Microsoft on Trial: Barksdale marathon drawing to an end

Microsoft returned to a familiar theme Monday by suggesting to a Washington DC judge that its earlier contract to furnish browsing technologies for inclusion in the Quicken personal finance software package was largely due to blunders made by competitor Netscape Communications.

The defence -- already familiar in the five-month antitrust battle between Microsoft (Nasdaq:MSFT) and the US Department of Justice -- is central to Microsoft's case. If the company can show its gains in the market for Internet browsers are due to fair competition and not abuse of its monopoly position in operating systems, the antitrust case built around it by the US Justice Department and 20 states will be largely moot.

Attorneys made their arguments during the marathon cross examination of Netscape (Nasdaq:NSCP) CEO James Barksdale. Today, Barksdale will spend his fifth day on the stand answering a few final questions from government attorneys, then the DoJ will play taped testimony from Microsoft Bill Gates. AOL Senior Vice President of Business Affairs David Colburn is expected to be cross examined by Microsoft Wednesday before the government returns to Gates Thursday.

In written testimony, submitted under rules designed to speed a trial expected to last into December, Barksdale told the court that Quicken developer Intuit (Nasdaq:INTU) was "coerced" into integrating Microsoft's Internet Explorer browser into Quicken. "My understanding is that we had offered Intuit several technical options that it agreed would meet its needs," he wrote. "However, despite the progress we were making, I began to suspect that Microsoft was exerting extreme pressure on Intuit. In 1997, Intuit informed us that it felt that it had no choice but to do an exclusive deal with Microsoft. Obviously, we were all disappointed not to get it."

Microsoft attorney John Warden grilled Barksdale on three Netscape slides that seemed to detail the company's march to defeat at it own hands, not Microsoft's. On one slide, labelled "Intuit Situation." Netscape Vice President of Developer Relations Danny Shader laid out a series of missteps taken in 1996 and 1997 for distribution to policy makers in the company. "Intuit needed a standard, chromeless browser component to imbed" in its package, Shader wrote. "We offered, but did not deliver."

Shader then ran through a succession of five separate features Netscape had failed to deliver before Intuit finally gave its business to Microsoft. "It says you failed to deliver. Is that correct?" Warden asked. Barksdale said, in several cases, that was true, though he wasn't clear on many of the details. He could not recall the meaning of one feature called "Super Kiosk Mode," for instance. In a separate timeline prepared for the analysis, Shader listed a Nov. 11, 1996, meeting between the two companies. There, Netscape promised to meet Intuit deadlines. By the end of February, it was clear that wouldn't happen. "Conference call with Intuit to tell them we couldn't commit with Magellan," the timeline read. Magellan was an in-house code word for some of the features Intuit had asked for. Two successive efforts failed in the next two months. By April 21, "they tell you they've gone with Microsoft's Internet Explorer. Is that correct?" Warden asked. "Correct," Barksdale answered. Even so, he explained moments later, top executives from Intuit, including CEO Bill Campbell, had told him the final decision came down to other issues -- including guaranteed placement on Internet Explorer's Channel Bar, and "push" technology that automatically sent information to computer users' desktops without making them search for it first. Microsoft, in fact, dropped its Channel Bar last March after mediocre results suggested few Internet users would ever adopt it.

"We've been able to show over and over again that the government's case is groundless," Microsoft Corporate Spokesman Mark Murray said. "The big question remains: whether this case was designed to help Netscape and a handful of competitors or American consumers." Earlier, Microsoft pressed further its assertion that Netscape had egged on government attorneys to bring a bogus antitrust proceeding against the world's largest producer of PC software. Microsoft attorney Warden dwelled on the timing of three messages between Netscape and the Justice Department, strongly suggesting the company was set up form early on.

According to a May complaint filed against Microsoft, officials of the Redmond company first approached Netscape with an offer to divide the market for Internet browsers at a June 21, 1995 meeting. Both sides agree the session was supposed to deal only with the two companies' collaboration on Netscape's production of browser software for Microsoft operating systems. But Netscape and the government allege that Microsoft wanted to restrict Netscape to the ever-smaller portion of the market that would not use Windows 95 once the product was released. The supposed offer to "divide" the market is at the centre of the present case. Microsoft denies the accusation. Warden produced a June 22 e-mail from Netscape co-founder Marc Andreessen to two Netscape attorneys. "Why would Mr. Andreessen send that memo to both inside and outside counsel in the middle of the night following the meeting?" Warden asked. Barksdale said he didn't know. And what about another memo -- one written the night after the June 21 meeting addressed only to a handful of top Netscape executives and in-house attorney Mitchell Baker -- why was a staff attorney like Ms. Baker copied on that email? Again, Barksdale said, he didn't know. "Had Ms. Baker and (outside counsel)) been talking to the Justice Department before Andreessen even write the emails?" Warden asked. Barksdale again pled ignorance. And what about the Justice Department's June 22 Civil Investigative Demand (CID) for documents related to its dealings with Microsoft -- did he know about that document, delivered just a day after the June 21 meeting? Barksdale said no. Warden produced still another letter -- this one from Netscape outside counsel Gary Reback responding to Justice Department inquiries about Microsoft. Wasn't it a fact, he asked Barksdale, that Reback had asked Marc Andreessen to take notes on the June 21 meeting? Didn't Netscape's own lawyers ask the Justice Department to send the CID so Netscape could add what they knew to an ongoing investigation? "Not that I'm aware of," he replied. "Would you know?" Warden asked. "I might. I might not." "Did you ask (Netscape Counsel) Ms. (Roberta) Katz?" "I did not." "Were you involved in anyway with the preparation of (the letter)?" Warden asked. "I don't think I was." Copies of the letter distributed after this morning's session showed Reback was responding to DoJ inquiries regarding America Online's complaints that Microsoft was working to unfairly exclude AOL from the desktops of computers that came with Windows 95 installed. Microsoft attorneys got copies of the letter from Justice Department officials after Gary Reback sent it to them late last week.

As Warden told it in court this morning, the letter contained no mention of an offer to divide the market for browser software. Government attorneys drew precisely the opposite conclusion, however. In his letter, Reback addressed a Microsoft proposal for a "special relationship" allegedly raised in the June 21 meeting. "Microsoft developers have advantages on the Microsoft platform that Netscape developers will not have, absent a special relationship with Microsoft," he wrote. "If Netscape does not 'sign up' to this special relationship, Microsoft will develop a special relationship with a Netscape competitor, thereby harming Netscape. Microsoft will also do what it can to competitively injure Netscape in such a scenario."

Government attorney David Boies dismissed suggestions entrapment was at the heart of the letter. "That document is devastating to their argument," he said, chiding the company for not reading the whole of the memo in court. "The CID was not related to (the June 21) meeting. AOL had been strongly urging the DoJ to bring suit over MSN." Microsoft Corporate Spokesman Mark Murray said: "These documents raise questions about Netscape's motivation. They clearly indicate a timeline that can hardly be called a coincidence."