We are outside antitrust counsel to Netscape Communications Corporation. Your letter of July 30, 1996, has been referred to us for reply. In your letter you demand that Netscape stop posting a comparison chart on the World Wide Web. The comparison chart shows that users can get a better price/performance value by licensing Netscape products in conjunction with Windows NT Workstation than by licensing Microsoft's higher priced alternative, Windows NT Server with a combination of proprietary Microsoft products.
Your letter does not claim that Netscape's comparison is incorrect. To the contrary, Microsoft would have no choice but to agree that consumers get a better value using Netscape products. Rather, your letter states that your Windows NT Workstation license prohibits consumers from using the combination of products that is best for them. You admit there is no technical justification for such a licensing restriction; NT Workstation works superbly with Netscape products to provide a packaged web server solution. Microsoft has simply decided to interpret its license in order to force users to pay more money to Microsoft, to the disadvantage of both users and competitors.
Your demand letter to Netscape follows Microsoft's clumsy and ill-conceived attempt to cripple the functionality of its NT Workstation product so that consumers would have to license Microsoft's more expensive product. The storm of protest from consumers forced Microsoft on July 19 to back down from its attempt to impose artificial technical restraints on its NT product.
Microsoft stated publicly on July 19 that "in the best interests" of "the large numbers of customers" who are planning to use Windows NT as their web server platform, Microsoft was withdrawing a 10-connection limitation discovered by users in the beta version of its forthcoming NT Workstation release. You claimed in your public statement that you would compete the way other companies do: you would persuade customers that NT server was a better web server platform, by making it a "compelling" alternative with "high-performance tuning" and attractive pricing. But it now turns out that you intend to force the same limitations on customers through your licenses when there is absolutely no technical justification for your position.
Worse yet, you demand that Netscape cooperate in your scheme to limit consumer choice. By this letter we inform you that Netscape will never agree with you to deprive users of their ability to combine the best possible functionality at the lowest possible price. We believe your effort to limit consumer choice by artificially restricting your product's functionality (whether through technical or licensing means) violates the antitrust laws. In any case, if you want to flaunt your contempt for consumers in this way, you will have to do it without Netscape's cooperation.
Insofar as we know, your current license does not remotely support the limitations you assert. The only relevant provision of your license sets a limit of 10 simultaneous inbound "peer connections." The only reasonable interpretations of the term "peer connections" in the license is that it refers to Server Message Block (SMB) connections ("SMB" is a file and print sharing protocol used by NT) because NT Workstation has had a technical governor which precludes a user from exceeding a maximum number of SMB connections since Version 3.5.
It is not reasonable to suggest that the limitations on "peer connections" in your license refers to TCP/IP connections. Microsoft cannot claim the right to limit a customer's TCP/IP connections because TCP/IP is an open Internet protocol, not a proprietary Microsoft product. In your July 19 public statement, Microsoft admitted that customers had purchased NT Workstation in reliance on their ability to use it -- in your words -- as the "base [for] their Internet and intranet solutions." Plainly, Microsoft made no claim while customers were purchasing the product that the company had any right to limit TCP/IP connections. If Microsoft had that intention, it should have asserted its claim before customers bought its product in reliance on the position reasserted publicly on July 19. Indeed, Netscape is informed that Microsoft has publicly disclaimed the applicability of the license restriction to TCP/IP connections.
Your demand letter to Netscape claims that Netscape's comparison chart "erroneously assumes" that a NT Workstation licensee can make unlimited connections to a website without violating Microsoft's license. But the chart makes no claim, implicit or explicit, about the volume of connections that a customer can make using either Microsoft's or Netscape's web servers. The chart simply conveys that the Netscape servers are capable of running on NT Workstation while Microsoft's IIS is not. Netscape's engineers estimate that even restricted to Microsoft's interpretation of the license agreement, a customer can process well over one million collections per day using Netscape's server products. The comparison chart is neither inaccurate nor misleading.
