Online NewsHour: Microsoft Trial Update -- February 26, 1999



	MICROSOFT TRIAL UPDATE

February 26, 1999

The Microsoft anti-trust trial recessed today for several weeks following the end of witness presentations by both sides. Is the software giant in trouble? Phil Ponce has the story.

JIM LEHRER: Phil Ponce has the Microsoft trial update.

PHIL PONCE: The United States Vs. Microsoft is considered this era's most important antitrust and computer industry court case. The government claims Microsoft is a monopoly and has illegally bullied other companies to stifle competition and to protect the dominance of its Windows operating system, the system that controls a computer's basic operations.

Today the trial reached a key point. Each side was allowed to put on 12 main witnesses. The Government finished with its main witnesses last month, and today, Microsoft did the same. For a status report on the trial so far, I'm joined by Ann Marie Squeo, who has been covering the case for Bloomberg News; Rick Rule, a consultant to Microsoft and a Washington attorney; he headed the Justice Department's Antitrust Division under President Reagan; and Christine Varney, also a Washington attorney, who represents Netscape, an Internet software company and one of Microsoft's chief competitors. Welcome.

Ann Marie, when the government put on its case, it accused Microsoft of misbehaving in a number of ways, of trying to impose restrictive contracts on companies, on trying to divvy up the marketplace, basically misbehaving by using its muscle illegally. What did Microsoft try to -- what are the key points Microsoft tried to make with its 12 witnesses?

ANN MARIE SQUEO, Bloomberg News: Well, Microsoft was in the position of having to respond to all of those points, and there were a lot of them. I mean, there were allegations about misbehavior towards Intel Corp., Apple Computer, Netscape, Sun Micro Systems --

PHIL PONCE: All companies that Microsoft does business with?

ANN MARIE SQUEO: All companies Microsoft does business with. So in each of those situations, they put up mainly the executive who was responsible for the dealings with those companies to dispute the individual charges on each account. I mean the basic point that Microsoft seemed to be hammering at least in terms of the Internet browser market, which Netscape was involved in, was that Netscape was still free to get its browser to consumers, despite any alleged misbehavior by the company. And they've -

PHIL PONCE: Because one of the key points in this case was that Microsoft tried to use its dominance with Windows to promote its own browser -

ANN MARIE SQUEO: Exactly.

PHIL PONCE: -- technology, Internet Explorer -- and to try and squeeze out Netscape as the dominant browser that people use to hook up to the Internet?

ANN MARIE SQUEO: Right. That's right, Phil. And that was the point they wanted to make. I mean part of the argument is that Microsoft was snuffing out Netscape by incorporating its Internet Explorer browser into Windows and virtually making it obsolete. I mean there's no need for two Internet browsers. I mean every computer user just needs one way to get on the Internet; you don't need a multitude of different ones. So the company really stressed the point that, if you or I went and logged onto the Internet right now, we could download Netscape's browser and you can use it and there is no stopping you from doing that. So obviously, you and I can still get the browser.

PHIL PONCE: But there were some embarrassing moments for Microsoft during its presentation of its 12 witnesses.

ANN MARIE SQUEO: There were, and there was -- well, there was a videotape at one point, a videotaped deposition, that was introduced by Microsoft executive Jim Allchin and it was about a 20-minute tape I believe or maybe a little -- an hour long or something like that, but it took three days of questioning by David Boies, the Government's lead attorney about inconsistencies in the tape and whether or not the tape was actually showing lab results or whether it was, you know, a combination of things that were spliced together. And in the end, Microsoft made the pointed that it was supposed illustrative and not actual lab results, which looked pretty damning, I think, for the judge who called the tape "very troubling."

PHIL PONCE: So in other words, the suggestion was or the implication was that this evidence that Microsoft was putting on was not necessarily credible?

ANN MARIE SQUEO: Yes, and he seems to have questioned credibility of individual witnesses throughout their putting on their defense.

