At first glance one might think that this topic is just a bit too racy for anyplace but a courtroom. But, anyone can decide this issue for themselves using a little common sense. If you expand the title a little you get "Is Microsoft Corporation liable for consumer fraud in the event they are proven to have committed consumer fraud in court?". The answer to that question would be clearly "yes". There are no provisions in law that protect Microsoft from such liability. The other form of the question raises the issue of what Microsoft may have done to commit fraud.

Look first at a simple definition of what fraud is. Webster's NewWorld Dictionary, Second College Edition defines fraud as "intentional deception to cause a person to give up property or some lawful right". Money would certainly qualify. So deception used to cause a person to "part with their money" would clearly fit this definition. But what about Black's Law Dictionary? Black's Law Dictionary, Revised Fourth Edition, West Publishing Co., defines fraud as "An intentional perversion of truth for the purpose of inducing another in reliance upon it to part with some valuable thing..." Well money is still not ruled out. So we can focus upon deception or intentional perversion of the truth.

The issue is raised because of the recent introduction to the market of the new operating system from Microsoft Corporation, Windows 98. Microsoft Corporation has clearly announced by press release and advertisement that the Windows 98 box includes a browser for use on the Internet. (Actually, I just visited a local computer store and the box in the store seemed to omit that claim...but I am sure the fine shiny print does say so somewhere.) The question is not whether the product is in there. It certainly is. The question is how much are consumers paying for the browser. Or, are they paying for it at all?

If you look down the isle from the Windows 98 display, you see Internet Explorer being sold on its own as a separate product for around $40. But, that product is not the same as put in the box with the Windows 98 operating system. They may be similar, but they are not the same.

Microsoft Corporation spent hundreds of millions of dollars in research and development dollars to bring their browser up to the standards set in the marketplace. Microsoft has not officially announced just how much money they did spend in this regard. But, at least the Department of Justice thinks this estimate is valid since they have alleged that fact in their complaint filed recently. Now it is true also that most of the advertising dollars (until just recently) and public relations pieces have promoted not the improved operating system but rather the integration (or bundling) of the browser with the OS. Now, I do not care whether the browser application is bundled or integrated with the OS. Semantics does not make or break a product. Either it is a good idea or not. Either you pay for it or you do not. Semantics nor legal decisions change that fact. And even a great idea should not be forced upon consumers by deception or misrepresentation of the facts. Consumers should always have the choice to buy a product or not buy a product.

However, Microsoft Corporation has engaged in a rather elaborate scheme to convince consumers that they are only paying for a new operating system and getting a "free" Internet browser. The scheme is so elaborate as to actually deliver free versions for NT, 95, Solaris, HP-UX and the Mac via Internet downloads. There are few who would deny that this scheme ruined the marketplace for Internet browsers. Netscape Corporation was all but forced to abandoned a product for sale and distribution its browser without cost (even for Windows 98). Ruining the market for "browsers", does not prove that Microsoft is not charging real hard money for theirs. And Microsoft continues to distribute the browser even if you do not buy the operating system. Only people who buy the operating system from Microsoft are required to pay for it. (And, they must do so without choice.)

Steve Ballmer was quoted recently saying they do not plan to give away software. I recall the quote was "Can we provide our products for free? The answer is no.". (I guess Steve forgot all about that pitch that "IE is free". So is IE free or not free? Which one is the lie?)

Is the browser from Microsoft really free? I have estimated (this is a pure estimate made in the absence of any published numbers from Microsoft) that only 30% of the research and development dollars for Windows 98 were spent on core operating system features and 70% of the research and development dollars were spent on the browser and its integration with the OS. This estimate is based in part upon what I see coming out as a new version of the operating system (not much has been changed, some things have been fixed, and some things have not) and what I see coming out as a new browser. Clearly the majority of the effort relates to the browser. I have chosen a 30/70 split with 70% being related to the browser. Thus 70% of the retail price for all copies of the Windows 98 package should rightly be attributed to the browser. But Microsoft is saying that the browser is the "free" part. (Ballmer's statement notwithstanding) Microsoft does not claim that browsers are no longer applications. They only claim you must buy one with their operating systems, but that it is "free" (so do not complain).

Now comes the issue of whether or not the majority of the "product" is free or not. Certainly if most of the effort in developing the 98 product is related to the browser it should properly be labeled as a browser with an integrated operating system. Perhaps Microsoft should even advertise that when you buy the browser you get a "free" (or fixed) operating system. I would argue that would also be a false statement but perhaps more true than what they do say. Microsoft is saying that you purchase the operating system (the one you want or need) and get the browser free (the product you do not want or need). This is clearly deceit. You buy both of them. It actually appears that the browser is the main product rather than the operating system. (Microsoft is not spending its time in court to sell the operating system....it is spending its time in court to force the sale of the browser). There is a very big difference. They already have a monopoly with the operating system. They want a monopoly with the browser.

Microsoft has packaged the combined products (the one everyone must buy with the one that Microsoft clearly wants everyone to buy but is afraid they will not if consumers have a choice) and put one price on both of them. Putting one price on both only allows Microsoft to claim one is free and the other costs money. If you look at the financial reports required of Microsoft, they claim that the browser is a "free" product. (again contrary to Ballmer's statement) Clearly if you download one for NT, 95, Solaris, HP-UX or the Mac, you do not pay Microsoft for it. But, if you buy a new computer, you clearly do pay money. If you upgrade your Windows 95 system, you clearly pay money. If you have a computer and wish to install Windows 98 on it, you pay money. In fact, if you want the browser that is packaged with Windows 98, you must pay money. That version is not available any other way. It is not free by any means or any form of distribution. You can not download "that application". You can not get it from any Internet Service Provider. You only get it with the exchange of cash. And that is not the definition of free. (Worse yet, you must buy it whether you want it or not since it is in the same box as the product you might want.)

So is the Internet browser free?

Or, has Microsoft only advertised and promoted the suggestion to the consumer that it is free so that consumers do not object to the higher price charged for both? Has Microsoft only advertised and promoted the suggestion to the consumer that it is free so that they do not object to being forced to buy them both? The bundle does cost more. Bundles always do. Hundreds of millions were spent developing it. And, no one thinks Microsoft forgot to figure out how they will get paid for their product and must now give it away due to the lack of a plan. (besides Ballmer said "no")

But, ask around and find out how many people actually think that the browser from Microsoft is a free product. Many people argue vehemently that it is free. The campaign from Microsoft is clearly directed to create that perception among consumers. The campaign is clearly directed not at selling the browser on its merits but rather to convince consumers to ignore the packaging and competitors products and buy without question or choice.

Now, reread the definition for fraud.

Lewis A. Mettler, Esq.

P.S. If you have any information regarding false statments made by Microsoft in order to secure additional product sales, please contact me.