News and New Product Briefs (9/15/98)

1 2 Page 2
Page 2 of 2

DOJ/MS: Gates delivers deposition

DOJ and state attorneys general representatives videotaped Microsoft chairman Bill Gates' deposition on Thursday August 20, 1998, and whether or not all or part of the deposition will be made public is in the hands of an appeals court.

Originally, after some news organizations petitioned Judge Thomas Penfield Jackson to open the deposition to the public (citing a provision of the Sherman Antitrust Act), Jackson agreed but was stopped by an appeals court stay.

DOJ/MS: Justice argues against Microsoft's dismissal motion

On August 31, 1998, the Justice Department (and 20 state attorneys general) filed an 86-page response to Microsoft's motion for dismissal, citing that the summary judgement motion relies on inferior case law and ignored the company's alleged anti-competitive practices and pricing.

The DOJ's response continues to restate the established facts in the case, including contracts between Microsoft and ISPs and OEMs to promote Internet Explorer. The response noted that Microsoft's dismissal argument, which states that if ISP, OEM, and ICP (Internet content providers) channels are ignored, competitors still have other distribution channels available to them, ignores the fact that the alternative channels it suggests are inferior.

The early motion for dismissal also contended that the government's suit contained factual errors, citing a U.S. appellate court decision in a similar suit that Microsoft lawyers claim undermines the government's assertion that tying Internet Explorer to Windows is patently illegal.

The government's filing, however, asserts that Microsoft systematically attempted to destroy its competition, and that the Java programming language and Netscape's Navigator browser were poised as threats to Microsoft's operating system monopoly. The DOJ briefs also claimed that the dismissal motion requests the court to "to create a virtual exemption from the antitrust laws for Microsoft (and the entire computer software industry) and to permit a software monopolist such as Microsoft to use anti-competitive means to entrench and extend its monopoly without fear of judicial intervention."

(Note: Before testifying before Congress, Microsoft chairman Bill Gates said the company had waived the contracts, in an alleged attempt to make that point moot. The current government response asserted that Microsoft had not waived all such agreements, such as its deal with AOL, and that the law prevents efforts to escape relief by reforming in the middle of a lawsuit.)

DOJ/MS: DOJ and states AGs widen scope

The Department of Justice and 20 state attorneys general have requested and received documents from Apple, Caldera, Intel, RealNetworks, and Sun to strengthen their case that Microsoft alleged used anti-competitive practices and pressure to create, grow, and maintain its monopoly status.

U.S. District Judge Thomas Penfield Jackson has taken under advisement whether or not to allow the DOJ to include the additional charges in the case. The hearing on the new evidence is set for September 17. And the trial is still set for September 23, 1998.

For its part, Microsoft lawyers petitioned the court on September 2, 1998 to disallow the DOJ's new claims that it used market pressure to stop Intel, Apple, RealNetworks, and Intuit development on competing technology and to halt support for rival technology. It charged the court to limit the lawsuit to the original focus. Barring that, Microsoft will seek a six-month delay to prepare, and is requesting that the number of witnesses be unlimited.

Allegedly among the new evidence is a 1995 memo between Bill Gates and Intel's chairman Andrew Grove in which Gates intimated that Microsoft could hook up with Intel's competitors should Intel continue to pursue its plans to invest in Internet-oriented technologies and companies.

DOJ/MS: Judge compels Microsoft to comply with discovery

On September 3, 1998, U.S. District Court Judge Thomas Penfield Jackson took 20 minutes to order Microsoft to comply with the Justice Department's motion for discovery, to turn over documents that the DOJ claims Microsoft has failed to provide.

DOJ spokesperson Gina Talamona noted that the information in the requested documents only reinforces the DOJ's original complaint. She said, "That [the introduction of new information during discovery] usually happens in the course of a case. The contours of the legal challenge remain the same."

Microsoft spokesperson Tom Pilla calls the new amendments a way for the government to distance itself from its original lawsuit, which Pilla contends essentially pertains to Microsoft's relationship with Netscape. Microsoft will comply with the order because, as Pilla put it, "We're confident that even if the court allows the government to expand its case by adding these issues, we still believe the facts will show that these allegations are groundless."

