Microsoft threatened to "kill" some of Apple's most prized technology efforts unless it surrendered the market for PC multimedia technology, according to an Apple executive. But Apple has not come out of the interrogation without blood on its hands.
Testifying in the Microsoft antitrust trial, Apple senior vice president Avadis Tevanian told the US District Court that officials from the world's largest maker of PC software made the threat in various ways over a period of more than a year -- most recently this past summer.
Tevanian cited an April 1997 meeting at which Apple executives Tim Schaaff and Peter Hoddie and Microsoft executives Christopher Phillips and Eric Engstrom were to discuss proposals for cooperating in the market for multimedia software.
Phillips and Engstrom eventually proposed the two companies divide the market between them, he said. Microsoft insisted that Apple dump its consumer QuickTime technology and leave that market to Microsoft. Apple, in turn, would keep its market for software tools, used to develop multimedia content on the Web.
"Mr. Hoddie was confused," Tevanian said. "'Are you really asking us to kill playback? Do you want us to knife the baby?' And Mr. Phillips responded back to him, 'Yes, we're talking about knifing the baby.' It was very clear."
Tevanian made his assertions Thursday morning to Microsoft attorney Theodore Edelman, as the landmark antitrust trial against the maker of the Windows operating system was concluding its third week.
Earlier, Edelman called Tevanian's interpretation of the meeting into question. Weren't the two sides really trying to convince each other of the superiority of each other's technology? Tevanian said no -- the threats were clear enough.
But Tevanian also said operating system makers have the right to decide what features they will include in their software.
Edelman focused on that assertion. If that was true, he said, then surely Microsoft had a right to say it wouldn't bundle Apple's QuickTime technology with Windows. Tevanian agreed, but said that wasn't what was at stake. Instead, Microsoft wanted Apple to hand over its technology to Microsoft and stick to producing software tools used to develop Web content.
Edelman produced an internal e-mail from Apple's Schaaff to Hoddie, dated four months after the April 1997 meeting. The document seemingly laid out a series of steps Apple could take to promote its QuickTime technology to Microsoft.
In exchange for bundling QuickTime with Windows, Apple could offer to cooperate with Microsoft on its MediaPlayer product, which was competing with QuickTime.
The memo included a suggestion that "Microsoft adopts [QuickTime] file format." The email also mentioned Apple keeping its market for software for multimedia development on Windows PCs.
The memo said nothing about "killing" QuickTime.
Was that correct? Edelman asked Tevanian. Did Schaaff actually write the memo? "That was a discussion Peter and Tim were having," Tevanian said.
Edelman wanted to know why Tevanian had never mentioned the memo in his testimony. "You didn't think this was important?" Edelman asked.
"No, this document wasn't important at all," Tevanian said flatly. In fact, Hoddie and Schaaff were engineers, not businessmen, and management threw the proposal out after it found there was no benefit to Apple from the deal.
"This was just two people trying to put together a proposal which was rejected," Tevanian said.
Edelman also turned to a section of things Apple would not ask Microsoft to do.
One included a reference to ASF, a rival video standard in competition with QuickTime. "Not explicitly asking them to kill ASF, but may be implied," the e-mail read.
Edelman demanded an explanation. Tevanian countered that Schaaff feared that Microsoft would infer Apple wanted the ASF format eliminated. He denied that Apple wanted to eliminate it.
Judge Thomas Penfield Jackson, who had spent most of the morning silent, shot back at Edelman for spending time on a memo that had never gotten beyond the stage of a vague idea.
"You keep mischaracterizing what he's told you." Jackson said. "He said this was not a proposal." The memo "was explicitly rejected by Mr. Tevanian and others. This is misleading language and it is not acceptable to me."
As the day wound down, Microsoft turned to Tevanian's assertions that computer hardware makers were steering clear of Apple's QuickTime technology for fear of upsetting Microsoft. According to Compaq's top software official, Compaq executives had expressed interest in licensing the company's QuickTime multimedia technology, only to decide against it after their marketing specialists warned against the deal.
Tevanian based his testimony on pre-trial interviews of Phil Schiller, Apple's vice president of worldwide marketing. "You have to understand what's going on here," Schiller said Compaq procurement director Steven Decker told him. "(Compaq marketing managers) are very afraid of doing anything that would upset Microsoft. We are very wary of bundling anything that would upset Microsoft because they touch us in so many places."
Edelman challenged Decker's statement. "It's true isn't it, that Microsoft didn't pressure Compaq?"
Tevanian replied: "I don't know."
Edelman then played taped, pre-trial testimony from Decker. Decker said Compaq decided not to go with QuickTime because of pressure from Microsoft, but because Apple wanted to charge for something it had always provided free. In addition, he said, "Apple wasn't willing to continue" giving Compaq a free license to distribute the previous version of QuickTime.
Government attorneys submitted additional portions of Decker's testimony that stated there were "15 or 20" other people in the room. He was only briefly in attendance at the meeting, he said.
After the hearing, Apple General Counsel Nancy R. Heinen claimed Apple had offered to continue supplying both the new, "basic" version of QuickTime 3.0 and the older, second version, gratis. It had asked for a fee only for the QuickTime "pro" version. For some reason, she said, Compaq had declined to sign the standard licensing agreement that accompanies most distribution agreements.