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Microsoft: Drop the case
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November 24, 1998: 5:48 p.m. ET
Legal team says AOL-Netscape deal proves competition is flourishing
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NEW YORK (CNNfn) - Microsoft Corp.'s legal team Tuesday urged the government to drop its antitrust suit in the wake of America Online Inc.'s $4.2-billion acquisition of Netscape Communications Corp.
Echoing statements they made Monday after AOL and Netscape confirmed they were involved in merger talks, Microsoft lawyers said the deal undermines the government's case because it demonstrates that competition is alive and well in the computer industry -- and Microsoft has done nothing to inhibit progress.
"The government has tried to develop and present what I would call a second case -- that is a vague series of allegations that Microsoft is trying to gain a chokehold on the Internet," John Warden, Microsoft's lead attorney, said at a news conference outside the U.S. District Court in Washington.
"The deal announced today shows the utter vacuity of that proposition. The time has come for this case to come to an end. These people [Microsoft's competitors] aren't running scared, they're running hard against Microsoft."
Warden added Microsoft will ask Judge Thomas Penfield Jackson to dismiss the suit after the government concludes its case. The government is currently halfway through its 12 scheduled witnesses.
Lead Justice Department attorney David Boies, however, said the AOL-Netscape deal will have little if any material impact on the case or any proposed remedies the government will seek if Jackson rules in its favor.
If anything, Boies said, the deal could offer further proof that Microsoft's actions effectively forced Netscape out of business.
"There is evidence of what we see here is an exit strategy for Netscape -- that because of the blanket Microsoft has put over it, Netscape was not able to continue its pattern of innovation," Boies said.
Boies added the AOL-Netscape deal will not force the government to alter its strategy or mitigate the remedies it will seek in the event of a victory.
The Justice Department and 20 states sued Microsoft in May, accusing the company of abusing its dominant share in the computer operating systems market to take over the Internet browser market from Netscape.
In court, Microsoft lawyer Michael Lacovara asked government witness and economist Frederick Warren-Boulton to reanalyze the case in light of the AOL-Netscape announcement.
Warren-Boulton has testified that Microsoft fits the economic definition of a monopoly because its actions have stifled competition and kept prices of operating systems higher than they would be if healthy competition existed.
In questioning Warren-Boulton, Lacovara said, incorrectly as it turned out, that Sun "will make substantial payments to acquire the [Netscape] browser," prompting the judge to question Lacovara's presentation of the facts.
"Is that question premised on known facts? That Sun will acquire the browser?" Jackson asked.
An AOL official said in an interview later that AOL and not Sun will control the Netscape browser.
At day's end, Lacovara said he still needed one more day of cross-examination of Warren-Boulton.
"I am going to hold you" to finishing on Monday, Jackson said.
The trial begins its seventh week Monday, when it resumes after a recess for the Thanksgiving holiday.
More browser pressure
Separately the government late Monday released documents intended to demonstrate that Microsoft required Internet content providers to distribute Internet Explorer exclusively to their customers.
Among the latest trial exhibits are contracts signed with Walt Disney Co. (DIS) and C-Net Inc. (CNWK), both of whom were featured on Internet Explorer's Active Desktop channel bar.
Microsoft's contract with Disney stipulates: "Disney will promote IE (and no other browser) as the client browser software of choice for users of Disney Content."
C-Net's contract states similar requirements.
The government released the documents to support the testimony of Warren-Boulton, who took the stand Tuesday for his third day of cross-examination.
In his written direct testimony, Warren-Boulton said Microsoft has abused its monopoly position through exclusionary contracts with Internet service and content providers and computer makers.
Microsoft (MSFT) shares climbed 2-1/2 to close at 121-11/16; AOL (AOL) shares rose 2-1/8 to 91-3/8, while Netscape (NSCP) slipped 2-1/16 to 39-7/8. 
-- from staff and wire reports
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