The new information introduced by the government is highlighted in "Justice's amendments to the case" below. DOJ/MS: Justice's amendments to the case

The Justice Department is attempting to introduce the following new allegations in its antitrust lawsuit against Microsoft:

  • Microsoft attempted to halt Apple's marketing of QuickTime to use with Windows because it competed with the company's NetShow technology.

  • Microsoft attempted to pressure Apple to halt its support of Netscape and Java.

  • After Apple refused to comply, Microsoft made products that were (or seemed to be) inoperable with Apple technology.

  • Microsoft offered to divide the browser market with Netscape. After Netscape refused the offer, Microsoft made products that were (or seemed to be) inoperable with Netscape technology.

  • Microsoft retaliated against Caldera over DR-DOS, which competed with MS-DOS. (Microsoft lawyers claim that the DOJ's 1994 antitrust consent decree resolved this issue.)

  • Microsoft attempted to stop Intel from developing native signal processing software that would let Windows 3.1 users to process audio/video data in real time.

  • Microsoft tried to stop Intel from developing Java applications.

  • Microsoft pressured RealNetworks to stop developing streaming audio/video software and pressured the company to not share its technology with Microsoft rivals.

  • That Microsoft used its market power to intimidate distributors and clients, to keep them from using and supporting Netscape and Java technology.

  • That Microsoft illegally altered Sun Java code.

  • Microsoft successfully pressured Intuit to not support Netscape technology.

Microsoft lawyers claim that some of the new allegations are outside the scope of this lawsuit, are part of another investigation, or both. DOJ/MS: Washington state politico goes after DOJ

At a recent forum entitled "Antitrust in Cyberspace: Clash of the Titans," U.S. Senator Slade Gorton (R-WA) accused the Department of Justice of encouraging other countries to investigate Microsoft's business practices.

Gorton accused the DOJ of "using the facilities of the government of the United States to bring a private antitrust action" against Microsoft, and by lighting the fires of Microsoft mistrust in countries where the Organization for Economic Cooperation and Development (OECD) is based, such as Brazil, France, Israel, and Japan. Gorton got some weak support from a House counterpart, Representative Rick White (R-WA), for this contention.

White said that if the DOJ had been fomenting overseas dissent against Microsoft, "That's a little bit beyond the pale."

Gorton argued that the 1913 Sherman Antitrust Act shouldn't be applied to the high-tech industry because it moves at a rapid pace and is fairly complex.

Gorton called the DOJ lawsuits "a direct attack on the innovation in the American marketplace." Unfortunately, no one, not even the Microsoft employees present, could respond when James Love (director of Ralph Nader's Consumer Project on Technology and the lone voice in support of the DOJ in the forum) commented on Gorton's statement and asked the attendees to raise their hands if they could name a Microsoft innovation.

The forum was sponsored by the Washington Institute Foundation and the Competitive Enterprise Institute, two nonprofit organizations dedicated to "free enterprise and limited government." (Some conflict of interest may be present here, because one of the WIF board members is, as listed, "Patricia Herbold, Bellevue, Washington," and is in fact a commercial real estate attorney and the wife of Microsoft executive VP and COO Bob Herbold. However, WIF VP of operations, Daniel Mead Smith, assured me that Ms. Herbold "had no role in the Conference planning or the agenda; in fact she did not even go to the Conference.")

DOJ/MS: Microsoft's witness list

Here's the twelve on the latest witness list for Microsoft in the U.S. DOJ v. Microsoft lawsuit.

Outsiders:

  • John Rose, a senior VP at Compaq.
  • Michael Devlin, president of Rational Software.
  • Economist Richard Schmalensee, Interim Dean of the Sloan School of Management, MIT.
  • Michael Dertouzos, director of MIT's Laboratory for Computer Science.

