Plenty of Faux Pas, but Are They Really Fatal?
Despite the forecasts of doom, Microsoft's fate is still an open question

Judging from the headlines, Microsoft appears to be headed for disaster in its antitrust battle with the U.S. Justice Dept. First, the company's economic witness, Richard Schmalensee, was forced to admit that his own academic writings contradicted one of the key points he made on the stand: that Microsoft's enormous profits are no indication of its monopoly. "What could I have been thinking?" blurted out the MIT professor afterwards in reference to his earlier writing.

Next, lawyers bollixed a videotape presentation intended to prove that customers benefit when Microsoft bundles a variety of features into the operating system -- and after begging for a second chance to redo the tape, blew it a second time. Then, on Feb. 10, Vice-President Cameron Myhrvold acknowledged that the company induced Internet service providers to sign exclusive agreements because Microsoft was concerned that given a side-by-side choice, consumers would choose rival Netscape Communication's Corp.'s browser.

In recent days, the media have fixated on these various faux pas and forecast doom for the company in court. But while each of the missteps certainly hurt the software giant, they may not turn out to be as harmful as the critics claim. "A lot of these screwups are on sideshow issues. They don't go to the heart of the case," says New York antitrust attorney Richard Steuer of Kaye, Scholer, Fierman, Hays & Handler.

DISCREDITED. Consider, for example, the botched videotape demonstration -- the mistake that has received the most attention. Microsoft had hoped to use the tape to show that the performance of its Windows 98 operating system suffers when the Internet browser is removed. It needs to do this to deflect a Justice Dept. claim that the company integrated Internet browsing into the operating system in order to thwart competition -- rather than to help consumers.

Though the videotape evidence has been discredited, Microsoft will probably still triumph on this legal point. Why? Because last year a federal appeals court ruled that the company had broad discretion to design the operating system any way it saw fit. Messing up the videotape presentation was embarrassing, but not damaging enough to cause the company to lose on this issue, Steuer says.

What about Microsofts's credibility? There's no doubt that the disrepancies in the videotape presentation -- which appeared to indicate that the company had manipulated a computer test to achieve the results it wanted -- will make it harder for Judge Thomas Penfield Jackson to trust the company's legal team. But because this is an isolated incident, Steuer doesn't think that Jackson is going to suddenly start disregarding everything Microsoft's lawyers say. "The damage from the video slip-up will be contained. It won't go the rest of their case," he says.

One factor that's causing Microsoft's courtroom performance to look worse in the media than it may be in real life is the unique format of this trial. Ordinarily, Microsoft's witnesses would present their direct testimony in person before being cross-examined by Justice. But to speed up the proceedings, Judge Jackson decided that all direct testimony would be submitted in writing.

IGNORED. This means that the only action in court these days is usually lead government litigator David Boies shredding one of Microsoft's witnesses on cross-examination. The hundreds of pages of direct testimony that the witnesses have submitted -- the stuff that bolsters the company's position -- is not heard in court and gets ignored by reporters.

"The press does not give you the dry detail. It gives you the drama. That's what the public is anxious to hear about -- the human side where [witnesses] can't stand [up to] the cross-examination of the brilliant David Boies. That does not get to a good judge. If Jackson is doing his job, then the direct testimony is getting to him just as much as the cross," says New York antitrust attorney Stephen M. Axxin, of Axxin, Veltrop & Harkrider.

Is Microsoft doing a good job? No. But it may still be too early to write off the company's chances of victory.

France is Business Week's Legal Affairs editor