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Zero hour for Microsoft
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May 14, 1998: 6:45 a.m. ET
Justice, states expected to unveil antitrust suits by midday Thursday
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NEW YORK (CNNfn) - The U.S. Justice Department and a group of states were poised Thursday morning to file two new antitrust lawsuits against Microsoft.
U.S. Attorney General Janet Reno, Assistant Attorney General Joel Klein and about three state attorneys general scheduled a news conference to announce their action for midday Thursday.
About 20 states and the District of Columbia would join the Justice Department in the lawsuits, sources told CNNfn.
Whether or not the action would attempt to stop distribution of Windows 98 remained in doubt. Speculation was mounting Thursday morning that it would not.
Details of the suits were still being discussed Wednesday night, according to one of state attorney general. Reuters, siting a source close to the case, said the state suit would require the company to relax licensing restrictions on computer makers installing Windows 98 software.
One of the major issues in the tentative action against the company was likely to be Microsoft's running browser battle with rival Netscape Communications Inc.
Microsoft has allegedly forced computer makers to accept its Windows Explorer web browser along with its industry-dominant Windows operating system - putting Netscape at a decided disadvantage.
Microsoft gearing up to ship Windows 98
The legal assault, coming one day before Microsoft is scheduled to ship the gold code CD-ROMs containing the Windows 98 operating system to personal computer makers, could be more far reaching than some observers had originally believed.
CNNfn has learned the Justice Department and the states will challenge Microsoft's contracts with computer companies, Internet service providers and Internet content providers.
One of the attorneys general also indicated the suits will cover Microsoft's domination of the office-productivity market through low pricing of its Microsoft Office suite of software programs. The Justice Department regards the pricing as a predatory business practice.
However, antitrust experts said the legal action may not be enough to prevent Microsoft from shipping the system on Friday.
"The chances are greater than zero, but not much," said William Kovacic, a professor at George Mason University School of Law and an expert on antitrust issues. "Regardless of who's asking for an injunction, the chances are very remote [that one would be granted in time]."
The Washington Post, citing unnamed sources, reported Thursday that the government's lawyers won't try to block the shipment of Windows 98. The government's tack, the Post said, instead will be to let PC makers change the software before they ship Windows 98-equipped machines by June 25.
Microsoft and Justice have a long history
The Justice Department has long been investigating Microsoft's business practices. In particular, it has taken issue with Microsoft's integration of its Internet Explorer Web browser into the Windows operating system.
The government contends the browser should be sold separately. Microsoft has argued it should be allowed to integrate any product it wishes into Windows.
On Tuesday, a U.S. Court of Appeals handed Microsoft a victory by ruling that a preliminary injunction preventing the company from forcing PC makers to include the browser in Windows 95 does not apply to Windows 98.
The decision leaves Microsoft free to ship Windows 98, with Internet Explorer, to computer makers Friday unless the states and the Justice Department can persuade a judge to issue a temporary restraining order.
Harvey Saferstein, an antitrust attorney at Chadbourne & Parke, said the appellate court ruling doesn't put the software giant in the clear because it still faces broader antitrust charges from the Justice Department and the states.
"It doesn't decide the major appeal before the D.C. Court of Appeals," Saferstein said. (338K WAV) or (338K AIFF)
A Justice Department spokeswoman said the appellate court order "address a narrow aspect" of the injunction and that it is continuing with its investigation. She declined to say whether the government will be filing new charges relating specifically to Windows 98.
States line up, but Texas backs off
If the states file the lawsuit, it is expected the states would do so in federal court to make any ruling nationwide.
According to Reuters news service early Thursday, the states involved are California, Connecticut, Florida, Indiana, Illinois, Iowa, Kansas, Kentucky, Louisiana, Maryland, Massachusetts, Michigan, Minnesota, New York, New Mexico, South Carolina, Utah, West Virginia and Wisconsin, a source close to the case said. The District of Columbia is also on board.
Ohio was considering joining the 19, Reuters said.
Late Tuesday, Texas attorney general Dan Morales said the state was backing off the case, citing concerns from local computer companies.
"My office has received letters from several officials of Texas' computer industry who have expressed concerns that the filing of a lawsuit against Microsoft may negatively impact their companies as well as the consumers of this state," Morales said in a statement.
Texas is home to Compaq Computer Corp. (CPQ) and Dell Computer Corp. (DELL), two of the biggest PC makers in the United States.
The move was widely viewed as a blow to the states because Texas was considered one of the more aggressive states early on in this case.
Windows 98 delay unlikely
Analysts and industry watchers have speculated for weeks that the Justice Department and the states are likely to seek a preliminary injunction to block Friday's shipment of Windows 98.
But as both investigations have moved into the eleventh hour, antitrust experts say a delay is unlikely.
Because both the Justice Department and the states have waited until now to file a complaint, antitrust lawyers believe it's more likely that they will try to seek some other kind of remedy.
Charles Rule, a Washington-based attorney who is consulting Microsoft in its antitrust battles, said the government or the states may seek a temporary restraining order, the standards for which are much lower than a preliminary injunction.
"All a temporary restraining order gets is a 10-day order so all the parties involved can make their arguments," said Rule, who used to work in the Justice Department's antitrust division. "It can be extended to 20 days, and within that period the government can try to get a preliminary injunction."
Saferstein, however, said it will be difficult for either the Justice Department or the states to gain a temporary restraining order, and that a preliminary injunction hearing wouldn't take place for two to three weeks, leaving Microsoft free to ship Windows 98.
Microsoft also battling Sun
Moreover, Microsoft's latest legal battle with arch-rival Sun Microsystems Inc. (SUNW) is also not expected to delay Friday's release.
A Sun spokeswoman said the U.S. District Court clerk set a hearing for July 31 for the two motions Sun filed against Microsoft Tuesday. The motions seek to order Microsoft ship only Java-compatible versions of Windows 98.
"We wanted to get our motion on the court's radar screen before Windows 98 ships so they would know we are taking this seriously," said Sun's Lisa Poulson.
"We didn't get the source code from Microsoft until late March. We expect the court to order Microsoft (to make Windows 98 Java compatible) in all future versions."
Poulson added that Sun has not discussed the issue with the court of making the ruling retroactive to copies that may ship before the July hearing.
Microsoft shares closed at 86-15/16, up 1-1/4.
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