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Microsoft Corp reacted with a mixture of defiance and incredulity to the Department of Justice’s accusation yesterday that the company is violating a 1995 consent decree by including Internet Explorer 3.0 and 4.0 with Windows 95. Microsoft said that it has always included browser functionality in the version of Windows 95 that personal computer manufacturers bundle with their machines under the terms of the OEM agreements with Redmond. And that fact was known by the government at the time of the decree, when Windows 95 was code named Chicago. The agreements stipulate that the OEMs must install the complete operating system, including the browser. Microsoft thinks there’s no case to answer because ever since MS-DOS 2.0 back in the early 1980s, Microsoft has been able to include technology that enables users to locate and collect information from various sources, firstly the hard disk, then CD-ROMs, LAN servers, WAN servers – the internet is the next logical extension of that, says the company. The government is asking the judge in the 1995 case, Washington-based Judge Jackson to hold the company in contempt and levy a fine of $1m per day should the company continue to violate the terms. Attorney General Janet Reno says the 1995 order barred the company from imposing anti-competitive licensing terms on personal computer manufacturers. Fair enough, says Microsoft, insisting that it is not being anti-competitive. Microsoft senior vice president for law and corporate affairs Bill Neukom said the company is quite free to do precisely what we have done. It comes down to a question of how to define an operating system. Microsoft says it includes internet browsing capabilities, while Justice says it is not and its inclusion limits consumer choice, which is obviously not the same question and perhaps contributes to Redmond’s confidence that it will prevail. Neukom said both the government and Microsoft will write to Judge Jackson with their side of the story, there will probably be a discovery stage where parties exchange documents and then a chance to present evidence. Following the evidence, Jackson will make a decision and take into account Justice’s request for relief of a $1m a day fine. The fine will likely to be forward-going rather than retrospectively imposed. Justice also expressed its disquiet over the non-disclosure element of Microsoft’s OEM contracts, whereby financial terms remain secret and the OEM must inform Microsoft of any approaches by federal or local authorities regarding the terms if the agreement. Neukom said that’s absolutely standard in the software industry, as in most others and he was not aware of any complaints or abuses of it. I’m afraid that the government misunderstands the meaning of the consent decree and don’t have an adequate understanding of how software publishers improve their products, said Neukom. The case is expected to take months rather than weeks, although Microsoft must make some sort of official response within 11 days. Windows NT is not likely to be affected, but Microsoft would not say whether it will affect the proposed second quarter 1998 release date for Windows 98. The news caused Microsoft shares to dive, but they eventually closed up $0.375 at $132.625 on very heavy trading -the heaviest on Nasdaq – ahead of the company’s first quarter earnings, while Netscape Communications Corp – probably the main beneficiary should the case go against Redmond, saw its shares put on $4.3125, or 12.3% to close at $39.25, having hit $41.50 at one point.

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CBR Staff Writer

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