Posted at 9:33 p.m. PST Thursday, March 11, 1999
Microsoft focusing legal
arguments
BY MIGUEL HELFT
Mercury News Staff Writer
Microsoft Corp. -- which has insisted for months that everything was
going fine in its high-stakes antitrust trial -- is now pushing a message
with subtle but important differences: 17 weeks of courtroom battles
with government lawyers may have bruised our image but no one has
proved we've broken the law.
In a meeting Thursday with Mercury News editors and reporters,
Microsoft attorney Brad Smith and spokesman Jim Cullinan
conceded that the company's courtroom presentation had contained
errors -- the most dramatic of which was a Windows 98 video
demonstration that the government utterly discredited. But Smith
made a spirited argument that the company had every right to
compete as it did in the Web browser market, even if it is a
monopoly.
While neither Cullinan nor Smith said anything entirely new, the tenor
of their remarks offered insight into Microsoft's likely strategy going
forward. Legal experts have criticized Microsoft to date for seeking
to challenge every government allegation -- insisting, for instance, that
it faces vigorous competition in the market for desktop operating
systems -- rather than focusing where its arguments are strongest.
Smith's presentation, in contrast, suggests that Microsoft has begun to
concentrate on legal rather than factual disputes.
''We think reports of our demise have been greatly exaggerated,''
Smith said.
The comments came as Microsoft seeks to repair its battered image
during an extended recess in the trial. The Justice Department and 19
states have accused Microsoft of being a monopolist intent on driving
competitors out of business.
So far, most legal observers say, the government has made a good
job of showing Microsoft has a monopoly and that it has used illegal
tactics, such as exclusive contracts with third parties, to protect that
monopoly.
But Smith said courtroom theatrics of the Justice Department's lead
attorney, David Boies, have obscured key weaknesses in the
government's case. Smith argued that the Sherman antitrust act does
not prohibit Microsoft from bundling its Internet Explorer browser
with the Windows operating system, or from signing exclusionary
contracts with Internet service providers and content providers to limit
their promotion of rival browsers.
The government has argued that Microsoft linked its browser to
Windows as part of a scheme to crush rival Netscape
Communications Corp. But Smith argued that the integration of
Internet Explorer and Windows is lawful as long as it it benefits some
customers. A Microsoft witness and a government expert agreed that
the decision to tie the two products has been a boon to some, Smith
said. ''Given that . . . we feel pretty good,'' he said.
Microsoft's distribution contracts with Internet service providers,
content creators and personal computer makers are also within the
bounds of the law, Smith said. The contracts would be lawful even if
the judge determined that Microsoft has a monopoly, he added --
neither disputing nor admitting a key issue in the case that Microsoft
has challenged vigorously in the courtroom.
''If a company has a monopoly it has to be careful that it doesn't
(enter into contracts) that exclude a competitor,'' he said. But
Microsoft's exclusive contracts extended to a mere handful of Web
sites and about 20 ISPs, leaving plenty of distribution channels for
Netscape's rival Internet browser, Navigator.
Smith also attacked another portion of the government's case, which
seeks to paint the company as an industry bully. The government has
accused Microsoft of illegally seeking to force rivals such as
Netscape, Apple Computer Inc. and Intel Corp. to stay out of certain
software technologies that compete with Microsoft's. But whether
Microsoft made those suggestions, Smith said, is irrelevant: The
companies did not agree.
''The antitrust law is more focused on deeds than words,'' Smith said.
''Our point is that people have to be free to at least talk about their
ideas.'' Otherwise, Smith said, the law ''would create a legal
environment that would slow the pace of business.''
Government attorneys have argued that because of Microsoft's
awesome power in the computer industry, a suggestion that a rival
stay out of a certain business carries an implicit threat: Stay out, or
else. But any threat would have to be explicit, Smith said, and neither
government lawyers nor rival executives have proven that Microsoft
made such explicit threats.
Smith's legal interpretations are far from inarguable. For instance, the
judge in the case, Thomas Penfield Jackson, has suggested that
Microsoft's motive in integrating its Web browser and Windows may
indeed be the key to determining whether that action was legal; Smith
is essentially arguing that motive is irrelevant. Because there is no clear
court precedent on the issue, this disagreement and others like it will
almost certainly be the basis of the company's appeal, assuming
Jackson rules against Microsoft.
On the question of the credibility of Microsoft's witnesses and
evidence, Smith acknowledged problems in the company's
presentation that some executives have sought to deny -- but insisted
these problems won't prove important.
Credibility is vital to Microsoft because the company has based its
defense largely based on the testimony of its own executives, who
comprised nine of its 12 witnesses.
Boies has sought to raise -- and most trial observers agree,
succeeded in raising -- significant doubts about a number of those
witnesses. On several occasions, executives have had to recant prior
testimony when confronted with contradicting evidence. And in one of
the most dramatic moments in the trial, a top Microsoft executive
admitted he mischaracterized a key videotape as a demonstration of a
version of Windows 98. In fact, the tape -- intended to disprove a
key government allegation -- was a pastiche of computers in different
configurations. A company spokesman later conceded the tape was
an ''illustration,'' not a ''demonstration.''
''Yes, (Boies) found some 'gotchas,' '' Smith said. ''There was a
glitch in the demo. Do we throw everything (a witness) says because
of the glitch?'' Smith said Boies' effort to undermine a witness's entire
testimony based on a few misstatements is a risky one, and argued
that the judge is likely to conclude those misstatements were legitimate
mistakes.
The trial is currently in recess until at least April 12. Once it resumes,
each side will be allowed to bring up to three rebuttal witnesses to the
stand.
Knight Ridder New Media, a division of the San Jose Mercury
News' parent company, Knight Ridder, is a supporter of
ProComp, a coalition of companies and organizations that
believe Microsoft Corp.'s business practices are anti-competitive.
Knight Ridder New Media considers itself a competitor with
Microsoft because of the software company's efforts to provide
news, entertainment and classified advertising content online.
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