Newsreal: "Netscape is toast"

While Washington takes sides in the browser war, prosecutors at the state level are looking beyond, planning further challenges to Microsoft on new ground.

Published October 23, 1997 7:00PM (EDT)

never mind the Justice Department's bid to stop Microsoft from requiring computer makers to include its Internet browser when they install the company's Windows 95 operating system. The browser war is over and Netscape has lost.

That's the opinion of several state attorneys general, whose lawyers are conducting their own investigations into possible antitrust violations by the Redmond, Wash., software giant. These officials told Salon that Microsoft is likely to move ahead with its Windows 95-Internet Explorer bundling strategy while the Justice Department's challenge wends its way through the courts. Even if Microsoft eventually loses -- and that's a big if -- the company's enormous resources (it gives away Internet Explorer for free) will allow it to eventually capture the browser market, these officials predict.

"I think Netscape is toast," said one lawyer working in the antitrust division of the attorney general's office in Texas, one of the states investigating Microsoft. Before the Justice Department's complaint, "It would have taken Microsoft six months to wipe out Netscape. Now, even if the courts stop Microsoft bundling, it will simply take them a year instead. Let's not forget that Netscape is up against a company that has $160 billion in capitalization and between $8 billion and $9 billion in cash. Beyond the sympathy of a court, Netscape is going to need a strategy to deal with that kind of 900-pound gorilla."

Contacted by Salon for comment, Peter Harter, a lawyer for Netscape, repeated the company's response to the Justice Department complaint, saying Netscape supported the government in its bid to enforce the laws protecting a free marketplace. He declined to comment further, but added: "I can't argue the size of Microsoft and how much clout and cash they have."

Privately, Netscape officials expressed deep concern over what they called Microsoft's predatory pricing practices and its enormous ability to absorb such costs. "This is not just a browser war," one official said. "The question here is: Do we have a level playing field? Do we have open and fair competition, and are laws being respected?"

The state officials spoke on condition of anonymity. In addition to Texas, the other states probing possible antitrust violation by Microsoft are Massachusetts, Connecticut, New York, California and South Dakota. These states, home to scores of computer manufacturers and software companies, have broad powers to enforce antitrust and consumer protection provisions, which are often exercised in conjunction with federal authorities. The Texas attorney general's office, which launched the first state-level investigation in 1995, is one of the most aggressive in the country.

The Justice Department maintains that by bundling the browser into Windows, Microsoft is unfairly leveraging its near-monopoly of the market for computer operating systems and therefore violating a 1995 consent decree between the U.S. government and Microsoft. Microsoft chairman Bill Gates says the company did not violate the agreement, arguing that its browser is not a separate product but merely a new feature integrated into Windows, which the consent decree allows.

Netscape's Navigator is still the leading browser, with an estimated 70 percent of the market. Officially, Netscape provides $500 million worth of its browser free of charge to educational and nonprofit institutions, but many private users are able to download it for free as well. Over the past year, however, Microsoft's Internet Explorer has steadily increased its market share.

State officials expressed concern that the Justice Department will have difficulty proving that Microsoft violated the 1995 agreement. "A lot of people think that agreement is toothless," one official said. For example, this official noted the agreement does not refer specifically to the technology now in question.

"That's why we're trying to proceed as quickly as possible," the Texas official said. "We're not going to wait for anyone. Things move too fast, the technology gets obsolete."

No matter what happens in the browser battle, state officials say the outlines of the next major battle with Microsoft can be discerned in another legal fight that's brewing: the lawsuit that Sun Microsystems brought against Microsoft last month. The suit alleges that Microsoft has violated its licensing agreement with Sun by altering its Java language to make the modified version more compatible with Windows software -- and less compatible with other versions of Java.

"Is the browser war really the issue here?" one state official asks. "The browsers are just vehicles. It strikes me that the real issue is what is carried in these vehicles, the language. And the big question is: Is Microsoft illegally destroying Java? That's the next line in the sand."

Said another state official: "We want to do as much as we can to preserve competition in the browser area, but we've got some bigger fish to fry now, and by that I'm referring to the Java issue."

"This issue goes beyond the ordinary antitrust suits," another state official said. "This is big. I don't think we even know how big this is yet. At this point we've just stumbled over the elephant's front toenail."

Of course, if the legal system has a hard time sorting out a browser from an operating system, it's difficult to predict how it will fare in trying to untangle the far more complex issue of Microsoft's implementation of Java -- and whether the code Microsoft engineers have written violates the terms of Microsoft's original license from Sun. While the browser battle is over market share and marketing tactics, the Java dispute is at this stage purely technical, and proving antitrust violations in this arena is likely to be a tall order for lawyers at either the federal or state level.

None of the state officials interviewed for this article would comment on their investigations into Microsoft, except to say they were concentrating on the company's modification of Java, alleged illegal tie-ins, alleged predatory pricing practices and the recent acquisition of WebTV, a company that bypasses computers to deliver Internet service directly to consumers' TV sets.

"As we talk to people, we're finding that lots of users are happy right now," the Texas attorney said. "They like the service they're getting and can't understand what the Justice Department and the state attorney general offices are doing. But all I can think of is the happy turkey on the Wednesday before Thanksgiving. If the competition goes, come Thursday, those turkeys aren't going to be gobbling so happily."

By Jonathan Broder

Jonathan Broder is Salon's Washington correspondent.

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