U.S. Plays Intel Against Microsoft

Moving to exploit a rift between Microsoft Corp. and longtime partner Intel Corp., the government on Monday alleged that Microsoft threatened to withhold support for new Intel processors if the chip maker didn’t abandon its efforts to develop Internet software.

In the fourth week of the biggest business trial since the breakup of the AT&T; telephone monopoly, the government called Intel Vice President Steven D. McGeady to the stand to back up the government’s claim that Microsoft pressured Intel to halt its nascent development of Internet software.

McGeady, a bearded and bespectacled 41-year-old, was described by Intel officials as a reluctant witness. Unlike three preceding government witnesses, McGeady insisted on testifying orally in U.S. District Court in Washington to try to minimize any further damage to Intel’s relationship with Microsoft.

But under direct questioning by lead government trial lawyer David Boies, McGeady said Microsoft allegedly sought to throttle Intel, as well as its business partners, and block potential Microsoft software rivals from gaining industry support.

Microsoft, for example, attempted to undermine Intel’s Internet software development and support for Netscape Communications Corp.’s Web browser, he said.

McGeady also testified that a high-ranking Microsoft executive described his company’s strategy to “embrace, extend and extinguish” competitors. McGeady said Microsoft used that strategy against Netscape and Sun Microsystems Inc.

Boies introduced a memo describing an Aug. 2, 1995, meeting among Microsoft Chairman Bill Gates, Intel Chairman Andy Grove and other executives of both companies during which Gates told Grove to “shut down” an Intel unit developing new computer software. “Gates was livid about IAL’s investments in the Internet and wanted them stopped,” the memo said.

In his videotaped deposition made in August--portions of which were shown again Monday--Gates denied attempting to persuade Intel to halt development of Internet software.

Nonetheless, Gates ridiculed the chip maker’s software efforts as being of “low quality” and “incompatible” with Windows.

McGeady was involved in Intel’s early efforts to develop software and was present during many of the 1995 meetings in which Gates allegedly warned Intel to stop developing Internet software.

“He [Gates] was very upset we were making investments in software of any sort,” McGeady said of Gates. “The 600 or so [Intel software] engineers were in his view competing with Microsoft.”

Microsoft’s tactics, McGeady said, had a chilling effect on innovation and slowed the development of videoconferencing, secure online transactions and other potentially beneficial consumer technologies that the industry is still struggling to gain support for.

Intel thought its software development efforts would spur greater demand for its processors from computer users seeking to speed up their day-to-day computing, as well as Internet Web surfing.