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Microsoft Challenges IBM Exec's Allegations

By Rajiv Chandrasekaran
Washington Post Staff Writer
Thursday, June 10, 1999; Page E1

Brandishing old electronic-mail messages and corporate memoranda, Microsoft Corp. yesterday tried to portray its dealings with IBM as competitive, but not abusive or illegal.

A Microsoft attorney, Richard C. Pepperman II, argued at the firm's antitrust trial that International Business Machines Corp. and Microsoft internal documents -- several of which he introduced as evidence -- do not support claims made by IBM executive Garry Norris of bold and blatant pressure to get IBM to stop distributing rival software products.

Instead, Pepperman maintained through his questioning, the e-mails and memos paint a complex relationship between two firms that alternatively tried to compete and cooperate in the rough-and-tumble software industry.

But in a tense cross-examination, Norris, the government's star rebuttal witness, refused to back away from his central allegation that Microsoft used its market clout with its Windows software to force concessions from IBM.

Among the documents cited by Pepperman was an e-mail written by IBM employee Dean Dubinsky about a March 1997 meeting between the firms in which Norris participated. Under questioning by a government attorney on Tuesday, Norris testified that a Microsoft executive told IBM that it would have to pay higher prices for Windows software if it distributed the Netscape Internet browser instead of Microsoft's Internet Explorer product. The government also presented Norris's handwritten notes of the meeting, which included the phases: "We have a problem if you load Netscape" and "Exclusively promote [Internet Explorer]."

But Pepperman asked Norris why Dubinsky's e-mail, which summarized the meeting for Norris's boss, made no mention of the alleged threat. Norris acknowledged that the e-mail was not consistent with his notes, but he said that he later called his boss, Ozzie Osborne, to fill in the details. "I discussed this with Mr. Dubinsky and relative to the matter in my handwritten notes, he said, 'I'll let you and Ozzie handle that,' " Norris testified.

Later, Pepperman introduced an internal IBM e-mail written the following month that said: "There is no proposal on the table from Microsoft to exclusively bundle [Internet Explorer]." Norris, who stopped negotiating contracts with Microsoft in late March of that year, said, "I guess after I left they took it off the table."

Speaking outside the courthouse, government attorney David Boies dismissed the absence of explicit descriptions of Microsoft's alleged threats in the IBM documents. "Microsoft repeatedly told the IBM people in these meetings that this was secret," Boies said. "This was not the kind of thing you put in e-mails because everyone involved knew what Microsoft was asking was a violation of the antitrust laws."

Norris and Pepperman spent a sizable portion of the day arguing about Norris's allegation that Microsoft refused to give IBM discounts it gave other large computer manufacturers on the Windows operating system because IBM was distributing a rival operating system called OS/2. Norris had testified on Monday that to get an additional $8 in price breaks, IBM would have to "reduce, drop or eliminate" OS/2 shipments.

Yesterday, however, Pepperman asked the witness to identify where, in the documents outlining the discounts, it said that IBM could not ship OS/2.

Norris conceded that the contract did not explicitly forbid the distribution of OS/2, but he said five of the provisions -- one of which required IBM not to mention rival operating systems in its advertisements -- would have effectively squelched OS/2.

"You have the effect in the marketplace . . . that you are promoting another manufacturer's product, which effectively puts your OS/2 product to the grave," Norris said. The witness also said that he was told in more blunt terms verbally by Microsoft officials that IBM should not ship OS/2. "We were told by Microsoft they wanted us to drop OS/2," he said.

Pepperman argued that one of the reasons IBM did not receive as favorable a price for Windows as other computer makers was because IBM was disparaging Windows in marketing OS/2. He displayed an IBM memo that detailed a telephone call between a senior IBM executive and Microsoft Chairman Bill Gates in which Gates was described as being "irate" because he felt IBM was engaged in "smear campaigns" against Windows.

The focus of Microsoft's cross-examination, which was intended to question the witness's credibility, created palpable tension in the courtroom between Norris and Pepperman. Norris refused to provide the "yes" or "no" responses the lawyer was hoping for and instead launched into lengthy -- and often feisty -- explanations. At one point, an exasperated Pepperman finally growled: "Will you answer my question!"

Pepperman's questioning drew a few rebukes from U.S. District Judge Thomas Penfield Jackson, who called one of the documents the lawyer tried to introduce a "self-serving, out-of-court statement." And when the judge felt the need to break for lunch, he cut Pepperman off in mid-sentence.

© 1999 The Washington Post Company

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