MS, DOJ sharply clash in new filings

On Tuesday lawyers for both sides submitted proposed findings of facts in connection with the Microsoft antitrust trial that closely traced themes outlined during the 76 days they argued in court during the earlier phase of the case.

The DOJ charges Microsoft with a broad pattern of unlawful conduct that has thwarted emerging threats "to its powerful and well-entrenched OS monopoly".

Both the DOJ and Microsoft posted their respective filings on their Web sites earlier than expected on Tuesday. The government document, which reached nearly 800 pages, dismisses the relevance to the case of Netscape Communications' acquisition by America Online. "Netscape was acquired because it had been damaged by Microsoft's campaign," the government contends. "AOL acquired Netscape despite the browser business, not because of it."

Throughout the trial, the DOJ argued that Microsoft possesses a monopoly in desktop operating systems running on Intel-based PCs, and that Microsoft attempted to coerce its competitors and so-called partners to preserve this monopoly. And in its proposed finding of fact, the government again pounds away on that theme. "Microsoft acted quickly to squelch this evolving threat to what it sometimes called its 'desktop paradise' ", the government said.

Microsoft's conduct, the government alleges, harmed not only these competitors, but also consumers. Consumers lost out in terms of choice, innovation and pricing, the DOJ document asserts. "For a long time now, and, if Microsoft's actions to maintain its monopoly are not halted, for well into the future, personal computer consumers are locked into a Microsoft world, one in which a single company essentially controls the configuration of desktop computing," the government's findings of fact document says.

The government centres on the June 21, 1995 meeting between Netscape and Microsoft. Just what exactly occurred then made for one of the more contentious points in the trial.

Microsoft says its executives discussed possible business initiatives with Netscape. But the government reiterated that the meeting was an illegal attempt on Microsoft's part to divide the market. Once that attempt failed, the DOJ document states, Microsoft resorted to other tactics to shut out Netscape. These tactics allegedly included the tying of the browser to the operating system; the writing of contracts with ISPs and Internet content providers in such a way as to prevent them from working with Netscape; and the blocking of OEMs' efforts to include Netscape's Navigator browser as part of their initial boot-up sequence. "Microsoft's actions demonstrate that it believed it could not win simply by competing on the merits" of its product, the government claims.

The findings of fact on both sides were limited to the scope of the written testimony submitted during the case. As a result, although relatively little of the oral testimony during the trial addressed Microsoft's behaviour in the Java world, the DOJ finding of fact zeroed in on Java and other products it called middleware, including Intel's Native Signal Processing and Apple Computer's QuickTime. These are areas where Microsoft has been accused of behaving in an allegedly anti-competitive manner. By controlling this so-called middleware, Microsoft succeeded in creating a "high applications barrier to entry" that protected its monopoly, the DOJ claims.

The DOJ also refutes Microsoft's claim that AOL's acquisition of Netscape renders moot much of the current antitrust case. The DOJ claims that AOL bought Netscape for its portal, server and e-commerce products, not its browser. Additionally, "AOL has no intention of challenging Microsoft in operating systems", either directly or indirectly, the document claims. Nor will AOL "seek to revive the platform threat that Netscape's browser once presented and that Microsoft went to great lengths to crush", says the government.

As expected, Microsoft rejected all allegations of wrongdoing in its filing.

The proposed finding of fact argues that the government has failed to prove any of its claims. It conceded that the company sometimes used strong language in its dealing with competitors but that doesn't equate to breaking the law.

In a summary of its findings, Microsoft takes sharp aim at the testimony of MIT professor Franklin Fisher, an economist who testified on behalf of the government that the software maker's actions had harmed consumers. Contradicting Fisher's assertions, Microsoft said beyond "vague, unsupported speculation", the DOJ had failed to prove evidence of consumer harm.

Returning to a theme often struck by its lawyers during the first phase of the trial, Microsoft said consumers had benefited from its investments in "improving Windows for use with the Internet".

Elsewhere, Microsoft said the government had failed to prove its tying claim. In its May 1998 lawsuit, the DOJ charged that Microsoft had unlawfully tied two separate products -- Internet Explorer and Windows 98. But company lawyers focused on a subsequent decision by an appeals court that said the government had to prove the integrated design did not offer "facially plausible benefits".

Touching on one of the more explosive charges in the case, Microsoft said the government had failed to prove Netscape had been foreclosed from distributing its software products. Indeed, Microsoft argues, Netscape documents show it annually distributed about 160m copies of its Navigator Web browsing product. In order to prove its foreclosure claim, Microsoft said, the government needed to prove Netscape was locked out of 40 percent of "the available channels of distribution".

Microsoft similarly said the DOJ shifted its theory of foreclosure during the trial, focusing on the declining number of Internet users who chose to use Navigator. "This is clearly faulty reasoning", according to Microsoft. "The question when considering a foreclosure claim is not 'use' -- it's whether consumers have access to the product and can decide whether they wish to use it."

On a related note, Microsoft also rejected the government's assertions that it had prevented Netscape from distributing Navigator through exclusive contracts. The company argues that despite Microsoft's cross-promotional agreements with 24 Internet content providers, Netscape was able to distribute its products through a range of Internet resellers and computer makers.

As it did during the trial, Microsoft pointed to the existence of alternative operating systems, middleware and the Internet -- specifically mentioning Linux, Java, BeOS, OS/2 and AOL -- to attack the government's monopoly charge.

In a bid to turn its escalating competition with AOL to its advantage, Microsoft points to the $10bn AOL-Netscape merger to support its claim. Referring to AOL as "the leading Internet company in the marketplace", Microsoft says its archrival "hopes to displace Windows and become the de-facto environment for consumers".

Microsoft acknowledges that the government may have scored public relations points against the company in the early part of the trial. But the company brushes aside what it calls "courtroom theatrics" and out of context "bits of evidence".