The public may regard economists as nerdy academics. But in his third day of testimony at the Microsoft antitrust trial on Monday, Nov. 30, the government's economic expert, Frederick R. Warren-Boulton, proved that an economist can stand up to the Chinese water torture of cross-examination by Microsoft.

Despite continuous challenges to his analysis, Warren-Boulton, a top Justice Dept. economist under the Reagan Administration, stuck to his argument: Microsoft illegally used its Windows desktop operating system monopoly to head off a threat from Netscape Communications Corp.'s Web browser. He says Microsoft's exclusionary promotional deals with Internet service providers and Internet content providers -- coupled with restrictions on how PC makers can alter the Windows operating system -- substantially harmed Netscape's ability to distribute its browser. And that paved the way for Microsoft to rapidly gain browser market share and overtake Netscape.

In its cross-examination, Microsoft's legal team hammered at Warren-Boulton, saying that his analysis doesn't prove Microsoft foreclosed competition. For example, after the session, Microsoft pointed out that the number of people using the Netscape Navigator browser actually increased from 40 million to 65 million from mid-1997 to mid-1998. And Microsoft points out that many of the restrictions and exclusionary agreements it secured are no longer in effect. It has either lifted them voluntarily or those contracts expired.

"THE GAME WAS OVER." But Warren-Boulton had sharp answers to all of Microsoft's claims. He pointed out that even though Netscape has added millions of customers in the fast-growing market, Microsoft's share has increased at a gallop -- surging ahead of Netscape's. And he said it doesn't matter that Microsoft ultimately lifted the restrictions that he views as anticompetitive: The damage to Netscape had been done. "The game was over," he said.

Microsoft's exclusionary contracts are key to the goverment's case: Justice argues that it was only because Microsoft owns the valuable Windows interface on PCs that it was able to make deals that induced Internet service and content providers to favor its browser over Netscape's. Typically, Microsoft would offer ISPs a coveted position on its so-called Internet connection Wizard, a program in Windows that lets customers sign up with online services. An ISP that is featured there has a chance to snag new customers that it might not have been able to attract through its own marketing. The price: Microsoft asked ISPs to persuade at least 75% of their subscribers to use its Internet Explorer browser. With content providers, Microsoft used a similar kind of leverage, Justice argues. It offered them coveted positions on its Active Channel Bar -- a feature of IE for selecting particular Web sites -- in exchange for their agreement to promote IE and to use technologies that worked best with that browser.

The government has also raised the issue of Microsoft's hold over PC makers in determining what browsers and online connections they offer. There, Microsoft's influence is much more direct. As the owner of the only mass-market PC operating sytem, it writes contracts that prevent PC makers from removing icons for certain Microsoft features and services from the Windows desktop interface. Until recently, it also banned PC makers from interrupting the startup sequence on a new PC -- assuring that Microsoft, and not the PC maker, would control the buyer's initial experience.

NEW CHOICES. Microsoft's goal in Monday's hearing was to make light of all of these restrictions. Microsoft attorney Michael Lacovara pointed out that some of the promotional deals with ISPs were dropped last spring and that the contracts with ICPs expired after a year. He said Microsoft has allowed a few PC makers to change the Windows startup sequence to insert a customer-registration process. And he noted that the company now permits them to offer their own Internet connection features, so they can chose ISPs that aren't necessarily aligned with Microsoft -- plus collect bounties from ISPs listed there.

But Warren-Boulton kept bringing Lacovara back to the bottom line: These are recent changes. Most of the ISPs have already switched over and now aggressively push Internet Explorer. "It's a late stage to allow a few PC makers to make a choice, and it won't make a big difference in Netscape's ability to distribute it's browser," he said.

Warren-Boulton is in for a final grilling on Tuesday, Dec. 1. Then the trial is scheduled to move on to another phase: A review of how Microsoft has allegedly attempted to undermine Java, the Sun Microsystems programming language that is widely regarded as a potential threat to Microsoft's Windows.

By Steve Hamm with Susan Garland