U.S. Paints Microsoft as Bully on Opening Day of Antitrust Trial

On opening day of the biggest antitrust trial since the breakup of the AT&T; telephone monopoly, the government cast Microsoft Corp. as a corporate bully that uses almost any means to protect its Windows monopoly and extend its dominance to the Internet.

The Justice Department’s lead lawyer, David Boies, meticulously outlined a litany of anti-competitive tactics allegedly used by Microsoft and set the stage for the expected appearance today of the government’s star witness--Netscape Communications Corp. President James Barksdale.

Boies also released a previously undisclosed memo outlining an account of how Microsoft allegedly threatened to “crush” archrival Netscape during a 1995 meeting between the two companies--which are the top two makers of Web browsing software that allows computer users to surf the Internet.

The 1995 meeting is central to the government’s claim that Microsoft was so worried about exploding use of Netscape’s Web browser that it went to Netscape and proposed dividing up the Internet software market between them.

Boies said Microsoft Chairman Bill Gates wanted a deal that would keep Netscape from developing a version of its Navigator browser for Windows 95, leaving that fast-growing part of the market all to Microsoft.

Boies then aired videotaped excerpts from a pretrial interview of Gates. On the tape, made in August, Boies asked Gates whether Microsoft lawyers or advisors had told him that the government’s lawsuit accused the company of trying to split the Internet software market with Netscape.

“I think somebody said that is in there,” said Gates, adding that he first became aware of the alleged offer after reading the Wall Street Journal in April.

Looking uncharacteristically uncomfortable, a subdued Gates said he barely remembered Microsoft executives approaching Netscape about a possible investment in the California start-up. “Somebody asked if it made sense investing in Netscape,” Gates said, adding that he disagreed.

But Boies asked the court to look at a May 1995 memo in which Gates said: “A new competitor born on the Internet is Netscape.” Another memo that month from Gates said: “I think there is a very powerful deal of some kind we can do with Netscape.”

And before the 1995 meeting, Gates appeared to raise the possibility of investing. “Of course . . . we could even pay them money as part of the deal, buying some piece of them or something,” Gates wrote in a May 31, 1995, memo presented by Boies. Gates also discussed offering Netscape other sweeteners in return for dividing the market, Boies said.

Microsoft responded later that Gates’ quotes were taken out of context. The company’s chief counsel, William Neukom, blasted the government’s case as “the same old tired allegations.”

“At the end of the judicial day, the evidence will show we have competed vigorously and fairly . . . and our customers have benefited with better products and from lower prices,” Neukom said outside U.S. District Court in Washington.

Microsoft attorneys, lead by Wall Street lawyer John L. Warden, are expected to begin their opening statements today after U.S. District Court Judge Thomas Penfield Jackson ended the first day of the trial a few hours early.

Netscape’s Barksdale is expected to testify today that Microsoft allegedly pressured one of the world’s largest PC makers, Compaq Computer, to drop an agreement to distribute Netscape’s browser after Microsoft threatened to cancel Compaq’s license for distributing Windows.

“I have never been in a meeting in my 33-year business career in which a competitor had so blatantly implied that we should either stop competing with it or the competitor would kill us,” Barksdale said. “In all my years in business, I have never heard nor experienced such an explicit proposal to divide markets.”

Barksdale said Netscape has since had to alter its business plan to stay alive even though Microsoft is now making money from a market Netscape pioneered.

“I often ask people where browser technology would be today had Netscape not come along,” Barksdale said, “and the response is uniform: It would be far behind where it is now . . . [and] the Internet and the Web would also not have developed as they have for widespread commercial and communications use.”

The government, whose more than a dozen courtroom lawyers represent the Justice Department, 20 states and the District of Columbia, seeks to portray Microsoft as a corporate predator that illegally protects its dominance in the computer industry.

To win its case, the government must prove that Microsoft--whose Windows software runs more than 90% of all personal computers--is a monopoly that uses predatory practices to crush competition.

It is not enough for the government to show that the software giant has an overwhelming software market share: In recent years the federal courts have held that even dominant companies are allowed to compete aggressively against their rivals, experts say.

Instead, the government must show that Microsoft exercises monopoly power by detailing specific anti-competitive practices. The key issue is whether Microsoft has legitimate business reasons when it makes a decision that hurts a smaller rival.

The answer to that question, Boies argued in court, has often been no.

Wielding a yard-long pointing stick and pacing back and forth between a court lectern and a large projection screen, Boies said Microsoft brokered deals with Intel Corp., Apple Computer Co., Intuit Corp. and a host of other big computer giants to help Microsoft muscle Netscape out of the browser market.

He said Microsoft also brokered deals with other companies to marginalize software competitors.