New York Times

October 20, 1998

Government Lays Out Its Case Against Microsoft

By JOEL BRINKLEY

WASHINGTON -- After months of noisy prelude, the antitrust trial against the Microsoft Corp. opened in federal court Monday morning with a pointed personal attack on Bill Gates, the company's chairman, who testified in a taped deposition that he knew little if anything about the key charges leveled against his company by the Justice Department and 20 states.

"My only knowledge is the Wall Street Journal article; it surprised me" Gates said of reports of a meeting in which his company had offered its chief competitor in Internet software a chance to divide the market. Gazing directly at his questioner, brow furrowed, head tilted slightly to the left, he added, "I was not involved" in discussions of the key meetings.

But as the Justice Department proceeded with its opening argument over the next two hours, its lead lawyer in the case, David Boies, presented more than a dozen memos and e-mail messages written by Gates over the last three years, showing clearly that he and other senior Microsoft executives not only knew about the matters in question but had forcefully directed them.

Using memos and documents, the government portrayed a company obsessed with crushing its competitor, the Netscape Communications Corp., and willing to use every tool at its disposal, including threats and financial inducements, to force or persuade other companies to drop any planned or existing alliances with Netscape.

Gates told his questioner at another point in the deposition that he had not even read the government's antitrust suit. As to its central charge, illegal collusion to divide software markets, Gates said only: "I think somebody said that was in there."

Gates also said that in 1995, "somebody came to me to ask if it made sense investing in Netscape." Shaking his head dismissively, Gates recalled, "I said it didn't make any sense to me."

Moments later, Boies displayed on a 10-foot video screen and enlargement of a memo in which Gates wrote to Paul Meritz, a senior Microsoft executive, that over time Microsoft might have to compete with Netscape. "But in the meantime we can help them," Gates wrote. "We can pay them some money."

At the heart of this competition -- and central to the case -- are browsing programs used to navigate the Internet's World Wide Web. Netscape got an early lead in the market with its Navigator browser. What frightened Microsoft was that Navigator could also be used as a "platform," a layer of software on which other programs can run. This is the main function of an operating system, a market in which Microsoft has a monopoly with its Windows family of operating systems.

Leaving the federal courthouse Monday afternoon, William H. Neukom, Microsoft's senior vice president of law and government affairs, said that the government's opening presentation was "based entirely on loose and unreliable rhetoric and snippets that were not in any reliable context." Microsoft will offer its own opening remarks on Tuesday.

"These are the same tired old allegations," Neukomb said. "None of these snippets, none of this rhetoric even approaches proof of anti-competitive conduct."

Earlier, however, Boies had told the judge, "It's competition on the merits that the antitrust laws foster. But this is not a situation of competition on the merits. This is a situation, I respectfully submit, your honor, of clear restraint of trade."

In one 1995 e-mail message relating to Microsoft's effort to push Netscape out of the market for browsers that run on Windows computers, Gates wrote other Microsoft executives: "I think there is a very powerful deal we can make with Netscape. I would really like to see something like this happen!!" Other memos showed that Gates was continually and personally involved.

In an attempt to demonstrate a pattern of anticompetitive behavior, Boies led Judge Thomas Penfield Jackson of U.S. District Court through a chronology of memos and messages that seemed to show Microsoft threatening and cajoling other companies.

After a meeting with Gates in 1996, an executive with America Online, the nation's largest on-line service, wrote to other executives in his company: "Gates delivered a characteristically blunt query: 'How much do we need to pay you to screw Netscape? This is your lucky day."'

In the summer of 1995, one memo showed, Gates wrote to Andrew Grove, chairman of the Intel Corp., and bluntly asked why the company was doing software research that might conflict with Micrsoft's plans.

"I don't understand why Intel funds a program that is against Windows," the message said. An Intel note a few weeks later said, "Gates made vague threats about supporting" Intel's competitors, unless Intel agreed to shut down its software research.

Intel eventually relented, but while this standoff was underway, a Microsoft memo said, the nation's computer-manufacturing industry was paralyzed while awaiting word on whether Microsoft deemed it acceptable to use certain features of a new computer chip Intel was selling. Gates wrote: "This is good news. It means they are listening to us."

In another case, the memos indicated that Microsoft threatened to stop selling the Apple Computer Co. a version of Microsoft's Office software suite, which holds more than 90 percent of that market -- unless Apple stopped supporting Netscape.

A central argument in the government's suit is that Microsoft has bundled its Web browser with Windows as a tactic in its war with Netscape. For the last year, at least, Microsoft has argued that the browser was added to Windows only for the benefit of customers.

In court Monday, however, the Justice Department displayed numerous internal memos indicating that the bundling was indeed a tactical decision. The memos showed that Microsoft's leaders first wanted to sell Interent Explorer and expected to earn $120 million a year from the sales. Then, when the plan to push Netscape out of competition with Microsoft failed, the company's leaders decided to bundle the browser with Windows instead as a means of helping it gain a majority share of the market.

In one memo, written in December 1995 -- in the thick of Microsoft's effort to push Netscape out of the market -- Gates wrote a memo to others in the company acknowledging that Netscape was designing browser software "far better than we are."

In an interview a few months later, displayed in court Monday, Gates said: "Our business model works even if the Internet Explorer software is free. We are still selling operating systems. What's Netscape's business model look like in that case? Not very good."

The government also proffered several memos from computer manufacturers complaining bitterly about Microsoft's licensing restriction that prohibited them from offering Netscape if they wanted to offer Windows.

"We're very disappointed," Hewlett Packard wrote to Microsoft last year. "This will cause significant, costly problems. From a consumer perspective, it is hurting our industry.

"If we had another choice of another supplier, based on your actions here, we would take it."