In Order For Internet Explorer to Rise, Navigator Had to Fall: The Browser Wars

United States Of America. v. Microsoft Corporation Court Filing by Thomas Penfield Jackson, November 5, 1999 is part of . You can jump to any part in this filing . This is part 46 of 58. HackerNoon’s Legal PDF Series here Inducing ICPs to Enhance Internet Explorer’s Usage Share at Navigator’s Expense ICPs create the content that fills the pages that make up the Web. Because this content can include advertisements and links to download sites, ICPs also provide a channel for the promotion and distribution of Web browsing software. Executives at Microsoft recognized that ICPs were not nearly as important a distribution channel for browsing software as OEMs and IAPs. Nevertheless, protecting the applications barrier to entry was of such high priority at Microsoft that its senior executives were willing to invest significant resources to enlist even ICPs in the effort. Executives at Microsoft determined that ICPs could aid Microsoft’s browser campaign in three ways. First, ICPs could help build Internet Explorer’s usage share by featuring advertisements and links for Internet Explorer, to the exclusion of non-Microsoft browsing software, on their Web pages. Second, those ICPs that distributed software as well as content could bundle Internet Explorer, instead of Navigator, with those distributions. Finally, ICPs could increase demand for Internet Explorer, and decrease demand for Navigator, by creating their content with Microsoft technologies, such as ActiveX, that would make the content more appealing in appearance when accessed with Internet Explorer. As early as the fall of 1995, Microsoft executives saw that they could help reinforce the applications barrier to entry by inducing the leading ICPs to focus on Microsoft’s browsing technologies. In the October 1995 memorandum that Microsoft executives sent to Gates on Microsoft’s browser campaign, one of the suggestions was, “Get 80% of Top Web Sites to Target Our Client.” Specifically, the executives wrote: Content drives browser adoption, and we need to go to the top five sites and ask them, “What can we do to get you to adopt IE?” We should be prepared to write a check, buy sites, or add features — basically do whatever it takes to drive adoption. By the middle of 1996, this proposal had become corporate policy. Senior executives at Microsoft believed that inducing the ICPs responsible for the most popular Web sites to concentrate their distributional, promotional, and technical efforts on Internet Explorer to the exclusion of Navigator would contribute significantly to maximizing Internet Explorer’s usage share at Navigator’s expense. When Microsoft began, in late 1996, to enlist the aid of the most popular ICPs, it used an inducement that it had already successfully employed with the top IAPs: Microsoft created an area on the ubiquitous Windows billboard for the promotion of ICPs and then exchanged placement in that area at no charge for the commitment of important ICPs to promote and distribute Internet Explorer exclusively and to create their content with technologies that would make it appear optimally when viewed with Internet Explorer. Microsoft executives referred to this tactic as “strategic barter.” As was the case with the IAPs, neither the sacrifice that Microsoft made to enlist the aid of the top ICPs nor the restrictions it placed on them can be explained except as components of a campaign to protect the applications barrier to entry against Navigator. The Active Desktop was a Microsoft feature that, if enabled, allowed the Windows user to position Web pages as open windows that appear on the background, or “wallpaper” of the Windows desktop. If the Web pages featured “push” technology, they would automatically update themselves by downloading information from their respective servers at times scheduled by the user. Thus, a user could position on his desktop wallpaper Web pages that displayed periodically updated stock prices, sports scores, and news headlines. The Channel Bar was a feature of the Active Desktop. If enabled, the Channel Bar appeared as a rectangular graphic on the desktop wallpaper. It was divided into pre-configured links to the Web sites of certain ICPs that implemented push technology. Microsoft introduced the Active Desktop, including the Channel Bar, as a feature of Internet Explorer 4.0, which it released on September 30, 1997. As pre-configured by Microsoft, the top channel on the Channel Bar linked to a Microsoft Web site, called the “Active Channel Guide,” that provided a list of sites enabled with push technology. The next five channels were each labeled with a generic category such as “News & Technology” or “Business.” Clicking on one of these five channels brought up a display of icons for specific Web sites. For example, clicking on the “Sports” channel brought up a display including icons for sports-related Web sites such as ESPN SportsZone and CNN SI. Below the five