Microsoft employees:

  • Paul Maritz, Group VP, Platforms and Applications Group.
  • James Allchin, Senior VP, Personal and Business Systems Group.
  • Joachim Kempin, Senior VP, OEM Division.
  • Brad Chase, VP, Developers Relations and Marketing.
  • Yusuf Medhi, Director, Windows Marketing.
  • Cameron Myhrvold, VP, Internet Customer Unit.
  • William Poole, Senior Director, Windows Business Development.
  • Daniel Rosen, GM, New Technology.

DOJ/MS: The Justice Department's witness list

And here's the twelve on the latest witness list for Justice Department in the U.S. DOJ v. Microsoft lawsuit:

  • Jim Barksdale, Netscape CEO.
  • Steve McGeady, Intel VP.
  • John Soyring, IBM's VP of personal software products.
  • David Colburn, AOL senior VP.
  • William Harris, Intuit executive.
  • Edward Felten, Princeton computer science professor.
  • David Farber, UPenn telecommunications professor.
  • Franklin M. Fisher, MIT economics professor.
  • David Sibley, UTex economics professor.
  • Scott Vesey, Boeing executive.
  • Frederick Warren Bolton, Microeconomic Consulting Research & Associates executive.
  • Glenn Weadock, Independent Software president.

DOJ/MS: Did MS pressure DEC?

Five employees of Digital Equipment Corp. alleged that Bill Gates pressured Digital to halt development (with Oracle) on a business/education Internet software product called Shark.

The Shark code was based on the network computer standard started by Oracle and developed by IBM, Sun, and others.

The employees (some current, some former), alleged that Gates pressured Digital's chairman at the time, Robert Palmer, to stop the project. They're claiming that Gates used Microsoft's intent to develop a Windows NT version for Digital's Alpha processor as the leverage.

(See NC World at http://www.ncworldmag.com/ for more on the Oracle network computer standard.)

DOJ/MS: Microsoft issues subpoenas to cover new DOJ allegations

On Wednesday, September 9, 1998, Microsoft announced that it had served subpoenas on five of its main competitors -- IBM, Netscape, Novell, Oracle, and Sun -- in order to defend itself against the government's new allegations.

Microsoft spokesperson Tom Pilla noted that "We are seeing specific information on how our competitors are collaborating against us," and that the subpoenas were for information to help Microsoft defend itself against the recent spate of new allegations from the DOJ.

Another Microsoft spokesperson, Mark Murray, said that the subpoenas were to "show that the government has a lack of understanding of how the software industry works. All of Microsoft's competitors are doing everything Microsoft is accused of doing."

Of course, the nature of the subpoenas will stall the case, whether that is the intent of Microsoft's lawyers or not. For instance, the subpoena for Netscape's general counsel Roberta Katz asked that Katz produce "all documents referring to, constituting, reflecting, recording or concerning any meeting or communications that referred to or concerned Microsoft, or any Microsoft products, services or technology and that involve Netscape and Apple, IBM, Novell, Oracle and Sun."

Microsoft is also seeking documents referring to an October 1996 to August 1997 ongoing agreement between Netscape and Oracle in which Oracle agreed to bundle Netscape client software with its products; and documents that refer to similar arrangement between Netscape and Sun, focusing on Java collaboration.

Pilla also noted that information requests went to other companies, but he declined to comment on the names.

DOJ/MS: New dismissal tactic focuses on Netscape

Microsoft attempted to have the original antitrust case against it dismissed again on Tuesday, September 8, 1998, by claiming that Netscape was the only company that still disputed that Internet Explorer is a fully integrated part of the Windows operating system -- the central thrust of the original filing, according to Microsoft officials.

Microsoft briefs claimed that last week's additional cited instances of alleged monopoly practices is the Justice Department's way to "distract the court from the fatal defects in their claims by slinging as much mud as they can." The filing went on to contend that three "undisputed" facts can be read to "fatally undermine" Justice's case:

  • IE code cannot be removed from Windows 98 without crippling the operating system.
  • Integrating IE and Windows 98 benefits customers.
  • The integration doesn't close distribution channels for other competitors.

