Microsoft Files Response to Department of Justice Petition
Nov. 11, 1997
Defends Right to Design Products Without Government Interference; Cites Proof the DOJ Knew Years Ago of Plans to Integrate Web Features Into Operating System

REDMOND, Wash., Nov. 11, 1997 — Microsoft Corp. yesterday filed its response to the Department of Justice (DOJ) petition, producing numerous documents that demonstrate that the company had planned to incorporate Web browsing functionality into the Microsoft® Windows® 95 operating system (code-named "Chicago" ) as early as 1993, and that the DOJ knew of Microsoft's intent prior to the signing of the 1994 consent decree.

"Integrating Web functionality into Windows is a natural and essential improvement," said William H. Neukom, senior vice president for law and corporate affairs at Microsoft. " We think the government should be encouraging this type of innovation, not trying to thwart it.

"We realized long before Netscape was even a company that we needed to build this type of functionality into Windows for consumers," Neukom added. " Microsoft Internet Explorer was part of the very first version of Windows 95 provided to computer manufacturers. For the Justice Department now to say that Internet Explorer and Windows are separate products is plain wrong. Before the consent decree was signed, we produced documents to the DOJ and there were press accounts outlining our Internet-related plans for Windows 95.

The company also produced as evidence a public statement made by the DOJ in 1994 in which the Justice Department specifically acknowledged that Microsoft has continually added new software features to its operating systems, and stated that government action to prevent such integration of new features generally would not be in the public interest.

"The consent decree does not give the Department of Justice any right to intrude into matters of product design and development," said Neukom. "We were very clear on that point in the consent decree when we negotiated the right to develop integrated products, even when code might also be available separately. The American software industry is the envy of the world. However, for it to remain strong, software developers must have the freedom to design and improve their products as they respond to changing consumer demand."

The company's arguments were presented in a 48-page brief filed Monday, Nov. 10, in opposition to the DOJ's petition in the consent decree proceeding before United States District Court Judge Thomas Penfield Jackson.

In the brief, Microsoft asks the court to reject all of the Justice Department's claims. Microsoft also asks for an opportunity to conduct discovery in preparation for any evidentiary hearing concerning the DOJ's allegations. At a hearing held on Oct. 27, 1997, the court established a briefing schedule under which the Justice Department will have until Nov. 20 to respond to Microsoft's brief. The court has scheduled a further hearing for Dec. 5, 1997.

Highlights and Selected Quotations from the Filing

  • The DOJ has been aware of Microsoft's integration plans since as early as 1993.

"The DOJ became aware of Microsoft's plans to include Internet-related features in Windows 95 when it subpoenaed large numbers of documents from Microsoft in late 1993 and early 1994. These documents detailed Microsoft's plans to make Internet-related technologies an integral part of 'Chicago' - undermining the DOJ's contention that the inclusion of Internet-related technologies in Windows 95 is simply a recent effort by Microsoft to 'label or package Internet Explorer for strategic or legal advantage.'" (p. 6)

"In fact, Microsoft began work on some of the technologies eventually included in the Internet Explorer in 1993. This work began long before Netscape, the beneficiary of the DOJ's petition, was founded in April 1994, and thus could not have been motivated by any desire to injure Netscape." (p. 6)

  • DOJ's own statement from 1994 supports Microsoft's right to integrate new features into Windows.

"In responding to the Micro System Options comment, the DOJ expressly stated that its 'complaint does not challenge as violations of the antitrust laws Microsoft's inclusion of new software features in its operating system products.'" (p. 24, citing 59 Federal Register 59426, 59428, Nov. 17, 1994)

"The DOJ explained, 'Over the past fourteen years, Microsoft has developed and sold numerous successive versions of its operating system products, each more advanced and containing more features than the previous one. Whenever Microsoft adds an attractive feature to its operating system products, it reduces the demand for software products sold by third parties as a complement to the Microsoft product that performed similar functions.'" (p. 24 of Microsoft's brief, citing 59 Federal Register 59426, 59428, Nov. 17, 1994)

"Moreover, the DOJ stated without qualification that such a broad injunction 'generally would not be consistent with the public interest.'" (p. 24 of Microsoft's brief, citing 59 Federal Register 59426, 59428, Nov. 17, 1994)

  • Government interference in product design hurts consumers and slows innovation.

