Microsoft on Trial: 'AOL deal has effect'

The federal judge overseeing the landmark antitrust case against Microsoft Corp. said Wednesday the world's largest PC software may examine documents related to America Online Inc.'s recent purchase of Internet browser maker Netscape Communications Corp. and its related agreement with Sun Microsystems Inc.

Speaking following a closed session with attorneys yesterday afternoon, Judge Thomas Penfield Jackson said the examination may be necessary since the merger could have a "immediate effect" on the outcome of the case. "There has been what might be a very significant change in the playing field as far as this industry is concerned," Jackson said, giving clear emphasis to the word "might". Jackson told attorneys for both sides they should discuss ways for Microsoft to get at documents submitted to the government as part of the Hart-Scott-Rodino merger review process. He also accepted a motion not to play on court taped depositions of 19 separate witnesses, including a final one by Microsoft Chairman Bill Gates, but accept them into evidence simultaneously. The merger-document decision stops short of the general discovery Microsoft had requested, but clears the way for Microsoft, AOL, Netscape, Sun and antitrust officials to work out an agreement. In any case, even an agreement in principle may not be enough; government lead counsel David Boies said that there may be statutory prohibitions against producing documents from a merger proceeding.

Should the new combination suggest Netscape has a chance to prosper in the market for stand-alone browsing software without relying on implicit subsidies from other lines of business, the government's case would be dead. That, in fact, is what Microsoft hopes for most. For, though AOL officials have said they will continue to distribute Microsoft's browser for the foreseeable future, Microsoft attorneys argue they will begin flooding the market with Netscape browsers as soon as it is in their interest -- possibly when the trial is over.

AOL officials counter that dumping Microsoft's IE would also mean losing their guaranteed spot in an online services folder shipped on the desktop of every Windows PC made. Sun and Netscape officials said they were still evaluating the situation. AOL had no comment.

Under the Hart-Scott-Rodino Act, the Justice Department or the Federal Trade Commission must review all mergers between large companies. If all goes as planned, Microsoft will look at many of those documents in an attempt to show that it does not hold monopoly power over the market for Internet browsers. Should the merger review cover less ground or proceed more slowly than expected, Microsoft will likely ask for additional discovery. Alternately, the company could renew its motion for discovery should the two sides fail to reach the agreement they said was likely.

After the ruling, Microsoft officials repeated their clam that the AOL-Netscape deal showed there is far more competition in the market for Internet software and services the two companies claim. Each has sent witnesses to testify against Microsoft. "We want to see their own analysis" of what the future is, Microsoft attorney John Warden said. "People's public and public pronouncements sometimes differ. There's going to be plenty of evidence that the Netscape browser ain't going away."

When AOL and Netscape first announced the merger, Microsoft executives all but declared the government case dead. "The AOL/Netscape/Sun deal shows how the competitive landscape in this industry can change overnight, making government regulation unnecessary and counter-productive," Microsoft Senior Vice President for Law and Corporate Affairs William Neukom said then. "The government should drop this case and stop wasting taxpayer dollars and let the industry compete in the marketplace with technology and customer service."

Government attorney David Boies said yesterday that he expected little of import would result from the ruling, however. "Additional discovery on the whole favours (the government)," he said. "The focus we made in our papers was we didn't object as long as it was focused

Take me to the DoJ/Microsoft page.