PHIL PONCE: The United States versus Microsoft resumed today after a three-month break. The blockbuster antitrust case began last October, with the government accusing the software giant of illegal practices that stifled innovation and competition. Both sides have presented their main cases. Today the rebuttals began. Here to update us, as he has periodically throughout the trial, is John McChesney, who's covering the case for National Public Radio, NPR. John, the trial started last October, the government went first with its case in chief and Microsoft with its case in chief. In this three-month recess, why the recess for that long?
JOHN McCHESNEY: Judge Thomas Pennfield Jackson had a criminal case that he had to preside over. So they took a break. And I think the Judge also hoped that perhaps these two parties might get together. I was noticing in the earlier piece there that there's a trend towards shorter and flashier stories, Phil. This is not a short or flashy story. It promises to go on for a long time.
PHIL PONCE: Not conducive to a 12-second sound bite.
JOHN McCHESNEY: Not at all.
PHIL PONCE: One of the things that people speculated about that might happen during the course of this recess was a settlement, possible settlement. What happened there, do you know?
JOHN McCHESNEY: Well, all I know is that they met a couple of times but there is a grand canyon between these two parties, starting with the question of whether or not Microsoft has a monopoly with its Windows operating system. Microsoft says it doesn't, the government says it does. So, you've got -- right at the very fundamental issue you have a disagreement. So, it's very hard for them to come to some agreement, particularly when Windows 98 is out with its browser integrated into it. You know, one of the principal issues has been the browser market and Netscape.
PHIL PONCE: The browser market being the software that allows you to go on the Internet. Before the break happened, Microsoft was perceived on being on the ropes; the government was perceived as having momentum. What is the government trying to do -- expected to do now that it's on rebuttal - that it gets another bite at the apple?
JOHN McCHESNEY: Well, you know, one of the central allegations here has been that Microsoft has abused its monopoly power in Windows, and it's done that by using predatory pricing, by using exclusionary contracts with computer makers and Internet service providers and other people and it's also bundled its browser together with its Windows operating system, as it's done with some other software, in order to put Netscape out of business.
PHIL PONCE: Tied it up -- when you say bundling - in other words -
JOHN McCHESNEY: Put those two together, integrated them and put them on the market as one product.
PHIL PONCE: And Netscape being a competing browser company.
JOHN McCHESNEY: Was. I guess it still is. Actually, they still have some considerable market share in the browser thing, but they're now owned by AOL and we'll talk about that in a little bit. What the government is going to do this time - they're bringing out -- both sides are rolling out economists. So we have dueling economists. We had Franklin Smith today from MIT who came on for the government. And the eyes glaze over in some of these arguments because we're getting down to definitions of words, definitions of markets, arguments about data and figures. They're very important, but it's very difficult for me to encapsulate those in any kind of quick rendition for you.
PHIL PONCE: I won't impose on you to attempt to do that.
JOHN McCHESNEY: The heat that will be generated in this rebuttal section will come from two witnesses. One of them is being called by the government; his name is Gary Norris. He represents IBM. IBM is the first computer maker to come forward in this trial to testify against Microsoft. It's interesting that it's happening in the rebuttal phase and not in the central part of the trial. I'm not sure why that happened. I'm not sure why IBM decided to come forward -- perhaps because it saw, as you said, that things seemed to be going against Microsoft so it's a little safer to come out and speak its piece now without fear of retaliation from Microsoft, which some computers makers have said they do fear.
PHIL PONCE: And on the Microsoft side, once Microsoft gets its chance for a rebuttal, what is Microsoft expected to argue?
JOHN McCHESNEY: Well, Microsoft is going to make a big deal out of the deal - that is, the deal between AOL and Netscape. Now, AOL during the trial in December purchased Netscape for $10 billion in stock and cash.
PHIL PONCE: Again, AOL is the leading -
JOHN McCHESNEY: America Online, the leading Internet service provider and online service.
PHIL PONCE: It's a private company, you pay and they get you on the Internet.
JOHN McCHESNEY: You pay 21 bucks a month now, I think, and you can stay within the AOL contained world, very nice place, or go out on the Internet -- 16 million subscribers now, I think.
PHIL PONCE: That's important -- the AOL/Netscape deal is relevant to this case why?
JOHN McCHESNEY: Microsoft said it's changed the whole competitive landscape on the Internet; that AOL has picked up the Netscape browser. Not only that, they've picked up what's called the Net Center Portal that Netscape has, which is one of these big Internet sites -- and if you don't change your default home page on your Internet browser, you go straight to that Netscape Net Center and there's a lot of advertising there and a lot of content. Microsoft says that deal changed everything, that the whole case against them has been made moot by that deal. It's a tricky proposition because there are other things that have gone on in the meantime, too. Microsoft invested $5 billion in AT&T to get on board with this broad band connection to the Internet that AT&T is going to provide through cable television. I suppose people could come back and argue, my goodness, this changed the market as much as the AOL/Netscape deal.
PHIL PONCE: And the point of Microsoft's argument just to clarify is what -- that competition is continuing, not withstanding anything that Microsoft may or may not have done? Is that the argument they're making?
JOHN McCHESNEY: The argument is that, if you go back to the fundamentals, and in fact they don't have a monopoly because anybody can challenge them quite easily if they have enough money and talent. That's all it takes, Microsoft says, to break in and challenge them. They point to the B operating system, the small operating system being developed - or has been developed in California, Lenox, the open source operating system that you're hearing more about. They're pointing to these, saying these --
PHIL PONCE: Other developments out there that could conceivably challenge Microsoft.
JOHN McCHESNEY: They could challenge Windows. Now, the problem with that is now they don't even show in the chart in terms of market share. Microsoft's Windows is the ruling -- the ruling operating system. And there's no -- very few people will tell you that in the foreseeable future that is going to be seriously challenged by anyone.
PHIL PONCE: And in the foreseeable future, there's no indication this is looking to be wrapped up quickly either, is that -
JOHN McCHESNEY: Not at all. The way it's going to be wrapped up is we have this rebuttal phase they say will be over by the Fourth of July. I don't believe it. I haven't believed any of this schedule so far, and we've been right. Then we have findings of fact. This is an argument by both sides, the judge makes his finding of fact and findings of law, closing arguments, et cetera, et cetera. Then the judge goes away and decides and then we have a penalty phase and it just goes on and on.
PHIL PONCE: Well, we'll have to have you back. Thank you, John.
JOHN McCHESNEY: Thank you.