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Microsoft levels "collusion" charges

Microsoft confronts an IBM executive with evidence that his company "colluded" with other industry giants to attack the software giant's Internet strategy.

WASHINGTON--Microsoft today challenged the credibility of an IBM executive, confronting him with evidence that his company "colluded" with other industry giants to attack the software giant's Internet strategy.

According to one email IBM executive John Thompson sent to Sun Microsystems chief executive Scott McNealy, the companies sought a pact with four other firms in the hopes it would "neutralize the impact of some of Microsoft's recent announcements" concerning the Internet. Separately, the court today released testimony of an economist hired by the government who said that, from a legal perspective, Microsoft holds a monopoly in the operating systems market for PCs and has a "dangerous probability" of monopolizing the Web browser business as well.

"I will call Eric Schmidt if you will call Larry Ellison to start the conversation," Thompson wrote in his email, referring to Microsoft's day in court the chief executives at Novell and Oracle, respectively. "Perhaps Larry could help us with Apple," the August 13, 1997, email continued. In addition, the companies hoped to include Netscape Communications, documents showed.

The evidence, which came shortly before IBM director of network computing software services John Soyring left the stand today, was designed to show that his testimony for the government is motivated by his company's antipathy toward Microsoft. Microsoft also suggested that the government has a double standard in targeting alliances in the high-tech industry.

"Do you think it's appropriate, Mr. Soyring, for six of the largest software companies in the world to agree with each other to collude with one another against Microsoft?" Holley asked in an indignant tone. Stephen Houck, the lead prosecutor for the 20 states that joined the Justice Department (DOJ) in filing suit against Microsoft in May, objected to the question, but U.S. District Judge Thomas Penfield Jackson sustained it.

The six companies allegedly sought to collaborate on ways to help Sun's Java programming language gain wide acceptance among software developers. Specifically, they sought ways to speed up Java applications that run across different platforms, and to make the programming language easier for end users to obtain.

After trial recessed for the day, Microsoft spokesman Mark Murray said that the evidence shows that the "government is operating under an unfair double standard," pointing out that the combined revenue of the six companies was $100 billion per year.

In written testimony, Soyring said See CNET Radio: 
Our Man in Washington the failure of his company's OS/2 operating system to gain a foothold was a result of restrictions Microsoft puts on software developers. He also took issue with Microsoft's claims that computer users expect Web-browsing features to be built into the operating system, noting that OS/2 allows customers to choose whether they want the technology at all.

The DOJ and the 20 states, for their part, claim that Microsoft's restrictions on software developers, as well as the bundling of its Internet Explorer browser with the Windows operating system, is part of a pattern of conduct that violates antitrust laws.

Earlier today, Holley introduced marketing material for OS/2 that promoted a "built-in" Web guide. Holley suggested that, like Microsoft, IBM recognized the importance of making the browser a part of the operating system, but Soyring refused to concede.

"That's the perception we want to create throughout our marketing program," Soyring said. "However, that was definitely not a technical characteristic of the product."

Holley also pointed to restrictions IBM imposes on software developers that restrict their ability to write for certain platforms. Soyring acknowledged the restrictions but said they were not nearly as broad as restrictions imposed by Microsoft.

Separately, an economist called by the DOJ and states said in written testimony that Microsoft holds a monopoly on the personal computer OS market, with a more than 90 percent share. Microsoft denied the claim.

According to Frederick Warren-Boulton, an economist with Microeconomic Consulting and Research Associates, Microsoft's monopoly is reinforced by "network effects." This school of economic theory holds that the more users a technology reaches, the more likely the chance the technology will be adopted by the industry as a whole.

The seventh witness to testify in the government suit here, Warren-Boulton said that despite "substantial barriers to entry" in the market, Microsoft's dominance has been threatened by the Internet, especially in the form of Netscape's Navigator and Sun's Java. "Microsoft has engaged in a number of practices that significantly impede the commercial opportunities" as a result of the threat, the economist testified.

Among the practices, he contended, are restrictions imposed on computer sellers, Internet service providers, and Internet content providers. "These restrictions bias consumers' choice of browser in favor of Microsoft's browser, Internet Explorer; disadvantage rival browsers, such as Netscape Navigator; and restrain effective competition between them," Warren-Boulton testified.

He went on to argue that Microsoft's practices were not justified by arguments of efficiency or competition, and even hurt some of the software giant's short-term interests. "Microsoft regarded the goal of winning the browser 'war' as an overriding strategic objective, driven by the need to preserve its PC operating system monopoly, and was prepared to pursue this goal despite the large costs it incurred," Warren-Boulton testified.

In a statement, Microsoft provided a detailed rebuttal to the testimony, calling it "that of an ivory tower consultant with little or no direct experience in the day-to-day business and competitiveness of the U.S. software industry." The software giant took issue with his assertion that Microsoft holds a monopoly, calling its high-market share "a static snapshot of sales that does not begin to reflect the intense competitive dynamic in the software industry."

Microsoft also disputed Warren-Boulton's assertion that there are barriers blocking other companies from entering the market, noting the success of Netscape as well as the rise of the open source operating system Linux. The software giant took issue with testimony that Microsoft has harmed Netscape's ability to distribute its browser, noting that 20 million to 30 million Web sites offer Navigator and that the company has partnerships with numerous computer sellers, Web sites, and Internet service providers.

Although Warren-Boulton's findings are steeped in academia, they may prove to be among the most important testimonies in the case. In order for the government to succeed, it must at least show that Microsoft has a monopoly, that the company illegally tried to maintain it, and that the actions harmed consumers.