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EDITIONS
Monday, 2 November, 1998, 23:17 GMT
USA versus Microsoft: the second week
Microsoft attorneys turn up at trial
Microsoft's defence team arrive at Washington 's District Court
By independent computer industry analyst Graham Lea

Microsoft
One of the Department of Justice's (DoJ) primary allegations against Microsoft is that Microsoft illegally took steps to reduce or eliminate competition in a so-called market-division proposal to Netscape. Last week the DoJ introduced new evidence to show that, contrary to Microsoft's claim that allegations of a market-splitting proposal were "invented or imagined", there was indeed solid evidence that Microsoft had made such a suggestion to Netscape at a meeting on 21 June 1995.

Microsoft changed its defence from denial of any market division proposal to saying that it had been "set up" when it transpired that Marc Andreessen, a co-founder of Netscape, had taken detailed notes at the meeting on his notebook computer (Jim Barksdale, Netscape's CEO, said Andreessen was the fastest typist he has ever seen).

A letter written on 23 June 1995 by then-Netscape lawyer Gary Reback to the DoJ in response to another matter that the DoJ was investigating - MSN, it turned out - had attached to it a copy of Andreessen's notes from the 21 June meeting.

It transpired that during the present trial Reback had seen earlier references by John Warden, Microsoft's trial attorney, to a later letter from him and from which Warden had drawn an incorrect conclusion.

Consequently, Reback faxed the earlier letter to the DoJ pointing this out, and the DoJ produced it as evidence. The notes confirmed Barksdale's evidence, and the fact that the notes had been sent to the DoJ shortly after the meeting supported their veracity.

Microsoft was upset at this sudden revelation, and asked in a motion to the court for sanctions to be imposed on the DoJ for not producing the document in response to its document discovery requests.
The DoJ said in its plain-spoken response to Microsoft's motion that Microsoft had not asked for the document, adding that "Microsoft has egg on its face".
Microsoft's motion, the DoJ said, was "a cynical attempt to distract attention from a document that damages its defence", and that Microsoft had made "unsupported (and unsupportable) charges about the Government's good faith in document production".

Barksdale concluded his evidence on Wednesday after five days of cross-examination, and the majority of opinion was that he had performed well and consistently.

He was followed by David Colburn, a vice president of AOL. Warden tried to show that AOL and Netscape had agreed not to compete in certain markets, but this proved difficult.

A letter from Steve Case, CEO of AOL, to Barksdale suggested pooling technologies, since Netscape was "primarily in the enterprise software business", and AOL was "primarily in the consumer online business". This was seized on by Warden, who suggested that this was an example of a market-division proposal.

Colburn would not accept this, and David Boies, the DoJ trial attorney, claimed that there could be no antitrust violation because the companies were in different businesses, whereas both Netscape and Microsoft developed browsers.

Microsoft's proposal was to split the browser market, with Microsoft having the 32-bit Windows part, and Netscape the remainder.

Warden also tried to show that AOL had chosen to use Microsoft's Internet Explorer browser because of its technical superiority, but Colburn would not accept this, although he agreed that IE was componentised so that AOL users could go to the Internet without leaving the AOL service, something that Netscape could not do but said it would produce for AOL.

In the end, AOL chose IE but Colburn would only concede that AOL agreed to this because Microsoft said it would include AOL's icon is a folder on the Windows 95 desktop. This was highly important for AOL from a marketing perspective, and gave AOL similar billing to MSN, which AOL feared at the time.

Microsoft's case that IE was regarded by AOL as superior to Netscape Navigator is undermined by an email from Bill Gates to his executives in January 1996 in which he said: "[Steve Case] views us technically as behind Netscape but credible enough to do a very good job."

Microsoft flags
Microsoft: evidence of market carve-up proposal
Warden tried to make the case that AOL customers had a choice of browsers despite the contract that prevented AOL from publicising that users could switch to Navigator, and the contract condition that 85% of users must use IE.

Colburn responded that it was non-trivial for users to work out how to do switch to using Navigator. Colburn's testimony gives considerable detail as to how further agreements with Microsoft limited AOL's ability to help its customers who wanted an alternative.

Microsoft has been able to show that Netscape can still distribute its browser, but it is looking as though the way in which Microsoft chose to integrate IE with Windows will provide evidence of an attempt at market exclusion - something that Judge Jackson had recognised in his temporary injunction, which was overruled by the court of appeals in June.

The appellate court decision is likely to exclude any remedy involving splitting IE from Windows 98, but it does not preclude other effective remedies to restore competition.

There is still much for the DoJ to prove in order to win its case, but Microsoft certainly stumbled last week in denying it had proposed a market division with Netscape, then claiming a conspiracy, and finally in not convincingly showing that the market division that Netscape and AOL had also discussed was of equal seriousness.

This week the court will hear Apple Vice-President Avadis Tevanian, and possibly a few hours of Gates' videotaped deposition, which will be released to the media. After that it will be the turn of Intel.


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