Microsoft In Antitrust Spotlight Again Online Network, Windows 95 Licensing Agreements Draw Attention

Microsoft said Friday that it is cooperating with Justice Department requests for information about its Microsoft Network online service and some licensing agreements for Windows 95, the upgrade of its operating systems software.

Three online services - CompuServe, America Online and Prodigy - have been asked to turn information over to government lawyers who are exploring a possible case against the new Microsoft Network online service. The companies were asked to respond Friday, said Brian Ek, director of communications for Prodigy.

At issue is whether Windows 95, which will feature built-in access to subscribing to Microsoft’s online service, provides an unfair advantage over competitors.

Microsoft said it remains confident that its plans are legal and in the best interests of consumers.

“We regret that some of our competitors, faced with new competition, have resorted to complaining to government regulators rather than competing vigorously in the marketplace,” said William H. Neukom, Microsoft’s senior vice president for law and corporate affairs.

In addition, Microsoft confirmed that the Justice Department has requested information about a provision in Microsoft’s license agreements with computer manufacturers. The provision is intended to protect Microsoft, the manufacturers and the eventual computer owners from patentinfringement lawsuits. Under the agreement, the manufacturers agree not to assert patentinfringement claims against Microsoft.

The latest Justice Department inquiries, coming on the heals of Microsoft’s recent settlement with the department over its attempted acquisition of Intuit, the California maker of financialmanagement and tax-preparation software, could force Microsoft, the largest software company in the world, into precisely three scenarios it wanted to avoid:

Another expensive legal battle.

Yet more negative publicity regarding its business practices and potential monopolistic behavior.

Perhaps worst of all, a delay in the launch of the Microsoft Network, the highly anticipated service expected to debut with the release of Windows 95 in late August.

Justice refuses to confirm whether it is investigating the network separately from its earlier cases surrounding Microsoft’s licensing practices and the Intuit deal. Kent Stuckey, general counsel for CompuServe, said the request “is actually a continuation of a dialogue that had been going on for some time.”

Justice Department spokeswoman Gina Talamona told the Washington Post that, “We’re looking at the possibility of anti-competitive practices in the computer software industry.”

The competing online services have complained that because Microsoft holds a near monopoly in the market for operating systems (the programs that run basic functions of computers), bundling its network on Windows 95 would provide an unfair advantage.

CompuServe, Prodigy and America Online don’t charge money for the software that is used to access their networks, but consumers often need to request it to get started. Customers of Windows 95, on the other hand, will simply need to click an icon in Windows 95 to sign up for the Microsoft Network.

To counter that momentum, the competing services have been mailing out free trial discs and persuading computer manufacturers to include their software free with new computers. CompuServe software, for example, comes preloaded on Gateway 2000 computers.

But Prodigy’s Brian Ek said there’s a big difference in the way online software is bundled with computers sold by those companies.

Ek said Prodigy negotiated a contract with Packard Bell, which sells more computers for home use than any other company, under which Prodigy’s software would be the only online access bundled with Packard Bell computers. But he said Prodigy will lose its exclusivity when Windows 95 is released because Packard Bell cannot buy Windows without the Microsoft Network included.

On the consumer level, Ek likened Prodigy, AOL and CompuServe to newspapers delivered to a driveway.

“Now along comes Microsoft and somehow it gets the key to your front door and the ability to deliver its newspaper onto your breakfast table next to your orange juice,” Ek said.

Microsoft still hasn’t resolved the 5-year-old government case against Microsoft’s softwarelicensing practices.

Microsoft Chairman Bill Gates and Assistant Attorney General Anne Bingman reached a settlement of that case last summer, after a fouryear investigation by the government, but their agreement was rejected by a federal judge who said it wasn’t in the public’s best interest. Microsoft and Justice have appealed that rejection.