Text reno

Word for word Reno: Microsoft in anti-competitive tactics

Mon May 18 18:08:52 1998

WASHINGTON (CBS.MW) -- The following is a condensed transcript of the Justice Department's news conference announcing an antitrust suit against Microsoft. U.S. Attorney General Janet Reno, Assistant Attorney General Joel Klein, and Iowa Attorney General Tom Miller spoke at the conference.

Reno: The high technology revolution of the past two decades is one of America's greatest success stories. The revolutionaries were inventors, people with bold ideas. They possessed something else as well: a fair chance to develop those ideas into products that could compete in the marketplace. And for more than a century, strong antitrust laws have protected ordinary Americans by ensuring real competition.

Today we are taking another step to keep our marketplace competitive. The Justice Department has charged Microsoft with engaging in anti-competitive and exclusionary practices designed to maintain its monopoly in personal computer operating systems, and attempting to extend that monopoly to Internet browser software.

The department alleges in its complaint that Microsoft has engaged in a series of anti-competitive practices, including misusing its Windows operating system monopoly by requiring computer manufacturers, as a condition of getting Windows, to adopt a uniform boot-up or first screen sequence that promotes Microsoft products; secondly, by attempting to persuade Netscape (NSCP), an Internet browser software competitor, not to compete with Microsoft and instead divide up the browser market; by engaging in exclusionary contracts with providers of Internet and on-line services, and Internet contact providers; and by forcing computer manufacturers to purchase and install Microsoft's Internet browser as a condition of getting its Windows operating system.

In short, Microsoft used its monopoly power to develop a choke hold on the browser software needed to access the Internet. Microsoft's actions have stifled competition in the operating-system and browser markets. But most importantly, it has restricted the choices available for consumers in America and around the world.

Today's action is intended to ensure that consumers and computer makers have the right to choose which software they want installed on their personal computers, and not have that software chosen for them. It is also designed to preserve competition and promote innovation in the computer software industry.

The department also filed today a motion seeking a preliminary injunction. The injunction seeks to end Microsoft's practice of forcing Windows 98 purchases to take Microsoft's Internet browser, as well, so that consumers can have a real choice. If Microsoft insists on including its browser on Windows 98, it should also include Netscape's browser. Computer manufacturers would have the option of deleting either browser. If Microsoft does not want to include Netscape, it must nbundle its own browser and let it compete in the free market on its merits.

Secondly, the motion would seek to require Microsoft to give computer manufacturers the right to install their own first screen at the conclusion of the initial boot-up sequence, a first screen on which they can promote any products they wish; require Microsoft to give computer manufacturers additional options for installing browser software on new computers; and finally, forbid Microsoft from enforcing contractual provisions that require providers of Internet and on-line services, and Internet content providers, to limit their distribution and promotions of competing browsers.

The Internet is already revolutionizing communication, commerce and the flow of information around the world.

No firm should be permitted to use its monopoly power to keep out competitors or to spurn innovations. Without antitrust laws, the innovators of today would be shut out of the marketplace. Competition will dry up, along with the incentive to innovate. Microsoft has an excellent record of innovation, but we want to make sure that the field is open -- open to the next Microsoft, the next great innovator who can help improve our lives and our economy if they are given the opportunity.

I am pleased to be joined today by Joel Klein, the assistant attorney general in charge of the department's antitrust division; Iowa State Attorney General Tom Miller, the chair of the antitrust committee of the National Association of Attorneys General; New York Attorney General Dennis Vacco; and Connecticut Attorney General Richard Blumenthal, who are representing the 20 states and the District of Columbia who have also filed suit against Microsoft. The Justice Department and the states have worked very hard to coordinate their investigations of this matter, and American consumers have been well served, as a result.

I'd now like to ask Joel Klein to comment.

Klein: Thank you, Madam Attorney General. The lawsuit we have filed today seeks to put an end to Microsoft's unlawful campaign to eliminate competition, deter innovation, and restrict consumer choice. In essence, what Microsoft has been doing, through a wide variety of illegal business practices, is leveraging its Windows monopoly operating system to force its other software products on consumers. This is like having someone with a monopoly in CD players forcing consumers to take its CDs in order to get the machine.

