOJ. The company has received a number of investigative demands in the past, including one in the summer of 1995 related to Microsoft's bundling of Microsoft Network access software with the Windows 95 operating system.

The latest request for information appears to be a response to recent claims by Netscape that Microsoft is squeezing out competition in the Internet market through a series of anticompetitive moves. In an August letter to the DOJ, Netscape accused Microsoft of, among other things, pressuring PC hardware manufacturers to bundle Internet Explorer with their products.

Department of Justice officials declined to confirm or deny whether it will issue a CID to Microsoft. "We have an ongoing investigation into Microsoft," said Gina Talamona, a Department spokeswoman

But Microsoft was less reticent. It issued a press release confirming that it expects to receive a request for more information and stating that the company intends to cooperate with the DOJ inquiry.

"We'll cooperate with them. This is not anything particularly new," said Greg Shaw, a spokesman for Microsoft. "They've asked for a lot of information over the past few years."

Lawyers outside Microsoft agreed that the request for information in and of itself indicates very little. "You can't read too much into it one way or the other," said Keith Shugarman, a partner and antitrust lawyer with Goodwin, Procter, & Hoar in Washington, D.C.

"One would have expected the DOJ to do this after [Netscape lawyer] Gary Reback's letter. A CID always occurs early on in the investigation. Sometimes the DOJ will need several rounds of them. It's really difficult to hazard a guess about the outcome at this point," he said.

In the meantime, Microsoft is taking the stance that it has nothing to fear. "We've looked at every allegation that's been out there by a couple of competitors and they're just baseless," Shaw declared.

Netscape officials declined to comment on the request for information, but the company's legal counsel was encouraged by the Department's decision to investigate, again.

"We're very pleased that the Department of Justice is beginning to move on this matter," said Susan Creighton, a partner at the law firm of Wilson, Sonsini, Goodrich, & Rosati. "One of the things Microsoft has done is shroud a lot of its deals in secrecy. This should open a lot of that up."

According to legal experts, the Department's next step could be to issue similar requests for information to Netscape and other companies in the Internet industry, looking for evidence of their dealings with Microsoft.

Creighton said that Netscape has not been contacted yet. But another Internet company that has accused Microsoft of anticompetitive behavior, O'Reilly and Associates, said it was contacted by the DOJ regarding Microsoft six weeks ago. President Tim O'Reilly said the company has not received an actual civil investigative demand, however.

Some antitrust experts predicted that the DOJ will have a difficult time proving that Microsoft's business practices are anticompetitive.

"Microsoft is taking the Net very seriously and they're being very aggressive about it," said Stanley Liebowitz, an economist with the University of Texas at Dallas. "Reading into their hearts and minds whether they mean to be very successful or they mean to destroy their competition is difficult.

"I think it will be very hard to make a convincing case that there's anything else going on here but a firm trying to do well in the market," said Liebowitz.