Letter from Sen. Charles Schumer (D-NY) to Steve Ballmer.
Re: Windows XP and antitrust.
Date: July 24, 2001.
Source: Office of Sen. Schumer.

July 24, 2001

Mr. Steve Ballmer
Chief Executive Officer
Microsoft Corporation
One Microsoft Way
Redmond, WA 98052-6399

Dear Mr. Ballmer:

As you know, I have been a supporter of Microsoft Corporation, particularly during the many challenges it has faced in the last year and a half. I believed Microsoft to be a consumer-friendly company that, having created the dominant operating system platform for the technology revolution, deserved its success, and I often stated so publicly. I was also vocal in questioning whether the break-up of Microsoft was a fair and appropriate remedy. I believe I was one of the few in my Party to be so supportive of Microsoft.

But, as the company readies to launch its newest product, Windows XP, Microsoft is about to lose my support. In a number of markets, and specifically in the case of two New York companies -- Kodak and AOL Time Warner -- I have observed Microsoft engaging in what appear to be anti-competitive practices, and my views on the company are swiftly changing. I can now relate to the level of frustration evident in Judge Jackson's rulings.

The Wall Street Journal recently outlined the difficulties facing Kodak in its deliberations with Microsoft over the design of Windows XP. According to the article, Windows XP throws up roadblocks for customers seeking to use Kodak's digital imaging software. All customers, even those who specifically install the Kodak software application, are presented with the Microsoft application, "Scanner & Camera Wizard," meaning additional steps are necessary for those consumers to access the Kodak software. Further, Windows XP steers consumers electing to process digital pictures to a Microsoft-approved vendor, hindering them from accessing Kodak's digital processing site. It seems that the very design of Windows XP is hardwired to preference Microsoft's application.

In addition, it would seem that Windows XP's license for digital photography may violate the D.C. Circuit Court's ruling, as Microsoft is preventing PC manufacturers from removing or replacing "Scanner & Camera Wizard" with a competitor's application. Kodak engaged in a lengthy negotiation with Microsoft over these troubling practices, and although Microsoft has made some recent changes, Kodak believes that significant competitive barriers remain.

AOL Time Warner has also experienced Microsoft's willingness to employ tactics designed to ensure dominance in the markets for software applications like media players and instant messaging. According to published reports, Microsoft insisted that AOL no longer offer "Real Player" media player as a condition for Microsoft maintaining AOL as a featured service when consumers "boot up" Windows. While AOL rejected Microsoft's request, the fact that Microsoft made such a proposal at all is deeply troubling.

As I understand it, Microsoft still plans to bundle Windows Media Player 8.0 with Windows XP. Moreover, Windows XP will prevent PC manufacturers from removing or replacing the Windows Media Player with competitive alternatives, in seeming violation of the D.C. Circuit Court's recent ruling. In doing so, Windows XP is poised to extinguish Real Player or any other alternative music player in the same manner as it did Netscape.

It appears to me that Microsoft intends to maximize its monopolistic power, using XP as a platform to enter new lines of business while encumbering competitors. It also appears that Windows XP will limit the ability of PC manufacturers to offer consumers a choice of products and services. In my opinion, Microsoft should be held to the same standard as other natural monopolies, like the cable industry -- Microsoft's operating system should be a gateway to the Internet, not a gatekeeper. Without open access, the fundamental principles of a free market are violated, innovation is stifled, and consumer welfare is harmed.

But Microsoft has done little to assuage concerns that Windows XP will erect barriers to open access. In fact, industry experts considered Microsoft's recent announcement the "bare minimum" to comply with the Court of Appeals' ruling.

I am interested in understanding Microsoft's answers to the following specific and related questions:

• Why is Microsoft not providing open access for competitors like Kodak and Real Player to offer their products on an equal basis with Microsoft products? Will Microsoft now pledge to do so?
  
• Why is Windows XP designed to create barriers for competitors' applications? Why is Microsoft precluding competitors from offering their products on the same terms as Microsoft applications?
  
• Why not let consumers choose the best application, rather than letting Microsoft choose Microsoft applications for them?

I call upon Microsoft to make changes to Windows XP immediately. Specifically, Microsoft should extend its July 11th announcement regarding browsers to the other applications it plans to bundle with Windows XP, including PassPort, Windows Messenger, Windows Media Player, "Scanner & Camera Wizard," and MSN Internet Service. If PC manufacturers and consumers can choose their browser in Windows XP, surely they should be able to choose their media player, messenger service, and other applications.

If Microsoft will not voluntarily take these actions, then I believe that the appropriate regulators should closely scrutinize the antitrust implications of the release of Windows XP and should consider enjoining its release. In addition, the Senate Judiciary Committee should hold public hearings on Windows XP and its potential competitive effects as soon as possible.

While I appreciate all the benefits Microsoft has brought to American consumers, I fear the company may now be designing Windows XP so that it could cause grave harm to consumers, as well as competing companies in New York and the rest of the country.

Sincerely,

Charles Schumer
United States Senate

cc: Assistant Attorney General Charles James
New York State Attorney General Elliot Spitzer
Members of the Senate Judiciary Committee