generic category channels were branded ones, each of which would link the user directly to a specific ICP’s Web site. Considering how ICPs generate revenue, it is not surprising that they attached great value to placement on the Channel Bar. Most ICPs charge fees for placing advertisements on their Web pages. In addition, some ICPs display certain of their content only to users who pay a fee. The higher the volume of user traffic an ICP’s site attracts, the higher the rates it can charge for the placement of advertising on its sites. Higher volume also brings increased revenue to ICPs that charge users for content. Microsoft pre-configured Internet Explorer 4.0 so that the Active desktop and the Channel Bar would appear by default on a user’s Windows 95 PC system, and Microsoft forbade OEMs to disable either feature. Microsoft and the ICPs consequently surmised that a very high volume of user traffic would be driven to the Web sites for which channels appeared on the Channel Bar. Intuit, for one, believed that placement on the Windows desktop would provide it with unparalleled promotional and distributional advantages. As a result, the company was prepared to pay a substantial fee for placement on the Channel Bar. The managers of ZDNet felt the same way, as did the executives responsible for Disney’s Internet content. Some ICPs, including Intuit, even admitted to Microsoft that inclusion on the Channel Bar was critical to them and asked what they would be obliged to pay to be included. Based on the interest ICPs expressed, as well as Microsoft’s own assessment of the value of placement on the Channel Bar, executives at Microsoft considered charging ICPs for inclusion on the Channel Bar. They estimated that ICPs appearing directly on the Channel Bar would pay as much as $10 million per year, and that even ICPs appearing under the generic channels would pay a couple of million dollars each annually. These estimates proved to comport well with the value that ICPs themselves actually attached to inclusion in the Channel Bar, at least before the feature had been tested in the marketplace. For example, in December 1996, more than nine months before the Active Desktop made its debut, Microsoft signed an agreement with PointCast pursuant to which PointCast agreed to pay $10 million for the first year that its channel would appear directly on the Channel Bar. Following the signing of its agreement with PointCast, Microsoft proceeded to enter similar “Top Tier” or “Platinum” agreements with twenty-three other ICPs, all in the summer and early fall of 1997. Microsoft used the term “Top Tier” to refer to the four non- Microsoft ICPs (including PointCast) given placement directly on the Channel Bar and the term “Platinum” to describe the twenty ICPs included in the five generic categories accessible from the Channel Bar. Although the agreements were individually negotiated and their terms varied to some extent, the typical agreement obligated Microsoft to promote the ICP’s business in three ways. First, Microsoft agreed to include on the Channel Bar (or in one of the lists accessible directly from the Channel Bar) a link that would send a user directly to the ICP’s “push” site. Second, Microsoft agreed to promote the ICP’s content in national public-relations and computer-industry events, as well as on Microsoft Web sites. Finally, Microsoft agreed to include introductory content from the ICP with certain distributions of Windows and Internet Explorer. The agreements did not obligate the Top Tier and Platinum ICPs to pay money to Microsoft in exchange for any of the benefits, including placement on the Windows desktop, that Microsoft extended to them. Rather, the agreements obligated the ICPs to compensate Microsoft in other ways. Although the agreement that PointCast signed purported to call for a payment of ten million dollars to Microsoft, it entitled PointCast to a discount on the full amount if it behaved as other ICPs undertook to do in their own Top Tier and Platinum agreements with Microsoft. The first obligation that the ICPs undertook was to distribute Internet Explorer and no “Other Browser” in connection with any custom Web browsing software or CD-ROM content that they might offer. The term “Other Browser” was defined in the agreements as Web browsing software that ranked first or second by organizations in the business of measuring the usage of browsing software. This obligation was pertinent only to the six Top Tier and Platinum ICPs that distributed Web browsing software during the term of the agreements: PointCast, CNet, Intuit, AOL, Disney, and National Geographic. The Top Tier and Platinum agreements also required the signatory ICPs to promote Internet Explorer and no “Other Browser” as their “browser of choice.” In particular, the ICPs were required to display a logo for Internet Explorer and no “Other Browser” on the home page of the sites specified in the agreements and on any other pages on which the ICP typically displayed such