MICROSOFT ON TRIAL

October 22, 1998

Did Microsoft attempt to coerce its rival Netscape to illegally share a monopoly on the market for Internet browsers? Phil Ponce has the story.

ELIZABETH FARNSWORTH: Phil Ponce has the Microsoft trial update. PHIL PONCE: Week one of the Government Versus Microsoft ended today. It's widely seen as the most important antitrust case of the era, testing the limits of power in the information age. John McChesney is covering the trial for NPR, National Public Radio. Welcome, John. JOHN McCHESNEY, National Public Radio: Phil. PHIL PONCE: John, the government is alleging that Microsoft is a monopoly and it's using its monopoly status to illegally compete in the marketplace. What were the main points that the government made this week? JOHN McCHESNEY: Well, the government is trying to show that Microsoft has foreclosed - that's the legal term - foreclosed Netscape's ability to distribute its product by striking deals with computer makers, with Internet service providers. It's trying to show that Netscape - that Microsoft tied its browser software into its operating system. PHIL PONCE: The software that let's you surf the Web - JOHN McCHESNEY: Right. PHIL PONCE: The operating system being the nuts and bolts of the central nervous system. JOHN McCHESNEY: Your Web browser that you see when you're surfing the net. And they say that Microsoft tied that browser into the operating system, into Windows 98, integrated it tightly in there, for the sole purpose of wiping out Netscape, of wiping out the competition. That is illegal. PHIL PONCE: Netscape being the main browser company that had the lion's share of the market - JOHN McCHESNEY: Microsoft had 85 percent back in 1996, nearly a monopoly, as Microsoft is fond of pointing out, and they tweaked Jim Barksdale, the CEO, by saying - by reminding Barksdale that he said he had a God given right to 95 percent of the market, and Barksdale points out he's made that joke since he was with Federal Express. But it's a good joke. PHIL PONCE: Barksdale is the government's star witness, so to speak. What came out of Barksdale this week? JOHN McCHESNEY: Well, he's been on the stand for two full days. You know, we started with the government's opening statement and then Microsoft's opening statement, and then we've had Jim Barksdale on the stand for two full days being grilled by Microsoft lawyer John Warden. And Warden has been after him in minute detail. There are 127 pages of direct testimony that Barksdale presented to the court. They do this in written form so that this shortens the trial. And Warden has gone through this testimony line by line by line and grilled Barksdale on it. What he's trying to show is a number - he's trying to show a number of things. He's trying to show that Netscape has thrived, in spite of this competitive threat, to - that's mounted by Microsoft. PHIL PONCE: In other words, it's been - even though Microsoft may have close to what most people think of as a monopoly that Netscape hasn't been harmed by it, is that - JOHN McCHESNEY: Well, maybe harmed, maybe successful competition has taken place, but that they haven't been irreparably harmed; they haven't been put out of business by a long shot. You heard Mark Murray in the opening statement there say that Netscape is distributing 150 million copies of its browser this year. That's their plan, mind you. But they have pointed out that Netscape - that people downloaded 26 million copies of Netscape's browser over the last six or seven months in 1998. That doesn't sound like a company -- Microsoft says -- that's paralyzed by this competition. What the government did in its opening statement was home in on a meeting that happened in June of 1995. And the government alleges and Netscape alleges that in that meeting Microsoft came to Netscape and made an illegal offer to divide the browser market with Netscape. Netscape would take all of the browser market that was previous to Windows 95 and Unix and the operating systems, the Mac operating system. Microsoft would take the market for Windows 95. PHIL PONCE: And the government says that's illegal collusion, violates antitrust, you can't do that? JOHN McCHESNEY: Well, it was coupled, according to the government and Netscape, with a threat, you do this, you go along with this deal, or we'll take care of you. It was also accompanied by a pot sweetener, an offer to invest in Netscape. Now, what Jack Warden, John Warden has been trying to do during the week is to show that nothing leading up to that June 25th meeting and nothing following it would indicate that that's what happened in that meeting. They say that that meeting, the rendition or the version of that meeting that you hear about is largely the product of notes taken by a young developer of Netscape and Mosaic, Mark Andreason, who took notes on his laptop during it. PHIL PONCE: Warden is the attorney for Microsoft. And he came up with a bit of a surprise this week, yes? What was that? JOHN McCHESNEY: Well, it was a surprise to some of the reporters reporting the case. I'm sure it wasn't a surprise to the government prosecutors who looked at all this evidence. But what he brought in was a memo - an e-mail message from Jim Clark, written in December of 1994. PHIL PONCE: Jim Clark being one of the co-founders of Netscape? JOHN McCHESNEY: Right. He was the first chairman. And