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Wednesday's Post
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    Microsoft Fights Back

    By Rajiv Chandrasekaran
    Washington Post Staff Writer
    Wednesday, October 21, 1998; Page A01

    Microsoft Corp. ridiculed the government's antitrust case against it yesterday, telling a federal judge that the Justice Department is trying to "demonize" the software giant's billionaire chairman, Bill Gates, to prop up arguments that are "short on substance." Company lawyers then set out to pick apart the testimony of the government's star witness, who, they suggested, urged Justice to sue Microsoft so his own company would get a market advantage.

    In his opening statement in the historic antitrust trial, lead Microsoft attorney John L. Warden compared antitrust regulators to 19th-century "Luddites" who smashed labor-saving machines "to arrest the march of progress driven by science and technology." The government's case "is a repudiation of the basic principle in our society that creative commercial activity should be encouraged and rewarded," he said.

    Warden heaped particular scorn upon government lawyers for focusing much of their opening arguments Monday on claims that Gates was a ringleader in Microsoft's alleged efforts to illegally crush competition in the technology industry. "The effort to demonize Bill Gates . . . wrongly characterizes evidence of tough competition as proof of anti-competitive conduct," Warden said in a nearly two-hour statement summarizing the company's defense.

    "A personal attack on a man whose vision and innovation have been at the core of the benefits that people are reaping from the information age is no substitute for proof of anti-competitive conduct," Warden said.

    Warden's words, coming on day two of the trial, were the company's first formal courtroom response to the antitrust allegations that the Justice Department and 20 states made against it in suits filed in May. Although he gave few previews of the evidence Microsoft will present, he indicated that the company will attempt to rebut every allegation, particularly that it is a monopoly, a key contention of the government's case.

    Netscape CEO
    Barksdale arrives at court Wed. (AP)
    After a break for lunch, the government called its first and potentially most important witness, James L. Barksdale, chief executive of Netscape Communications Corp. With a courtroom packed with journalists, stock market analysts and company officials hanging on every word, Warden stepped to the stand and lit into Barksdale, whose company he had earlier called "the government's ward."

    "Isn't it true that pressing the government's actions against Microsoft was a key element of your [business] strategy?" Warden asked Barksdale, showing him a copy of an internal Netscape planning document that said, in part: "DOJ [Department of Justice] and court actions create opportunity for Netscape."

    "I wouldn't say it was a key element," Barksdale shot back. "I always regarded it as a sideline to other things we were doing."

    Under this questioning, Barksdale acknowledged that he had at least six meetings with Justice Department lawyers before the lawsuit was filed in May, including three conversations with Justice's antitrust chief, Joel I. Klein. For one of those meetings, Klein visited Barksdale's house in Palo Alto, Calif., for breakfast, Barksdale said.

    Regulators allege that Microsoft, the world's largest software company, has violated U.S. antitrust laws by engaging in a pattern of illegal acts designed to dominate the market for Internet "browsing" software and to protect the monopoly of its popular Windows operating system for personal computers.

    The government contends that Microsoft tried to persuade rival Netscape to stay out of the market for browsing software that would work on Windows 95 computers, and when it refused, set out on a path to "cut off Netscape's air supply" by signing exclusive deals with personal computer makers, Internet service providers and World Wide Web site developers. Government lawyers also allege that Microsoft threatened and bullied other technology firms, including Intel Corp. and Apple Computer Inc., in an effort to squash Netscape.

    In his opening statement, Warden argued that Microsoft is not a monopoly because, unlike traditional heavy-goods manufacturers, companies that want to enter the software business face few "barriers to entry."

    "There are no factories to build, no mineral deposits to locate," the dapper Warden said in a Midwestern drawl. The only assets required to develop software, Warden said, are "human brains and the capital to support those human brains." He said supplies of both "are freely and abundantly available."

    Warden's opening statement featured only three courtroom displays, contrasting with government lawyers' opening arguments on Monday, which were interspersed with the big-screen projection of dozens of confidential Microsoft electronic mail messages and video clips of a deposition of Gates.

    Yesterday, the government side had no opportunity to speak in court, but outside the D.C. federal courthouse where the trial is taking place, lead Justice Department attorney David Boies said he was "a little surprised that [Microsoft] did not deal with the evidence" that he presented on Monday.

    "They can't change the law, they can't change the facts, they really can't change the subject," Boies said.

    To speed up the trial -- viewed by legal scholars as the biggest antitrust battle since the breakup of the Bell System telephone monopoly in 1984 -- U.S. District Judge Thomas Penfield Jackson has ordered that witnesses provide their direct testimony in writing.

    Barksdale submitted 127 double-spaced pages of testimony in which he accused Microsoft of trying to "squelch competition in the browser market" by presenting threats and payoffs to key distributors to favor Microsoft's software over Netscape's. In addition, he alleged that Microsoft built "unnecessary technical incompatibilities" into its Windows operating system to disrupt Netscape's browser.

    When Barksdale took the stand yesterday, he was immediately subject to cross-examination by Warden, who peppered him with questions beginning, "Isn't it true that . . ."

    The process often moved at a painstakingly slow pace, as Warden started from the first page and asked Barksdale, paragraph by paragraph, to clarify, define and justify many of his assertions.

    Some of the questions attempted to cast doubt on Barksdale's veracity. With regard to the "cut off Netscape's air supply" quote that has widely been attributed to Microsoft, Warden asked him whether he knew where and when it was said. Barksdale responded, in his Mississippi twang, that "it's been repeated so many times . . . I took it for granted that [Microsoft executive Paul Martiz] said it in some place where a responsible reporter heard it."

    In other cases, Warden's questions headed in directions that were not immediately clear. The lawyer, for instance, asked Barksdale to explain just how he knew that his executive vice president, Marc Andreessen, "conceived of" browsing software.

    A sizable part of Warden's cross-examination attempted to show that back in 1995, when Netscape enjoyed 80 percent of the browser market, the company behaved much the same way Microsoft has.

    Warden suggested that Netscape set about to pack more features, including e-mail functions, into its browser. The government alleges that Microsoft's inclusion of Internet browsing technologies in Windows -- which is used on 90 percent of the world's personal computers -- violates antitrust laws.

    "Despite the size of your share of the browser market, you thought it was fine to add [e-mail] functionality," Warden thundered at Barksdale.

    "Absolutely," Barksdale responded.

    Warden also pressed Barksdale on his assertion in his written testimony that "Microsoft's new business plans also included plans for how to eliminate Netscape as a competitor because of the threat the browser posed to Microsoft's Windows monopoly."

    The Microsoft lawyer wanted to know if Barksdale had any evidence to back up the assertion. When the Netscape executive suggested he had trouble understanding just what Warden was asking, the judge interrupted: "Mr. Barksdale, what he wants to know is, is he going to get sandbagged with anything later on?"

    "Maybe," replied the executive.

    By the end of the day, Warden had reached only the 13th page of Barksdale's testimony.

    After the proceedings had recessed, both sides claimed that Barksdale's first three hours on the witness stand worked in their favor. Boies pronounced the Netscape executive "a very compelling witness," while Microsoft spokesman Mark Murray said: "This was a very good day for us."

    Speaking in Phoenix yesterday at a computer industry gathering known as Agenda 99, Klein said that "there are no current settlement discussions, but the government is always open to having meaningful settlement discussions."

    Staff writer Elizabeth Corcoran contributed to this report from Phoenix.

    © Copyright 1998 The Washington Post Company

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