In a licensing and cross-promotion agreement involving Microsoft's (MSFT)
Internet Explorer, a national Internet service provider was
forbidden from telling some subscribers about the availability of competing
browsers and was permitted to offer them only if the customer requested
them, according to evidence submitted at a Senate hearing today.
The cross-promotion and licensing contract between the software giant and ISP EarthLink Network also said that Microsoft would terminate a
key part of the agreement if the ISP's shipment of Internet Explorer fell
below a certain percentage of the browsers it distributed.
The contract was released at a
hearing held by the Senate Judiciary
Committee to discuss competition in digital
industries. It specified the terms for a cross-promotional agreement in
which Microsoft would list EarthLink in a directory of ISPs on the Windows
95 desktop in exchange for EarthLink carrying IE.
A Microsoft representative said the terms in the EarthLink license were
common industry practice and in no way violated antitrust laws.
Cross-promotional licenses between companies routinely include terms that
forbid the mentioning of competitors' products, according to Microsoft
spokesman Mark Murray, and would have little effect because the deal was
limited to a relatively small percentage of consumers.
"This is a standard cross-promotion, cross-marketing agreement," Murray
added. "We agree to promote their online service, and they agree to promote
our Web-browsing technology. There is absolutely nothing in this agreement
that prevents EarthLink from giving consumers Netscape's browser if that's
what the consumer wants."
But some antitrust attorneys indicated otherwise, saying that, on the
surface, the contract appeared to be unlawful. "What you have set forth is
a textbook example of an artificial entry barrier," Kevin Arquit, a former
top official at the Federal Trade Commission, told members of the Judiciary
"All this is a deprivation of consumer information so that the Microsoft
juggernaut continues," said John Steele, an attorney at Fenwick & West in Palo Alto, California.
"Those clauses are probably short of being automatically unlawful," but
could possibly be found illegal depending on how broadly they are applied, he
Samuelson, a professor at the Boalt Hall School of
Law at the University of California at Berkeley and a noted critic of
Microsoft, agreed. "It sounds like the kind of exclusive dealing
arrangement that Congress meant to outlaw," she said.
Today's Senate hearing did not specifically focus on Microsoft. But the
release of the contract--in addition to criticism Judiciary Committee
chairman Orrin Hatch leveled at
the Redmond, Washington-based company--may be only the presage of increased
scrutiny of the company. The hearing follows last month's accusation by the
Justice Department that Microsoft is
using its Windows monopoly to force computer makers to install its Internet
browser on their computers, in violation of a 1995 antitrust settlement. (See
According to a committee staff member, Hatch is looking into a number of
Microsoft practices, including whether its deals with computer vendors,
ISPs, content providers, and others violate antitrust laws. In
particular, the senator expressed concerns over Microsoft deals with the Walt Disney Company and Time Warner a day after CNET's
NEWS.COM reported that the two media giants were offering certain online
content to IE 4.0 users only. (See
Under the terms of its cross-promotion and licensing agreement, EarthLink was forbidden from volunteering information to some subscribers on the availability of
competing browsers. The prohibition applied only to customers that
Microsoft referred to EarthLink through Microsoft's "Internet Connection
Wizard," which offers a directory of ISPs.
When those customers inquired about service, the Pasadena, California-based
ISP was required "not [to] express or imply that an alternate
browser is available," according to the contract. Furthermore, EarthLink
was permitted to provide a competing product "only upon a customer-initiated request."
The contract also forbade EarthLink from advertising any other browser, and
permitted Microsoft to drop EarthLink's listing from the Windows 95 desktop
directory if the ISP's shipments of IE fell below a certain percentage of
the total number of browsers distributed to subscribers. The exact
percentage required in the contract was omitted from copies made public.
In addition to Microsoft's licensing and cross-promotion deals, Hatch will
scrutinize other conduct by the company, such as its investments in cable
companies. A staff member, who spoke on condition of anonymity, said that
it "would not be unlikely to have a formal hearing on Microsoft" in the