Microsoft defends on-line plans as U.S. probe widens

Microsoft Corp. officials said yesterday that despite a Justice Department investigation the company had no intention of altering its plans for entering the fast-growing computer on-line services business in August.

The Justice Department is looking at whether Microsoft's plan to bundle the access software for its on-line service onto the upgrade of its popular Windows operating system, due in August, would give the big software company an unfair advantage in the on-line business.


The plan would allow users of the new operating system to dial in to the on-line network with a single mouse click.

Microsoft executives said the company simply would be a new player in an emerging market, and its presence should enhance competition to the benefit of consumers.


They also argued that they saw no grounds for an antitrust challenge to Microsoft's plan to put the software that enables users to tap into its coming on-line service, Microsoft Network, on an upgraded operating system, Windows 95.

"We've thought about this with some care, and we have a perfectly legitimate right to distribute the access software for our on-line service on Windows 95," said William Neukom, senior vice president for law and corporate affairs.

Microsoft first announced its intention to bundle the access software for its on-line software on Windows 95 last November.

A Windows 95 user will see a Microsoft Network icon on the screen, click on it, and then be asked to sign up for the service. But signing up is an option, not a requirement.

"Windows 95 and Microsoft Network are two separate purchase decisions," explained Russell Siegelman, general manager of Microsoft's on-line services business.

In probing the Microsoft plan, Justice Department officials have made inquiries of executives with existing on-line services like America Online, CompuServe and Prodigy since last year. But the Justice Department has accelerated the pace of its inquiries in the last two weeks. There appear to be two reasons for the stepped-up pace of inquiry from Washington.

First, the Justice Department suddenly had the resources to give more scrutiny to the on-line business after Microsoft three weeks ago unexpectedly dropped its $2 billion bid for Intuit Inc., the leader in personal finance software. The governmenthad filed suit to stop the acquisition.

The Justice Department also was forced to step up its inquiries because the programming language, or code, for Windows 95 will be completed in the next few weeks. Then, the electronic code will be shipped to outside contractors who put the code on floppy disks for millions of copies of the operating system.


If the Justice Department is going to challenge Microsoft and try to make it unbundle the on-line service software, it should act quickly or notat all, industry executives say.

As part of the accelerated timetable, the Justice Department issued "civil investigative demands," the civil equivalent of a subpoena, to the major on-line businesses.

Executives and their lawyers who received the requests said they were for information and documents about marketing in the on-line business and assessments of the likely impact of Microsoft's entry into the business if Microsoft Network was bundled onto Windows 95.

The Justice Department has said little about its inquiry into the on-line services business, saying only that it was "looking at the possibility of anticompetitive practices in the computer-software industry."

To disrupt Microsoft's on-line marketing plan before August, lawyers said the Justice Department would have to succeed in convincing a federal judge to issue a preliminary injunction to enjoin Microsoft.

Such a special judicial motion to stop a defendant from doing something, even before a case can be presented in a full trial, requires the plaintiff to present a very strong reason why the action should be taken.