Ms/DoJ: DoJ begins attack on final MS witness

Boies began his cross examination of Richard Schmalensee, Dean of Massachusetts Institute of Technology's Sloan School of Management, by asking him questions about how much Microsoft paid him. Schmalensee ducked many of the questions, but finally acknowledged that over the past two years he'd made more than $250,000 (£152,000) from Microsoft, possibly more. That's in addition to the $300,000 in bonuses he earned drumming up business for the National Economic Research Association Inc., the group that cuts him checks for his Microsoft work.

However, Schmalensee said he couldn't come up with an exact figure of how much money he had earned from Microsoft. Nor could he tell the DoJ lawyer how many existing Web-based applications pose a threat to Microsoft's dominance of the desktop software market. Just hours earlier, Schmalensee had cited several obscure Web-based programs, including Inergy's WebDesk 2000 and AppsOnline's Instant! Teamroom, saying they are mounting a challenge to Microsoft's Windows operating system. But under questioning from Boies, Schmalensee acknowledged that right now, such applications require a PC operating system, and that "a large fraction of them" run on Windows. "Today, to run a browser, it needs to be part of, or run with, an operating system," Schmalensee testified. He conceded that the desktop space would remain an important business "for some time to come."

Schmalensee also acknowledged that he had not studied the market for technologies that could compete with Windows, and he couldn't predict the potential of either Web-based applications or Linux.

At one point Boies showed discrepancies in two charts created specifically for Schmalensee's testimony. The charts purported to show that the number of people using Netscape Communications Corp.'s Navigator browsers bundled with their computers had increased in recent months. Part of the government's case centres on charges that Microsoft's exclusive deals requiring computer makers to carry its Internet Explorer browsers are anti-competitive because they prevent the distribution of Netscape's rival browser.

However, Schmalensee acknowledged that he had not compared the two charts. Boies then pointed out that the average number of browsers obtained through the PC on one chart exceeded the highest of the actual figures on the other, a scenario that's mathematically impossible. "One of these is wrong. I think that's apparent," Schmalensee told Boies. Both sides are expected to address the issue Thursday.

At one point, Boies asked Schmalensee whether he thought that Microsoft's practice of penalising companies which ship PCs without Windows was anti-competitive. "Absolutely not," Schmalensee said, adding that the move prevents piracy by discouraging companies from selling computers without an operating system.

Boies then asked Schmalensee if he thought the Microsoft's per-processor license fee -- which required computer makers to pay for Windows on a machine whether they shipped the OS or not -- had anticompetitive consequences. The fees -- deemed illegal by a federal judge in the early 1990s -- led to a 1995 consent decree between Microsoft and the government. The decree specifically required Microsoft to stop its "anticompetitive licensing practices."

But Schmalensee said the practice was not anticompetitive, and again cited piracy concerns.