New York Times

September 14, 1998

NEWS ANALYSIS

Strategies Set in Microsoft Antitrust Case

By JOEL BRINKLEY

WASHINGTON -- After nearly a year of testimony, acrimony and debate, the opposing parties in the antitrust suit against Microsoft Corp. appear to have settled on strategies for the trial that begins in a few weeks.

For Microsoft -- accused of bullying competitors, bribing allies and forcing customers to use the company's products, like them or not -- one general defense has come down to this: So what? Everyone does it. That is how business operates.

As John Warden, a Microsoft lawyer, put it: "All companies compete; that's how the market works."

But lawyers for the Justice Department and 20 state attorneys general who filed the landmark lawsuit against the software giant four months ago predict that Microsoft's own leaders will prove the government's case. In hundreds of e-mail messages and memorandums written over the last several years, most of which will be entered as evidence, these executives unabashedly laid out their plans and intentions.

What the documents show, said David Boies, a Justice Department lawyer, is that Microsoft "bribed people to take their products, used predatory pricing and other anti-competitive tactics."

If every company behaves this way, as Microsoft asserts, "then we're going to be very busy" in the coming years, one antitrust official remarked.

In a court hearing on Friday, Microsoft argued once again that the government's case was baseless and asked Judge Thomas Penfield Jackson of the U.S. District Court to spare the nation the cost and discomfort of a long trial by dismissing the case right away.

The judge did not rule on that motion, though he indicated even before it was filed that he was not inclined to grant it. He did agree to Microsoft's request to delay the trial, which had been scheduled to begin on Sept. 23, until Oct. 15.

Microsoft lawyers had complained that without more time they could not respond to new evidence the government has gathered.

As the two sides offered their competing strategies on Friday, Jackson seemed equally willing to challenge both.

For example, one part of the government's suit accuses Microsoft of requiring Internet service providers to support Internet Explorer, Microsoft's browser for navigating the World Wide Web, in exchange for receiving promotional space on a part of the main Windows screen known as the channel bar.

"If your browser is so good, why do you need all those covenants anyway?" Jackson asked.

Warden, the Microsoft lawyer, responded that the arrangements were simply "promotional marketing agreements, very common tools of competition, just like Pepsi makes a deal with Pizza Hut to feature Pepsi exclusively."

The judge responded that such marketing arrangements did not exist in the computer industry until Microsoft introduced them.

"But Coca-Cola certainly does it," Warden said.

"Yes, but Coke is not a monopoly," the judge answered. As he had noted earlier, the rules governing how a monopolist can behave are very different from those governing other companies.

Jackson seemed skeptical at times of the government's position, too. Stephen Houck, an assistant attorney general from New York, read from several internal memos and documents that the government has introduced as evidence. One was a note that an employee sent to Bill Gates, Microsoft's chairman, in March 1997 suggesting ways to increase use of Internet Explorer and take customers away from Netscape Communications Corp., the company's main competitor in the Web browser market.

"It would be a mistake not to bundle Internet Explorer with Windows," Microsoft's operating system, the employee wrote. "If we take Internet Explorer away from the operating system, Netscape users won't switch to us."

Jackson then said rhetorically: "These documents are not necessarily inconsistent with the behavior of a competitor." To that, Houck responded: "No, it is inconsistent to use your monopoly position in operating systems to gain market share and disadvantage competitors."

Trying to reinforce that point, Houck then read from another memo, dated January 1996, describing a meeting between Gates and Stephen Case, chairman of America Online, the online service. Gates was trying to work out an arrangement under which America Online would feature Internet Explorer, not Netscape, in exchange for Microsoft's promoting America Online on the Windows main screen, the desktop.

A Microsoft employee taking notes at the meeting, Houck reported, wrote that Case told Gates that "Internet Explorer was technically behind Netscape, but it's in the ballpark." So, Case agreed to the arrangement, which is still in place today.

Jackson is expected to rule sometime next week on the motion for immediate dismissal.

As Boies completed the government's response to this motion, he was philosophical.

"There's no basis for a summary judgment," he told the judge. "But I suppose this has served some purpose. It allowed us to tell you what we think our case is about."