How Microsoft put spin on Japan ‘innocent’ verdict

"Microsoft welcomes decision by the Japanese Fair Trade Commission" means, to seasoned observers, that Microsoft has agreed to modify its anticompetitive practices to avoid further action. (Related story) Microsoft's press release on the subject last week was a masterpiece of misinformation. First there is a reference to Masaru Kitamura, "a lawyer and former Japanese Foreign Ministry official who represented the JFTC in its dispute with the United States before the World Trade Organisation concerning practices in the film market" saying that "a warning simply means that the JFTC started an investigation with suspicion about an allegation, but found no evidence of improper conduct." So why did the JFTC issue a formal warning to Microsoft? On Friday, the JFTC pronounced itself satisfied that Microsoft had backed down and had done what it required, but Kitamura said "This ruling represents a significant legal victory for Microsoft in Japan." It can hardly come as a surprise that Kitamura is in fact in the pay of Microsoft as a consultant, but regrettably Microsoft could not find space to mention this. Surely the eminent Kitamura's opinion could not have been influenced by his relationship with Microsoft? But this wasn't the only deviousness. Brad Smith, Microsoft's general counsel, international told Reuters that "Japanese competition law is in fact stricter than the United States, so we have satisfied a higher legal standard in Japan than we are going to have to do in Washington, DC." Well that seems clear enough - except that it just isn't true. Here's what Jeffrey Zuckerman of Curtis, Mallis-Prevost in Washington told the San Jose Mercury News on 13 January, just after the JFTC's raided Microsoft's offices in Tokyo to gather evidence: "For the Japanese FTC even to do any investigation is unusual. For it to do a dawn raid is reserved only for foreign companies being picked on. The JFTC is notoriously reticent about enforcing Japanese antitrust laws, especially against Japanese companies." Smith said Microsoft Co, the Japanese subsidiary (income Y159 billion in the year ending 30 June), had been co-operating with the JFTC since the fall of 1997, and that "Typically, antitrust agencies overseas use this [approach] if a company is not cooperating." So why then should the JFTC raid Microsoft's offices? One JFTC complaint, made by Fujitsu, concerned the tying of Excel to Word, to prevent Microsoft's competitor JustSystem Corp, providing its Ichitaro word processor, which was more popular than Word in Japan. Microsoft decided to back down on the requirement, in the face of a ruling from the JFTC. When Microsoft has done this in the past, it has increased the price substantially if the bundle is not taken (so-called cliff pricing), in order to convince recalcitrant licensees to come to heel. Another complaint by 11 ISPs concerned a Microsoft requirement that they had to use IE exclusively with Windows 95, in order to take part in a cross-marketing agreement. The contracts were determined by the JFTC to be exclusionary, and therefore illegal. Again Microsoft backed down and modified them in April. When Gates visited Japan in June to promote Windows 98, the JFTC announced the same day that including IE in Windows 98 did not violate Japanese law. Faces saved all round. It is clear that Microsoft policy is to conclude all competition law investigations outside the US as quickly as possible in order to marginalise the DoJ. Three members of the Senate judiciary committee wrote to Janet Reno, the attorney general, in July to express concern that Joel Klein, the antitrust chief at the DoJ, had been in touch with the JFTC, after which the raid had been launched. The approach looked very much like interference in the work of the judiciary by the legislature - something legally taboo in the UK, for example, but just part of politics in the US. ® Complete Register trial coverage