Intuit chief's testimony irks Microsoft

Harris's testimony, parts of which have been leaked in recent weeks, also provides new details of Intuit's thinking when it agreed in late 1994 to be acquired by Microsoft, a deal scuttled after the federal government questioned it.

Forty-seven pages of written testimony was released today in advance of Harris's appearance on Monday at the Microsoft antitrust trial in Washington. Both the Justice Department and Intuit posted it online.

In a written response issued yesterday, Microsoft said the call for "operating system neutrality"--Harris's term for a remedial regulation--was "an entirely new and irrelevant concept Mr. Harris cooked up on his own." Microsoft, which routinely rebuts written testimony after it is released, jumped the gun with yesterday's rebuttal because of widespread leaks.

Other portions of yesterday's rebuttal called his testimony "rife with rank speculations, hypothetical situations, and attempts at complex legal, technical, and economic analysis by a witness who is neither an attorney, a software developer, nor an economist."

Harris's testimony focuses on Microsoft's control of Windows, which he calls a "choke point" for access to users that software vendors and Internet content and service providers must utilize.

"Control of the dominant operating system enables Microsoft to exclude its competitors and/or discriminate in favor of its own content, products, or services," it states. "Operating system neutrality would foster innovation, expand consumer choice, and preserve competition on the merits."

"The government should not be involved in software design--there are plenty of operating systems out there," countered Microsoft spokesman Adam Sohn. "Microsoft Windows is successful, but we know it's short-lived. If we don't continue to innovate and provide people products they want, they can get another operating system."

Harris argues that Windows' dominance in PC operating systems means "the drive for profit has no natural regulator," referring to Microsoft's 49 percent profit margins. "As a businessperson, I find it hard to explain such abnormally high profitability, except in a market substantially insulated from effective competition," he testifies.

Intuit's CEO does not suggest regulating Windows explicitly, but his call for neutrality in essence urges that Windows be controlled like a public utility similar to a power or cable TV company. Like that of Netscape Communications CEO James Barksdale earlier in the trial, Harris's testimony closely parallels the government's case against Microsoft.

Microsoft's rebuttal is similar, too: "Mr. Harris's suggestion that Intuit is somehow being harmed by Microsoft does not hold up to scrutiny...Intuit seems to be trying to use the government and the courts to tip the scales against Microsoft."

The Harris testimony "further demonstrates that the government's case is without merit, and has degenerated to a state where any competitor with a business grudge can come to Washington and use the [Justice Department] as a weapon," the rebuttal says.

The most substantive disagreement between Harris's testimony and Microsoft's rebuttal concerns Intuit's choice to embed parts of Microsoft's browser, not Netscape's, in its software. Harris testifies that the browser decision was closely tied to Intuit's desire to be included in Microsoft's Active Desktop, the interface in Windows 98 that appears when PC users boot up their machines.

"To be granted preferential placement on the Active Desktop, Intuit had no option but to bundle Internet Explorer with our products, and not bundle Netscape Navigator," Harris testifies. Microsoft's agreement also "prevented Intuit from promoting Netscape on Intuit's Web sites or allowing Intuit's Web site customers to access Netscape's products or services."

However, Harris admits Intuit might have used Microsoft's browser even if Intuit didn't participate on Active Desktop, and discloses Intuit's engineers recommended that Microsoft's browser could be used as "components," but that Netscape's could not be so incorporated.

Microsoft countered the Harris testimony by focusing on Netscape's failure to deliver browser components.

"Netscape's own documents show without a doubt that Netscape did not develop the modular technology that Intuit needed, despite Intuit asking repeatedly for component features over nearly a year," Microsoft's rebuttal states.

Regarding the Active Desktop, Microsoft asserts that "Netscape could distribute Intuit's content" but that Harris considered that option "uneconomic." Disney and CBS SportsLine had comparable deals with Microsoft but also had agreements with Netscape to distribute their content, Redmond pointed out.

Microsoft also said it waived that part of Intuit's agreement but that nine months later Intuit still has no significant Netscape agreement.

"These were standard agreements in the industry that were beneficial to both sides," Microsoft's Sohn said. "It was freely entered into by Intuit and allowed them a great deal of flexibility. At some point, Intuit has to take responsibility for its own business decisions."

In his account, Harris suggests Intuit in 1994 essentially agreed to be acquired by Microsoft because it feared the alternative--that Microsoft would build personal finance software into Windows, undercutting Intuit's chief market. Harris cites Microsoft raising that project, called WinATM, with CheckFree CEO Pete Kight and Mastercard.

But WinATM was "an idea that never made it off of the drawing board," Microsoft said, noting that to date Microsoft has not added personal finance functionality to Windows.