"The consent decree does not give the DOJ authority to regulate the design of Microsoft's products merely because the DOJ is concerned that Microsoft will be too successful." (p. 34)

"In arguing that it was somehow inappropriate for Microsoft to include Internet-related technologies in Windows 95, the DOJ asks the court to apply a static definition to an inherently dynamic product. By making such a request ... the DOJ threatens to freeze the development of Microsoft operating systems as of 1995. The marketplace - not the DOJ - should determine how operating systems are designed. If the DOJ had halted the evolutionary process of operating system development ten years ago, consumers would have been denied the benefits of all the innovative work that Microsoft and its competitors have done in making computing more accessible, efficient, robust and fun. The consent decree was not intended to stand in the way of such technological progress." (pp. 32-33)

"Consumers want Internet-related technologies in their operating systems, and Microsoft is striving to meet that demand. There is nothing special about the Internet Explorer element of Windows 95 in this regard. Microsoft has been including progressively more and more features in its operating systems for the last sixteen years, as the DOJ acknowledged during the Tunney Act proceeding." (p. 32)

"Providing such access is just the latest step in the evolution of operating systems to keep pace with the changing nature of personal computing, which explains why virtually all modern operating systems include a variety of Internet-related technologies." (p. 8)

"Microsoft imposes no constraint on the ability of computer manufacturers to preinstall Netscape Navigator or any other browser software on their machines. Moreover, the fact that the Internet Explorer element of Windows 95 includes Web browsing functionality does not diminish the willingness of computer manufacturers to include Web browsing software from Netscape or other vendors on their machines." (p. 9)

  • DOJ's attacks on Microsoft's Non Disclosure Agreements are completely unfounded.

Microsoft's nondisclosure agreements (NDAs) are similar to those used throughout the software industry and in other industries. These provisions are common, giving companies an opportunity to seek appropriate protective orders as their confidential business information and trade secrets are provided to third parties in the course of a legal or governmental process, such as a lawsuit. The Justice Department does not cite any examples to support the allegation that Microsoft's NDAs have prevented anyone from communicating complaints about Microsoft to the DOJ. Moreover, Microsoft has provided the DOJ with two documents, spanning more than four years, stating explicitly that, due to the confidentiality protections provided by federal law, computer manufacturers may share Microsoft's confidential information with the DOJ without giving Microsoft prior notification.

"The DOJ was well aware of the existence of NDAs at the time the consent decree was signed, but the DOJ never suggested that they had the deleterious effect it now posits. Against that background, the DOJ's thinly-veiled suggestion that the NDAs are part of a plot by Microsoft to prevent the DOJ from investigating Microsoft's business practices is both preposterous and deeply offensive." (p. 40)

  • Brief outlines numerous reasons to reject DOJ's claims.

  • First, the consent decree itself refers to Windows 95 - which the DOJ has always known would include Internet functionality - as a "covered product," not as two separate products, as the DOJ now contends. Original equipment manufacturer (OEM) versions of Windows 95 have always included Internet Explorer.

  • Second, a key provision in the consent decree specifically states that the decree does not prohibit Microsoft from "developing integrated products." Windows 95 is just such an integrated product, integrating the functionality of the MS-DOS® operating system version 6 and Windows 3.1 together with substantial new technology.

  • Third, the meaning of "integrated" in the consent decree is clear and unambiguous - it means Microsoft may provide in one product functionality that might also be available in separate products. Such integration is common in the software industry, and good for customers and other software developers. Moreover, given the functions Microsoft Internet Explorer performs and the many interdependencies that exist between Internet Explorer and other portions of the operating system, Internet Explorer is clearly a core component of Windows 95.

  • Fourth, the history of the key provision in the consent decree, including documents exchanged between Microsoft and the DOJ, confirm Microsoft's interpretation of the relevant language of the decree.

  • Fifth, the superficial criteria used by the Department of Justice to argue that Internet Explorer is a "separate product" are irrelevant because the decree allows Microsoft to develop integrated products even where code is offered separately. In addition, the criteria now suggested by the DOJ for establishing a violation are not part of the consent decree and were never discussed by the parties when the decree was negotiated. They can not be used now to provide the basis for a contempt proceeding against Microsoft.

