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Federal Action Sought Against Microsoft

Competition: Netscape accuses rival of violating terms of 1994 antitrust settlement.


SAN FRANCISCO — Netscape Communications Corp. on Tuesday asked the U.S. Justice Department to take immediate action against Microsoft Corp., alleging that the software giant has violated a 1994 antitrust settlement and engaged in "far-reaching, anti-competitive behavior."

The letter marks Netscape's first direct public appeal for government intervention in its fierce war with Microsoft, and it came amid indications that the Justice Department may be reactivating a long-dormant investigation of Microsoft's Internet initiatives.

In an eight-page letter to Deputy Assistant Atty. Gen. Joel Klein, Netscape's outside counsel, Gary L. Reback of the prominent Palo Alto law firm Wilson Sonsini Goodrich & Rosati, alleges that Microsoft acted illegally in its marketing of both the Internet Explorer World Wide Web browser and the Windows NT operating system.

"The Internet revolution has the potential for providing competition to Microsoft's desktop operating system monopoly," Reback wrote. "That is the reason, Netscape believes, why Microsoft has resorted to such desperate measures in trying to eliminate its Internet software competitors."

In July 1994, Microsoft signed a consent decree ending a five-year government investigation of its business practices. The company agreed to change the way it licenses its operating system software, which is used on more than 80% of all personal computers, and make a few other changes in its business practices. The settlement was denounced by Microsoft's rivals--several of which were represented by Reback--as a mere slap on the wrist.

Last year, government lawyers began looking into allegations that Microsoft was acting anti-competitively by including software for its Microsoft Network as part of the Windows 95 operating system. The issue quickly faded when the rise of the Internet suddenly made Microsoft Network look unimportant.

But at least one software developer, Tim O'Reilly of Internet publisher O'Reilly & Associates, said that Justice Department lawyers had called last week seeking information--an indication that the investigation may be entering a new phase.

Netscape and Reback allege that Microsoft is using its control over Windows to gain an advantage in selling Internet software--which, if true, could be a violation of the 1994 settlement. About two weeks ago, the two companies exchanged sharply worded letters, a copy of which Netscape sent to the Justice Department, regarding Microsoft's licensing of an operating system called Windows NT Workstation.

Although Netscape has been urging Windows NT Workstation customers to buy Netscape's "server" software for managing World Wide Web sites, Microsoft says that violates the license agreement and that people who want to create servers must use the far more expensive Windows NT Server--which would render the Netscape software unnecessary.

Tuesday's letter to the Justice Department also alleges that some of Microsoft's aggressive marketing initiatives on behalf of its Internet Explorer Web browser--still a distant second in the market to Netscape's Navigator--are anti-competitive. Microsoft has offered "clandestine side payments," discounts on its operating systems and an icon on its popular Windows 95 software in return for distribution of Internet Explorer, Netscape alleges.

For example, Japanese personal computer manufacturer Hitachi Ltd. will bundle Internet Explorer exclusively on a new laptop computer in return for a reduced price on Windows, the letter charges. Hitachi declined to comment.

Microsoft Vice President Brad Chase called the allegations "wild and untrue."

"It's sort of a hysterical response to the fact that Internet Explorer is now the better product," Chase said. Both companies have recently introduced new versions of their browser software.

Justice Department spokesman Bill Brooks would not comment on the Netscape letter.

Reback conceded that the Justice Department is unlikely to take strong action in advance of the November election. He also said Netscape is not likely to file a civil antitrust suit.

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