Citing as evidence Microsoft Corp.'s own courtroom exhibits and statements by its employees, the government's chief economic witness yesterday dismissed as "totally irrelevant" a pillar of the company's defense at its antitrust trial -- that its dominant Windows software faces stiff competition from a new product called Linux and from Internet-connected electronic devices.
Earlier in the day, Microsoft used a similar tactic: It cited a confidential study conducted for rival America Online Inc. as evidence refuting government claims that Microsoft illegally blocked a competitor from distributing Internet browsing software.
But the day's most lively segments came when the economic witness, Massachusetts Institute of Technology professor Franklin M. Fisher, argued that the growing popularity of the Linux operating system and non-PC "information appliances" would have little impact on Microsoft's monopoly in the PC operating system market. He called Linux "a niche operating system" and scoffed at the idea that PCs would be supplanted by other electronic devices.
"The PC isn't going away," Fisher said. "The PC is going to remain extremely important, and therefore Microsoft's monopoly over the PC operating system will remain extremely important."
Microsoft is arguing in the trial's rebuttal phase, which began on Tuesday, that the increasing use of Linux and information appliances show that the company doesn't have a monopoly with Windows, and as such, cannot have violated antitrust laws.
Fisher, prompted by David Boies, the government's lead trial attorney, sought to undercut that argument by picking apart some of the evidence Microsoft cited earlier in the week.
First up was a report prepared by market research firm International Data Corp. that projected the growth of the information-appliance market. Figure 7, which Microsoft pointed to on Wednesday, projected that in 2001, shipments of information appliances will surpass those of consumer PCs.
Boies, however, pointed to Figure 8, which wasn't displayed by Microsoft. It compared the entire PC market -- not just home computers -- with the information appliance market, and stated that overall PC shipments will continue to dramatically outpace appliance shipments through 2002. And according to Figure 9, the value of the PC shipments will be about $100 billion more than those of the appliances.
"Does this suggest that information appliance are going to replace the PC," a smiling Boies asked Fisher.
"Certainly not," the witness responded.
Boies then displayed a commentary Microsoft Chairman Bill Gates wrote in last week's editions of Newsweek magazine, in which he said that "for most people at home and at at work, the PC will remain the primary computing tool."
Next up was a New York Times article introduced as evidence on Wednesday by Microsoft about the upcoming Sony Playstation II video game machine. Microsoft had argued that the new Sony device would contain better graphics technology than a standard PC. But yesterday, Boies pointed to a different portion of the article: "Sony executives went to some pains today to assert that their new machine was not a competitor to Wintel, the combination of the Microsoft Corporation's Windows operating system and Intel's Pentium microprocessors."
To attack Microsoft's Linux arguments, Boies displayed -- and Fisher commented on -- two other news articles. One was a June 1998 PC Week Online article in which Gates is quoted as saying, "I've never had a customer mention Linux to me." The other was a March PC Week piece in which Microsoft manager Ed Muth said: "The more I study Linux, the weaker the value proposition is to consumers."
Fisher said the reason he believes Linux will not be a significant competitor to Windows in the foreseeable future is that there are not very many consumer software programs that run on Linux.
Earlier yesterday, Microsoft questioned the accuracy of statements made by the government's first witness, Netscape Communications Corp. Chief Executive James Barksdale, that Microsoft had crippled his company's ability to distribute its Internet browsing software. Barksdale testified in October that computer makers and Internet access providers distribute about half the copies of browsers people use, but because of Microsoft's alleged anti-competitive acts, he said Netscape was "basically out of" those distribution channels.
But investment bankers retained by AOL, which acquired Netscape earlier this year, determined Netscape software was being included on more than one-fifth of new PCs and distributed by 24 percent of the 20 largest Internet providers, according to a document prepared by the bankers. The document, which was presented as evidence by Microsoft, also said that Netscape distributed 160 million copies of its browser last year.
Microsoft argues that its actions, particularly the inclusion of its browser in Windows, did not hinder Netscape from distributing its product, and therefore were not illegal. "There's no credible evidence that Netscape was foreclosed," Microsoft attorney Michael Lacovara told reporters outside the courtroom.
Asked about the document by Lacovara, Fisher said that if the contents were true, Barksdale's testimony would have been "an exaggeration."
At the end of the day, U.S. District Judge Thomas Penfield Jackson urged Boies to address that document, as well as others about the AOL-Netscape deal, when the proceedings resume today. "There is some very interesting information in there," Jackson said.