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Microsoft Faces Antitrust Allegations From Netscape


An attorney representing Netscape Communications Corp. has asked the US Department of Justice to investigate Microsoft Corp.'s World Wide Web marketing tactics. The heart of the issue is whether Microsoft's aggressive strategies are very competitive or stepping across a federal antitrust agreement with the Department.

Netscape's letter to the Justice Department accuses Microsoft of violating a 1994 antitrust agreement it formed with the Department. In summary, the accusations contained in a letter from Gary Reback, a Palo Alto attorney with previous experience fighting Microsoft, alleges the software giant uses secret incentives and penalties as part of contracting with personal computer (PC) makers and Internet service providers.

Netscape cites an instance in which Microsoft charges PC makers an additional $3 for its operating system when a company offers both the Microsoft Internet Explorer Web browser and Netscape's Navigator browser. Three dollars may not sound like a large sum, but one industry observer said the difference could be as much as a combined $100 million for PC makers.

A July study indicated Netscape held a more than 80% share of the browser market, while Microsoft maintained less the 3%. Last week, Microsoft debuted IE version 3.0 and its plans to gain a substantial share of that market. The battle, however, extends far beyond browsers.

Marc Andreessen, Netscape co-founder, said in an interview, "You have to understand there are two areas at stake here: the Internet and the intranet. We make our money from the sales of software for the intranet."

While the Internet browser war may appear as the battleground, the real playing field is over a much larger and profitable corporate Internet and intranet software market. Netscape built its strong corporate client- base by having its browser widely distributed. Now, Microsoft freely distributes its browser while Netscape charges for its browser.

Additionally, Netscape faces what it calls an "uneven playing field." Microsoft has the financial strength to wage a long and extensive battle in the marketplace and in the courtroom. Comparatively, Netscape, while in good financial shape, does not have the "deep pockets" needed to maintain a long and expensive battle.

Reback's letter also claims Microsoft offers corporate customers $5 for every copy of Navigator they remove from corporate network. He additionally claims arrangements with online and Internet providers include free advertising, hardware, and software.

When Microsoft debuted IE 3.0 last week, Netscape told Newsbytes, "They may have spent $400 million to get developers and Web publishers to create Web sites and software applications under standards exclusive to IE."

Neither Microsoft or the Justice Department has made an official response to Netscape's allegations which were made public yesterday. However, Brad Chase, Microsoft's vice president of Internet products, said, "This is really the pot calling the kettle black."

If Netscape cannot convince the Justice Department to re-examine Microsoft's compliance with the agreement, it asks that the Federal Trade Commission enter the picture. If on the other hand, its request is successful, Microsoft can expect a contempt order which calls for specific "cease and desist" instructions regarding the allegations.

Andreessen also called on Microsoft or participating companies to reveal mutual disclosure agreements surrounding their activities. Specifically, Netscape has asked the Wall Street Journal Electronic Edition to disclose terms of its agreement with Microsoft and IE 3.0. Registered users of the new browser have free access to the Wall Street service until the first of the year.

A review of analysts indicate Microsoft may be in a "gray area" in relation to its agreement with the Department of Justice, but everyone will have to wait for the Department's response and what appears to be a continuing legal battle.


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