he wrote an e-mail in December, late at night, 3 o'clock in the morning, to an official up at Microsoft, and in that memo he said perhaps Microsoft would like to make an investment in Netscape. He was inviting an investment. So Microsoft was saying this was on the table a long time before June 25th. In his deposition also Jim Clark said that in October of 1994 that Bill Gates had told him at a meeting here in Washington that he intended to put the browser in Windows 95 and offer it for free. PHIL PONCE: And so - what's the significance of those two points? JOHN McCHESNEY: Well, the first point is that the offer to invest in Netscape was not made in coupling with a threat; it was simply on the table and been solicited by Netscape a long time before this June 21st meeting happened. PHIL PONCE: So it wasn't Microsoft's idea to go in there and talk turkey about splitting the market and that sort of thing? JOHN McCHESNEY: And there was no surprise on June 21st that Microsoft intended to include browsing technology in Windows 95. That wasn't a threat. It wasn't a surprise. It was something that Jim Clark knew about now, but at the bottom of Jim Clark's memo it says, no one else in the company knows that I've written this, and of course, Netscape is saying, look, Jim Barksdale didn't know about this; nobody else in Netscape knew about this; and it has no connection whatsoever to the June 21st meeting, what we're saying about the June 21st meeting stands. PHIL PONCE: Moving on to Microsoft's points, what points was Microsoft able to make this with? JOHN McCHESNEY: Well, they're really trying to make the case for the success of Netscape in the face of all of this. They're also trying to make a case that you cannot disentangle this browser technology from Windows 98, that somehow it's not a separate product, that it is an integrated function, a truly integrated function. They depend here, by the way, on an appeals court decision that happened last summer, saying that it was a true product integration and it wasn't a bolting together of two separate products in order to defeat Netscape. So they're trying to make the case that it's a successful company, that the integration is total and is a benefit to consumers, is an efficiency, it was not something they did to defeat Netscape, and they're trying to make the case that they have never in any way done anything illegal, particularly in this June 25th meeting. PHIL PONCE: Microsoft is also - Microsoft's lawyer also made - made quite a to do about the government allegedly demonizing Bill Gates. What was that all about? JOHN McCHESNEY: Well in the opening day we had the government showing video clips of Bill Gates' deposition and juxtaposing that, what he said in the deposition, with e-mail messages and memoranda that he had written during the heat of the battle with Netscape. And what the government was trying to show is that first of all that Gates, himself, was very much in charge of arranging and preparing for this June 21st meeting, and the whole - arranging all the tactics for the struggle with Netscape - and that what he said in his deposition was, in fact, in contradiction to what he had said - to what he had said in his e-mail messages and memoranda. It was a fairly effective opening day, I must say. Mr. Gates doesn't like to be questioned that way, so he doesn't come off the way President Clinton did in his videotaped deposition. PHIL PONCE: And by that you mean that he's maybe not quite as, what, smooth in front of a camera? JOHN McCHESNEY: He's not as smooth in front of the camera, is somewhat uncomfortable. It's natural enough. He's the CEO of a very successful software company. He's not a politician. PHIL PONCE: What is Microsoft saying about - when one looks at all this, one sees - don't you - that competition in this deal is just intense and Microsoft's argument is what, that the competition may have been ferocious but, what, it wasn't illegal? JOHN McCHESNEY: No. It wasn't illegal. Not only that, they saw that the browser was a key to Internet, access to the Internet, and that they needed to get that built quickly into their operating system in order to compete. The government contends that Microsoft saw Netscape and Java, this new Internet software language, the combination of those two things as a threat to Windows, itself, and Gates in some memos has said that. In other words, if you see nothing but your browser when you're watching your computer all the time, that becomes the primary metaphor for computing, and people begin to write applications to the browser, rather than to Windows; Windows disappears. It becomes, as Gates said, a commodity product that really isn't that important. So they saw that they might be robbed of their franchise. PHIL PONCE: John, last question. Does it feel - being in the courtroom - does it feel like a landmark case? JOHN McCHESNEY: It does. It particularly does to me since I cover technology for National Public Radio, and this is the first antitrust case that deals with the digital technologies of software, and no one really knows how to do it. No one really knows how to deal with these new industries. They're not like steel and oil or the things we had in great antitrust cases about in the past. PHIL PONCE: John McChesney, thank you very much. JOHN McCHESNEY: Thank you.

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