Microsoft Response to Filing of Antitrust Suits
May 18, 1998.
Source: Microsoft.

Microsoft will Vigorously Defend Principle of Innovation
State, Federal Lawsuit Will Hurt Consumers, Software Industry and U.S. Economy

Redmond, Wash. - May 18, 1998 - The Microsoft Corporation said today that a lawsuit filed by the U.S. Justice Department and several State Attorneys General is without merit and will hurt consumers and the American software industry, a leading contributor to the U.S. economy. Microsoft said it will vigorously defend the freedom of every American company to innovate and improve its products, a principle that lies at the heart of this case.

Microsoft said today's action by the Government will set a harmful precedent in which government intervention into a healthy, competitive and innovative industry will adversely impact consumers and a U.S. company's ability to improve its products. The company said it appears that the lawsuit is more in the interest of a single Microsoft competitor than in the interest of American consumers.

Microsoft also announced today that it has released Windows 98 code to PC manufacturers. The product is on schedule for the June 25 consumer launch.

"Windows is popular because it offers consumers the best combination of price and performance," said Bill Gates, Chairman and CEO of Microsoft. "How ironic that in the United States - where freedom and innovation are core values - these regulators are trying to punish an American company that has worked hard and successfully to deliver on these values.

"We believe an anti-trust lawsuit is counterproductive, costly to the taxpayers and ultimately will be unsuccessful in the courts," he continued. "The government's action today is a step backward for America, consumers and for the PC industry that is leading our nation's economy into the 21^st Century. This suit is all about Microsoft's right to innovate on behalf of consumers - the right to integrate new technologies into Windows as they develop."

"I'm very disappointed we couldn't reach an agreement with the government. We spent 10 days in intense negotiations with the DOJ and the states. We put forth substantive, serious proposals, despite the fact that we felt the government's claims were without merit," Gates said.

"The government's action is really just a repeat of the lawsuit it filed last October," said William H. Neukom, Microsoft's Senior Vice President for Law and Corporate Affairs. "Like last year's case, the government's central complaint is that it's somehow illegal for Microsoft to advance our technology and help consumers by making Windows work well with the Internet. That case is currently on appeal, and we are expecting a decision at any time. We believe the government was wrong to attack innovation last year, and we believe the government is wrong to attack innovation today."

"It appears from the complaint that state and federal officials are profoundly confused on the central facts," Neukom said. "We are confident that the facts and the law are on our side. The antitrust laws of this country are intended to protect consumers, not competitors. We will vigorously defend the fundamental principle in this case - protecting the freedom of every American company to innovate and continually improve our products."

Microsoft Responds to Government Complaints

The Government's lawsuit is a continuation of its ongoing interest in forcing Microsoft to remove Internet functionality from Windows. Microsoft commented today on several of the key claims of the complaint:

• Government Requests "Free Ride" for Netscape. Talks with federal and state officials reached an impasse this weekend over government demands that Microsoft abandon its principle of product innovation. Federal and state lawyers asserted that making the Windows® operating system work well with the Internet is somehow illegal. They also demanded that Microsoft include Netscape Communications Inc.'s competing browsing software in every copy of Windows. Netscape has said consistently that it is developing its web browsing technology into a new computing platform that will render Windows obsolete. The government was therefore demanding that Microsoft add a product to Windows that is intended to marginalize Windows. Microsoft said it does not believe the government's demand is reasonable or supported by the law.  

• Choice for PC Makers and Consumers. A primary function of any computer operating system is to provide a way for consumers to interact with their computer. This is done through a common "user interface" or desktop screen, such as the Windows desktop. Microsoft generally required PC makers to allow Windows to boot up and display the Windows desktop the first time a new PC running Windows is turned on. Consumers who purchase a new PC and see the Windows desktop as the first screen are assured of the product's quality, simplicity and reliability. Once that first "boot-up" takes place, consumers can customize the desktop in any way they like, or with a few mouse clicks they can set up the PC to display another, competing software program offered by the PC maker or installed by the consumer every time the PC is turned on. Microsoft provides PC makers and consumers with choice and flexibility.

• ICP and ISP agreements. Like virtually all companies in the software industry and many other industries, Microsoft has entered into various cross-promotional agreements in which Microsoft agrees to help promote and distribute a company's products and services in exchange for promoting Microsoft's technology. These agreement are legal and commonplace.

Windows and Internet Explorer Integration Issue on Appeal

Last week, in Microsoft's continuing dispute with the Justice Department over the company's integration of Internet Explorer technology with Windows, a three-judge Appeals Court panel unanimously granted Microsoft's motion for a stay of the preliminary injunction issued by a Federal District Court Judge last December insofar as it applies to Windows 98.

In its unanimous ruling, the Court wrote, "Whatever the United States' chances of winning permanent injunctive relief with respect to Windows 95 in the proceeding currently in the district court, they appear very weak with respect to Windows 98. The United States presented no evidence suggesting that Windows 98 was not an 'integrated product,' and thus exempt from the prohibitions of Section IV (E) (i)."

The court concluded its order by saying, "Under these circumstances any interpretation of IV (E) (i) which barred the distribution of Windows 98 under the conditions evidently contemplated by Microsoft would 'put judges and juries in the unwelcome position of designing computers'."

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 advantage of the full power of personal computing every day.