IBM Official Tells of Anti-Netscape Tactic
By Rajiv Chandrasekaran
An IBM executive continued his assault on Microsoft Corp. at the company's antitrust trial yesterday, alleging that Microsoft offered IBM valuable discounts on its Windows software if IBM would agree not to distribute the rival Netscape Internet browser. The executive, Garry Norris, said that a Microsoft official bluntly warned him at a March 1997 meeting: "No Netscape."
Microsoft got a chance to return the fire yesterday afternoon. In two hours of often-testy cross-examination, a Microsoft attorney attempted to cast doubt on Norris's contention that in 1994 Microsoft tried to strong-arm International Business Machines Corp. to stop distributing software that competes with Windows.
But much of the day was spent with Norris dishing out more allegations of how Microsoft used its market clout with Windows, the software that runs on 90 percent of the world's new personal computers, to move against competing products.
In his testimony on Monday, Norris focused on IBM products; yesterday's witness-stand accusations went further, contending that Microsoft targeted products made by other companies, including the Netscape browser and an online version of the World Book encyclopedia.
Norris said that Microsoft offered IBM price breaks on Windows if it would remove rival software titles from its PCs and replace them with Microsoft offerings, such as the Internet Explorer browser and the Encarta encyclopedia. The discounts, Norris said, were offered through special contracts called market development agreements, or MDAs.
Government attorneys contend that Norris's testimony demonstrates how Microsoft has illegally abused its monopoly power with Windows by attempting to use it to get a leg up in other markets. Microsoft attorneys acknowledge that the firm engaged in hard-nosed negotiations with IBM, but they contend there was nothing improper with any of its dealings with the computer maker.
A key argument in the company's defense is that technology companies often make quid pro quo arrangements in which companies are rewarded for promoting products. Microsoft contends that it is not a monopoly, and therefore should be free to do what other companies do.
To buttress Norris's allegations, government lawyers introduced as evidence several pages of handwritten notes that the witness says he took in business meetings with Microsoft executives in 1996 and 1997.
"*** No Netscape & receive more MDA $ across the [IBM] PC Co.," Norris wrote during a March 6, 1997, meeting. He also wrote that "MS wants IBM to exclusive 'promotion' I.E.," a reference to Microsoft's Internet Explorer browser.
Norris said Microsoft executive Bengt Ackerlind made the point explicitly during the discussion. "Bengt was very specific," Norris testified. "He said, 'No Netscape.' "
Later, in his notes of the meeting, Norris wrote that Microsoft threatened "MDA repercussions" if IBM did not promote Internet Explorer exclusively.
By removing rival products and adding Microsoft ones, Norris said IBM would then have what Microsoft deemed to be "neutral systems." If IBM agreed to ship neutral systems, the witness said that Microsoft was willing to offer several incentives other than just a Windows discount.
Norris said that Microsoft proposed sharing the secret code that comprises Windows with IBM employees at a facility in Kirkland, Wash., which is near Microsoft's headquarters. Access to the code would help IBM design new versions of its PCs. The witness also said that Microsoft offered to give IBM a "first-chair" position in working on a new "Broadcast PC" -- a product that would function both as a computer and a television -- if IBM agreed to distribute Microsoft's Office software instead of a product called SmartSuite that was developed by an IBM subsidiary.
Despite the alleged threats, Norris said IBM eventually refused to go along with Microsoft's requests, opting instead to pay higher prices for Windows or negotiate exclusivity provisions out of the contracts.
Microsoft spokesmen noted outside the courtroom yesterday that IBM continues to offer rival software on its computers, and that IBM continues to pay one of the lowest prices for Windows in the computer industry. In the case of the March 6 meeting, Microsoft contends that Ackerlind's alleged comments about Netscape and other rival products referred only to the software that could be loaded on the Broadcast PC, a project that ultimately was canceled by Microsoft.
"What's most important here is what came of these negotiations," Microsoft General Counsel William H. Neukom said in an interview yesterday. "IBM was able and has been able and still is offering both [Netscape] Navigator and I.E. to their customers. . . . In the end, IBM got its way."
Microsoft's cross-examination, which began yesterday and likely will continue through today, focuses on what it says are discrepancies between Norris's witness-stand allegations and statements in internal IBM documents.
Microsoft attorney Richard C. Pepperman II made the first such argument yesterday, asserting that in 1994 Microsoft never required IBM to restrict distribution of a rival operating system called OS/2. Norris had alleged on Monday that a contract IBM had been negotiating with Microsoft at the time -- IBM eventually rejected it -- would have forced IBM to curtail OS/2 shipments.
But Pepperman displayed a draft of the contract, which stated that "IBM will be committed to promote Microsoft software platforms . . . but not exclusive to products offered by other divisions of IBM." Pepperman argued that the contract -- which would have given IBM a lower price for Windows and special technical support -- never was signed because IBM decided that it didn't want to promote its products on an equal footing with Microsoft's.
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