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  Microsoft Trial Set to Open

By Rajiv Chandrasekaran
Washington Post Staff Writer
Monday, October 19, 1998; Page A1

The offer, government lawyers will allege at an antitrust trial that begins today in a Washington courtroom, was made in a second-floor conference room at Netscape Communications Corp., the upstart Silicon Valley firm that was wowing the world with its software to "browse" the then-fledgling Internet.

In Monday's Post
  • Microsoft to Emerge a Changed Company
  • When World Views Collide
  • The Thorn in Microsoft's Side
  • Sitting across the table from Netscape's chief executive were officials from Microsoft Corp., who, according to the government, were worried that Netscape's browser could one day threaten Microsoft's core business of selling operating system software for personal computers.

    Just what happened at the meeting in June 1995 will emerge as a key point in a trial that could shift the direction of the country's fast-growing and economically crucial technology industry.

    In the dock: Microsoft, the world's largest software company, headed by Bill Gates, the world's richest man. In proceedings likely to run into late November, the Justice Department and 20 states will lay out a case that Microsoft has used illegal tactics to ensure that its software continues to run the vast majority of personal computers. Those acts, the government contends, are suppressing competition – and ultimately innovation.

    The department will argue that at the meeting that day in 1995, the Microsoft delegation, with a bluntness renowned in the technology industry, urged Netscape not to make browsers that would work with Microsoft's upcoming Windows 95 operating system. (Microsoft would take care of that). In exchange, Microsoft would make a minority investment in Netscape and impart valuable technical information, according to sources familiar with Netscape's account of the meeting.

    Netscape says it rejected the offer, which government lawyers view as an attempt at collusion that violates antitrust laws. But Microsoft didn't stop there, according to the government. Stung by its loss, antitrust enforcers allege, the software giant began engaging in a series of anti-competitive acts designed to dominate the browser market and protect the company's Windows monopoly.

    Microsoft's Denial

    In the trial that starts today, Microsoft will acknowledge that it has been a vigorous competitor, but will vehemently deny that it has acted illegally. The company will argue that the meeting with Netscape was a routine encounter between two rival technology firms where in which nothing untoward occurred.

    "It's not like two railroad barons sitting down with each other over a good scotch and deciding where they are going to lay their tracks," said William H. Neukom, Microsoft's general counsel. "The evidence will show there was nothing illegal in the conduct of Microsoft."

    The trial will be the biggest government antitrust case since the break-up of the Bell Telephone System monopoly in 1984. Despite the judge's efforts to streamline the proceedings, Microsoft plans to introduce 1,675 separate exhibits; the government will offer 1,201. Each side intends to submit hundreds of snippets of pretrial interviews which were conducted with dozens of computer industry executives.

    And although U.S. District Judge Thomas Penfield Jackson is limiting each side to 12 witnesses and ordering that their direct testimony be given in writing, lawyers on either side will spend weeks trying to pick apart each other's evidence in cross examination.

    The proceedings will be a spectacle rarely seen in the business world, pitting Microsoft Chairman Bill Gates, the world's richest man, against the Clinton administration's activist corps of antitrust enforcers, who are seeking to set new rules of competition for the digital age.

    Although Gates will not be present in the courtroom, government lawyers intend to present videotapes chronicling his entire pretrial deposition, which spanned three days. Scheduled to testify in person will be representatives of some of the nation's best-known technology firms, including Intel Corp., International Business Machines Corp., Apple Computer Inc., Sun Microsystems Inc. and America Online Inc.

    The trial – which will take place in the same courthouse where Monica S. Lewinsky recently testified – promises some high drama. Justice and the states have collected several million pages of what were confidential Microsoft e-mail messages and memos that contain candid comments among top executives, many of which government lawyers plan to give the judge.

    Among them is a handwritten document labeled "Gates Unplugged" and an e-mail from Gates to Intel Chairman Andrew Grove. The government contends that many of the documents will amount to a smoking gun of illegal behavior, detailing efforts to threaten and trounce rivals, while Microsoft will argue that the messages contain the same sort of colorful comments made by executives at any fiercely competitive firm.

    Both sides will try to claim the throne of promoting innovation and acting in the interest of consumers. The government will argue it is trying to spur competition in an industry dominated by Microsoft and prevent it from taking over emerging computer businesses such as electronic commerce. The company will insist there are hundreds of new products created every day in the hurly-burly computer industry and it's simply developing technologies that make computing easier for everybody.

    Boies to Make His Case

    Making the government's case will be David Boies, a private lawyer hired by the Justice Department who successfully defended IBM against a similarly broad antitrust suit in the 1970s. He'll square off against John L. Warden, a veteran litigator with Sullivan & Cromwell, a New York law firm that has long defended Microsoft.

    In their lawsuit, filed in May, Justice and the states objected to Microsoft's practice of including its Internet browser in Windows. In addition, the government said it wanted Microsoft to abandon certain allegedly "exclusionary" contracts with computer makers, Internet access providers and firms that operate World Wide Web sites.

    But as government lawyers have dug deeper into Microsoft's business dealings, Justice and the states now believe that their requested "remedies" must extend beyond browsers and contracts to Microsoft's fundamental business practices. Earlier this month, they notified Jackson that if they win, they would seek a separate hearing to suggest additional sanctions.

    Among the new remedies government lawyers are considering would be requiring Microsoft to more broadly publish technical details – called "application program interfaces" – that programmers need to know when they create software that runs on top of Windows.

