Microsoft Asks Court to Dismiss Government Lawsuit

Microsoft Asks Court to Dismiss Government Lawsuit

Company Shows Government Fails on Key Elements of Case

REDMOND, Wash. – Aug. 10, 1998 – Microsoft Corp. today asked a federal court judge to dismiss an antitrust lawsuit filed earlier this year by federal and state governments.

In its 88-page motion for summary judgment, Microsoft said that neither the factual record nor the relevant antitrust case law supports the government’s case.

“We believe the central elements of the government’s claims have been refuted by the factual record and the recent Appeals Court decision upholding Microsoft’s decision to develop operating systems that work well with the Internet,” said William H. Neukom, Senior Vice President for Law and Corporate Affairs at Microsoft. “We are asking the court to dismiss the government’s lawsuit in its entirety, but, at a minimum, we hope the court will expedite resolution of this case by dismissing many of the key claims.”

Microsoft said that three fundamental facts, which are not subject to genuine dispute, undermine the government’s case and support the company’s motion to dismiss the lawsuit:

  • First, as the June 23, 1998, Appeals Court decision made clear, Internet Explorer technologies are an integrated element of the Microsoft® Windows®
    operating system.

  • Second, as the Appeals Court stated, the integration of these technologies into the operating system provides clear benefits to consumers and software developers.

  • Third, neither Microsoft’s continued improvements to Windows nor any of the challenged contracts with third parties has foreclosed Netscape from distributing its Web browsing software to consumers in vast quantities.

“When you step back from all the heated rhetoric and apply well-established legal principles to the actual facts of the case, it is clear that the government will not be able to prove its case. Microsoft’s integration of Internet technologies into the operating system has been good for consumers and good for thousands of independent software companies,” Neukom said. “Microsoft and Netscape have been competing vigorously, developing improved software and distributing it widely to customers. The antitrust laws encourage such competition, which benefits consumers.”

Governments’ “Tying” Claim Refuted

The company’s motion for summary judgment provides a point-by-point refutation of the principal arguments in the governments’ case. The central allegation in the government’s case is that Microsoft illegally “tied” together two separate products. Microsoft has continually explained that its Internet Explorer browser technology is an integrated part of its Windows 95 and Windows 98 operating systems. As the Appeals Court observed, the very same software that provides Web browsing functionality also provides many other functions within the operating system. The company’s brief points out that despite repeated requests, the government has been unable even to identify the software that supposedly constitutes the separate “Internet browser software” that is the basis for its tying claim. Microsoft believes that these facts and the Appeals Court ruling, which stated that Windows 95 and Internet Explorer technologies are a “genuine integration,” undermine the government’s claim that Microsoft has illegally tied two products together.

“Microsoft has been building Web browsing functionality into Windows since the early 1990s because we recognized the benefits that integration would have for consumers and independent software developers,” added Neukom. “Any attempt to remove these critically important technologies would degrade the operating system and hurt consumers.”

Microsoft has built strong support for the Internet into Windows to benefit consumers and provide a platform for software developers to build upon. The Internet has become a primary source of information for consumers, and any modern operating system must provide consumers with the ability to obtain information from the Internet. That is the reason that operating system products from other leading vendors, such as Sun Microsystems Inc., Novell Inc. and IBM Corp., include Web browsing software.

No Foreclosure of Competitors’ Distribution

The basic theory of the government’s case is that, through “tying” and various contracts, Microsoft has “effectively foreclosed” Netscape’s ability to distribute its software to consumers. The facts show that nothing could be further from the truth. In fact, Netscape’s own public statements refute the governments’ allegations that Microsoft has foreclosed Netscape’s distribution. Netscape is one of the most widely distributed software products in history, gaining 70 million users in less than four years since its initial release. Netscape officials have stated publicly that they plan to distribute over 100 million copies of their browser to consumers this year alone.

The company’s brief also refutes the governments’ allegations concerning various contracts between Microsoft and certain Internet service providers, Internet content providers and online service providers. The brief shows that these contracts do not require “exclusive” distribution of Internet Explorer and have not prevented any competitor’s products from coming to market. For example, the brief shows that Microsoft entered into challenged contracts with only 11 of the more than 4,500 Internet service providers and only 24 of the thousands of Internet content providers that operate significant sites on the Web. These contracts are normal cross-promotional agreements that are commonplace in business. Even though these agreements were completely legal, Microsoft unilaterally waived the challenged provisions in its cross-promotion agreements with Internet service providers and Internet content providers earlier this year, so the issue is effectively moot.

“Our central goal in this case has always been to protect the ability of every company, including Microsoft, to innovate and to improve its products for the benefit of consumers,” said Neukom. “The facts show that our cross-promotion agreements have always been legal and common across many industries, but we voluntarily eliminated the provisions that the government had challenged, in order to focus on the key issue in this case, which is protecting our ability to innovate and add new features for our consumers.”

Microsoft Responds to Governments’ Request for Preliminary Injunction

Also today, Microsoft filed its response to the government’s request for a preliminary injunction against Windows 98. The government’s motion is seeking unprecedented relief from the court, including requiring Microsoft to develop a new and inferior operating system that would not include Internet technologies, or forcing Microsoft to ship a version of its most aggressive competitor’s product in Windows 98.

“We believe that the government’s request for injunctive relief should be denied as a matter of law and because it would not be in the best interests of consumers,” said Neukom. “PC manufacturers, software developers and consumers have shown that they prefer the fully integrated Windows operating system compared to the government’s attempt to design an operating system without key functionality.”

Microsoft’s response highlights the fiercely competitive and highly innovative nature of the software industry and Microsoft’s strategy of designing software with improved features and functionality to meet the needs of consumers. That competitive strategy is encouraged by the antitrust laws, which are designed to protect consumers, not competitors. Competition in the software industry has benefited consumers with better products at lower prices.

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