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EDITIONS
Monday, 22 February, 1999, 18:30 GMT
USA versus Microsoft: The 16th week

by independent computer industry analyst Graham Lea

Microsoft vice president Brad Chase continued his stonewalling performance in the witness box. The video that preceded his evidence had been criticised for leaving out the difficulties AOL users encountered in trying to substitute Netscape Navigator for Internet Explorer.

Microsoft
David Boies, the Department of Justice's special trial counsel, suddenly produced his own video that demonstrated there were no on-screen instructions that guided users, since the legal agreement between AOL and Microsoft precluded AOL from helping users to download and set up Navigator to run with AOL.

Microsoft has many times argued during the present trial in Washington that the decision to integrate a browser with Windows was made in 1994 before Netscape had its competitive Navigator browser. But in an e-mail to Mr Chase on 27 March 1997 from Kumar Mehta, a market researcher who works for Mr Chase, revealed that Bob Foulon of Microsoft was gathering data for a meeting Bill Gates was having the next day.

He wrote: "Apparently they are going to discuss whether IE and Memphis [the code name for Windows 98] should be bundled together." Mr Mehta added the comment that "My feeling ... is that it is a mistake to release Memphis without bundling IE with it."

This revelation could have serious consequences for Microsoft as it undermines its contention that the allegedly long-planned integration of the products was undertaken for reasons other than harming Netscape. It could also harm the Court of Appeals decision that provisionally overturned the temporary injunction granted by Judge Jackson in December 1997 to oblige Microsoft to offer a version of Windows 95 for PC makers without IE.

The retail version of Windows 95 did not have IE integrated, and is still often used by companies that buy new PCs and do not wish to allow employees to have Internet access.

Mr Chase was very reluctant to acknowledge that the distribution of IE through PC makers was very important to Microsoft, and drew attention to how many people downloaded Navigator, and so to compete with Microsoft.

However, other e-mails from Mr Mehta noted that "OEM [via PC makers] is the leading distribution channel for IE"; that "almost 60% of all surfers have never downloaded any software from the web"; and that "80% of those who did not use IE say they have no plans to switch to it".

John Rose, a senior vice president in charge of Compaq's enterprise business, gave evidence for Microsoft for three days. During earlier hearings in the contempt case that preceded the present trial, it had come to light that in June 1996 Microsoft had given notice to Compaq to terminate the contract for supplying Windows 95 unless Compaq restored the IE and MSN icons that it had removed from the desktop of its consumer PCs, despite Compaq's agreement with Netscape that Navigator was its preferred browser.

Compaq caved in immediately to Microsoft's ultimatum and replaced the icons.

Mr Rose outlined a complex series of agreements with Microsoft, including a "front line partnership" and so-called "side agreements". Stephen Flannigan, Compaq vice president of strategic relations, wrote in a 20 November 1997 e-mail to Mr Rose and others: "Given Microsoft's concern that our agreement be defendable to other OEMs [apparently meaning to provide a smoke screen to stop leaks to other PC makers from Compaq] and the Department of Justice [since agreements for longer than one year were not allowed by virtue of the consent decree Microsoft signed in July 1994], we recently proposed an alternative structure where we would use side agreements."

One agreement existed in two versions, both signed on the same day, apparently with a side-agreement stating which was definitive.

Significant parts of Mr Rose's evidence were heard in closed court, because of commercially sensitive matters. However, he did admit that Compaq had enjoyed a "significantly lower price" for Windows compared with other PC makers, as a result of Compaq having decided not to use an operating system for hand-held devices developed by the Go Corporation.

Judge Jackson became exasperated at differences between Mr Rose's deposition and testimony, and that of other Compaq employees who had been deposed, and said: "Mr Rose has repudiated virtually two-thirds of his testimony, and I'm just wondering who speaks with authority for the company."

It emerged that Compaq has had an ambivalent attitude towards the inclusion of Navigator in its consumer models. Although the company is not at present contractually precluded from pre-loading Navigator, the suspicion lurks that pressure was used by Microsoft to discourage Compaq from loading Navigator, although all of Compaq's consumer PCs have Windows pre-loaded.

Having two browsers pre-loaded also reflects user demand (Mr Chase had said that users have an average of 1.5 browsers), and bigger hard disks supplied with new systems made this easier.

Mr Boies asked if Mr Rose had been at Microsoft in Redmond at the end of October 1998, to which he replied he did not believe so, or if he had spoken to Mr Gates or anyone at Microsoft about the present case, to which he replied he had not, except when Paul Maritz had invited him to testify on Microsoft's side. However, in an e-mail dated 2 November 1998, Bill Gates referred to a 30 October meeting between Compaq and Microsoft.

Mr Gates noted: "I thanked Rose for all of his trips to Seattle and his willingness to extract [sic] a lot of time for the lawsuit."

Judge Jackson then asked Mr Rose to confirm again that he had not discussed the matter anybody at Microsoft. Mr Rose replied: "That is correct. Nor with any of Microsoft's counsel." It will be for the judge to decide just why Mr Gates took the unusual step of singling out Mr Rose for thanks in this way, and whether there had been any improper collusion over the presentation of evidence.


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.

Links to more Microsoft stories are at the foot of the page.


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