links. The ICPs were also required to place Internet Explorer download links on their Web sites and to remove any links to Navigator’s download site. Aggregating the Web sites offered by the twenty-four Top Tier and Platinum ICPs, the number of Web sites affected by this provision was thirty-one. A third provision that the ICPs accepted in return for placement on the Channel Bar was a prohibition against their entering agreements with a vendor of an “Other Browser” whereby the ICPs would pay money or provide other consideration to the vendor in exchange for the vendor’s promotion of the ICP’s branded content. Finally, the agreements required the ICPs, in designing their Web sites, to employ certain Microsoft technologies such as Dynamic HTML and ActiveX. Some of the agreements actually required the ICPs to create “differentiated content” that was either available only to Internet Explorer users or would be more attractive when viewed with Internet Explorer than with any “Other Browser.” For example, the agreement with Intuit provided: “Some differentiated content may be available only to IE users, some may simply be ‘best when used with IE,’ with acceptable degradation when used with other browsers.” The ICPs were so intent on gaining placement on the Channel Bar that they even complied, albeit reluctantly, when Microsoft imposed restrictions not contained in the Top Tier and Platinum agreements. For example, Microsoft demanded that Disney remove its distinctive branding from its link on Navigator’s user interface and threatened to remove Disney from the Channel Bar if it did not accede. Executives at Disney believed that such a requirement went beyond the language of the Top Tier agreement that Disney had signed with Microsoft, but they saw no recourse in making an issue of the matter, for Microsoft could keep the Disney icon off the Channel Bar during the pendency of the dispute, and Microsoft would be less amenable to promotional opportunities for Disney in the future. Therefore, Disney capitulated. In a similar fashion, a Microsoft employee told a counterpart at Wired Digital that even if the agreement between the companies did not technically prohibit it, Wired Digital would be violating the spirit of its agreement if it placed a link to any of its subsidiary sites on Navigator’s user interface. What Microsoft wanted to avoid were announcements suggesting that any of Microsoft’s ICP partners were also cooperating with Netscape. Intuit is a leading developer of software designed to help individuals and small businesses manage their finances. A consumer can use one of Intuit’s popular products by purchasing a copy of the software, but Intuit makes additional features available through its Web site. Thus, Intuit is both an ISV and an ICP. Quicken.com Beginning in late 1995, Intuit distributed Navigator with its products in order to ensure that its users could access the features provided through . In 1996, Microsoft commenced the process of converting Intuit from a Netscape partner to a distributor of Internet Explorer. Quicken.com In July of that year, Gates reported to other Microsoft executives on his attempt to convince Intuit’s CEO to distribute Internet Explorer instead of Navigator: I made it clear to him that beyond giving him the best browser technology for no cost that we were only will[ing] to do some very modest favors in addition to that. . . . I was quite frank with him that if he had a favor we could do for him that would cost us something like $1M to do that in return for switching browsers in the next few months I would be open to doing that. Intuit did not accept Gates’ offer immediately, but less than a year later, in June 1997, Intuit became one of the ICPs to sign a Platinum agreement with Microsoft. This allowed Intuit to place a link to under the “Business” heading on Microsoft’s Channel Bar. Quicken.com In return, however, the agreement required Intuit to distribute Internet Explorer, and no “Other Browser,” with its software products, including those not distributed through the Channel Bar. Intuit also agreed to the other terms, relating to the promotion of browsing technologies, business relationships with Netscape, and the adoption of Internet Explorer technologies, that applied to the other Top Tier and Platinum ICPs. Microsoft would have granted Intuit a license to distribute the componentized version of Internet Explorer at no charge even if Intuit had not entered a Platinum Agreement. In the absence of the agreement’s restrictive terms, in fact, Intuit likely would have distributed the componentized version of Internet Explorer with its products while simultaneously promoting Navigator and distributing to consumers who requested it a version of Navigator specially configured for Intuit’s products. The only way Intuit could gain a place on the Channel Bar, however, was by agreeing to the provisions that required it to limit its promotion of Navigator, to cease distributing that browser altogether, and to refuse