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Anti-Microsoft conspiracy?
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November 18, 1998: 8:40 p.m. ET
Legal team accuses IBM, others of colluding to gang up on Microsoft
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NEW YORK (CNNfn) - Microsoft Corp.'s legal team Wednesday accused IBM Corp. of colluding with five other companies to fight the software giant.
During cross examination of IBM executive John Soyring, Microsoft lawyer Steven Holley attempted to paint the company as the target of a attempted scheme to gang up on Microsoft.
Holley cited an Aug. 13, 1997, memo from IBM executive John Thompson, who suggested to officials of Netscape Communications Corp. (NSCP), Sun Microsystems Inc. (SUNW) and IBM that they get together with Oracle Corp. (ORCL), Novell Inc. (NOVL) and Apple Computer Inc. (AAPL) to "put Microsoft on the defensive."
Thompson's memo also suggested the companies join forces to bundle Netscape's Navigator Web browser and other Java-compatible software.
Soyring said he had never seen the memo before.
"Do you think it's appropriate for six of the largest software companies in the world to agree with each other to collude with one another to compete with Microsoft?" Holley asked.
A government lawyer objected to the question, which Judge Thomas Penfield Jackson sustained. It was a rare move for Jackson, who has allowed most questions at the trial.
The government later asked Soyring if IBM had tried to split markets. Soyring said it had not.
Economist to take the stand
As its next witness, the government will call Frederick Warren-Boulton, a principal at Washington-based Microeconomic Consulting and Research Associates Inc. and former chief economist in the Justice Department's antitrust division.
The Justice Department released Warren-Boulton's direct testimony Wednesday morning. As the first witness to testify who has no affiliation with the computer industry, Warren-Boulton's testimony is expected to provide an economic perspective to the government's charges of anticompetitive behavior.
Much of the government's case rests on Microsoft's bundling Windows and Internet Explorer. The government claims such action stifles competition in the Internet browser market.
Microsoft has argued that IE is an integral component of Windows and that it has the right to include whatever functions it sees fit into the operating system.
In his testimony, however, Warren-Boulton maintains that Windows and Internet Explorer are separate products and that Microsoft continues to make IE available as a separate offering.
"The appropriate economic definition of a separate product is an item for which there is sufficient demand such that it is efficient to offer that item separately from other items," Warren-Boulton said.
"The evidence … shows that there is substantial demand for Windows 95 and Windows 98 without IE and that it would be inexpensive for Microsoft to provide Windows 95 and Windows 98 in a way that would satisfy this consumer demand."
Warren-Boulton also noted that "Microsoft has provided Internet Explorer separately from its Windows operating system in the past and continues to do so to this day." He pointed out that Microsoft provides IE for such non-Microsoft operating systems as Apple's Mac OS and Sun's Solaris.
Earlier in the trial, the government introduced internal Microsoft memos and e-mail messages that suggested the company originally had planned to offer IE separately from Windows 95. Government lawyers said after Microsoft saw the threat posed by Netscape's Navigator browser, the company decided to leverage its Windows monopoly by giving away its browser for free, knowing Netscape could never duplicate such a move and survive financially.
Is bundling beneficial?
Microsoft has long maintained the Windows/IE bundle benefits consumers. But Warren-Boulton testified that the opposite is true.
Warren-Boulton said Internet browsers, in conjunction with Sun's Java programming language, pose a threat to Microsoft's Windows monopoly.
Java allows software developers to write applications that can run on a variety of operating systems without having to alter the underlying programming code. Because Web browsers include Java technology, Warren-Boulton said non-Microsoft browsers potentially offer an alternative platform to Windows.
Microsoft's actions to stifle that threat, such as offering IE for free, actually diminish consumer benefit, Warren-Boulton testified.
"Compatibility between an applications and multiple operating systems makes it more practical or attractive for end users to choose operating systems that have been optimized to their specific needs or requirements, rather than a general-purpose OS like Windows," Warren-Boulton said.
"Second, by reducing the demand for general-purpose PC operating systems and the barriers to entry in the PC OS market, cross-platform technologies can be expected to reduce the price that end users pay for operating systems."
Microsoft took issue with that finding in a statement released Wednesday morning.
"As a matter of basic economics, if Microsoft had a monopoly in operating systems and sought to maximize profits, it should charge much more for Windows than it does," Microsoft said. "In fact, Microsoft does not charge more because this is a highly competitive market, and a higher price would attract additional market entrants."
Microsoft (MSFT) shares closed down 2-1/8 at 109-3/4. IBM (IBM) shares gained 1 to 159. 
-- From staff and wire reports
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