Microsoft points to a letter from Netscape lawyer Joel Klein to the DOJ as proof. In it, Klein states, "We are totally unable to provide examples of files that can or cannot be deleted from Windows 98 since, as we discussed this week, it is our understanding that it simply is not possible to delete any portion of Internet Explorer, or of browsing functionality, from Windows 98 as presently configured without severely interfering with the operating system."

DOJ/MS: Summary judgement motion argued; trial may be postponed

On September 11, Microsoft and Justice Department lawyers argued for and against summary judgement before Judge Thomas Penfield Jackson in a three-hour session that ended in the judge's chambers to discuss management issues of the lawsuit. Counsel left without discovering whether the judge would agree to the motion or to a postponement before trial.

Counsel for Microsoft, William Neukom: The attorney repeated Microsoft's claim that Internet Explorer is fully integrated into Windows 98 and that the company has done nothing to halt competitors from distributing software. He added, "What you had here was a rambling attempt by government lawyers to shore up and inflate a feeble complaint against Microsoft."

Counsel for Microsoft, John Warden: The attorney characterized Netscape's treatment by the government as that of a "commercial ward." He reiterated that no damage had been demonstrated to Netscape or other competitors and submitted documents to show that 12 million copies of Communicator had been downloaded in July/August 1998, arguing that this fact proved the "dynamics and highly competitive nature of the marketplace." Warden also reiterated the June appeals court ruling (on a 1995 consent decree that covered IE and Windows 95) and noted that Bill Gates is not on Microsoft's witness list.

Counsel for Justice, David Boies: The attorney characterized the motion for summary judgement as a baseless attempt to avoid a public trial. Boies, noting that the day's hearing was a preview of the trial, said, "We can't allow a monopolist to eliminate all competitors. It's not an issue of innovation of straightforward product design." The attorney claimed that he cited Microsoft internal memoranda and depositions that demonstrated "clear and convincing" evidence that Microsoft practices violated the Sherman Antitrust Act.

Boies countered Warden's contention of no demonstrated damage. He said, "You cannot have a clearer case of predatory pricing," pointing out Microsoft's swift attainment of a 50 percent browser marketshare for IE.

About the appeals court's ruling, Boies notes that "The Appeals Court makes it clear that it's not deciding an antitrust case [in its ruling on the consent decree]."

Boies noted that Bill Gates was not on the government's witness list, saying that the Justice Department doesn't need him to prove its case.

In another report, according to a September 11 report from the Dow Jones News Service, the Justice Department and Microsoft have discussed postponing the trial from its September 23 date until October 15, 1998.

Neither the Justice Department nor Microsoft spokespersons would confirm the proposed trial date. DOJ/MS: Judge rejects dismissal motion and 1 DOJ charge

U.S. District Judge Thomas Penfield Jackson granted a partial summary judgment by dismissing one of the government's claims -- that Microsoft improperly attempted to leverage a specific market to increase share in another market -- and agreed to delay the start of the trial until October 15, 1998.

Jackson concluded that the dismissed charge was not consistent with the concept of "monopoly leveraging" contained in the Sherman Antitrust Act. (A like charge that doesn't claim the company used the leveraging concept to build a monopoly will stay in the lawsuit.)

As for allowing the trial to go ahead, almost as is, Jackson wrote, "The statements of Microsoft executives, when considered in conjunction with other evidence of anticompetitive behavior . . . raises a question as to Microsoft's intent to monopolize the browser market." He added that the government now suffers the burden to prove that Microsoft planned to do more that just "compete vigorously."

A pretrial conference is scheduled for September 17, 1998.

Sun/MS: Microsoft argues against Sun's motion for injunction

To oppose Sun's motion to grant a preliminary injunction, Microsoft lawyers argued in U.S. District Court that Sun had waived its right to complain about its supposed breach of the Java licensing agreement when Sun took a .75 million license fee payment.

From the Microsoft brief: "Sun cannot deny that it knew about Microsoft's alleged breach when it accepted the payment. Sun has waived its right to complain of the alleged breach."