to pay Netscape to promote Intuit products on Netscape’s Web sites. Intuit accepted these terms reluctantly, for Navigator remained a popular product with consumers, and Netscape’s Web sites still attracted a great deal of traffic. In addition to the Top Tier and Platinum agreements, Microsoft entered into two other types of agreements with ICPs. First, Microsoft signed so-called “Gold” agreements with between thirty and fifty ICPs. Pursuant to these agreements, Microsoft included ICPs in the “Active Channel Guide” Web site, which appeared whenever a Windows user clicked on the top link on the Channel Bar. In exchange for this promotion, the Gold-agreement ICPs agreed to promote Internet Explorer on at least equal footing with other browsing technology, including Navigator. Second, Microsoft entered into IEAK agreements with between eight and twelve ICPs devoted to business-related content. Under the typical IEAK agreement, Microsoft agreed to include functionality in the IEAK that would facilitate the inclusion of a link to the ICP’s Web site under the “Business” category of the Channel Bar. In exchange, the ICPs committed to distributing Internet Explorer exclusively (to the extent they distributed any browsing software), to promote Internet Explorer as their “browser software of choice,” to refrain from promoting any “Other Browser” (defined as in the other ICP agreements) on their Web sites, and to create content that could be accessed optimally only with Internet Explorer. Cross-marketing arrangements in competitive markets do not necessarily make those markets less competitive; however, four characteristics distinguish this case from situations in which such agreements are benign. First, Microsoft was able to offer ICPs an asset whose value competitors could not hope, on account of Microsoft’s monopoly power, to match. Second, Microsoft bartered that asset not to increase demand for a revenue-generating product, but rather to suppress the distribution and diminish the attractiveness of technology that Microsoft saw as a potential threat to its monopoly power. Third, and more specifically, Microsoft prohibited the ICPs from compensating Netscape for promotion of their products even while not attempting to prohibit the promotion itself. This reveals that Microsoft’s motivation was not simply a desire to generate brand associations with Internet Explorer. Finally, Microsoft went beyond encouraging ICPs to take advantage of innovations in Microsoft’s technology, explicitly requiring them to ensure that their content appeared degraded when viewed with Navigator rather than Internet Explorer. Microsoft’s desire to lower demand for Navigator was thus independent of, and far more malevolent than, a simple desire to increase demand for Internet Explorer. The terms of Microsoft’s agreements with ICPs cannot be explained in customary economic parlance absent Microsoft’s obsession with obliterating the threat that Navigator posed to the applications barrier to entry. Absent that obsession, Microsoft would not have given ICPs at no charge licenses to distribute Internet Explorer. What is more, Microsoft would not have incurred the cost of componentizing Internet Explorer and then licensed that version to Intuit at no charge. By sacrificing opportunities to cover its costs and even make a profit, Microsoft advanced its strategic goal of maximizing Internet Explorer’s usage share at Navigator’s expense. Whereas Microsoft might have developed the Channel Bar without ulterior motive as a matter of product improvement, it would not have exchanged placement on the Channel Bar for terms as highly and broadly restrictive as the ones it actually extracted from ICPs. Nevertheless, and to Microsoft’s dismay, circumstances prevented these restrictions from having a large impact on the relative usage shares of Internet Explorer and Navigator. Despite Microsoft’s and the ICPs’ expectations to the contrary, consumers showed little interest in the Channel Bar, or in the Active Desktop in general, when the features debuted in the fall of 1997. Moreover, reviews of the Channel Bar in computer-related publications were generally unfavorable. The Channel Bar may not have attracted consumer interest, but the ICP agreements relating to the Channel Bar did attract controversy. Indeed, Gates faced pointed questions about them when he appeared before the Senate Judiciary Committee in March 1998. Microsoft took several measures to quell the public criticism in early April 1998. First, it waived the most restrictive terms in the Top Tier and Platinum agreements; thereafter, the agreements required ICPs merely to promote Internet Explorer in a manner at least equal to their promotion of Navigator. Second, Microsoft made no attempt to renew the Gold and IEAK agreements, which had expired by their own terms in March 1998. Third, Microsoft authorized its OEM licensees to configure the Windows 98 desktop so that the Channel Bar would not appear by default, and nearly every