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Microsoft fights AOL claims
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October 28, 1998: 7:21 p.m. ET
You've got mail! And we're using it! America Online e-mail is MS evidence
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NEW YORK (CNNfn) - Taking a page out of the government's playbook, Microsoft's lead attorney used America Online Inc. executives' own words Wednesday to undermine AOL's contention that Microsoft forced the online company to enter an exclusionary contract in order to preserve its business.
In a longer-than-expected cross examination of David Colburn, AOL senior vice president of business affairs, Microsoft attorney John Warden also suggested AOL colluded with Netscape Communications Corp. to attract the attention of antitrust regulators.
The lengthy questioning cast doubt on whether the government will be able to begin showing excerpts from Microsoft Chairman Bill Gates' videotaped deposition Thursday.
AOL's relationship with Microsoft is central to the government's antitrust suit against Microsoft, which alleges Microsoft used its monopoly position in operating systems to squeeze Netscape out of the Internet browser market.
In his written direct testimony, Colburn said AOL agreed in March 1996 to distribute Microsoft's Internet Explorer browser in exchange for placement in the online services folder in Microsoft's Windows 95.
Colburn said the contract prevented AOL "from providing any significant promotion or distribution of Netscape's Navigator browser."
Colburn said AOL agreed to the deal because Microsoft had bundled its Microsoft Network online service into the Windows 95 operating system, which AOL perceived as a threat to its business.
Warden, however, tried to establish that because of AOL's distribution deals with PC makers, Microsoft Network (MSN) posed no real threat to its business.
Warden then displayed an e-mail message from AOL's Andy Arnold to Colburn.
In the message, Arnold wrote: "Given that we are on every major consumer market computer, the upside (of the deal with Microsoft) is not as great as it sounds."
Warden also pressed the point that through its deals with PC makers, AOL's service was prominently featured on the start-up screen of several major PC brands, meaning it had the same advantage as MSN.
Colburn, however, said the difference is that AOL pays a fee for placement on desktop screens, while Microsoft does not for MSN.
Warden then attempted to establish that Microsoft does not prevent AOL from distributing Navigator, though Colburn often noted strict limitations imposed on AOL for doing so.
"Isn't it true that there's nothing in AOL's contract with Microsoft that limits its ability to give its customers Navigator?" Warden asked.
"Internet Explorer has to be the default browser," Colburn responded. "To the extent that we can promote Netscape within the AOL environment, it has to be in a low-profile area."
Colburn also tried to dispel the notion that the most important reason America Online chose to integrate Internet Explorer with its service was because that browser was technologically more capable of working with AOL than Navigator.
"Isn't it true that the most important factor for AOL in choosing Internet Explorer was getting software that worked well with AOL's client software?" Warden asked.
"No," Colburn replied. "We looked at five factors. The most important was securing relative parity with MSN on desktop distribution."
Warden, however, quoted from Colburn's deposition in which he said IE was "the best technological solution for us."
Our e-mail's better than your e-mail
Warden also presented a slew of e-mail messages from various AOL officials that indicated the company was more inclined to choose Internet Explorer for technological reasons, an attempt to refute Colburn's testimony that AOL felt pressured into accepting Microsoft's terms because of the threat it posed.
"From a pure technical standpoint, it does look like Microsoft may win this one," AOL Chief Executive Steve Case wrote in an e-mail dated Jan. 24, 1996.
"Couple that with their distribution (OS) muscle, then Netscape clearly has an uphill battle."
Nonetheless, Colburn, who was as stoic on the stand as Netscape's James Barksdale was animated during his five days of testimony, tried to reject the notion that AOL chose Internet Explorer solely on technical superiority.
"Do you have any disagreements with Case's statement?" Warden asked.
"No," Colburn said. "But the way I looked at it was that it was a close call with the technology, but it was distribution that put (IE) over the top."
"Did Case say anywhere that it was a close call?"
"You have to remember I work with Case," Colburn said. "And he says Microsoft may win, which is hardly a ringing endorsement."
What's good for the goose…
Central to the government's case is the contention that Microsoft enticed PC makers and Internet service providers to promote the Internet Explorer browser over Navigator.
In an attempt to refute that charge, Warden presented a January 1996 e-mail from AOL's David Cole addressed to Colburn and Case among others - the same document the government used in its opening statement last Monday to highlight what it calls Microsoft's predatory business practices.
"Gates delivered a characteristically blunt query: how much do we need to pay you to screw Netscape? ('this could be your lucky day')," Cole wrote.
Warden then asked Colburn if AOL had received a cash payment from Microsoft as part of its March 1996 agreement.
"There was no cash payment," Colburn said.
Grand conspiracy?
Microsoft, as part of its defense, last week accused Netscape of concocting a scenario relating to a June 1995 meeting to attract the attention of federal antitrust regulators.
On Wednesday, Warden extended that theory to include AOL, using more documents to suggest the company had been working with Netscape to go after Microsoft.
Colburn said in his direct testimony, for example, that AOL complained to the Justice Department in 1995 regarding Microsoft's bundling of MSN into Windows 95. The company considered that move amounted to Microsoft using "its market position in operating systems to gain an unfair advantage in the online services business."
Warden also presented a February 1995 e-mail to Netscape's Barksdale from AOL's Cole.
"I'd welcome the opportunity to get together in the near future to speculate on methods for pre-empting MSFT (Microsoft) in our combined markets. What say?" Cole wrote.
But Colburn played down any notions of colluding with Netscape on antitrust concerns.
"We were deathly concerned about Microsoft getting into the Internet," Colburn said. "We were working with Netscape to get some advantage so we could compete on at least close to equal terms."
Gates video release in doubt
Warden, who once again proceeded methodically with his cross examination, will continue questioning Colburn Thursday; the government will then have the opportunity to redirect questions at Colburn.
The government had expected to begin showing six or seven hours of videotaped testimony of Microsoft founder Bill Gates starting Thursday, but Justice Department spokeswomen said it was unclear whether there would be enough time after Colburn's testimony.
With Warden back in the trial's driving seat, Microsoft stock (MSFT) gained 1/4 to close at 105-11/16. Netscape (NSCP) slipped 1-1/2 to finish at 22-5/16 and AOL (AOL) closed at 124-1/8, up 2-1/8. 
-- by staff writer John Frederick Moore
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