Other claims in your letter are expressly contradicted by Microsoft's July 19 public statement. For example, your letter claims that it is "deceptive" to suggest that NT Workstation can be used "as the server operating system for a web server solution. " But on July 19, Microsoft agreed to abandon plans to cripple the functionality of NT Workstation because customers are planning "to base their Internet and intranet solutions on Windows NT" -- in other words to use it as the operating system for a web server solution. If any company is being "deceptive" it is Microsoft; Microsoft on July 19 tried to persuade customers that it is bowing to their wishes while in reality Microsoft is surreptitiously trying to deprive them of choice.
Finally, we have heard that you may be circulating a new form of license agreement in correction with release 4.0 of NT Workstation, and that this new license agreement may implement the restrictions that you assert -- but are not present -- in the NT Workstation 3.51 license. If you intend to go forward with this new license as part of the final release of the upcoming version of NT Workstation, please let us know at the earliest opportunity.
We are very concerned about Netscape's publication of a price comparison chart ("Chart") in which the cost of a web server solution using Microsoft Internet Information Server is purportedly contrasted with a web server solution using Netscape software. The Chart is entitled "PRICE COMPARISONS BETWEEN NETSCAPE AND MICROSOFT WEB SERVER SOLUTIONS." It appears, among other places, on Netscape's corporate web site.
The price comparison is unfair and deceptive because the cost on the Netscape side of the ledger erroneously assumes the user can run the Netscape Web server software on Windows NT (R) Workstation and make unlimited connections to a web site without violating the Windows NT Workstation license agreement and without additional charge. That is not the case. The end user license agreement for Windows NT Workstation only permits up to ten connections. If the user wishes to utilize more than the ten connections, the user must license Windows NT Server. Windows NT Server is designed and optimized to provide maximum performance to support server services.
Microsoft is also concerned that Netscape is deceiving customers by suggesting that Windows NT Workstation is meant to be used as a server operating system for a web site. It is not. Windows NT Server is designed and licensed to provide high performance server services . Windows NT Workstation, as one would expect, is designed and licensed as interactive desktop software.
We demand that Netscape immediately cease and desist from further publication of the Chart in its current form (and the deception information contained therein), and from suggesting that Windows NT Workstation is to be used as the server operating system for a web server solution. Netscape has already caused irreparable harm to Microsoft, and further publication of the deceptive information will only compound the damage.
Please assure me by August 15, 1996 that you will cease and desist. My direct dial telephone number is (206) 936-7084 if you wish to discuss this matter further. Your cooperation is greatly appreciated.
Microsoft believes this decision is in the best interests of the large number of customers who are planning to base their Internet and intranet solutions on Windows NT.
REDMOND, Wash. - July 19, 1996 - Microsoft Corp. today announced that it has decided to remove a technical limitation under evaluation in the Microsoft(R) Windows NT(R) Workstation operating system version 4.0 beta that restricted inbound TCP/IP connections to 10 unique IP addresses. The company appreciates the rigorous customer beta testing and subsequent customer feedback that led to this decision.
Microsoft believes this decision is in the best interests of the large number of customers who are planning to base their Internet and intranet solutions on Windows NT. This decision will also help customers deploying distributed peer-to-peer applications. During the beta period, Microsoft found that various user scenarios were affected by the proposed limits in the TCP/IP stack.
Microsoft believes customers are best served by a production Web server that runs on a dedicated mission-critical server such as Windows NT Server. In contrast, Windows NT Workstation is optimized for use as an interactive workstation. Microsoft will introduce a compelling upgrade to make it easier for customers testing or running Web servers on Windows NT Workstation 3.51 to upgrade and take advantage of the high-performance tuning of Windows NT Server 4.0. Pricing and availability will be announced later.
Microsoft and Windows NT are either registered trademarks or trademarks of Microsoft Corp. in the United States and/or other countries.