PHIL PONCE: Mr. Rule, Microsoft has had a rough time of it in the press. Let me read to you something very quickly that appeared on Reuters late this afternoon. "The landmark Microsoft antitrust trial adjourned Friday for a lengthy recess with the company's defense in disarray and a strong likelihood the judge will eventually rule for the government." Your reaction to that.

RICK RULE, Attorney/Microsoft Consultant: Well, I think it's a good thing that cases in this country are tried in courtrooms and not in the press. The fact of the matter is Microsoft went into its case basically trying to put together the objective evidence that refuted the government's charges, which were largely based on innuendo, on certain statements and documents that were on e-mails and that sort of thing. And I think, even though there are issues, like the tape that Ann Marie mentioned, where there were some questions that, you know, maybe the lawyers should have done the tape a little differently, at the end of the day, the judge allowed Jim Allchin to redo the test in a tape that the Government witnessed.

PHIL PONCE: The Microsoft executive.

RICK RULE: The Microsoft executive. And I think it was clear to everybody who sat in there that that tape verified that Allchin had testified to. So I think if you get back from the day-to-day skirmishing and moments of trial drama that make for such good press and look at the record that was established and then lay it against the law, the fact is Microsoft is in very good shape as we go into this break because the law is very clear. It's designed to protect something called consumer welfare, basically consumers, and the one thing the Government has utterly failed to do is show that Microsoft's conduct has in any way harmed consumers, and that is testimony that comes right out of the mouths of the Government's economists.

PHIL PONCE: How about that, Ms. Varney? Has the Government failed to show that consumers have been harmed?

CHRISTINE VARNEY, Attorney, Netscape: Saying that Microsoft had a good week is like saying Microsoft's not a monopolist. I think the Government proved every single claim that they had to. The Government had to prove Microsoft was a monopolist. Microsoft's own witnesses acknowledge that there's no viable alternative to Microsoft's operating system.

PHIL PONCE: Because they control, what, 90 percent of the market?

CHRISTINE VARNEY: Absolutely. The Government had to prove that Microsoft engaged in certain acts and practices. Clearly, the Government proved that; Microsoft's own witnesses conceded several of those. Cameron Myhrvold got on the stand and said the reason they had to put the browser in the operating system was because if consumers could freely and easily choose between two browsers, Microsoft would lose.

PHIL PONCE: And who -

CHRISTINE VARNEY: Said a Microsoft executive. And finally the Government had to prove these acts were illegal. I think it's absolutely clear that Microsoft's acts were intended to and did, in fact, restrain trade.

RICK RULE: Well, I again, I think that one, I think she has mischaracterized what Cameron Myhrvold said -- the fact of the matter is it's absolutely clear that Microsoft put Internet technologies into the operating system back in 1995 because that's the way computing was moving then and has moved. And basically most of us now who get PC's want to be able to explore the Internet, want to be able to go to the Internet. That's why Microsoft put it in the operating system. There are clear advantages to consumers from that. And as the court of --

PHIL PONCE: This goes to the whole issue of bundling -

ICK RULE: Right.

PHIL PONCE: -- whether or not Microsoft was trying to use its strong position with Windows to team it up with Internet Explorer, squeezing out Netscape?

RICK RULE: Exactly. And the court of appeals last June basically said that if there are advantages to that integration, putting them together by Microsoft, that in effect, it's a single product and the Government loses. With respect to all of the other acts, it's very clear that Microsoft has not in any way squeezed Netscape out of business. That's why Netscape is being sold for $4.2 billion to AOL. That's why Netscape was able to increase its user base from 40 million to 65 million when all of these activities were going on.

PHIL PONCE: How about that? If Netscape is doing well, how can -

CHRISTINE VARNEY: Netscape is doing fine. Netscape is a very forward-thinking company focused on the reality of their business. Their business right now is comprised of enterprise software and the portal. It is not comprised of selling browsers. Microsoft eliminated that. And when you think about -

PHIL PONCE: Enterprise -

CHRISTINE VARNEY: Enterprise software, selling software to businesses and the portal, Netcenter portal, which is a channel, for lack of a better word, on the Internet.

PHIL PONCE: That gets you onto the Internet.

