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Smoking gun in Microsoft memos?

The Justice Department lawsuit is based partly on internal memos allegedly sent by executives of the software giant, including Bill Gates.

The sweeping antitrust lawsuit filed today by the Justice Department against Microsoft is built partly on internal memos allegedly sent by its executives, including CEO Bill Gates.

The 53-page complaint, as well as a 71-page supporting document containing depositions, emails, and interviews, also include statements from executives of other high-tech companies.

The department contends that these statements, as well as the software giant's own documents, "make clear that Microsoft executives did not believe that Microsoft could win the browser war" through competition and that it instead "had to use its Windows monopoly advantage to tilt the playing field in its favor." The documents were Special Report: Microsoft sued obtained during the agency's lengthy investigation of the company.

Microsoft has denied any wrongdoing. It said the lawsuit is without merit and that it will vigorously fight the charges.

"The browser war was so critical to Microsoft that it was prepared to retreat in other markets in order to win it," the suit charges. For example, in order to induce America Online to promote Internet Explorer instead of Netscape's Navigator, Microsoft agreed to promote AOL in Windows at the expense of Microsoft's own online service, Microsoft Network, the suit said. The deal was effectively "putting a bullet through MSN's head," Gates purportedly said.

Microsoft also tried to quash Sun Microsystems' Java programming language. One memo apparently said the company planned to "kill cross-platform Java."

In talks with AT&T, a Microsoft executive offered to feature the telephone carrier's Internet service in Windows if the service promoted IE, according to the suit. "There are very, very few people we allow to be in the Windows box," the Microsoft executive supposedly said. "If you want that preferential treatment from us, which is extraordinary treatment, we're going to want something very extraordinary from you."

The suit also contains charges from PC makers that they had no choice but to buy the Windows operating system. A Hewlett-Packard executive testified that "absolutely there's no choice" except to install Windows on its PCs, the suit said. "We don't have a choice," a Gateway representative apparently said.

In addition, the DOJ criticized Microsoft's deals with Internet service and content providers. It cited "exclusionary agreements with firms such as Disney, Hollywood Online, and CBS Sportsline among others.

"Internal documents make clear that Microsoft tied [IE] to its Windows operating system and refused to give original equipment manufacturers an unbundled option," the complaint stated. For example, a Gateway representative allegedly said: "On several occasions, Gateway asked [Microsoft] to remove the icon for IE from the desktop, but [Microsoft] representatives have refused each request, saying that the browser cannot be removed or sold separately."

In building its case against Microsoft, the Justice Department's suit quotes numerous memos said to be sent by Microsoft executives as a sign of the company's concern about the market dominance of Netscape's browser.

"A new competitor 'born' on the Internet is Netscape," Gates said in a 1995 memo to Microsoft executives, according to the Justice Department. "Their browser is dominant, with a 70 percent usage share, allowing them to determine which network extensions will catch on. They also are pursuing a multiplatform strategy where they move the key API [applications programming interface] into the client to commoditize the underlying operating system."

To further press its case, the department cites this alleged memo from Microsoft's Christian Wildfeuer dated February 24, 1997: "It seems clear that it will be very hard to increase browser market share on the merits of [Microsoft browser] IE 4 alone. It will be more important to leverage the OS asset to make people use IE instead of Navigator."

Another memo, which Justice attributed to Microsoft senior vice president Jim Allchin, said: "I don't understand how IE is going to win...My conclusion is that we must leverage Windows more."

In still another document, dated January 2, Allchin allegedly said: "I am convinced we have to use Windows--this is the one thing they don't have...We have to be competitive with features, but we need something more--Windows integration." It concludes: "Memphis [the code-name for Windows 98] must be a simple upgrade, but most importantly it must be a killer on OEM [original equipment manufacturer] shipments so that Netscape never gets a chance on these systems."

Of the memos cited, Microsoft senior vice president for law and corporate affairs William Neukom said, "In the course of the litigation, the facts will come out." He declined any specific comment, however.

The DOJ goes on to cite similar memos from other Microsoft executives. It contends that senior executive Brad Chase said in an April 21, 1997, memo: "Memphis is a key weapon in the IE share battle."

Another, from Microsoft executive Kumar Mehta, is quoted as saying: "Based on all the IE research we have done...it is a mistake to release Memphis without bundling IE with it."

Reuters contributed to this report.