News

Netscape Sues Microsoft

• By Scott Bekker
• 01/23/2002

Netscape's case rests on the long-running federal antitrust action against Microsoft in which the courts found that Microsoft acted in an anticompetitive manner and harmed Netscape's business with its actions.

Netscape could have filed the lawsuit at any time since U.S. District Court Judge Thomas Penfield Jackson entered his Findings of Fact in November 1999. However, the lawsuit cites a string of decisions leading up to the Supreme Court's December 2001 rejection of Microsoft's certiorari petition, suggesting that Netscape may have been waiting for the appeals process to play most of the way out.

The case remains very much in flux. While the U.S. Department of Justice and several states have reached a tentative settlement with Microsoft, nine states are continuing with the case. The Supreme Court's decision not to take the case also hinged in part on a desire by the court not to get involved until the case had fully worked its way through the system.

The Netscape complaint, filed in federal district court in Washington, D.C., takes readers all the way back to 1994. However, Netscape-AOL attorneys strove to make the case relevant to the 2002 business climate by broadening the issue from browser license revenues to revenues associated with having a dominant application platform.

It's an important question given the fact that the two browsers with the largest market share (Microsoft Internet Explorer and Netscape Navigator) are distributed for free. According to Netscape's complaint, Navigator once enjoyed 70 percent market share, but currently has about 20 percent to Microsoft Internet Explorer's 80 percent.

"A company distributing Web browsers can generate income by licensing the browser and/or by enjoying increased revenues from web portals linked to the Web browser, licenses of server application software, sales of advertising and links on the Web browser, sales of web development tools and other sources of revenues linked to distribution of the Web browser," the complaint states.

Netscape's claim notes several Microsoft practices that harmed its business, including forcing OEMs to use Internet Explorer exclusively, bolting IE onto Windows, giving preferential product support to developers who used only IE, entering exclusionary agreements with ISPs and Internet Access Providers and forcing Apple to replace Netscape Navigator with IE as its default browser.

The complaint avoids mention of Microsoft's decision to make IE free when Netscape was charging for Navigator, a move that could be construed as anticompetitive given Microsoft's OS monopoly but that clearly did not harm consumers.

Netscape claims it is suffering continuing harm from Microsoft's anticompetitive behavior, which Netscape claims is ongoing. In addition to seeking triple damages, Netscape claims to be filing the suit to restore browser and operating system competition.

The complaint filed Tuesday does not place a dollar value on Netscape's damages.

Netscape is asking the court for "injunctive relief sufficient to prevent further antitrust injury to Netscape and to restore competition lost in the market for Web browsers, and to enable middleware platforms to compete with Intel-compatible PC operating systems."

The complaint also makes no mention of its giant corporate parent, AOL-Time Warner, stating merely that "On March 17, 1999, Netscape's ownership changed."

Netscape should not have to prove that Microsoft's behavior was anticompetitive or that Netscape was harmed by that behavior, since both have been established in the antitrust case. For example, the complaint quotes the following passages from the Court of Appeals' June 2001 opinion: "Microsoft undertook a number of anticompetitive actions that seriously reduced the distribution of Navigator" and "Microsoft's deals with the IAPs clearly have a significant effect in preserving its monopoly; they help keep usage of Navigator below the critical level necessary for Navigator or any other rival to pose a real threat to Microsoft's monopoly."