CHRISTINE VARNEY: That is exactly right.

PHIL PONCE: How do those people get to that portal?

CHRISTINE VARNEY: When Netscape made a decision that they would continue to stay in business, that they would not allow Microsoft to take them out even though Microsoft had eliminated their principal and indeed at the beginning only source of revenue, they were nimble, they were quick, they stayed in business. But what Microsoft did, and their witnesses acknowledged, that any integration, that was any efficiencies that were eye achieved from the integration by Microsoft of any component of software into the operating system could easily be achieved by consumers. So why --

PHIL PONCE: We can't argue every point that's come up in the trial. Let me get back to Ann Marie. Even though the trial's not over, they're on a hiatus right now, there's been a lot of speculation as to the possible remedies should the government win. Has the government indicated what remedies it would seek?

ANN MARIE SQUEO: Well, initially, when the lawsuit was filed last may, the Government indicated several things that they would like to see, the biggest of which was have Microsoft remove Internet Explorer from Windows or also carry Netscape Navigator or some other browser. And what were some of the other ones? Let's see. That was the biggest one. And bad acts, don't do it anymore, no more exclusive contracts with -

PHIL PONCE: Have them change their behavior.

ANN MARIE SQUEO: Exactly. They were more small surgical things. One of the things that's come out, though, since then and has been that the government feels like it did a really good job, and due to that, they're thinking maybe there's more of a bigger remedy that we would want to seek here. No one at the Justice Department has ruled out the possibility of trying to break Microsoft up, which is -

PHIL PONCE: Let's get -- how about that? That's sort of like the nuclear bomb of remedies, yes?

RICK RULE: It's real premature, and it's like Mark Twain said, the rumors of Microsoft's demise are greatly exaggerated. The fact is that most antitrust lawyers recognize that, no matter what you think about the Government's case, the kind of case that would have to be made for the draconian kinds of remedies that are now being discussed, simply the Government hasn't even come close to that. And I think at the end of the day, everybody understands that blowing up Microsoft and destroying this wonderful asset that has benefited consumers I don't think is in anybody's interest. And frankly, most people even in the industry, even Microsoft's greatest enemies, generally don't want to see Microsoft blown up.

PHIL PONCE: Ms. Varney, the kind of remedies that would speak to you and your client?

CHRISTINE VARNEY: Rick was the assistant attorney general who very ably oversaw the breakup of AT&T, and that corporation today is worth multitudes more to its shareholders. So you know serious antitrust violations call for serious remedies.

PHIL PONCE: So are you suggesting that maybe the breakup of Microsoft would be the way to go?

CHRISTINE VARNEY: I think everything's on the table.

PHIL PONCE: There has been talk of, if you -- if you break up Microsoft, they would create baby bills, a play on the baby Bells.

RICK RULE: I mean, the point is Microsoft is a single company that's based around a piece of software or pieces of software. And if you start trying to give out those rights to the software, you destroy its value. You're going to create balkanization, the sort of uniformity that Microsoft provides to users and experience to software developers and knowing that their software will run on a system will basically be lost. And that would be a tremendous loss for consumers. And again, I think if you look back through history, the last time a courted imposed a breakup in a non-merger case, it's been over 30 years. And most antitrust lawyers know that kind of remedy really doesn't make a lot of sense, except in very extreme cases where a company basically achieves its monopoly through acquisition or illegal acts. Even the US Government in 1995 went on record in saying that Microsoft achieved its position in the operating system market lawfully.

PHIL PONCE: Ann Marie, real quickly.

ANN MARIE SQUEO: You're not suggesting that they haven't. And no one has suggested that they haven't done that.

PHIL PONCE: Ann Marie, real quickly, what happens next?

ANN MARIE SQUEO: What happens next is we have a six-week high eighties and then there'll be rebuttal witnesses probably for both sides. No one's said yet who they'll be -- two for each side -- and closing arguments and then it goes to the judge to see what he's going to come up with.

PHIL PONCE: Well, we'll be back on this, I'm sure. Thank you all very much.

RICK RULE: Thank you.