The New York Times

October 28, 1998

In Its Case Against Microsoft, U.S. Now Cites Note From Apple

By STEVE LOHR and JOEL BRINKLEY

WASHINGTON -- After four days spent watching lawyers for Microsoft Corp. attack its key witness, the Justice Department on Tuesday introduced a host of new documents, videotaped depositions and fresh testimony to strengthen its antitrust case and undermine Microsoft's defenses.

Among the new evidence potentially most damaging to Microsoft was a handwritten note describing what the government portrays as strong-arm tactics Microsoft successfully employed to force Apple Computer Inc. to ship Microsoft's Web browser, Internet Explorer, with Macintosh computers.

The new evidence came as David Boies, the lead government lawyer, got his turn to question his own witness, James Barksdale, the president of Netscape Communications Corp., who Tuesday completed his fifth day of testimony in federal court here.

The Apple evidence consisted of a note from Apple chief financial officer Fred Anderson to Barksdale, explaining why Apple had agreed to use Internet Explorer on Macintosh computers.

Anderson said Microsoft had "threatened to abandon Mac" if the company did not make Internet Explorer the default browser.

Specifically, Anderson said, Microsoft had threatened to stop developing its word processor, Microsoft Word, and other crucial programs for Macintosh computers -- a threat that if carried through, would mean "we were dead," Anderson wrote.

The Justice Department's antitrust suit charges that Microsoft tried to use its monopoly in operating system software to crush Netscape, its chief competitor in the market for browsers, the software used to navigate the World Wide Web.

"I was mad as stew when I got that," Barksdale testified.

Microsoft said that Apple agreed to opt for its browser as part of broad agreement that included a $150 million investment by Microsoft, cross-licensing of patents and settlement of an old legal case -- not just because of Microsoft's commitment to continue making business software for the Macintosh.

In testimony given last month but first made public Tuesday, a senior executive of America Online Inc. said that his company chose Microsoft's browser over Netscape's in return for Microsoft's placing a prominent link to America Online from the main screen, or desktop, of Microsoft's Windows, the operating system shipped on more than 90 percent of all new computers.

David Colburn, a senior vice president of America Online, the nation's largest online service, stated that Microsoft's willingness "to bundle America Online in some form with the Windows operating system was a critically important competitive factor that was impossible for Netscape to match."

Testifying for the government, Colburn also said that his company's March 1996 contract with Microsoft required that more than 85 percent of all browsers America Online shipped to its members had to be Microsoft's Internet Explorer. In the battle for browser market share, America Online's millions of subscribers were perhaps the biggest prize in the industry.

In an October 1996 promotional agreement, Microsoft agreed to pay America Online 25 cents for each America Online subscriber converted to Microsoft's browser from a rival, presumably Netscape, and to pay a $600,000 bonus for doing it quickly. During his negotiations with Microsoft executives, Colburn stated, "I was told that Microsoft had no limitations on what it could spend to gain market share for Internet Explorer."

In a statement, Microsoft disputed Colburn's assertion that the crucial factor in its deal with America Online was the offer of a link on the Windows desktop -- the most valuable real estate in cyberspace. "Microsoft and Netscape competed for the America Online contract, and Microsoft won on the merits of its technology," the statement said.

In questioning Barksdale, Boies displayed several documents from Microsoft's files intended to strengthen the government's accusation that Microsoft made an illegal offer to Netscape to divide the market for browsers in a meeting on June 21, 1995 -- an offer that Netscape did not accept.

During cross-examination of Barksdale last week, John Warden, Microsoft's lead lawyer, suggested that Marc Andreessen, a co-founder and executive vice president of Netscape, had "imagined or invented the proposal to divide the markets." Andreessen took notes during the June 21 meeting; they later became a key piece of government evidence.

After Boies produced several internal Microsoft e-mail messages in which senior executives seemed to be openly discussing such a deal, Barksdale said, "This seems to corroborate exactly what we have been saying."

Boies also displayed part of a transcript of the questioning last summer of Chris Jones, a Microsoft executive who attended the 1995 meeting. The Justice Department asked Jones if dividing the market for browsers had been a topic of discussion.

"Oh, I believe there was a discussion of that nature," Jones said.

The June 1995 meeting, a pivotal part of the government's case, has been a key point of questioning and evidence by both sides.

In the afternoon session, Barksdale offered new details about the meeting. He said that while Microsoft had prodded Netscape to pull back from making browsers for Windows 95, it was his understanding that Netscape, which had already created a browser for Windows 95 by the summer of 1995, would be given a year or two to get out of that market.

"Netscape and the government's account of that meeting changes more often than Dennis Rodman's hair color," said Mark Murray, a Microsoft spokesman.

The government also submitted an internal Microsoft sales document, suggesting how much importance the company placed on insuring that personal computer makers bundled its browser with its operating system -- which was required by Microsoft contracts and done, the government contends, to stifle competition in the browser market.

"It came on my machine, is the Number 1 reason people switch to Internet Explorer," the Microsoft sales presentation from May 1998 declared.

To which Barksdale responded, "It just shows what I've been saying here for a week is true -- and Microsoft knew it."