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Witness: RealNetworks bowed out of competition

RealNetworks responds to a Microsoft exec's testimony that the streaming firm intended to stop promoting its products in return for the software giant's investment.

WASHINGTON--A Microsoft executive testifying at the company's antitrust trial here said that RealNetworks intended to stop promoting its Web audio streaming products in return for the software giant's investment and help with marketing.

Paul Maritz, group vice president for platforms and applications at Microsoft, Microsoft's day in court contended that executives from RealNetworks, then known as Progressive Networks, told his company in 1997 it would not compete with Microsoft in the market for mainstream Net audio products and instead would develop enterprise software.

But Steve Haworth, a spokesman for the streaming firm, told CNET News.com today that "RealNetworks did not agree not to compete in the streaming media business."

He added that the firm has "vigorously, and, I might add, successfully competed with [Microsoft] in that space."

Maritz's testimony disputes key allegations made previously in the trial, now in its fourth month. The Justice Department (DOJ) and 19 states allege that Microsoft proposed dividing markets with Netscape Communications and other companies, a claim that Microsoft denies. The government alleged also that Microsoft's dealings with RealNetworks are part of a broad pattern of conduct that violates antitrust laws.

Referring to internal Microsoft documents that appeared today's testimony, Justice Department lead prosecutor David Boies challenged Maritz, the highest-ranking Microsoft executive scheduled to be called as a witness in the trial.

"At that time you did a deal with RealNetworks, was it your understanding that [RealNetworks] was going to get out of the base media-streaming business?" Boies asked.

"They told me that was a possibility. We certainly hoped they would do that," said Maritz, now in his third day on the stand.

When pressed for a straight answer, Maritz said that he did believe Real Networks would bow out of the consumer Net streaming race.

Microsoft saw RealNetworks as a viable competitor to products it acquired when it bought VXtreme in August of 1997. Bill Gates was quoted in a June 1997 email as stating: "This is a strategic area and we need to win it," and authorizing Microsoft to make a $65 million bid to acquire streaming technology.

In the same memo, Microsoft executive Bob Muglia said: "[RealNetworks] is like Netscape, the only difference is they have a chance to start the battle earlier in the game."

During today's proceedings, Maritz also confirmed that Microsoft viewed Intel software for improving multimedia presentation on earlier versions of Windows as a problem for the forthcoming release of Windows 95. Microsoft said the issue was capability, but the move also was perceived as Intel's first foray into designing operating system software.

"Microsoft doesn't want Intel to be in the system software business," stated a Microsoft email memo. "We don't want the OS to be a commodity."

Intel eventually dropped development of the technology, known as native signal processing or NSP, on its own, Maritz said, because the chip giant was eager to work with Microsoft on Windows 95 for the good of the whole industry. But the government asserts the decision was due to pressure from Microsoft.

"Did Microsoft tell OEMs not to use NSP?" Boies asked.

"Yes, we believed it would create an operating problem," Maritz answered.

The government also said that Microsoft tried to keep Intel from endorsing Netscape's browser--an allegation that goes to the heart of the government's case against Microsoft. The cross-examination today focused on revealing a pattern in Microsoft's "deals" and "bargains" with firms the company saw as competitors.

"Did Microsoft try to get Intel to agree not to publicly endorse Netscape's browser?" Boies asked.

"That may have been one of the things Mr. Gates was concerned about," Maritz said, referring to Bill Gates, Microsoft's chief executive and the world's wealthiest person.

But in a Microsoft internal memo introduced into evidence, Gates stated that "it was important that [Intel] NOT ever publicly say they are standardizing Netscape's browser."

Boies also pressed Maritz about a memo he and a Microsoft executive received from Gates saying that Microsoft would not support competing multimedia technology from Advanced Micro Devices in return for Intel turning away from Sun Microsystems' Java programming language.

"If Intel has a real problem with us supporting this, then they will have to stop supporting Java multimedia the way they are," Gates wrote in the February 1997 email. "I would gladly give up supporting [AMD 3DX] if they would back off from their work on Java, which is terrible for Intel."