We believe that most Americans prefer to choose their own CDs, and for that matter, their own software products, as well.

The specific details of Microsoft's scheme are set out at length in the court papers we have filed today. But to put it in a nutshell, what the evidence shows is that Microsoft, from Bill Gates on down, quickly realized that Netscape's Internet browser, called the Navigator, posed a real threat to Microsoft's Windows monopoly. To deal with that threat, Microsoft first went to Netscape and proosed that rather than compete with each other, the two companies should enter an illegal conspiracy agreement to divide up the market. Now, when Netscape rejected that offer, Microsoft then went about using its Windows monopoly to, in Microsoft's own words, and I quote, "Cut-off Netscape's air supply." Close quote.

Microsoft accomplished this largely by locking up the two major distribution channels for Internet browsers. In particular, what it did was first it leveraged its Windows monopoly to force its browser onto all new computers. And second, it entered into anti-competitive contracts with all of the major Internet and online services companies -- companies like America OnLine.(AOL)

At the same time, Microsoft severely restricted Netscape's ability to gain access to these critical distribution channels.

Now, the evidence we gathered during our extensive investigation demonstrates that Microsoft's use of these predatory and exclusionary devices and practices was not designed to help consumers but, rather, to make sure that Microsoft could crush its competition. As one key Microsoft executive candidly stated, and I quote, "It seems clear that it will be very hard to increase our browser market share on the merits of our browser alone. It will be more important to leverage Windows to make people use our browser instead of Navigator," close quote.

Now that last part point bears emphasis and reemphasis, because it reflects not only what Microsoft said but what it did. As the evidence makes clear, Microsoft is unwilling to compete fairly and on the merits. Rather, it prefers to leverage its Windows monopoly, quote, "to make people use (its) browser," close quote.

The antitrust laws take a very different view of the way the marketplace should work. Those laws are based on the belief that instead of having a monopolist make people use a product, people should be free to choose for themselves what products they want to use.

In order to protect consumer choice then and to preserve existing competition, we have today moved for a preliminary injunction in federal district court in Washington, DC. First, we will seek an order providing that if Microsoft insists on including its browser with Windows '98, it must also include Netscape's browser. Now if Microsoft would prefer not to include Netscape, all it needs to do is unbundle its own browser and let it compete on the merits. But to allow Microsoft and Microsoft alone to bundle its browser with its monopoly operating system could well cause irreversible harm to competition by letting Microsoft unlawfully achieve a second monopoly in the Internet browser market during the time it would take to fully litigate this lawsuit.

At the same time, we believe that computer manufacturers should not be forced to carry products that they do not want, and so our proposed injunction allows them to remove Microsoft's browser, Netscape's browser or both, and of course, tinclude any other browser of their choosing.

This will ensure equality and real choice during the pendency of this lawsuit.

In addition, the preliminary injunction also seeks to remove the competitive shackles that Microsoft has placed on computer manufacturers. At present, Microsoft is using its monopoly power to ensure that all PCs are in reality Microsoft PCs. It does this largely by controlling the first screen that consumers see when their computers boot up. And so today, as a result of Microsoft's exercise of monopoly power, that screen is virtually identical, regardless of whether your computer is made by Compaq(CPQ),Gateway(GTW), Hewlett-Packard(HWP), or any other company.

Bill Gates himself recognized that key competitive significance of this Microsoft restriction on computer manufacturers. Indeed, shortly before the restriction was imposed by Microsoft several years ago, Mr. Gates directly expressed his serious concern, stating that the computer makers were, quote, "coming up with offerings that get displayed on their machines in a far more prominent way than our products are displayed." And he went on to say that these offerings by the computer manufacturers among other things, were, quote, "interfering with the very, very important goal of winning Internet browser share for Microsoft," close quote.

To restore those competitive options, which Microsoft subsequently eliminated from the market, the preliminary injunction will allow computer manufacturers to control the first screen of their own computers so they can decide what software products they will feature and promote. This will increase competition, increase consumer choice, and stimulate innovation in the software market.

