March 19, 2002

THE MICROSOFT CASE

E-Mail to Be Entered as Evidence Of Abuse of Power by Microsoft By JOHN R. WILKE and NICHOLAS KULISH Staff Reporters of THE WALL STREET JOURNAL WASHINGTON -- One of the nation's largest computer makers rebuffed a Microsoft Corp. competitor because it feared retaliation by the software giant, according to evidence that may be introduced Wednesday in the company's antitrust trial. Gateway Inc. told RealNetworks Inc. that "they will put us out of business" if Gateway installed Real software under a contract that was under discussion between the two companies in 1999, according to an account of the conversation in an e-mail between Real executives. One of them was Maria Cantwell, who now represents Washington state in the U.S. Senate. "We all know practices of certain companies who have monopolies and say this is their load for their operating system, and it violates your agreement or theirs. It's take it or leave it," the e-mail said. Ms. Cantwell was quoting Jim Van Holle, a Gateway executive, and wrote that she had just gotten off the phone when she wrote the message. "Jim also said that Microsoft was operating in a kinder, gentler way today because of press, but that they did not expect anything to happen in court case and Microsoft would go back to acting the same way as before," she wrote. Gateway had no comment last night. A former Gateway executive is expected to testify at the trial; in the earlier antitrust trial, no computer maker was willing to testify against Microsoft. A Microsoft spokesman last night called the 1999 incident "ancient history, and industry needs to move on." He said the pending settlement agreement between the Justice Department and Microsoft "addresses these issues [and] Microsoft has worked closely with Gateway and RealNetworks in ensuring our products work well with theirs." He added, "it's unfortunate that some parties refuse to embrace a settlement that is good for consumers and the industry." A spokesman for Ms. Cantwell said the e-mail "just speaks for itself" and that the proposed settlement now provides PC makers the flexibility to choose rival software. The e-mail is expected to be entered as evidence in the latest phase of the antitrust case against Microsoft, now before a federal judge. In court Tuesday, though, U.S. District Judge Colleen Kollar-Kotelly signaled that she may keep a tight rein on evidence and arguments from the nine states seeking tough restrictions on the company's business practices. Microsoft complained that the states were seeking to re-try the four-year-old case, and asked her to limit evidence to what remedy should be imposed. The states seek to include testimony regarding new markets and products, such as smart phones, media players and television set-top boxes, to argue for a tough remedy. But Microsoft lawyers say they are going beyond the scope of the trial, which is to find a remedy for specific anticompetitive acts. In the first two days of the antitrust trial, the states' lawyers have introduced evidence of alleged new antitrust violations by Microsoft, including continued instances of Microsoft using its monopoly power against competitors. The states presented the evidence as part of their effort to show that tough restrictions are needed to prevent the company from continuing to violate antitrust law. A Microsoft lawyer asked the judge to strike testimony that would seem to show new violations by Microsoft. He said that unless the judge makes a ruling, Microsoft will have no choice but to defend its actions. The judge declined to rule immediately, but then said that with "some of the areas the plaintiffs are starting to go into there is going to be a problem." An appeals court last June ruled unanimously that Microsoft repeatedly violated antitrust law. At the same time, it threw out a lower court's order breaking up the software giant and sent the case back to district court for a new remedy. The settlement reached last November between the Justice Department and Microsoft has been broadly criticized as ineffective and full of loopholes. What was once a merged case is now proceeding on two tracks. Nine states, led by Iowa and California, are asking Judge Kollar-Kotelly for tougher restrictions on Microsoft's behavior than those agreed to by the Justice Department. Separately, she must decide whether to approve the federal government's settlement under a law that asks her to consider the vague standard of "the public interest." Before former Netscape Chief Executive James Barksdale began his testimony Tuesday, Judge Kollar-Kotelly refused to allow him to give his views on the latest Windows XP operating system. But at the end of the day she cautioned that she would err on the side of too much testimony rather than too little. "I don't want to be too quick in deleting something," Judge Kollar-Kotelly said. Mr. Barksdale said an agreement with the Justice Department would allow Microsoft to kill the next big innovation -- like the Netscape Web browser -- that the software maker viewed as a threat. A proposed settlement of the Justice Department's antitrust case against Microsoft "does not and will not prevent in the future the kinds of behavior Netscape experienced at Microsoft's hands," said Mr. Barksdale, in written testimony submitted to U.S. District Court here Tuesday. Mr. Barksdale, a key figure in the first trial -- when Microsoft's liability was determined -- also spoke as a venture capitalist about the possibility that new, upstart technologies would receive the funding they needed to get their products to market. "From my experience as a venture capitalist, I know that it is not prudent to invest in the path of Microsoft platform software's dominance," he said. He identified a host of problems in the Justice Department's settlement. Microsoft, he said, would decide which products are and which are not part of the Windows operating system. Under that standard, the company's Web browser, Internet Explorer, could have been deemed a part of the operating system instead of a separate piece of so-called middleware, programs that work with the operating system such as Internet browsers and media players.