Business, Ethics and Law: How Microsoft killed Netscape - and got away with it

In the early 1990s, the world wide web was in its infancy. Looking now at the webpages we were able to use even in the mid 1990s, they are garish and unsophisticated - but they were pretty much at the cutting edge of what browsers could - or would - cope with at the time.

In late 1994, a patent was obtained to enable the integration of certain features into the browser. This meant that web pages no longer had to be entirely static.

Until then, the term web browser meant Netscape Navigator. That was before AOL bought both Compuserve (AOL and Compuserve both had their own proprietory browsers which were somewhat clunky on third party sites) and Netscape. At that time, Netscape had almost 100% of the browser market.

It was around that time that Microsoft launched Internet Explorer and adopted agressive marketing strategies - like giving it away on magazine covers. In the US, it was sold in retailers for USD10 - but the box included a redeemable USD10 voucher. Netscape had for some time used a technique of giving away beta-test copies of its next version for which it made a charge - but seemingly few people every moved on from the beta to the paid for product.

Until then, Microsoft had failed to develop a working browser. It bought in Mosaic, the technology that underpinned the Compuserve browser and tweaked it to produce the first IE.

"Facing competition from Netscape Navigator in the mid-1990s, Microsoft updated its Explorer browser by using Eolas' technology and subsequently bundled it with all of its Windows operating systems since 1995," said Eolas' lead trial attorney, Martin R. Lueck, of Robins, Kaplan, Miller & Ciresi L.L.P which has won a landmark victory against Microsoft for infringing a patent which was exclusively licensed to Eolas.

A Chicago jury yesterday awarded USD520 million to Eolas which it will split with the UNiversity of California, the inventor which holds the patent.

The patented technology is a key component of the interactivity available on the Internet today. It allows web page developers to embed interactive programs in Web pages. A browser, equipped with the University of California's patented technology, is able to deliver that interactivity to the user. For example, the technology is used often with stock information, video players, games, virtual real estate tours and other interactive content on the Web. The patent allows the Web to be a platform for fully interactive embedded applications.

In 1993, as part of UC's Innovative Software Systems Group, a research team was working to transform how scientific information was created, accessed and published. As part of their research, they began to explore the possibility of expanding the sciences by allowing scientists to read not only what was published online but to interact with that data. While early Web participants struggled to implement helper applications, the team was already examining the potential of the Web to become a platform for fully interactive embedded applications.

The award is a minor irritation to Microsoft, but it is the latest in a long line. It recently settled a similar size claim - again just over USD500 million, with.... AOL Time Warner, now owner of Netscape.

But there is concern that the deal with AOL might have also included a side letter that AOL-TW would ditch Netscape Navigator, already long dead in the water. Certainly just after the deal was announced, AOL-TW said it would cease future development of NetNav and would transfer several of its staff and a significant sum of money to a "foundation" which would continue the development of the open source Mozilla which underpins several browsers such as NetNav, K-Meleon and others, including most browsers used on Linux systems.

The incorporation of IE into the operating system, and the effective locking out of competition by that means, has been at the root of several challenges to Microsoft alleging monopoly practices. Microsoft often loses and in the US it has been forced to make significant concessions to avoid an order that it be broken up into OS and applications businesses.

Despite huge profits declared in July this year Microsoft has decided not to pay a dividend, in part analysts suspect, because it wants to build a cash pile to meet any award in a European monopoly case which has been making steady progress towards trial despite regular attempts to derail it. And Sun is also on the attack over claimed infringements of its Java patents.

According to The Register, Microsoft holds a little over USD49 milliard in cash and short term investments. "To put this cash balance into perspective, Microsoft's horde is just under half the size of Ireland's gross domestic product (GDP) for 2002 and is double Cuba's GDP for the same year," the website says.

So, the award made yesterday is hardly going to dent Redmond's liquidity. Some would say that the right course of action would have been to have ordered the removal of the technology from the browsers and to have made Microsoft deliver replacement software to all users without the browser technology. Others would say that AOL-TW should be entitled to receive damages in the light of IE's total destruction of their market.

Maybe an agreement not to do that was in a side letter, too. After all, the Chicago decision would have provided clear evidence of unfair competition. It may be that MS got off cheap after all.