Finally, we will seek an immediate end to all of the Microsoft exclusionary agreements with on-line service providers, Internet service providers and Internet content providers. Microsoft claims that it has amended these contracts to make them legal, but it has not. Microsoft cannot be allowed to use its monopoly power to force these companies to promote Microsoft's products. Free choice -- free choice is what these companies are entitled to and what will best serve consumers.

I should also note here that while today's lawsuit focuses on certain critical issues relating to browser technology and the likely effect of Windows 98 in that competitive arena, our investigation into other Microsoft business practices and products will continue.

In closing, let me be absolutely clear: nothing we are doing here will or should prevent Microsoft from innovating or competing on the merits. What cannot be tolerated, and what the antitrust laws forbid, is the barrage of illegal, anti-competitive practices that Microsoft uses to destroy its rivals and to avoid competition on the merits. That, and that alone is what this lawsuit is all about.

It is now my pleasure to introduce Tom Miller, the attorney general from Iowa, who is char of the National Association of Attorney Generals Antitrust Committee.

Tom?

MR. MILLER: Thank you, Joel.

There's a basic principle here, a principle of law that says that if you have a monopoly in one product, you can't leverage or use that to sell other products; the other products have to rise or fall on their merits, not on the leverage provided by the monopoly product. I think everybody agrees with that -- everybody from Judge Bork to Senator Hatch to Senator Kennedy. It's a basic principle.

And while others believe in it, it falls to us at the state level, and Joel and General Reno at the national level, it falls to us to enforce it. We're the law enforcement officials that need to enforce that principle, and that's what we're doing today -- 20 states and the District of Columbia filing one joint action in the District of Columbia to assert that the law will be enforced when it comes to the software industry.

The case is directly about the browser, but the browser is only one example of the basic principle. The basic principle extends throughout the software industry and throughout America.

In the browser, as has been suggested, the basic allegations are that Microsoft couldn't win the browser battle, were hovering around 5 percent, and decided they needed some help, according to the complaint. The help was first these agreements, these restrictive agreements, with all the other players in this process. And that still wasn't quite enough, according to the petition, so they moved to bundle it, to tie it right directly to Windows.

And it had some effect. They went from 5 percent to 30 percent of the market, to about 42 percent of the market, in about a year and a half.

So that's why we have to step in -- to enforce the law and to seek the preliminary order, to stabilize the situation, while this litigation is pending.

The reason for this is too very fundamental -- that if one company can monopolize an industry and then expand upon that monopoly, ultimately consumers lose. Prices go up. Quality goes down. And in an industry where innovation is, innovation suffers. There's a chilling effect on the rest of the industry in terms of innovation, because the major player can come in and take your product away at any time. And there's a chilling effect for the giant, too; they don't -- aren't challenged as much. Innovation suffers.

That's why the United States Supreme Court said it probably best when they talked about the principles that we're talking about today. They said the Sherman Act is the Magna Carta of the free enterprise system in the United States of America.

I believe the attorney generals have a rich history of multi- state enforcement activities, dating back at least 21 years. We found there's strength in numbers when we get together like the 20 states have here today. And it's usually about consumers -- either consumers in the antitrust area, consumers in consumer protection area, or consumes in related areas. That's who we represent -- the 20 states. We represent the consumers of America, and our job is to fight for them.

I want to acknowledge the enormous work that was done by Joel Klein and the Justice Department, and the great cooperation that we've had on this litigation. I believe, particularly over the last few days -- the crucial days -- that it's been textbook example, a model, of how the federal government and the state governments should work together.

And I want to acknowledge the great efforts by the states, by the other states, Texas and Massachusetts for really pioneering this, 12 states for being in the working group, and most of all New York. New York, to date, has provided the most work among our effort. And they're the lead counsel going forward. They'll -- you'll continue to do a disproportionate amount of work, and we thank you for that. I thank all the states for joining, and I thank the federal government for being such a great partner in this very important project.