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Microsoft rigged survey?
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January 14, 1999: 7:24 p.m. ET
Feds work to discredit survey defense witness used as basis for his testimony
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NEW YORK (CNNfn) - The Justice Department Thursday attempted to discredit a Microsoft Corp. witness' testimony by offering evidence that a survey on which he based his testimony had been ordered to reflect company chairman Bill Gates' views.
Nonetheless, Massachusetts Institute of Technology economics professor Richard Schmalensee said he would not have changed his testimony even if he had been aware of the circumstances surrounding the survey.
"It's not misleading, it's a random survey done by a third party research firm," he said. "The purpose is not relevant."
Schmalensee, Microsoft's first witness, gave his answer after government lawyer David Boies showed him several e-mails, including one in which Gates set out what he wanted in the survey.
The Justice Department and 19 states claim Microsoft (MSFT) holds monopoly power in the operating system for personal computers and has illegally sought to preserve and extend that power into other markets.
In particular, the government charges that the company used unfair practices to stifle competition posed by Netscape Communications Corp. (NSCP) and its Web browser.
Web browsers were the subject of the survey in question. Gates wanted to show there was support for the company's decision to integrate its Internet Explorer Web browser into the Windows operating system.
Gates said he wanted to use the survey as ammunition during his appearance before the Senate Judiciary Committee last March.
"It would HELP ME IMMENSELY to have a survey showing that 90 percent of developers believe that putting the browser into the [operating system] makes sense," Gates wrote on Feb. 14, 1998.
The results of the survey of software developers came close to what Gates asked for. As reported by Schmalensee, the survey revealed that "85 percent predicted that Microsoft's integration of Internet functions into Windows would help their company and 83 percent predicted it would help consumers."
The 350-word question that elicited the positive response detailed the benefits of integration and no disadvantages.
The government also attempted to show that Microsoft's own market research department had doubts about the survey.
Boies introduced into evidence a memo by Microsoft researcher Ann Redmond, written on Feb. 23, 1998, that said the survey was "not entirely unbiased," and that she "wouldn't refer to it as an opinion poll" and "would avoid releasing the question to the press."
Boies asked Schmalensee: "If you had been aware of this would you have used the survey as you did?"
"The short answer is yes," Schmalensee replied, though he then acknowledged, "There's clearly a debate about the question."
Microsoft spokesman Mark Murray blasted the government's tactics, again accusing the prosecution of using out-of-context snippets to paint Microsoft in a bad light.
"The government does a good job of just pulling out one sentence that they believe looks bad in an e-mail, and in almost every case when you look at the entire e-mail in context, it sets the issue straight," Murray said.
The survey was conducted by the polling firm of Hart and Teeter. Microsoft released a poll by the same firm on Thursday.
According to the latest poll, 76 percent of American consumers believe that Microsoft has benefited both U.S. consumers and the computer software industry.
Questions about competition
Boies also continued to pick apart Schmalensee's testimony that Microsoft's dominant market share in operating system software doesn't constitute monopoly power.
Schmalensee contends Microsoft isn't a monopoly because it faces competition on several fronts, including such products as Apple Computer Inc. 's (AAPL) MacOS and Sun Microsystems Inc. 's (SUNW) Java programming language.
Under cross-examination, Schmalensee said Microsoft faces "some short-run impact from existing competitors," but he did not identify them, even under intense questioning from lead Justice Department attorney David Boies.
"What company is most likely to be a potential entrant for operating-system competition?" Boies asked.
After taking a few stabs at the question, Schmalensee finally said: "The characteristic is that software competitors come out of nowhere."
"But they don't come out of nowhere to compete with Windows," Boies replied. "Not in 12 years."
Under cross-examination Wednesday, Schmalensee admitted Microsoft has not had a serious threat to its PC operating system dominance in the last 12 years.
Also at issue in the trial is Microsoft's pricing practices. The government claims Microsoft uses its monopoly power to constrain prices and restrict competition.
In Thursday's session, Schmalensee also said the main reason the software giant kept its prices down was the possibility of competition in the long run.
"Current competitors are not the primary constraint on Microsoft pricing," Schmalensee said.
Schmalensee noted the price of Windows was constrained by those who already have the operating system and would be reluctant to buy a new system if it cost too much. He also said illegal copying of software helped depress prices.
Microsoft appeals Sun ruling
Separately, Microsoft filed an appeal to overturn a preliminary injunction issued against the company in its federal lawsuit with Sun Microsystems.
In November, a federal judge granted Sun's request to block shipments of Windows 98 that contained incompatible versions of the Java programming language.
U.S. District Judge Ronald Whyte gave Microsoft 90 days to modify Windows 98 and the Internet Explorer 4.0 Web browser or pull them from the market. Microsoft said it has been complying with the order.
In a statement, Microsoft said its motion with the U.S. Appeals Court in San Francisco "is based on arguments that the district court erred in its interpretation of the licensing contract and applied incorrect legal standards in granting a preliminary injunction."
In particular, Microsoft contends the court treated the issue as a copyright issue rather than a contract dispute.
Microsoft shares closed 2-1/16 lower at 141-3/4 in Thursday trade. 
-- from staff and wire reports
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