The New York Times
December 1, 1998
Microsoft Defense Strategy Starts to Come Into Focus
Attack on Even Minor Points of U.S. Case
By STEVE LOHR and JOEL BRINKLEY
WASHINGTON, Nov. 30 -- In a day of prickly, detailed cross-examination at Microsoft's antitrust trial, Frederick R. Warren-Boulton, an economist, summed up the Government's case of how the software giant wields its market power in the industry.
"Microsoft cannot point a gun to people's heads," Warren-Boulton said in response to a question from Microsoft's lawyer, "but they can make them an offer they can't refuse."
It is precisely this broad portrayal of Microsoft as a bullying monopolist that is the main target of Microsoft's defense as it tries to attack every fact, theory and assumption underlying the Government's case.
The cross-examination of Warren-Boulton, the Government's seventh witness, has illuminated the company's defense strategy.
"We're seeing the slow but steady process of cleaning off the mud that has been thrown at Microsoft," said Mark Murray, a Microsoft spokesman. "The facts do not fit the Government's generalizations."
Warren-Boulton spent his fourth day on the stand today, and the cross-examination has taken so long largely because Microsoft has tried to use his long written testimony as a vehicle to poke holes in numerous aspects of the Government's case.
As an economist, he has offered arguments on many issues in the case, unlike the industry witnesses whose testimony focused more narrowly on their areas of expertise.
Much of the cross-examination centered on Microsoft's contracts with personal computer makers, Internet service suppliers and companies that create entertainment and information programming on the World Wide Web. The Government contends that Microsoft illegally used its market power to persuade these companies to enter exclusionary deals to curb competition in the market for software used to browse the Web.
Michael Lacovara, a Microsoft lawyer, tried to get Warren-Boulton to concede that Microsoft's deals with Internet service suppliers, from America Online to small local companies, did not prevent them from distributing other browsers including the Netscape Communications Corporation's Navigator.
Warren-Boulton acknowledged the narrow point but noted that most of the contracts called for the Internet access companies to guarantee that 75 percent or more of their customers use Microsoft's browser.
Lacovara countered by asking whether such exclusive, cross-promotional deals were standard in many industries. "Absent monopoly power," Warren-Boulton replied in a pointed return to his theme that the antitrust rules are different for monopolies, "exclusive-dealing arrangements can be assumed to be benign."
In the morning session, Lacovara offered evidence that several large computer manufacturers, including Hewlett-Packard, now ship their personal computers with their own hybrid Web browser installed. Was that not an indication, Lacovara asked, that Microsoft was not restricting manufacturers nearly as much as Warren-Boulton and the Government have contended?
Not really, Warren-Boulton responded. The Hewlett-Packard browser, like others, is really just a "shell" -- a custom-made user interface behind which lies the code for Microsoft's browser, Internet Explorer, he said.
"This works for Microsoft," Warren-Boulton said, "because it increases the installed base for Internet Explorer" and prompts developers to write complementary software.
After a couple of years of enforcing contracts that limited the freedom of computer makers to offer the Internet software from rivals, Microsoft loosened the contracts earlier this year, mostly with the introduction of Windows 98, an upgrade of its operating system introduced in June.
Similarly, Microsoft relaxed some contract restrictions on Internet service suppliers early this year. By then, Warren-Boulton said, "the game was over" in terms of tipping key channels of software distribution in Microsoft's favor. The easing of contract restrictions also came after the Justice Department's high-profile investigation of Microsoft was well under way and the company faced Senate hearings and a Government challenge in a separate case.
While scoring a few points against Warren-Boulton, Microsoft has been unable to counter a powerful part of his testimony, offered in his written direct testimony and discussed several times while he has been on the stand, that attempts to demonstrate that Microsoft does have monopoly power.
One definition of a monopolist, Warren-Boulton noted, is that he can raise prices for his product with no fear that the price increase will give power to his competitors and cost him market share.
And in fact, Warren-Boulton said, the price Microsoft charges computer makers for Windows has more than doubled in the last seven years, while the overall price of a personal computer has dropped precipitously. Meanwhile, Microsoft's share of the operating system market has steadily increased, so Windows is now installed on 95 percent of computers sold.
Microsoft replies that over those years the company has vastly improved Windows so that when adjusted for performance the price of Windows remains low.