Microsoft Antitrust Trial Resumes as Rebuttal Phase Commences

The rebuttal phase of the landmark antitrust trial of Microsoft Corp. got underway Tuesday with the government’s chief economics witness defending his earlier testimony that Microsoft is a monopoly.

Massachusetts Institute of Technology economist Franklin Fisher also disparaged earlier testimony from his MIT colleague Richard Schmalensee on behalf of Microsoft, calling Schmalensee’s economic analysis “muddled” and “misleading.”

The testimony of Fisher and Schmalensee is crucial because the antitrust case brought by the Justice Department, 19 states and the District of Columbia hinges in large part on the claim that Microsoft has a monopoly in the market for personal computer operating systems. The government argues that the company has used anti-competitive practices to maintain that monopoly and to extend the company’s dominance to other emerging technological developments such as the Internet.

In previous testimony, Schmalensee said the operating systems business “is not relevant” to the antitrust issues raised against Microsoft. Schmalensee said the court should look at the larger software market, in which the presence of thousands of independent software developers was proof that competition was flourishing.

But Fisher attacked that notion. “This is a case that centers on the question of monopoly power in the market for PC operating systems,” Fisher said. “. . . Dean Schmalensee refused to define any market at all . . . leading to muddled results” and “misleading” economic conclusions, Fisher said.

The trial, which began in October and recessed Feb. 26 to allow Judge Thomas Penfield Jackson to hear a pressing criminal trial, has resumed with little of the rancor and nervous tension that marked its first phase.

In part that is because of a change in the ground rules. Following a more normal trial procedure, witnesses are being directly examined on the stand in the rebuttal phase of the trial--an exercise that some experts believe could aid Microsoft by allowing the software giant to get a more favorable public airing of its side of the case. The sparks will fly when witnesses are cross-examined, lawyers said.

“When you do direct testimony, you are trying to let your witness tell a story,” explained Microsoft lawyer Michael Lacovara after Tuesday’s court session. By contrast, he said, “cross-examination is about ‘gotcha!’ ”

Indeed, lead government lawyer David Boies, who has made a name for himself by tripping up witnesses in countless “gotchas,” spent Tuesday being more professorial than adversarial.

Seeking to undercut a key Microsoft claim that the $10-billion acquisition of Microsoft rival Netscape Communications by online giant America Online Inc. showed that the PC industry remained highly competitive, Boies prodded Fisher into characterizing the deal as coming “too late,” given Netscape’s declining market share, to pose a competitive threat to Microsoft.

“Do you believe that AOL’s interest in acquiring Netscape indicates that Netscape’s browser business was successful?” Boies asked Fisher.

“No,” Fisher responded. Fisher went on to add that even if AOL were to distribute Netscape’s browser, “I think it’s too late, and I think Microsoft thinks it’s too late.”