major OEM availed itself of the permission. Deeming the Channel Bar more trouble than it was worth, Microsoft decided to eliminate the feature entirely from future versions of Windows, including Windows 98 updates. Therefore, the provisions requiring ICPs to exclusively distribute and promote Internet Explorer had all expired within seven months of the Channel Bar’s release. All of the Top Tier and Platinum agreements had expired by their own terms by December 31, 1998. In light of its decision to discontinue the Channel Bar, Microsoft did not seek to renew any of them. For a period of about eight months, however, agreements with Microsoft had prohibited approximately thirty-four ICPs from distributing Navigator and from promoting Navigator in all but a few ways. For an overlapping period of between a year and a year-and-ahalf, those thirty-four ICPs, plus between thirty and fifty more, were required to promote Internet Explorer at least as prominently as they promoted Navigator. Although the affected Web sites made up only a tiny percentage of those existing on the Web, they comprised the offerings of all but a few of the most popular ICPs. If the estimation of one Microsoft employee in June 1996 can be considered accurate, the affected ICPs accounted for a significant percentage of the Web traffic in North America. Still, there is not sufficient evidence to support a finding that Microsoft’s promotional restrictions actually had a substantial, deleterious impact on Navigator’s usage share. For one thing, only six of the affected ICPs distributed any Web browsing software bundled with their products during the period in which Microsoft’s distributional restrictions remained in effect. AOL obviously distributed a substantial volume of Web browsing software during this period, but since AOL was separately precluded under its Online Services Folder agreement from distributing virtually any non-Microsoft browsing software, AOL would not have distributed a significant number of Navigator copies even if it had not entered a Top Tier agreement with Microsoft. Pursuant to its agreement with Microsoft, Intuit distributed over five million copies of Internet Explorer with the 1998 versions of its products. Microsoft had offered Intuit a componentized browser while Netscape had not, and it stands to reason that Intuit would in all probability have distributed close to the same number of Internet Explorer copies even absent the distributional restrictions imposed by its contract. Still, Intuit had distributed over five million copies of Navigator with the 1997 versions of its products. Unconstrained by its agreement with Microsoft, Intuit might have distributed with its 1998 products a sum approaching that number of Navigator copies along with the componentized version of Internet Explorer (particularly if the CD-ROM represented its primary distribution vehicle). Of the affected ICPs (excluding AOL), Intuit almost certainly distributed the most Web browsing software bundled with its products. All of the Top Tier, Platinum, and IEAK ICPs were capable of including download links on their Web pages. While many of these ICPs had included such links for Navigator prior to entering agreements with Microsoft, only Internet Explorer download links were allowed while the restrictive terms were in effect. On the whole, it is reasonable to deduce from the evidence that the restrictions Microsoft imposed on ICPs prevented the distribution and installation of a significant quantity, but certainly less than ten million, copies of Navigator. The terms Microsoft imposed did prevent a number of the ICPs otherwise inclined to do so from compensating Netscape for its promotion of the ICPs’ content in Navigator or on Netscape’s Web sites. While they were in effect, Microsoft’s restrictions probably deprived Netscape of revenue measured in millions of dollars, but nowhere near $100 million. It appears that, at the time the obligation expired, Microsoft had not yet begun to enforce its requirement that the Top Tier, Platinum, and IEAK ICPs develop content that would appear more attractive when viewed with Internet Explorer than when viewed with Navigator. Moreover, there is no evidence that any ICP other than Disney developed any “differentiated content” in response to its agreement with Microsoft. Therefore, there is insufficient evidence to find that the requirements that Microsoft sought to impose with respect to the use of Microsoft specific browsing technologies had any discernible, deleterious impact on Navigator’s usage share. Continue reading . here About We bring you the most important technical and insightful public domain court case filings. HackerNoon Legal PDF Series: This court case Civil Action No. 98-1232 (TPJ) retrieved on 2-10-2023, from is part of the public domain. The court-created documents are works of the federal government, and under copyright law, are automatically placed in the public domain and may be shared without legal restriction. justice.gov