All Things Digital

Yahoo’s exploratory advertising deal with Google has given it an alternative to Microsoft’s unsolicited takeover bid after all–the possibility of a federal antitrust investigation. The Justice Department is reportedly examining the companies’ dalliance amid concerns that it violates antitrust laws.

Which isn’t surprising at all, really. Together, Yahoo (YHOO) and Google (GOOG) control more than 80% of the U.S. search market. And as Microsoft (MSFT) general counsel Brad Smith will happily tell you, that’s anti-competitive. And he’d know, right?

Microsoft is serious about its newfound commitment to interoperability–serious enough to make Internet Explorer 8 Web standards-compliant out of the box.

In a complete reversal of earlier policy, the software giant has decided to make IE8 default to a standards-compliant mode of rendering Web pages that favors interoperability, rather than an IE7 rendering mode that favors Microsoft (MSFT). “Microsoft recently published a set of Interoperability Principles,” Internet Explorer General Manager Dean Hachamovitch wrote in a post to the IEBlog. “Thinking about IE8’s behavior with these principles in mind, interpreting Web content in the most standards-compliant way possible is a better thing to do. We think that acting in accordance with principles is important, and IE8’s default is a demonstration of the interoperability principles in action.”

Quite the change of heart. Guess a record $1.35 billion in antitrust fines changes your perspective on these things. Certainly, Hachamovitch implies as much in his post. Writes Hachamovitch, “While we do not believe any current legal requirements would dictate which rendering mode a browser must use, this step clearly removes this question as a potential legal and regulatory issue.”

It certainly does. And if you don’t believe Hachamovitch, just ask Brad Smith, Microsoft senior vice president and general counsel. He said exactly the same thing, using exactly the same words in a company press release announcing IE8’s Web standards compliance.

Oh, it’s on now, boy. It’s on.

Google has finally made an official comment on Microsoft’s unsolicited $44.6 billion bid for Yahoo and, as one might imagine, it’s not a ringing endorsement. In a statement yesterday posted to the company’s blog, Google’s chief legal officer, David Drummond, argued that a Microsoft-Yahoo merger “raises troubling questions” and would pose significant competitiveness issues.

“Could Microsoft now attempt to exert the same sort of inappropriate and illegal influence over the Internet that it did with the PC?” Drummond asked. “While the Internet rewards competitive innovation, Microsoft has frequently sought to establish proprietary monopolies–and then leverage its dominance into new, adjacent markets. Could the acquisition of Yahoo allow Microsoft–despite its legacy of serious legal and regulatory offenses–to extend unfair practices from browsers and operating systems to the Internet?”

Then, noting that Microsoft and Yahoo operate the two most widely used Web portals, he asked if a merged company might limit the ability of consumers to freely access competitors’ email, IM and Web-based services. “This is about more than simply a financial transaction, one company taking over another,” he concluded. “It’s about preserving the underlying principles of the Internet: openness and innovation.”

And remember kids, you can make money without doing evil–especially if you have more than 70% of paid search revenues worldwide …

Quite a letter, and one full of the sort of FUD (fear, uncertainty and doubt) and faux altruism normally associated with Microsoft missives. The software giant, of course, was quick to take exception. The company issued a terse statement yesterday refuting Google’s protests, arguing that a merger of Yahoo and Microsoft will create a stronger rival to Google. “The combination of Microsoft and Yahoo will create a more competitive marketplace by establishing a compelling No. 2 competitor for Internet search and online advertising,” Brad Smith, Microsoft’s general counsel, wrote. “The alternative scenarios only lead to less competition on the Internet. Today, Google is the dominant search engine and advertising company on the Web. Google has amassed about 75% of paid search revenues worldwide and its share continues to grow. According to published reports, Google currently has more than 65% search-query share in the U.S. and more than 85% in Europe. Microsoft and Yahoo, on the other hand, have roughly 30% combined in the U.S. and approximately 10% combined in Europe. Microsoft is committed to openness, innovation and the protection of privacy on the Internet. We believe that the combination of Microsoft and Yahoo will advance these goals.”

After 10 years of bashing open-source software, Microsoft is finally getting around to killing it. Or at least trying to. In an interview with Fortune magazine, Brad Smith, Microsoft’s general counsel, and Horacio Gutierrez, the company’s vice president of intellectual property and licensing, said that Linux and other free software violate some 235 Microsoft patents. And for those violations, Microsoft wants its due: a royalty deal on Linux. “This is not a case of some accidental, unknowing infringement,” Gutierrez told Fortune. “There is an overwhelming number of patents being infringed.”

If that truly is the case, how can Microsoft possibly enforce them? After all, Linux is the creation of a vast community of developers. Pursuing its members would be like … well, like the recording industry suing its customers. Which is obviously possible, but one would think Microsoft would be a bit smarter than that. And, of course, it is. Which is why it’s seeking licensing deals from those with deep pockets and a serious aversion to risk: Linux’s major corporate users.

“Gutierrez and Microsoft aren’t interested in intellectual property rights,” said VA Software founder Larry Augustin. “They’re not interested in allowing the open source world to defend itself. They’re not interested in a fair fight. Like a bully, they refuse to face the open source world in a fair fight, instead hinting at willful infringement and making backhanded threats. Why? Like any bully they fear that when faced with a fair fight in the light of day they will be revealed for the bully they are. Like any bully they fear that which they threaten. If Microsoft believes that free and open source software violates any of their patents, let them put those patents forward now, in the light of day, where we can all evaluate them on their merits. If not, then stop trying to bully customers into paying royalties to use open source. It’s time for Microsoft to put up or shut up.”