by Tim O'Reilly
August 1996
Philip Malone
Antitrust Division,
Department of Justice
450 Golden Gate Avenue, Room 10-0101
San Francisco, CA 94102
Dear Mr. Malone:
As we discussed on the phone earlier in the week, O'Reilly & Associates feels that recent actions by Microsoft in the web server arena are seriously anticompetitive, and merit scrutiny by your department.
First, by way of background, I want to point out that while Microsoft's measures are primarily aimed at Netscape, this is not just a battle between two titans. Despite Netscape's much higher profile (due in large part to their success with web browsers), O'Reilly & Associates has actually been the market leader for web servers on Microsoft platforms. (Netscape's products run on UNIX as well as Windows NT.)
When we learned in mid-July that Microsoft planned to implement a limit on the number of TCP/IP connections allowed under Windows NT Workstation, we notified press and users via a series of internet messages. The outcry from users was enormous, and within two days Microsoft had backed down. However, Microsoft subsequently issued a software license that imposes similar limits.
I wanted to take a few minutes to lay out the points on which we believe Microsoft's actions in the web server market are damaging to users and to the overall competitive marketplace.
There are several points of concern:
Microsoft's bundling of web server software with various releases of their operating systems.
Microsoft's plan (since withdrawn) to cripple the TCP/IP implementation in NT Workstation in such a way as to render it unusable for competitive products.
Microsoft's representations that they are within their rights to set licensing terms for their software that will effectively make use of competitive software "illegal" on those platforms.
Microsoft's use of "slipstreaming" to add features to the operating system in ways that give them competitive advantage.
Many people have asked why we didn't complain when Microsoft took action on the first of these fronts, by bundling the Internet Information Server (IIS) with Windows NT Server. To some, bundling an application with the operating system seems like an anti-competitive act.
While as a competitor, I was dismayed by Microsoft's action, as a consumer, I don't think I could really complain. After all, Microsoft was offering additional value to their customers. There might be a question of deceptive advertising, since Microsoft was promoting IIS as "free" while the true price was the difference between the price of the two versions of their operating system. But at bottom, we still had room to compete by offering a better product. We had a harder selling job, but that's our problem.
The second and third points, however, raise an entirely different specter for me, and join with the first to make a completely unacceptable picture. In order to force people to use their product, Microsoft is now telling people that it is violating their license to use web technology (except in an extremely limited way) on any platform but the one on which their server is bundled.
Not only is this bad for all Microsoft's competitors in the web server arena, it is extremely bad for the World Wide Web as a whole, since it institutionalizes a vision of the web that is extremely limited. In my email to Bill Gates and to Jim Allchin (copies attached), I pointed out that the Web is still in its infancy, and to set arbitrary limits on how users should deploy it, based not on advantages to users but purely on the basis of damaging competitors, could cripple this technology before it ever has a chance to reach its full potential.
I would make the further point that Microsoft's claim that they are able to set licensing terms for the TCP/IP protocol (which, as an interoperable networking protocol, applies not just to their software but to any internet software) is a subtle and dangerous extension to their licensing rights. It transforms a licensing agreement covering a single company's products into a licensing agreement for an entire family of technologies--technologies, moreover, that Microsoft did not develop and has no proprietary interest in.
This claim also seems prima facie evidence of Microsoft's monopoly position in the market. Given the importance of Internet compatibility in today's computer market, any other vendor who offered such a limited implementation or license would be laughed off the market.
Microsoft has claimed that the differences between NT Workstation and NT Server are substantial, and required by the nature of the products. There may be differences in other areas, but at least with regard to their use as web server platforms, it is quite clear to us that there are no substantial technical differences that would require the limits as proposed. Even if it were demonstrated that there are performance differences between the workstation and server versions of NT at the very high end, these limits are irrelevant in practice. We have many examples of customers not just on NT Workstation but on Windows 95 running sites with hundreds of thousands of connections a day. The only reason for limiting the use of TCP/IP on NT Workstation is to force customers to purchase Microsoft's higher priced product--and more importantly, to keep those customers from using competitors' lower-priced products.
As one customer who wrote to me in support of my public position on these issues noted:
"In this case, we see a vendor which could be viewed by many people as "abusing" its unilateral power to set licensing terms. The legislation and case law supporting software licenses primarily aim to defend "intellectual property" against "theft." Most reasonable people understand this to mean illegal copying of an entire piece of software, NOT using some particular feature of the software sitting on their computer.
"It's difficult to imagine that the framers of intellectual property law intended to build a mechanism to enable a company to place frivolous restrictions against using inherent, engineered-in capabilities of a product solely to sustain an artificial price/functionality division. But they didn't have to worry about this possibility, because our intellectual property law is a relic from an age when the software industry was still mostly competitive. Now we have a significant segment which is not, namely the market for desktop operating systems."
I think that my correspondent's point is right on the money. We are talking about restrictions "against using inherent, engineered-in capabilities of a product solely to sustain an artificial price/functionality division." What makes it particularly galling is that the capabilities Microsoft is trying to restrict were originally developed by U.S. government contractors and are widely considered an open standard that is in the public domain.
I have no idea whether this particular line of argument has any resonance in antitrust law, but it certainly seems significant to me as a layman. Microsoft is laying claim to public property, in what can be seen as an intellectual property "land grab." If accepted, their purported license limits not just their own products but the products of all their competitors.
The final area of possible concern is Microsoft's substitution of key system DLLs during the installation of beta copies of Internet Explorer. All I can say at this point is that we noticed the substitutions (and brought them to Netscape's attention as well), but as yet, we don't know whether they were designed to gain competitive advantage or simply to fix bugs. We are still investigating whether or not this is cause for concern.
I would be glad to talk with you and your colleagues at length about any of these issues, as well as to provide back up information about the technology or our business.
I'll look forward to hearing from you.
Sincerely,
Timothy F. O'Reilly
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