Microsoft goes on trial U.S. argues software firm tried to divide browser market with Netscape WASHINGTON (CNNfn) - The Justice Department opened its antitrust case against Microsoft Corp. Monday by casting Chairman Bill Gates as the ringleader in the software giant's efforts to dominate the Internet.

Using videotaped testimony from Gates and a flurry of internal Microsoft memos and e-mails, Justice Department attorney David Boies accused Microsoft of trying to coerce Netscape Communications Corp. to help expand the market share for Microsoft's Internet browser software or face the consequences.

The Justice Department and 20 states filed suit against Microsoft (MSFT) last May accusing the software giant of unfairly bundling its Internet Explorer browser with its market-dominating Windows operating system.

However, in recent weeks, the case has expanded to include charges that Microsoft tried to bully competitors and partners in other areas of the Internet software business.

"They (the government) are clearly trying to lay the foundation not only for the browser market but also to allege a pattern of anticompetitive behavior by Microsoft against a whole series of competitors, not just Netscape," said John Gardner, antitrust analyst at Schwab Washington Research Group.

Indeed, by broadening the case against Microsoft, the government is hoping to draw attention to Microsoft's hardball business practices -- where it believes it has a better chance of winning -- than just a battle over bundling -- where a previous court ruling has already weakened the government's contention that Microsoft acted unfairly when it bundled its Internet Explorer browser with Windows 95.

Assistant Attorney General Joel Klein said the government intends to prove that Microsoft tried to stifle competition, force rivals out of business and hurt consumers. (311K WAV) (311K AIFF).



Gates' videotaped testimony

At one point in his taped deposition, an anxious-looking Gates claimed he had no knowledge of a controversy involving a June 1995 meeting with Netscape (NSCP) until he read an article published earlier this year in the Wall Street Journal.

The government claims Microsoft executives tried to divvy up the browser market with Netscape at that meeting, and when that offer was rebuffed, Microsoft set out to "cut off Netscape's air supply" by giving away its Internet Explorer browser for free.

According to a deposition by Netscape Chairman James Barksdale, which was released by the government late Monday, Microsoft wanted to control the entire browser market for Windows-based computers.

"Microsoft and Netscape engaged in a number of conversations, including discussions relating to technical standards issues and efforts to explore a possible cooperative arrangement between the companies," Barksdale said.

"This goal seemed reasonable enough; what I did not imagine at the time, however, was that Microsoft's goal was to attempt to convince Netscape not to compete for the vast majority of the browser business -- the business related to the Windows 95 platform -- and to destroy Netscape's business if it refused to agree not to compete."

Gov't claims Gates directed browser plan

Boies used internal Microsoft memos and e-mails dated prior to the June meeting to illustrate that Gates not only had knowledge of the meeting but was actively directing Microsoft's executives in its strategy to divide the browser market with Netscape.

Boies said in his statement that Microsoft's intent was to propose to Netscape that Microsoft would get all the Windows 95 business with the understanding that Microsoft would help boost Netscape's server business.

When asked about that plan in his deposition, Gates said that was "very much against the way we operate." He added that, at the time of the meeting, he wasn't aware of Netscape's strategy.

Boies then introduced a series of documents pre-dating the June meeting to show that Gates had been aware of Netscape's plans. In one memo dated May 26, 1995, Gates wrote "a new competitor is born on the Internet. They are pursuing a multi-platform strategy to commoditize the Windows operating system."

Boies said the memo demonstrates that Gates was aware of Netscape's threat to Microsoft's operating system monopoly. He also said memos dating from late 1994 and early 1995 prove that Microsoft recognized that "widespread use of Netscape and (Sun Microsystems Inc.'s) Java threatened their operating system monopoly."

Lead Microsoft attorney John Warden will make his opening statement Tuesday.



Microsoft denies charges

Microsoft has steadfastly denied the government's claims and has vowed to defend its right to innovate its products based on customer demands.

"Every company ought to be able to innovate," said William H. Neukom, Microsoft's senior vice president for law and corporate affairs. (196K WAV) (197K AIFF)

"We believe that the facts and the law are on our side," Neukom said.

Mark Murray, a Microsoft spokesman, said the government is basing its case on "snippets" of documents that have been taken out of context.

"I've seen example after example where the full text [of the documents] contradicts what the government is saying," he said.





While Microsoft's stock has surged...



Netscape's stock has declined.



While Microsoft has claimed the government's case has significantly widened in scope over the past few weeks, government attorneys used their opening statements to note that their case has remained narrowly focused on Microsoft leveraging its power in operating system software to dominate the Internet browser market.

Microsoft has long maintained that the Web browser is fully integrated into the operating system. But Boies produced documents dating back to 1994 that the government says prove Microsoft had originally intended to charge customers for Internet Explorer as a separate product.

An October 1994 memo, Boies said, outlined Microsoft's plans to ship Internet Explorer no more than three months after Windows 95, indicating that the company planned to ship it as a separate product. Boies produced other documents dated as late as July 1995 to illustrate that Microsoft officials were working out pricing plans for the browser.

Boies then argued that after Microsoft saw the threat posed by Netscape, the company decided to leverage its Windows monopoly by giving away the browser for free, knowing Netscape could never duplicate such a move and survive financially.





Judge Jackson



He added that Gates even offered to pay America Online Inc. (AOL) to use Internet Explorer rather than Netscape's browser in its software. Boies cited one memo in which Gates apparently asked AOL officials, "How much can I pay you to screw Netscape? This could be your lucky day."

Although government attorneys made liberal use of Gates' videotaped deposition, the Microsoft chairman is not scheduled to testify during the trial.

Stephen Houck, lead attorney for the 20 states suing the company, took Gates to task during his opening statements, saying "his refusal to come suggests a lack of intestinal fortitude."

-- by staff writer John Frederick Moore

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