Microsoft in Court: Cyber-Industry Comes of Age

As the federal government opens its antitrust suit Monday against Microsoft, the corporate titan of our time, America is watching and wondering whether the outcome will clip the wings of innovation - and ultimately force big changes in its computer habits.

While its outcome has national import, its resonance with the public comes first and foremost from a basic fact: It's personal.

"Lots of people have a personal stake because they use this stuff," says Bryan Ford, an antitrust expert at Santa Clara University in the heart of California's Silicon Valley.

The suit was considered historic when it was filed five months ago, and its potential ramifications have only grown since then, say analysts who have followed the case closely.

That's because, both sides argue, its outcome will either stoke or stymie technological innovation, in many respects the goose that laid the golden egg of the past six years of US economic expansion and an ingredient even more prized now that the economy is wobbling.

In addition, the case is seen as the first full-fledged wrestling match between government and a mature and powerful technology sector, a test of the applicability of traditional antitrust rules to the newest industry.

Beyond its macro significance, the trial scheduled to begin Monday is virtually guaranteed a close public following because, like it or not, Microsoft is a common companion in American homes and offices.

Microsoft operating systems, such as Windows 95 and 98, run almost 90 percent of computers in use today, precisely the reason the computer giant has drawn scrutiny from the federal government.

The suit started as an attack on Microsoft's sales strategy of including its Internet browser software with its operating system - a move Microsoft calls top-notch innovation and its critics call predatory. But the aim of the suit has clearly expanded.

Recently, the government and the 20 states joining in the legal action threatened to seek broader remedies once in court, beyond the bundling issue. Though those remedies are unspecified, they could include breakup of the company.

The gist of the initial complaint was that Microsoft engaged in anticompetitive practices by leveraging its dominance of the operating-system market into greater control over browsers, software that helps computer users navigate the World Wide Web.

Microsoft, the government alleges, tried to crush Netscape Communications Corp. of Mountain View, Calif. - once the dominant player in the browser market - by tying the Microsoft browser to its operating system at no extra cost to consumers.

Blow to government's case

But on the way to the courthouse, a separate judicial ruling blew holes in the browser argument. An appeals court, in an earlier, more limited case against Microsoft, in effect rejected the notion that bundling was anticompetitive.

"That was a significant setback because it implied that Justice must overcome that hurdle in its [current] case," says Robert Litan, a former senior Justice Department official now with the Brookings Institution in Washington.

As a result, Mr. Litan says, the government is likely to emphasize other issues in its current case. Specifically, those include whether Microsoft should be forced to allow icons of other companies' software to reside on the screen users see first when they start up Windows, and whether the company engaged in a string of alleged "dirty tricks" against competitors such as Intel, Apple, and Sun Microsystems.

Indeed, the days prior to the trial's start have been marked by leaks and disclosures meant to sway opinion.

For instance, a quote from the deposition of a former Microsoft executive has him saying at a June 1995 meeting that the company "absolutely" intended to discourage Netscape from competing in the browser market. The government also alleges that same meeting included an illegal Microsoft offer to divvy up the market with Netscape.

In response, Microsoft issued a statement earlier this week that said, in part: "These new stories, unconnected to the allegations of the DOJ's original complaint in this lawsuit or to each other, are noisily supported by a few of Microsoft's competitors, but unsupported by factual evidence."

Trustbusting or government intrusion?

For some, the suit is worrisome evidence of a newly intrusive federal government. In addition to Microsoft, Washington has also challenged technology powerhouse Intel in court and is contesting a number of high-profile mergers as anticompetitive.

And should the Microsoft action prevail, "it will just encourage the politicization of private markets," says Robert Levy of the libertarian Cato Institute in Washington.

While the suit is based on fairly traditional antitrust rules, its application in the technology sector creates some unusual questions. For instance, how to deal with a situation where prices are actually falling.

The suit is already setting a precedent in the antitrust realm for its speed. Judge Thomas Penfield Jackson has compressed the discovery phase to a matter of months, when in a case this size it would normally take a year or so, says Mr. Ford.

And he's aiming to wrap up the case, which is not before a jury, in a matter of weeks.