11/09/98 COMMENTARY:...HAH! YOU CALL A FEW MIFFED RIVALS A CASE?

COMMENTARY:...HAH! YOU CALL A FEW MIFFED RIVALS A CASE?

Now that we've seen the first installment of the Justice Dept. case against Microsoft (MSFT), what are we to think?
It's early yet, but based upon the initial phase--a 127-page statement from Netscape Communications Corp. (NSCP) and 5 days of testimony by Netscape CEO James L. Barksdale--there's good reason to question whether Justice can pull off more than a token victory. Why? Because in spite of the rivals happy to cite the misdeeds of Microsoft Corp.--and the dozens of embarrassing internal E-mail messages indirectly confirming Justice's claims of anticompetitive tactics--the government's nice, clean story line isn't holding up.
Consider the allegations about the key June, 1995, meeting between Microsoft and Netscape. Justice says Microsoft illegally proposed dividing the Internet-browser market and that Netscape rejected the offer. Antitrust scholars say that only once has the government successfully sued a company for making a collusion proposal the other party rejected. It was when Justice had a tape of ex-American Airlines chief Robert L. Crandall proposing a rate-fixing deal with Braniff.
This time, there's no tape--just complaints from bitter rivals. And the harder you look at Justice's evidence, the squishier it seems. Microsoft never directly proposed ''dividing'' the browser market, but only implied it. It also seems that Microsoft's alleged offer to invest in Netscape--supposedly proof that Microsoft tried to keep Netscape from competing--may have been misrepresented. Netscape co-founder Jim Clark initiated investment talks with Microsoft months before the offer.
Bottom line: The only direct proof of Justice's version of events to emerge so far comes from Barksdale and Netscape co-founder Marc Andreessen--hardly disinterested parties. Judge Thomas Penfield Jackson is likely to want stronger evidence before throwing the book at Microsoft. Sure, there are also a couple of suspicious internal E-mail messages, such as the one in which a lieutenant of William H. Gates III says that his goal in the infamous meeting was to ''move [Netscape] out'' of making browsers for Windows. But this is hardly enough to convict Microsoft.
The alleged market division meeting isn't the only part of the government's case that looks weak. Microsoft's legal team did a good job of refuting Netscape claims that the browser wars hurt consumers and that Netscape's distribution avenues were cut off. ''You get down to effect on the market, and the fact is that Netscape is still widely available. [Justice] can huff and puff, but that issue has to be overcome,'' says New York antitrust attorney Stephen Axinn.
Even if the government prevails, it won't get a very strong remedy without a far more robust case, says George Washington University antitrust professor William E. Kovacic: ''Justice has to give the judge confidence that Microsoft's conduct has been so unscrupulous that it requires a serious remedy. If they win by a field goal on the last play of the game, it is not going to be enough.''
Of course, Justice still has other witnesses: Apple (AAPL), Sun (SUNW), and Intuit (INTU) will testify. But unless the government backs up the words of these Microsoft rivals with strong proof, it has an uphill struggle.
By Mike France