[Random-bits] Michael Brick: Online Privacy Move Raises New Antitrust Concerns for Microsoft

[James Love]

http://www.nytimes.com/yr/mo/day/news/financial/02tsc-msft.html


August 02, 2000


Online Privacy Move Raises New Antitrust Concerns for Microsoft
By MICHAEL BRICK
NYTimes.com/TheStreet.com, 1:00 p.m.

In defiance of antitrust prosecutors, Microsoft crushes competitors. In
compliance with prosecutors, it seems the company sometimes does the same.

A quietly simmering dispute over two different ways to ensure online privacy
has exposed a new dilemma for the software giant. As it wins control over
the market for Web browsers, the company is betting its future on its .NET
initiative, selling software online. But in this new marketplace, Microsoft
is learning that it can potentially trample rivals as a mere side effect of
good public relations and other small matters. Matters may come to a head
Wednesday when advertisers and online advertising agencies bring their
concerns to Microsoft.

A group of state attorneys general met Microsoft officials and engineers in
Seattle recently to discuss Internet Explorer, the Web browser central to
the long-running antitrust case that pits some of those attorneys against
the company. With the ruling against the Redmond, Wash.-based company on
appeal, these prosecutors wanted Microsoft's help on a seemingly unrelated
issue.

By making a few changes to Internet Explorer, they thought, the software
maker could help consumers shrug off the monitoring devices used by online
marketers to track purchases and movement on the Web -- and sometimes to
gather personal data about customers.

"The engineers and team came back overnight," said Bill Lockyer, attorney
general of California. "That was technically a stunning response."

But those changes placed Microsoft in an extraordinarily delicate legal
position.

Crashing the Party

The software the engineers designed that night seemingly rendered obsolete
months of negotiations over online privacy standards between Internet
advertising agencies, the Federal Trade Commission and the Commerce
Department. And Microsoft's unexpected involvement has brought new
accusations that the company is using its dominance in the browser market to
quash potential rivals.

"They're able to now have this market impact with the browser because of the
way in which they used the operating system to crush Netscape," Lockyer
said. "They can cause a change in the businesses that succeed or fail."

As online privacy has gained attention, two competing solutions have
emerged. On July 27, the FTC approved a set of standards drafted by the
Network Advertising Initiative, a group of online advertising agencies
including DoubleClick and Engage. One week prior, Microsoft unveiled the
changes to its browser.

    [snip]


The change to Internet Explorer would warn users of the browser when a
monitoring device, known as a cookie, is about to be placed on their
computer. It would allow the user to block that cookie, all cookies, or just
those placed by third-party advertising agencies like DoubleClick and
Engage.

The end results of each approach are nearly indistinguishable.

Pace of Technology or Anticompetitive Intent?

But Microsoft critics contend that, depending on how the prompts to users
are phrased and how the default choices are set, the changes to Internet
Explorer could steer Web users to reject cookies placed by third-party
advertisers and accept those placed by first parties. Those parties would
include Microsoft itself, which serves its own Microsoft Network of Web
sites with advertising, as well as America Online and Yahoo!.

"It gives them a huge competitive advantage," said a Senate staff member who
is familiar with the dispute and who, like most Congressional aides, spoke
on the condition of anonymity. (Members of the Senate Committee on Commerce
have filed legislation that would require disclosure of online monitoring.)
The advertisers are "pretty much out of business. If you wanted to place an
ad and make sure it was effective, Microsoft or AOL or Yahoo! would be the
only people you go to."

But that does not necessarily constitute anticompetitive behavior. Like the
advertising agencies and the government, Microsoft must understand that the
business and privacy objectives are congruent. And if its patch tramples the
advertising agencies, Lockyer said, well, "there aren't a lot of buggy-whip
manufacturers active."

Even when the company's intent is as benign as tending to its image with a
consumer privacy effort, Microsoft does not operate in a vacuum, noted
Richard Purcell, director of corporate privacy for Microsoft.

   [snip]

On May 9, Richard Blumenthal, the Connecticut attorney general, wrote a
letter to Steve Ballmer, the chief executive of Microsoft, on behalf of nine
other state attorneys general.

"We believe you are critically positioned to help educate consumers and to
protect consumer privacy rights by using your browser to aggressively alert
and educate consumers about their cookie options," Blumenthal wrote. He
applauded Netscape, Internet Explorer's only real rival, which is owned by
AOL, for allowing consumers to reject third-party cookies while accepting
first party cookies. He sent Netscape a similar letter, to which it has not
publicly responded.

Although AOL is also a huge first-party advertiser and would seemingly enjoy
similar advantages, that fact has garnered no public criticism from online
advertising agencies.

Suggestions and Fixes

Microsoft had begun work on software applications to counteract online
profiling in November, but the company was "somewhat behind the curve
because we have to issue it as a patch," Purcell said. Blumenthal's missive
"did quicken our attention, as those kinds of letters do."

On June 21, some of the attorneys general, who were in town for their annual
convention, gathered in Seattle with Microsoft officials and engineers. The
company's team had programmed a PC to show how the browser handles cookies.
They demonstrated their technological fix, which they were considering
including in the next version of Internet Explorer, and attorneys general
offered suggestions.

The next day, the company's engineers met again with some of the same state
officials and others who missed the first meeting. This time the Microsoft
team had incorporated changes suggested the night before. For example,
attorneys general had asked whether users could be allowed to completely
erase cookies at the end of a session online, and the engineers had
developed a new dialogue box prompting users to do just that. The state
officials were impressed.

But "the attorneys general carefully and specifically have not endorsed this
particular product or approach," Blumenthal said. "The whole antitrust
lawsuit raises issues of competition that may be implicated by exactly this
sort of product."

During the next week, Microsoft warned the advertising agencies it would
soon announce the changes. Starting July 13, the online advertising
companies called attorneys general, state by state, to raise those concerns.

"They were very distressed about, 'We've been working with the FTC and this
came out of the blue,'" said Linda Moran, a senior assistant attorney
general of Washington.

An Odd Position

On July 20, Microsoft unveiled the change to Internet Explorer. Engage and
DoubleClick issued news releases praising the software companies' commitment
to privacy. However, Engage emphasized that a better solution was
TrustLabels, a software specification it developed to reject third party
cookies not certified by "trusted authorities."


    [snip]


=======================================================
James Love, Director           | http://www.cptech.org
Consumer Project on Technology | mailto:love@cptech.org 
P.O. Box 19367                 | voice: 1.202.387.8030
Washington, DC 20036           | fax:   1.202.234.5176
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