  • Sixth, the DOJ is legally prevented from raising objections to Microsoft's integration of Web functionality into the operating system now, because the DOJ has known of this integration for years without taking action.

New Documents Included in the Filing

Steven Sinofsky, former technical assistant to Bill Gates and current general manager of the Office Product Unit at Microsoft, describes early plans at Microsoft to include Web browsing in Windows 95. Attached to Sinosfky's affidavit are various documents - all provided to the DOJ before the consent decree was signed - showing Microsoft's plans to include rich Internet functionality in Windows 95. For example, one document from April 1994 lists network services to be included in "Chicago" , and starts the list with "Integrated Net Browsing in Explorer." Because they contain confidential company information, certain documents attached to Sinofsky's declaration will not be made public by Microsoft. The declaration will, however, include citations from these documents.

Brad Chase, vice president of developer relations and Internet marketing at Microsoft, describes how Microsoft has always viewed Internet Explorer as an integrated part of Windows 95. In contrast to the DOJ's assertion, he also shows that many parts of Windows are made available and marketed separately from the operating system, such as Exchange and the DirectX® set of APIs. Chase explains the reasons for distributing parts of the operating system separately, and why Microsoft did so with Internet Explorer, in order to upgrade the installed base and expand Internet use among consumers.

David Cole, Microsoft vice president responsible for ongoing development of Internet Explorer, shows that Internet Explorer is integrated with Windows 95 as a matter of software development. Cole describes in detail the purposes of an operating system, and then shows how Internet Explorer serves those purposes. In particular, Cole describes in great detail the architecture of Internet Explorer and shows how interdependent Internet Explorer is with the rest of Windows 95. He also describes how Internet Explorer exposes a rich set of system services for software developers, and how the performance of various parts of Windows 95 would be impaired if Internet Explorer were removed from it.

Joe Belfiore, group program manager at Microsoft responsible for the user interface of Windows 95, describes the user interface enhancements to Windows 95 provided by Internet Explorer 4, further demonstrating the integration of Internet Explorer with the operating system. Enhancements briefly described by Belfiore include the ability of Windows Explorer to access files on the Web, the new Web view in Windows Explorer, the Active Desktop TM , Start menu improvements and others, all provided by Internet Explorer 4.0.

Tim Krauskopf, a co-founder of Spyglass Inc. (though speaking on his own behalf here) and former software developer at the National Center for Supercomputing Applications (NCSA) at the University of Illinois, is a well known expert on Internet technology. Krauskopf states that Spyglass considered how to position browser technology before Netscape existed as a company, and that Spyglass decided it was operating system technology and have marketed it as such ever since. Krauskopf specifically identifies Internet Explorer as constituting operating system technology.

Richard Urowsky, senior outside counsel to Microsoft on antitrust matters, recounts the negotiating history of the consent decree with the DOJ in detail. Urowsky's declaration includes a number of documents supporting Microsoft's contention that at the time the consent decree was signed the agreement gave the DOJ no role in product design and that Microsoft was free to develop products that included functionality also provided separately by Microsoft or others.

The filing includes declarations from Packard Bell, Compaq and Dell. These OEMs state that they decide what software to put on their machines based on customer demand. They further state that they believe Internet Explorer 4 is in demand by their customers, and that is why they are shipping it today, even though they are not contractually obligated to do so at this time (and that they are free to ship Netscape Navigator if they wish).

The filing includes declarations from a number of independent software vendors (ISVs) saying that they regard Internet Explorer as providing a rich set of operating system services and that they benefit from Microsoft's inclusion of Internet Explorer as part of Windows 95. The ISVs also benefit from Microsoft's separate distribution of the latest versions of Internet Explorer because it provides an upgrade to the Windows 95 installed base with new system services that products from these ISVs rely upon.

Founded in 1975, Microsoft (NASDAQ "MSFT" ) is the worldwide leader in software for personal computers. The company offers a wide range of products and services for business and personal use, each designed with the mission of making it easier and more enjoyable for people to take full advantage of the full power of personal computing every day.

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