    Critics believe Microsoft provides its own programmers better and faster access to the interfaces, giving the company an advantage over rivals in writing software such as Internet browsers and word processors. Microsoft maintains that it does not give its internal programmers preferential access.

    Some state attorneys general also are considering more dramatic steps: Forcing Microsoft to share its Windows "source code" – the computer programming that amounts to a version of Coca Cola's secret formula – with competitors, allowing them to sell Windows-compatible operating systems.

    A few officials in the anti-Microsoft camp are even suggesting the government might ultimately seek to break up the company, though they concede that's a remote possibility.

    And no matter who wins, legal specialists expect the case to be appealed, all the way to the Supreme Court.

    According to the government, Microsoft's illegal acts include:

    Attempting to monopolize the market for Internet browsing software by unlawfully "tying" its Internet Explorer browser to Windows and engaging in illegal tactics to squeeze Netscape out of the market;

    Encouraging programmers not to use Sun Microsystems' version of "Java" programming technology, which was designed to operate on all types of computers. Instead, Microsoft allegedly pushed programmers to use a version designed to work with Windows;

    Prohibiting personal computer makers from customizing the first screen a user sees when the machine is switched on;

    Requiring Internet service providers, such as America Online, and Web site operators, including the Walt Disney Co., to distribute Internet Explorer in order to get promotional space in Windows.

    Among themselves, Microsoft executives described their effort to win the browser war as a "jihad," according to the Justice Department.

    The first step in that battle, the government argues, was Microsoft's decision in early 1995 to "tie" its browser to Windows. By doing so, they allege, Microsoft has been illegally using the monopoly power of its operating system to distribute its browser.

    Microsoft contends the combination of the browser and the operating system is a legal move that makes surfing the Internet easier and more efficient for computer users. It's an argument, the company notes, that was accepted by a federal appeals court this summer.

    The next step in the government's chronology is the Netscape meeting. To bolster its version of events, the government will attempt to introduce examples of allegedly similar interactions Microsoft executives had with officials of Intel and Apple.

    In the case of Intel, the government will argue that Gates pressured the microchip giant in an August 1995 meeting to stop developing Internet-related software that could aid Microsoft's competitors. According to Intel memos describing the meeting that have been obtained by government lawyers, Gates made "vague threats" to throw his support behind microprocessors that compete with ones made by Intel. In the end, Intel capitulated. Government lawyers believe the meeting is significant because it shows how Microsoft tried – and succeeded – in bullying another tech industry behemoth.

    With Apple, government lawyers will allege that Microsoft urged the computer maker to keep its popular QuickTime multimedia software out of the Windows market. In addition, Microsoft tried to persuade Apple not to use Netscape's browser or non-Microsoft versions of Java. In exchange, the government will argue, Microsoft promised to quickly provide an updated version of Office, a widely used collection of software, for Apple's Macintosh computers.

    Microsoft denies that anything untoward occurred at the meetings with Intel and Apple. Lawyers for Microsoft will argue that it urged Intel not to develop its Internet software because it had technical shortcomings and was incompatible with Windows 95, not because it presented a competitive threat to Microsoft. The company characterizes the Apple meeting as a discussion about "working together on multimedia standards for the Internet."

    It is not yet clear if the judge will consider the government's evidence relating to the Intel and Apple meetings, even though the government plans to call an Apple executive and an Intel official to the witness stand. Microsoft lawyers are expected to argue that the gatherings are unrelated to the core issues in the lawsuit.

    The government also plans to call an executive from Dulles-based America Online and one from personal finance software maker Intuit Inc. Sources say that both of them will testify that Microsoft requires them to distribute Internet Explorer in order to promote their Internet services on the electronic "desktop" of Windows, the first screen that appears when a Windows computer is turned on.

    The government will argue that such a requirement amounts to Microsoft illegally using the monopoly power of Windows to tout its browser. Microsoft will contend both firms chose Internet Explorer because it could be more easily configured in the firms' software.

    Software 'Dynamics'

    Microsoft's defense will go beyond a point-by-point refutation of the government's allegations. The company will try to convince the judge of two key points that it hopes will trump all of the government's allegations: First, the company does not have a monopoly with Windows, and second, Netscape and Sun have plenty of other ways to distribute their products.

    Microsoft contends it's not a monopoly because the software industry, unlike railroads and oil refining, is dynamic, with new firms sprouting up every day. Any one of those companies can develop a new operating system and quickly distribute it over the Internet, potentially unseating Windows, the company argues.

    The software giant also will maintain that Netscape's falling share of the browser market is the result of its own missteps, not actions taken by Microsoft.

    In recent weeks, Microsoft has complained that the government has unfairly shifted the emphasis of its case to the Intel and Apple meetings in the wake of the appeals court decision, which, the company contends, weakened the allegation of illegal tying. The ruling said the integration of browsing software in Windows has "plausible benefits."

    "This has morphed into a case with a lot of mud throwing," Neukom said. "The government is discontent with the case it brought in May and it is trying to prop up its case by stringing together a lot of irrelevant allegations."

    But the Justice Department's lead lawyer, Boies, maintained the government's case "remains the same" but "we have more evidence."

    Even though the stakes are so high, lawyers for both sides said the prospect of last-minute settlement discussions, which occurred before Justice and the states filed their lawsuit in May, are unlikely this time. Justice's antitrust chief, Joel I. Klein, predicted Friday that the trial would begin as scheduled this morning. "We're looking forward to it," he said.

    © Copyright 1998 The Washington Post Company

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