MICROSOFT ACCUSED; U.S.: BROWSER PUSH BROKE ANTITRUST PACT : WINDOWS WAR.

Byline: Stephen Labaton The New York Times

The federal government asked a judge Monday to order the Microsoft Corp. to stop forcing makers of personal computers to include its Internet browser when they install its Windows 95 operating system.

In filing a petition in federal court, Attorney General Janet Reno said Microsoft had violated an earlier antitrust agreement, and that the Justice Department would seek a fine of $1 million a day in civil contempt charges if the company failed to change its policy. But Microsoft's lawyers said antitrust prosecutors had misread the agreement and that the company would vigorously contest the petition.

The challenge to Microsoft promises to have broad implications for the heated contest between that company and Netscape Communications Corp. over which company's browser will dominate on the ever-expanding Internet. Browsers are the software through which people navigate the electronic links between computers in homes, offices and institutions around the world.

Antitrust prosecutors said Monday's move was intended to open the contest and prevent Microsoft from leveraging its monopoly over the world's market for computer operating systems into complete control over the World Wide Web.

The stakes over the new legal fight essentially boil down to an interpretation of the 1995 consent decree between the Justice Department and Microsoft that settled an earlier antitrust dispute. Reno said that Microsoft had broken the settlement with the government by requiring computer makers who install Windows 95 to also license and distribute its Internet browser, called Internet Explorer.

``Microsoft is unlawfully taking advantage of its Windows monopoly to protect and extend that monopoly and undermine consumer choice,'' Reno said. ``This administration has taken great efforts to encourage and spur technological innovation, promote competition and make sure that the consumers have the ability to choose among competing products. Today's action shows that we won't tolerate any coercion by dominant companies in any way that distorts competition.''

She also criticized nondisclosure agreements between Microsoft and some computer makers that she said might have deterred them from cooperating with federal antitrust investigators.

But Microsoft executives and lawyers said they had not violated the agreement. They said the combination of the operating system with the Internet browser was simply one type of technological enhancement of an existing product - Windows 95 - that the consent decree had contemplated. In their view, adding browser software is no different from adding Microsoft software components that permit computers to connect with CD-ROMs or networks.

``A fundamental principle at Microsoft is that Windows gets better and makes the PC easier to use with each new version,'' said Bill Gates, chairman and chief executive of Microsoft. ``Today people want to use PCs to access the Internet. We are providing that functionality in Windows, and providing a platform for innovation by thousands of other software companies. It would be a great disservice to our customers if Microsoft did not enhance Windows with Internet-related features, and rapidly distribute updated versions of Windows through PC manufacturers.''

Other Microsoft executives said that only the company should have the right to determine what is part of their operating system. They also took issue with the criticism of the nondisclosure agreements, which they said were standard contracts used in many industries to alert companies when their trade secrets were disclosed to third parties.

Microsoft will now have a few weeks to respond officially to the Justice Department's petition, and a federal judge will then set a schedule for ruling on the government's request.

The petition seeks an order barring Microsoft from requiring personal computer makers to accept the Internet Explorer as a condition of receiving Windows 95. It also asks a federal court to order Microsoft to notify operators of Windows 95 that they are free to use any compatible Internet browser - like Netscape's Navigator - and to provide instructions about how to remove the Internet Explorer from their computers if they choose. No fine would be issued until a judge concluded that Microsoft was in violation of the consent decree, which, if it occurs, could be many weeks away.

Antitrust regulators have spent years scrutinizing Microsoft's dominance over the computer software market. Their inquiries culminated in the 1995 consent decree, though the Justice Department is continuing to examine a number of significant antitrust issues, including Microsoft's recent investment in Apple Computer Inc. Also that year, the Justice Department successfully sued to block Microsoft's planned acquisition of Intuit Inc., the maker of personal finance software.

Justice Department officials said Monday that the petition dealing with Internet software was filed after investigators determined that Microsoft, fearful that it would lose its stronghold on the computer operating systems market, had decided to tie it to the browser software.

``We need to make sure that Microsoft doesn't use its monopoly power with operating systems to become a monopoly power on the Internet,'' said Joel Klein, the assistant attorney general in charge of the Antitrust Division. The consent decree was reached under his predecessor, Anne Bingaman.

The market for browsers remains dominated by Netscape; indeed, many Windows 95 users install Netscape's browser and click on the icon for it when they want to use the Web. But Microsoft has been steadily gaining ground.

Microsoft is trying to protect its Windows operating system, which currently runs more than 80 percent of personal computers in the United States.

As software for using the Internet becomes more sophisticated, it won't matter if computers runs Windows 95 or not.

Thus if Windows is irrelevant, Microsoft's dominance of word processors, spreadsheets and programming tools could come crashing down.

Microsoft's next version of its operating system, Windows 98, promises to completely integrate Explorer into the operating system, forcing Netscape Communication's Navigator off the desktop of millions of personal computers.

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Photo: (Color) Netscape chief legal counsel Roberta Katz smiles after a federal ruling against Microsoft.

Associated Press 

Box: WINDOWS WAR (See text)