Microsoft: AOL, Netscape had deal

WASHINGTON--In an alliance designed to battle Microsoft, America Online and Netscape Communications agreed not to compete in certain markets, according to evidence introduced by the software giant today.

In the seventh day of the landmark antitrust trial here, Microsoft introduced numerous emails and other documents designed to deflect accusations that it illegally proposed dividing the browser market with Netscape. With AOL senior vice president David Colburn on the stand, Microsoft attorney John Warden attempted to turn the tables on the charges it faces, accusing AOL and Netscape of proposing their own "market division."

The exhibits detail negotiations between the two companies for AOL to license browser technology from Netscape. Although Netscape cofounder Marc Andreessen was upbeat at the time the emails were written about the potential relationship, AOL executives allegedly worried that the Mountain View, California, company might be a competitor in the online space.

"We can use our unique respective strengths to go kick the [expletive] out of the beast from Redmond that wants to see us both dead," Case quoted Andreessen as saying, according to a letter by the AOL chief. "By teaming up, we substantially increase the odds of beating them."

The letter, allegedly prepared in October 1995 and addressed to "Dearest comrade Barksdale," was never sent.

Netscape representatives were not immediately available for comment.

AOL was leery of the potential relationship, although it too hoped that a Netscape partnership might defeat Microsoft, the evidence said. "[Netscape is a competitor of ours] at the home page, not browser, level," an AOL employee wrote in an April 1996 email to Case. "It is one thing to convert people to Navigator [technology], it is quite another to promote the [Netscape] service, yes I said service!!!!" The employee was referring to Netscape's Web site, which offered content that can compete with AOL.

To work around the conflict, the two companies tentatively agreed not to compete in the other's market, according to a draft contract Microsoft attorney John Warden introduced as he cross-examined AOL's Colburn.

"Netscape reiterates its intention to remain a software company and states unequivocally that there are no plans or interest in entering the online services business and/or related businesses such as Internet access," the draft contract states. The draft allegedly was dated December 13, 1995--just days after Microsoft chief executive Bill Gates announced that his company would embark on an aggressive Internet strategy.

In another exhibit, an October 1995 email sent to Case, an AOL employee suggests that the online giant can "offer up withdrawing Naviserver from the market to compete with [Netscape], in return for favorable pricing terms and other concessions. Naviserver was a proprietary product for publishing on the Internet.

In cross-examining Colburn, Warden seized on the evidence. "In your various meetings with the Department of Justice to suggest that they go after the beast from Redmond, did you disclose that you made a market division proposal?" Warden asked Colburn.

"Your wording, not mine," Colburn replied, adding later that the goal had been to enter into a strategic relationship, not to divide any markets. Colburn added that the deal was never completed, because Microsoft ended up winning a partnership with AOL in March of 1996.

Outside the courthouse after trial recessed for the day, Microsoft repeated its charge that the two companies had agreed not to compete. "We never asked for a market division" from Netscape, Microsoft spokesman Jim Cullinan said. "Yet these guys put non-compete language in their agreement that specifically said one will stay out of the other's market."

But Justice Department (DOJ) officials said there is a clear difference between their allegations that Microsoft tried to divide the browser market with Netscape and the proposed agreement between Netscape and AOL.

"Small companies get together all the time, particularly when they have to compete against a monopoly," the Justice Department's lead attorney, David Boies, said on the courthouse steps. "The antitrust rules make a big distinction between what a monopoly can do and what a non-monopolist can do."

Microsoft also spent the day attacking key points Colburn made in 19 pages of written testimony released late yesterday. In it, Colburn claimed that Microsoft's decision to put the Microsoft Network icon on every copy of Windows 95 sold "put AOL at a severe and unfair competitive disadvantage."

Although AOL regarded Microsoft's Internet Explorer and Netscape's Navigator as roughly equal in quality, he said, the online giant agreed to use Microsoft technology after it agreed to carry AOL's icon and software in a special folder on the desktop.

"AOL would not have been willing to negotiate a browser license with Microsoft" had it not promised the listing, Colburn wrote. The government has pointed to the same charge as one of the many steps that it alleges Microsoft took to leverage its Windows monopoly to destroy Netscape.

Microsoft's Warden introduced a series of AOL documents designed to deflate Colburn's claims.

"From a pure technology standpoint, it does look like Microsoft may win this [deal]," AOL's Case wrote in a January 1996 email to Colburn and a number of other executives. Specifically, Warden claimed, AOL needed a browser that was written in small chunks that could be embedded easily into AOL's client software. By contrast, AOL found Navigator to be "monolithic," other evidence suggested.

Pressed by Warden, Colburn conceded that Internet Explorer had some technical advantages, but he insisted that Netscape's browser had benefits of its own.

"It was a close call on the technology, but what put it over the top was the distribution on the desktop," Colburn said, adding later that Case merely said Microsoft may win, "which is hardly a ringing endorsement."

Colburn also noted that Internet Explorer's advantage applied only to software running on Windows 95, which at the time accounted for only some 20 percent of AOL's users. He added that it took another year for Microsoft to embed its browser into AOL's Windows 3.1 software, which is used by 50 percent of its subscribers, and an additional two years for the browser to be built into software for the Macintosh.

"Other browsers could all meet those requirements," Colburn said.