AOL's Case may testify in MS/DoJ trial

By Patrick Thibodeau and Margret Johnston
IDG News Service, 01/07/99

Washington, D.C. - The judge in the government's antitrust case against Microsoft wants America Online Chairman and CEO Steve Case to testify in the trial.

Judge Thomas Penfield Jackson introduced a newspaper column that featured an interview with Case and asked the attorneys on both sides whether the AOL CEO would be called as a witness.

"I take it there are no plans on the part of either party to call Mr. Case," Jackson said.

"Not at this time your honor, but we each have our rebuttal (witnesses)," Microsoft attorney John Warden said.

The judge brought up the newspaper column while Microsoft attorney Michael Lacovara questioned the government's economic expert, Franklin Fisher, about AOL's planned acquisition of Netscape and about its browser-licensing deal with Sun. Lacovara was attempting to get Fisher to concede that the merger was a competitive threat to Microsoft.

Microsoft has cited the AOL/Netscape merger, along with the development of the Linux operating system, network computers and the Java programming language, among other things, to prove that Microsoft faces many and potent competitive threats.

As part of his attack, Lacovara cited a transcript of the Nov. 24 press conference held by AOL, Netscape and Sun to announce the agreement, during which Case said AOL planned to "aggressively develop and promote Netscape's browser."

Despite the questions, Fisher remained steadfast in his view that Microsoft has created a monopoly that will not be easily threatened.

"They didn't eliminate for all time any possible threat," Fisher said, referring to Microsoft. But the company-especially in regard to Java and Netscape's browser-took steps to ensure "what they saw as a threat didn't materialize very fast."

The government has alleged that Microsoft tried to thwart Netscape with the use of predatory pricing (for example, giving away Internet Explorer for free), the granting of exclusive contracts and the "polluting" of Java by making a Windows-only version of the programming language.

Lacovara cited Case's comments as evidence that the AOL/Netscape deal was aimed at Microsoft, but it was here that Judge Jackson spoke up citing what he called a "timely" interview with Case.

In the op-ed column by David Ignatius, Case is quoted as saying: "AOL's merger with Netscape has no bearing on the Microsoft case, as nothing we're doing is competitive with Windows. We have no flight of fancy that we can dent in any way, shape of form what is a (Microsoft) monopoly in the operating system business."

After reading parts of Case's comments, Judge Jackson asked Fisher: "Is this consistent with your understanding of the impact of (the AOL/Netscape/Sun) consortium insofar as it is developing viable competition?"

"It certainly is," said Fisher, a professor at the Massachusetts Institute of Technology and a private consultant.

The judge's action sent attorneys on both sides scrambling during a break for copies of the Washington Post.

Outside the courtroom, government lead attorney David Boies didn't rule out the possibility that Case could be called testify.

Microsoft "has pinned a lot of his hopes" in the case on the impact on the AOL/Netscape merger, said Boies, and that means that Case "would be a useful witness."

Lacovara opened the afternoon session quoting Department of Commerce figures. The figures showed that the number of users of the Internet grew to 100 million last year, so he asked what share of that Netscape must have in order to remain viable.

"I don't have a numerical answer," said Fisher, who served as the chief economic witness for IBM during its lengthy antitrust battle in the 1980s. He added that Microsoft would certainly have "market power" with a 50% share of the browser market, but it would depend on the distribution of the other 50% to determine whether it was monopoly power.

Lacovara suggested that Fisher might not have been thorough in gathering information about a series of meetings in 1995 between Netscape and Microsoft by introducing into evidence a May 31, 1995 memo from Microsoft Chairman and CEO Bill Gates. The memo said there was a potential "very powerful deal" that could be arranged with Netscape.

Gates wrote to Paul Maritz, vice president of Microsoft's consumer systems division saying that the framework of the deal would be to "help Netscape with servers without hurting ourselves in any large way." Gates wanted Netscape to include Microsoft features in the client version of its browser in exchange for help in making its server business successful.

"Of course over time we will compete on servers but we can help them a lot in the meantime," Gates wrote. "We could even pay them money as part of the deal buying some piece of them or something. I would really like to see something like this happen!!"

Microsoft's attorney suggested the e-mail showed that Microsoft was seeking opportunities for cooperation.

In the final exchange of contentious testimony, Microsoft's attorney questioned Fisher's statement that Microsoft considered Apple's QuickTime multimedia streaming technology a threat to Windows.

"Would you explain how you separate threats from the hurly-burly of business? What general criteria do you apply?" Lacovara asked Fisher.

Fisher replied Microsoft pledged to devote 100 to 150 engineers to compete against Apple on multimedia technology even though it made no business sense.

"That sounds like a threat to me," Fisher said. "They were not saying we are going to hang tough on this; it was we're going to go out of our way to hurt you."

Fisher, the government's twelfth and final witness, will continue testifying today. Microsoft said it expects to conclude its cross-examination by noon.

Lacovara listed several questions he would ask Fisher, including what fraction of PC manufacturers' sales include browsers that are on the desktop, what fraction include the browser elsewhere in the machine and what fraction include the browser on a CD-ROM or other means of distribution. Microsoft also intends to ask Fisher for his best guess of what the market share of browsers will be if AOL switches its allegiance to Netscape's Navigator in 2001.

Once Fisher's testimony is completed, it will be Microsoft's turn to call witnesses. Most of the Microsoft witnesses will be employees of the company, as the software giant attempts to rehabilitate the image of its corporate leadership by putting into context the hundreds of e-mail excerpts the government has already put into evidence.

Microsoft's first witness, expected to be called next week, will be economist Richard Schmalensee, interim dean of the Sloan School of Management at the Massachusetts Institute of Technology and a former student of Fisher's.

After Microsoft presents its case, each side will be allowed to present two rebuttal witnesses.