UPDATED 3:30 PM PT
WASHINGTON -- Intel Vice President Steven McGeady testified Monday afternoon against his company's most important business partner, accusing Microsoft of denying consumers a host of new technologies through iron-fisted control of its PC operating system monopoly.
In the long run, he said, Microsoft (Nasdaq:MSFT) hopes to "embrace, extend and extinguish" competition by substituting the company's proprietary software for the public-domain, open technologies that have driven the frenetic growth of the Internet.
His assertions were part of testimony during Day 12 of the historic antitrust trial under way against the world's most valuable company.
As McGeady told it, Microsoft has spent much of the past three years warning Intel (Nasdaq:INTC) to steer clear of the market for Internet software ... or face consequences that even the world's largest maker of microprocessors could not withstand.
In particular, he said, Intel was warned to cease development of its Native Signal Processing technology which, according to McGeady, would have vastly improved the audio and video capabilities of personal computers.
'Credible and terrifying'
If Intel refused, McGeady continued, the company was told that Microsoft would not design its software to run on new Intel chips but on those of its competitors -- such as Advanced Micro Devices Inc.(NYSE:AMD) and National Semiconductor Corp. (NYSE:NSM)
"It was clear to us that if this chip did not run Windows, it would be useless in the marketplace," a grave McGeady said on the stand. "The threat was both credible and terrifying."
McGeady spent 2 1/2 hours detailing other alleged assaults on the company, each of which was designed to hinder competition across the computer industry, he said.
McGeady's direct testimony, which began Monday afternoon, contradicted parts of a Bill Gates' video deposition shown during the trial's morning session.
In his video testimony, Gates claimed to have had no knowledge that Intel worked on Internet technology. However, McGeady said that Gates was present when Intel held briefings on the topic at Intel's offices in Oregon during November 1995.
It was in this meeting that Microsoft executives said they intended to "embrace, extend, extinguish" competing technologies, including Internet standard HTML, McGeady said.
McGeady, who is appearing as a government witness, also told the court that Intel shot its multimedia program "in the head" after Microsoft threatened to drop support for its microprocessors.
According to McGeady, the move stifled innovation by killing technology that enabled real-time processing of multimedia content.
Speaking after Monday's proceedings, Microsoft spokesman Mark Murray hinted Microsoft's cross-examination of McGeady would portray him as a disgruntled engineer who was angry because Intel killed his projects, some of which were potential competitors to Microsoft's products.
"You need to stay tuned," Murray said on the steps of the federal courthouse. "Mr. McGeady is a developer who has an axe to grind against Microsoft."
Gates: Intel 'wasting its money'
Meanwhile, a testy, fidgety, yet surprisingly candid Gates was the highlight of Monday morning's proceedings.
In a taped deposition, Gates roundly bashed close ally Intel's entry into the software market. He told prosecutors that "Intel was wasting its money writing low-quality software that created a negative experience for users."
Attorneys from both sides showed the tape in anticipation of McGeady's testimony.
During the tape Gates also acknowledged he suggested that Intel leave the software side of the business entirely up to Microsoft, and he became frustrated when the company refused to do so.
He said his company never threatened to withhold support for Intel processors, yet he said a lack of communication on the software front "led to unfortunate unreliability and mismatch."
Tevanian wraps it up
Also, earlier Monday morning, Apple executive Avie Tevanian wrapped up his testimony.
He said Apple would "lose its customers" if it didn't agree to bundle Microsoft's Internet Explorer Web browser with Apple's Macintosh computers.
Tevanian had testified earlier that Microsoft had threatened to stop producing its Office software applications for the Mac if IE wasn't given favor over Netscape's Navigator browser on the Mac.
Government attorneys also showed e-mail from a Compaq Computer Corp. official who was too afraid of Microsoft to continue bundling Apple's QuickTime software with its products.
David Obelcz, who is in charge of Compaq's third-party developer relations, told Apple executive Phil Schiller in an e-mail that he liked QuickTime, but "the folks in Redmond beat me up for it, but also quietly tell me they are impressed."
Compaq eventually stopped shipping QuickTime on its machines.
No first-hand knowledge
Microsoft attorneys tried to deflate those claims by forcing Tevanian to admit he had no first-hand knowledge of the meetings between QuickTime executives and Compaq, and therefore could not testify to their accuracy.
Microsoft also tried to paint a picture that Apple and Microsoft have a good relationship by showing the video of the famous August 1997 Macworld trade show, where Apple CEO Steven Jobs unveiled an agreement to work with Microsoft.
But U.S. District Court Judge Thomas Penfield Jackson, who is presiding over this trial, seemed to get a kick out of the part where some Mac loyalists booed the plan.