Microsoft on Trial: Fairness of poll questioned

The chief economist for the defence in the Microsoft antitrust trial Thursday said he had no idea that an opinion poll cited in his written testimony was commissioned by company Chairman Bill Gates specifically to support his company's views in Senate testimony he gave last year.

"It would help me IMMENSLY (sic) to have a survey showing that 90% of developers believe that putting the browser into the OS makes sense," Gates wrote in an e-mail tended in court Thursday. "I am sure we will get like 60% before we explain our plans. Once we explain our plans properly I think we will get more like 90%. Ideally we would have a survey like this done before I appear at the Senate on March 3rd."

When pressed to repudiate his testimony regarding the survey, MIT economist Richard L. Schmalensee stood his ground. The survey, which he received via a colleague at National Economic Research Associates Inc., was fair in any case, he said. "Surveys are often made to provide evidence," he told Department of Justice lead attorney David Boies. "As I used it, it was not misleading."

Schmalensee had cited the poll to back his claim that Microsoft's Web-browsing software has been good for consumers and industry alike. "In a recent survey of [software developers], 85 percent predicted that Microsoft's integration of Internet functions into Windows would help their company and 83 percent predicted it would help consumers," he wrote.

But that same poll, e-mails presented in court Thursday showed, was worded in such a way that even market researchers within Microsoft questioned its fairness. The survey specifically asked software developers what they thought about efforts by the U.S. Department of Justice to force Microsoft to separate its browser from the rest of the operating system. "I wouldn't refer to it as unbiased, and I wouldn't refer to it as an opinion poll," Microsoft researcher Ann Redmond wrote in February 1998. Instead, she said, the survey was little more than developers' reaction to Microsoft's side of the argument when they heard it in isolation.

Indeed, Redmond added, a separate poll of developers worded in a less leading fashion indicated 44 percent of them actually supported the Justice Department in its battle against Microsoft. Some 41 percent backed Microsoft, and 16 percent did not know. Of that same group, only 27 percent believed Microsoft's argument that its browser was an inextricable part of the Windows operating system. A total of 57 percent believed the DoJ's argument that the Internet Explorer browser was a separate application. "We weren't trying to get an unaided response," Microsoft executive Scott Fallon responded. "We want to make the distinct point that our rationale hasn't been fairly represented in 'conventional wisdom' but when it is presented, [software developers] understand it and agree with it."

The revelation came at the end of a difficult day for Schmalensee. From the time he mounted the stand Thursday morning to the time he left, he had backed away from, or qualified statements in two of his previous papers, leaving the impression that he had at changed some of his thinking over the years.

In a 1987 article for the Antitrust Law Journal, Schmalensee wrote the presence of a few small competitors to a dominant firm didn't mean there weren't significant barriers to entry for newcomers. Schmalensee, like other economists, insists no company can maintain monopoly power without first erecting some artificial "barrier to entry" that others cannot overcome. In earlier trial testimony, however, Schmalensee said small competitors to Microsoft's Windows operating system such as Apple Computer Inc. helped prove Microsoft was not a monopoly, even though its operating system is included on some 95 percent of all Intel-compatible PCs.

Boies wanted to know whether Schmalensee had changed his mind since the article was written. Schmalensee replied he hadn't. For even though companies such as Apple Computer Inc. are comparatively small, he said, they are still large enough to be counted as real competitors and, perhaps some day, a threat to the dominance of Windows.

The eminent economist was less tenuous in retracting his own statements from a 1982 Harvard Law Review article. He wrote then that when a company showed unusually high profits over a long period of time, it was clear evidence that that company could raise prices to artificially high levels while at the same time excluding competition. In some cases, that "market power" could include monopoly power like that Microsoft allegedly yields.

Yet Schmalensee earlier denied high profits said anything at all about Microsoft's power over its rivals. Boies demanded an explanation. "What could I have been thinking?" Schmalensee said incredulously. That much, he said, he no longer agreed with. The government spent much of the afternoon sparring with Schmalensee over what Microsoft had promised would be a "rigorous, quantitative analysis" from its side. In written testimony presented last week, Schmalensee asserted that potential competition for the Windows platform had kept prices for Windows low.

Among others, Schmalensee said Thursday, Netscape Communications Corp.'s Navigator browser, Sun Microsystems Inc.'s Java technology and IBM Corp.'s OS/2 operating system all posed potential threats to Microsoft's operating system.

Boies asked Schmalensee to estimate the effect each of the technologies had had on the price of Windows. Schmalensee said he was sure they had all pushed prices down, but could give no estimate of the savings that resulted.

Take me to the DoJ/Microsoft page.