The New York Times
January 7, 1999
Microsoft Presses Its View About Rivals' 3-Way Deal
Judge Seems to Weigh Competitive Impact
By STEVE LOHR
WASHINGTON -- In its antitrust trial Wednesday, the Microsoft Corporation made its most concerted effort yet to convince a Federal judge that the recently announced deal that brings together three of its rivals -- America Online Inc., the Netscape Communications Corporation and Sun Microsystems Inc. -- seriously weakens the Government's case.
In a three-way deal announced in late November, America Online agreed to buy Netscape for $4.2 billion and made a side agreement to buy and jointly develop technology with Sun. Last month, Judge Thomas Penfield Jackson, who will decide the outcome of this nonjury trial, expressed the view that the deal "might be a very significant change in the playing field as far as this industry is concerned."
During today's cross-examination of the Government's last witness, Franklin M. Fisher, an economist, Microsoft's legal team presented as evidence comments made by executives of the three companies who characterized the deal as sure to strengthen their competitive muscle in software used to browse the World Wide Web, in electronic commerce and in Internet technology -- all areas of head-to-head competition with Microsoft.
A Microsoft lawyer, Michael Lacovara, repeatedly tried to get Fisher to concede that the triumvirate of rivals with ambitious plans for the future did indeed pose a genuine threat to Microsoft's dominance in the personal computer software business. At times, Fisher would give an inch or two, saying, for example, that moves planned by the three companies were a "hopeful sign" that they might some day be a counterweight to Microsoft. But each time he was challenged, Fisher returned to his view that Microsoft has a monopoly in the personal computer operating system market with its Windows family of products and that it has illegally used its market power to defend that monopoly.
"None of this," Fisher replied at one point, "affects my conclusions."
Lacovara prodded Fisher repeatedly to admit that the emerging technology championed by the group -- the combination of Sun's Java software, an Internet programming language, and Netscape's Web browser -- could pose a serious challenge to Microsoft in the long run. Fisher allowed that it was difficult to predict what might happen.
Yet any such challenge will not come soon, he said, adding, "I don't think it will happen at all if Microsoft is permitted to go on as it has."
Microsoft insists that the America Online-Netscape-Sun deal fundamentally changes the competitive landscape and undermines a linchpin claim in the Government's case.
Microsoft insists that the America Online-Netscape-Sun deal fundamentally changes the competitive landscape and undermines a linchpin claim in the Government's case: that Microsoft has a resilient monopoly."This deal was the shot heard around the world, in the industry, by the public and in this courthouse," said William H. Neukom, the Microsoft senior vice president for law and corporate affairs.
Today, Judge Jackson gave another signal that he is weighing the impact of the three-company deal on the case. He interrupted the cross-examination of Fisher to directly ask his opinion about a column this morning on the Op-Ed page of The Washington Post by David Ignatius, based largely on an interview with Stephen M. Case, the chairman of America Online.
In it, Ignatius quotes Case as saying that the deal is not intended to mount a challenge to Microsoft's mainstay, the Windows operating system, which controls the basic operations of more than 90 percent of personal computers sold today. "AOL's merger with Netscape has no bearing on the Microsoft case, as nothing we're doing is competitive with Windows," Case was quoted as saying. "We have no flight of fancy that we can dent in any way, shape or form what is a monopoly in the operating system business."
After reading the quotations, Judge Jackson asked Fisher if he agreed with that view of the deal. "I certainly do," Fisher replied.
Judge Jackson then asked lawyers for both Microsoft and the Justice Department whether they planned to call Case as a witness. Another America Online executive, David M. Colburn, has already appeared as a witness for the Government. Case is not on the 12-person witness lists for either side, but he could be called as one of the two additional witnesses allowed to each side after Microsoft presents its defense, which is expected to begin early next week.
Both Microsoft and the Government told the judge that they would wait until Microsoft had presented its defense, expected to last six to eight weeks, before naming their two so-called redirect witnesses.
Later, on the courthouse steps, David Boies, the lead trial lawyer for the Justice Department, made no commitment, but he said Case would be a "useful witness" for the Government. "He's very knowledgeable," Boies said, "and Microsoft is pinning a lot of hopes on the effect of that merger."