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Monday, 14 June, 1999, 11:20 GMT 12:20 UK
Professor slams former student's testimony
US Department of Justice
The Department of Justice has three rebuttal witnesses giving evidence
by independent computer industry analyst Graham Lea

The US Department of Justice (DoJ) has started presenting rebuttal evidence from the three witnesses it is allowed under the rules established by Judge Thomas Penfield Jackson for the Microsoft trial.

The first witness was economist Professor Franklin Fisher of Massachusetts Institute of Technology (MIT), who had already spent a record six days in the witness box during the primary evidence phase.

Court rules did not allow Professor Fisher to see the written testimony of his opponent, fellow MIT economist Professor Richard Schmalensee, before it was given during that first phase.

Since the rebuttal stage began Prof Fisher has been taken through his former student¿s evidence by David Boies, the DoJ special trial counsel.

The big flaw, Prof Fisher said, was Prof Schmalensee¿s refusal to accept that a market definition was needed.

Since with almost any definition of the operating systems market for PCs it could be shown that Microsoft had a monopoly, this was perhaps understandable.

Microsoft strongly desired that there be no finding that it had a monopoly, and had not, by its business practices, contravened antitrust (fair competition) law by exploiting it.

Despite the refusal to define a market, Professor Schmalensee had said that Netscape and Java were both competing in the operating systems market.

Microsoft abused its monopoly power, he suggested, to take action against Netscape and Java, which it would not have done if they were not a threat to its monopoly.

In mentor mode, Professor Fisher chided Professor Schmalensee for confusing entry into the applications software market (easy) with entry into the PC operating systems software market (almost impossible).

No new firm had entered the PC operating systems business and established a 5% share since 1991, which meant that in such a profitable market there was an extreme entry barrier.

Furthermore, there was no "demand substitutability" Prof Fisher said, referring to products that could be used as an alternative to Windows. Nor was there any "supply substitutability" either because of the applications barrier, since applications were only written for dominant operating systems.

He also pointed out that Microsoft¿s conduct could only be explained in th context of it protecting its Windows monopoly.

Prof Fisher noted that Microsoft had indugled in predatory pricing to defeat Netscape by not charging for Internet Explorer (IE.

"Microsoft gave away Internet Explorer. It was to be forever free. Microsoft¿s documents describe it correctly as 'a no-revenue product'. This was a product which Microsoft not only gave away for free, but basically bribed people to take.¿

Michael Lacovara, counsel for Microsoft, did his best to stop the pillage, especially when Mr Boies started questioning the ¿advantages to consumers from the combination of Windows 98 and IE¿, and how that varied from having Windows 95 and IE separately.

Testimony by Microsoft vice-president Jim Allchin was produced, showing him responding ¿I do¿ to the question: ¿You agree that you can get those benefits either by buying Windows 98 or by having purchased an original retail version of Windows 95 to which you added IE4, either downloaded or bought from retail or gotten in some other way; correct?¿

Mr Allchin was also asked: "And it was entirely practical for you to deliver these two pieces of functionality, if that¿s what you want to call them, separately; correct, sir?" He replied "Yes. That¿s the way we do development. We develop lots of different pieces concurrently, separately. It¿s the same code out of Windows."

This appeared to destroy the defence that Microsoft had been using, that IE4 and Windows were not separate products.

The biggest dispute concerned which data set for browser use should be used as a basis for the statistical analysis of browser market share.

Professor Fisher observed that case was not about Netscape, but about Microsoft¿s protection of its monopoly in operating systems, and the extent to which Microsoft succeeded in preventing a platform threat from materialising.

The issue of where consumers stood in all this was also examined. Users were affected because their choice was limited, Prof Fisher said.

The zero pricing of IE does not harm consumers at present, he noted, but after the predatory period, there would be harm.

The central proposition of antitrust policy is that competition is good for consumers, and harm arises when competition is removed.

So far as innovation was concerned, Prof Fisher had some strong criticism of Microsoft¿s actions: ¿Microsoft has been giving out very, very strong signals that innovation is fine and they will cooperate with it.

"They will even assist it, if what you¿re producing complements Microsoft products. But they will take very, very aggressive action against you if what you¿re doing is producing innovations that might lead to something that threatens their operating system monopoly.¿

In the cross-examination Michael Lacovara produced an email written by Microsoft executive David Cole a few days earlier entitled ¿Linux is beating Windows¿, which noted that Linux was outselling Windows in two US West Coast retail chains. Judge Jackson said he regarded it as a ¿self-serving, out of court declaration¿.

Mr Lacovara produced a document from investment bankers retained by AOL when Netscape was acquired by AOL in which it was suggested that Netscape¿s browser was being included by 24 per cent of the 20 largest Internet service providers. It was claimed that this showed that the Netscape browser was therefore far from dead.

This was somewhat negated by earlier evidence from an internal email from Microsoft spokesman Greg Shaw, who wrote: ¿What data can we find right away that shows Netscape browser share is still healthy? It would help if you could send me some reports showing their market share is healthy and holding. This is for press purposes.¿

The reply came from Robert Bennett, a product manager for Windows: ¿All of the analysts have pretty well come to the same conclusion, which is that [Netscape¿s] share is declining and [Microsoft¿s] is gaining.¿ Judge Jackson laughed when David Boies read these emails to the court.

The next witness is Garry Norris of IBM.

Graham Lea is a leading computer industry analyst specialising in Microsoft, who is following the case for News Online - his views do not represent those of the BBC.

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