| BUSINESSWEEK ONLINE : JUNE 14, 1999 ISSUE | ||||||||
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| NEWS: ANALYSIS & COMMENTARY
Microsoft on Trial: And Now for the Endgame For Microsoft, settling may no longer be such a bad idea Is it checkmate? In the first phase of the government's anti-trust battle against Microsoft Corp., the Justice Dept. had all the right moves. While lead litigator David Boies tied the company's witnesses in knots, Microsoft's own lawyers bungled even simple technical demonstrations. But going into the final phase of the trial, which got under way on June 1 after a 13-week recess, trustbusters still had a big hole to plug. For instance, despite months of begging, the Justice Dept. had failed to produce a witness who would give Judge Thomas Penfield Jackson a firsthand account of how Microsoft terrorized computer makers. In fact, the most prominent PC executive who testified in open court during the first part of the trial, Compaq Computer Corp.'s John T. Rose, defended Microsoft. This seriously undercut the government's claim that the software colossus used the power of its Windows monopoly to bully customers--and gave the company hope that it could win. ''ONGOING DIALOGUE.'' Then the Justice Dept. revealed an 11th-hour coup: On June 7, IBM's Garry D. Norris would testify about how Microsoft rubbed Big Blue's nose in the dirt when it tried to bundle software with its computers that would compete against Microsoft products. That eyewitness tale, outlined in a deposition taken on May 27, may remove the company's last hope of avoiding a guilty verdict, and certainly increases the pressure on Chairman William H. Gates III to settle. Officially, the company is saying nothing about ongoing settlement talks. And Microsoft executives continue to assert that they--not Justice--are prevailing in court. But one high-level source says that the company would like nothing more than to settle the suit. Microsoft has put ''a number of things on the table,'' this source says. ''We have an ongoing dialogue with the DOJ that is still open and working.'' While Microsoft is still resisting any moves that would curb its ability to add new features to its programs, it has sweetened its offer since last year when it tried to reach a settlement before the trial began. Then, it agreed to restrict use of exclusionary contracts. Now, for example, it is willing to share more information about programming interfaces--the hooks that permit programs to work with Windows--with other software developers, sources say. That's probably not enough to satisfy Justice. Because government lawyers believe that Microsoft violated an earlier consent decree, they are uneasy with simple ''conduct'' remedies--promises by the company to refrain from illegal acts, such as forcing PC makers to boycott rival software. They fear that it would be easy for Microsoft to find loopholes in such remedies, and hard for the authorities to spot violations. ''They...don't want Microsoft to just go home laughing and say, 'We can work around that, no problem,''' says one economist who has spoken to members of the legal team. Yet Justice antitrust chief Joel I. Klein and the 19 state attorneys general who are suing Microsoft may be reluctant to take the ultimate step--seeking the breakup of Microsoft, for instance. Klein & Co. don't want to be accused of bringing down an American success story. Plus breakup is messy, time-consuming, and might harm consumers. Even some of Microsoft's staunchest enemies, such as Sun Microsystems Inc., have refused to endorse that option. While the two sides pursue a settlement out of court, they'll continue the battle in Judge Jackson's chambers. The IBM testimony is the fruit of months of effort by the trustbusters to get a PC exec on the stand. The government ''encountered a lot of fear among other participants in the industry because they are so beholden to Microsoft,'' says New York Assistant Attorney General Stephen D. Houck. However, with Boies doing so well, sources say, Gateway Inc. was on the verge of agreeing to testify when IBM stepped in. PLAYING HARDBALL. IBM's Norris, former director of strategy for its desktop software division, headed negotiations with Microsoft from 1995 to 1997. In his deposition, he reveals how Microsoft forced IBM to pay higher prices for Windows than Compaq Computer and Dell Computer after IBM refused to stop selling its own operating system, OS/2. One executive at another computermaker says that Norris' testimony accurately depicts Microsoft's behavior. ''There's nothing surprising there,'' this executive says. Microsoft makes ''you understand that they are not going to play nice.'' Microsoft denies it illegally coerces PC makers. In addition to shoring up earlier, vaguer testimony about Microsoft's tactics, Norris could bolster another weakness in the government's case: proving that Microsoft damaged consumers. Now the government can show how Microsoft's threats helped drive IBM's OS/2 from the market, reducing consumer choice. Consumer harm was the subject of testimony on June 1 and 2 by Franklin Fisher, an economics professor at Massachusetts Institute of Technology. Taking the stand for Justice, Fisher said that Microsoft's hardball tactics against PC makers led to higher prices and less choice. On June 2, Fisher testified that the company ''discourages people from thinking of ways to innovate'' on their own. That's another chess piece in position--and another reason for Bill Gates to keep the settlement talks going. The rebuttal phase is scheduled to end by July 4, and Jackson will probably take until the fall to issue a ruling. That could give Microsoft time to talk its way out of checkmate. By Mike France in New York and Susan Garland in Washington, with Michael Moeller in San Mateo, Calif., and Roger Crockett in Chicago _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP |
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