A second part of the Microsoft argument claims that an injunction will cause "immense harm" to distributors, developers, retailers, manufacturers, and users because it would stop the company from shipping upgraded versions of Windows 98 and the Visual J++ Java development tool.

Sun claims that Microsoft's version of Java does not pass test suites designed to ensure proper Java implementation. Microsoft counters this argument in its brief by asserting that its products do comply with the tests specified in the licensing agreement -- and that the tests Sun is complaining about were created by Sun after the agreement.

Sun/MS: Judge gets a few lessons

By the time you read this, both Sun and Microsoft will have demonstrated Java for Judge Ronald Whyte. Microsoft will show the court how developers can use its Visual J++ Java tool to write Java applications that can run on Windows (as well as other) systems. Sun will demonstrate how the Visual J++ tool pushes users to write applets that only run (or run well) on Windows systems.

Microsoft developer relations GM Todd Nielsen noted that Visual J++ works in two modes -- a general development mode (for cross-platform development) and a Windows-specific mode. Nielsen said that applets developed in the Windows-specific mode (in order to take advantage of Windows features) won't run on other platforms. He added, though, that because Visual J++ allows developers to work in both modes, it doesn't threaten Java's cross-platform abilities.

Sun/MS: Whyte appoints, disqualifies, and reappoints special master

Judge Ronald Whyte recently appointed John Flaherty, a retired California state judge, to be the special master in the Sun-Microsoft lawsuit that determines which documents can be opened to the public. Then, on September 3, 1998, the special master had to step down when it was discovered that his law firm's pension fund is an investor in Microsoft stock.

Special Master Flaherty's first task was to be to review Sun's motion for a preliminary injunction, which contains sealed information.

To replace the recused Flaherty, Judge Whyte appointed retired Federal District Court Judge Charles Renfrew.

Sun/MS: Microsoft's side of the story

Telling Microsoft's side of the Sun/Microsoft lawsuit, senior VP Robert Muglia claims that Sun blocked Microsoft's efforts to license the Component Object Model (COM) to Sun to be Java's object model, then went on to develop JavaBeans without informing Microsoft.

According to Muglia, "This announcement hit me, my management and our engineering teams like a ton of bricks." He added that according to Java licensing contracts, Microsoft should have, but wasn't, informed of changes to Java at the same time other licensees were. He claims that JavaSoft president Alan Baratz only informed him of the existence of JavaBeans technology just before its announcement at the JavaOne tradeshow/conference in May 1996, while other licensees were informed well in advance of the unveiling. Muglia said that after this incident, "The unfortunate war of words began."

Sun's announcement that it would develop its own Java Native Interface (which controls how Java interacts with native code) and that JDK 1.1 would not be backward-compatible version 1.0 soured the waters with Microsoft further, according to Muglia. He also claims that Baratz assured him that "Microsoft alone would define the interfaces [native code] to the virtual machine."

Sun/MS: MS VP Muglia testifies

On September 8, 1998, Microsoft and Sun faced each other in a preliminary bout -- a two-day evidentiary hearing before the September 10, 1998 preliminary injunction motion hearing.

Microsoft's central witness was senior VP Robert Muglia. Under Microsoft questioning, Muglia took Judge Ronald Whyte through the series of meetings in 1996 (including a 20-hour negotiation session) that resulted in Microsoft signing the March 12 Java contract.

Under cross-examination by Sun attorney Lloyd Day, Muglia did admit that the contract did not specifically give Microsoft the right to change the Java language or create dialects of Java. But he did go on to say that Microsoft won the right to extend Java, the VM, and Java compilers to help Windows developers build platform-specific applications, referring to a still-under-seal e-mail between Microsoft's Roger Heinen to Sun's Bill Joy.

Muglia also agreed that "the deal is the deal"; in other words, conversations between the parties leading up to the signing were irrelevant.

Sun/MS: Microsoft grills Sun's Baratz

On September 9, 1998, Microsoft and Sun faced each other in day two of a preliminary two-day evidentiary hearing before the September 10, 1998 preliminary injunction motion hearing.

1 2 Page 2
Page 2 of 2