Sen. Schumer Goes After Microsoft

Microsoft Corp. sat down with Department of Justice (DoJ) officials and 18
State Attorneys General Monday to discuss settlement of the government’s
ongoing antitrust suit against the company. But now the software titan faces
trouble on a new front as the U.S. Senate Judiciary Committee — goaded to
action by committee member Sen. Charles E. Schumer (D-NY) — has scheduled a
series of hearings in September focused on Internet competition and
Microsoft’s Windows XP operating system.

Schumer also contacted Assistant Attorney General Charles James, head of the
DoJ’s Antitrust Division and asked him to ensure that any settlement the
government reaches with Microsoft also include stipulations that the company
end anti-competitive practices in Windows XP.

“I am sending a letter to the head of the Antitrust Division, asking that he
not settle with Microsoft unless they agree to a global settlement providing
open access for competitors to offer their software application products on
an equal basis with Microsoft applications,” Schumer said.

In his letter to James, Schumer said, “In building Windows XP, Microsoft
appears to have hardwired preferences for Microsoft applications over those
produced by competitors. It seems that Microsoft intends to maximize its
monopolistic power, using XP to enter new lines of businesses — such as
digital photography, media players, and messenger services — while limiting
the choices consumers have. Without open access, the fundamental principles
of a free market are violated, innovation is stifled, and consumer welfare
is harmed.”

Schumer’s stance is an about-face from his previous position on the case, as
he himself noted in a letter to Microsoft Chief Executive Officer Steve

“As you know, I have been a supporter of Microsoft Corporation, particularly
during the many challenges it has faced in the last year and a half,”
Schumer told Ballmer. “I believed Microsoft to be a consumer-friendly
company that, having created the dominant operating system platform for the
technology revolution, deserved its success, and I often stated so publicly.
I was also vocal in questioning whether the break-up of Microsoft was a fair
and appropriate remedy. I believe I was one of the few in my Party to be so
supportive of Microsoft.”

So what prompted Schumer to change his mind? Constituents. Eastman Kodak Co.
and — following the merger with Time Warner — AOL Time Warner are both New
York companies.

“As the company readies to launch its newest product, Windows XP, Microsoft
is about to lose my support,” Schumer told Ballmer. “In a number of markets,
and specifically in the case of two New York companies — Kodak and AOL Time
Warner — I have observed Microsoft engaging in what appear to be
anti-competitive practices, and my views on the company are swiftly
changing. I can now relate to the level of frustration evident in Judge
[Thomas Penfield] Jackson’s rulings.”

Schumer said Windows XP prevents users from accessing applications from
competitors, like Kodak’s digital imaging software, by requiring users to
instead work through Microsoft’s “Scanner & Camera Wizard” before accessing
non-Microsoft imaging applications.

“It seems that the very design of Windows XP is hardwired to preference
Microsoft’s application,” Schumer wrote.

He also said he was concerned by reports that Microsoft insisted AOL no
longer offer the RealNetworks RealPlayer media player as a condition of
bundling AOL’s software with the operating system, and that it was
hardwiring its new instant messaging platform, Windows Messenger, into the
operating system.

To paraphrase Microsoft’s response: Phooey! Microsoft said it is in fact
Windows XP that embraces the principals of user choice and partner
opportunity while AOL Time Warner pursues a closed, proprietary strategy.

Jack Krumholtz, director of Federal Government Affairs and Associate General
Counsel of Microsoft, in a response to Sen. Schumer, also said New York
State is home to 50 businesses that are developing Windows XP products and
is home to more than 20,000 Microsoft partners.

On the issue of the Scanner & Camera Wizard, Krumholtz said to Schumer,
“Digital camera vendors supporting an industry standard (PTP) no longer need
worry that consumers will be blocked from uploading digital images from a
camera to a computer that does not have the camera vendor’s proprietary
software installed. The Windows XP Scanner & Camera Wizard provides basic
photo acquisition and manipulation capabilities for every Windows XP
consumer. That said, Windows XP makes it easy for any photo acquisition
software vendor to write its software to present itself as an option for
any vendor’s camera when it is first connected. With a simple click
of a box, a consumer can set that application as the default whenever that
camera is connected in the future. This offer is presented to the consumer
on complete parity with the Scanner & Camera Wizard the first time such a
camera is connected.”

As for Schumer’s problem with the addition of Windows Media Player,
Krumholtz said, “Media player functionality has been included in Windows for
many years, and Microsoft is proud of the latest innovations it will release
with Windows Media Player for XP. Microsoft’s player and media formats are
far more open than the leading competitor [RealPlayer] due to Microsoft’s
broad licensing of these formats to its competitors. As a result,
competitive media players, such as RealPlayer, can play content created in
Microsoft’s formats, while Microsoft has not been provided with similar
compatibility for those competitors’ proprietary formats, including
RealPlayer’s. In line with that closed competitive philosophy, AOL Time
Warner has adopted an exclusive approach in offering its customers only one
vendor’s technology: RealPlayer.”

On the issue of Windows Messenger, Krumholtz said to Schumer, “Not only can
every Windows XP user communicate in real-time audio and video with every
other user over the Internet, but other great new features like real-time
application collaboration and remote assistance (which permits more
experienced users to help their friends and family with their computer by
providing a view of their computer remotely) provide the kind of innovation
that AOL Time Warner has not delivered. Windows Messenger will also enable
many other great consumer service companies, such as eBay, to deliver
notifications and other helpful information in real-time to their millions
of customers. As you know, Microsoft has urged AOL to open up its closed
instant messaging system so that they could interoperate with others, but
despite public commitments to the contrary, AOL has steadfastly refused.”

Krumholtz also argued that it is critical to the United States PC industry
that Windows XP launch on time, and said Microsoft will work with Schumer
and other congressmen to resolve concerns.

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