Mighty Microsoft Runs Into Resistance

Call it "Showdown in Cyberspace."

The US Justice Department, in redoubling its efforts to put a check on Microsoft Corp. and its cut-throat marketing tactics, is drawing a line in the sand over what constitutes monopolistic behavior in an era of ever-bigger corporations.

On Monday, the department took action it says is intended to keep the mammoth software company from dominating the Internet, the same way it dominates the multibillion-dollar market in basic computer software.

The department says Microsoft is using its ubiquitous Windows 95 operating system to steal customers from rival Netscape Communications Inc. It asked for a $1 million-a-day fine if Microsoft continues to bundle its Internet Explorer browser with its operating system.

The economic and social stakes of the antitrust initiative are enormous. The Internet, an unsurpassed highway for information, is the most promising and undeveloped frontier for the software industry.

Should Microsoft come to dominate the way computer users navigate the Internet, it could quash innovative rivals, shape pricing, and influence the preferences of visitors to the World Wide Web, say technology experts.

"If Microsoft dominates, you won't have open standards for Internet publishing," says Jamie Love, director of the Consumer Project on Technology, an advocacy group headed by Ralph Nader in Washington.

"It will be a case where Microsoft just announces the standards, and [without Justice Department intervention] they would have done on the Internet what they do with the desktop computer," says Mr. Love.

The Microsoft operating system runs on an estimated 90 percent of the world's computers. But in the browser market, its Explorer has 36 percent of the business compared with 60 percent for Netscape's Navigator.

Justice officials do not have to look far for examples where Microsoft has leveraged its operating system to seize chunks of the software industry. Microsoft has repeatedly incorporated new software capabilities into its dominant Windows operating system, thereby muscling out rivals. For instance, it added to Windows a feature that doubles hard-disk capacity and thereby eliminates an entire slice of the software market.

THE Justice Department says Microsoft has tried to gain control of the market in Internet software by requiring makers of personal computers that license Windows 95 to install Microsoft's browser on their computers. The department says this violates a 1995 court order barring the Redmond, Wash., company from anticompetitive software-licensing practices.

Microsoft denies it has violated the court order. It says it's merely integrating new features into an existing product. Indeed, the Justice Department lawsuit may hang on the question of whether Microsoft's browser and operating system are a single product or two distinct products.

The department's suit should embolden several other legal challenges to Microsoft, say technology experts. The European Commission and six state attorneys general have launched investigations of Microsoft over similar anticompetitive concerns.

The government can only do so much. Ultimately, the marketplace will determine whether Microsoft dominates the Internet, says Bruce Lupatkin, research director at Hambrecht & Quist, a San Francisco investment firm.

In many ways, the Internet is a big threat to Microsoft. In addition to making the software that runs most personal computers, Microsoft also makes word-processing programs, spreadsheets, databases, and programming tools. Microsoft's dominance of these markets allows it to collect huge licensing revenues. But the Internet is eroding the importance of operating systems.