Microsoft To Tell Its Side At Antitrust Trial

By David Lawsky (Reuters)

WASHINGTON, Jan 10 (Reuters) - Microsoft Corp. (Nasdaq:MSFT - news) finally gets the opportunity to tell its side of the story at its antitrust trial this week after 10 weeks of criticism at the hands of government witnesses.

The software giant will seek to show that the business remains intensely competitive and that the government analysis and the suit against Microsoft is fundamentally flawed, lawyers for the company said.

So far the Justice Department and 19 states have presented a dozen witnesses to back allegations that the software giant illegally maintained its monopoly in the operating system for personal computers and has attempted to extend that monopoly to other business areas through illegal actions.

The government's final witness, Massachusetts Institute of Technology economics professor Franklin Fisher, has spent three days warning of Microsoft's dominance and that Microsoft set out to destroy rival Web browser-maker Netscape Communications Corp. (Nasdaq:NSCP - news) because the technology might have made its operating system obsolete.

As soon as Fisher finishes, Microsoft will field its own MIT economics professor, Richard Schmalansee, armed with over 300 pages of written testimony.

Microsoft argues that the software industry is a unique winner-take-all business whose cut-throat competitors try to win all of a market, only to put everything at risk every few years when software changes.

In the words of a Microsoft lawyer who spoke on condition he was not identified: ``There are a kaleidoscope of companies which are all trying to win the next round.''

Microsoft argues that its luck, pluck and skill have enabled it to win each of several rounds and cling tenaciously to its dominance of the operating system for personal computers.

If the government looks on computers it as it would the steel industry or the auto industry, where market share gains are often measured in single-digit percentage points, it misses the point, the Microsoft lawyer argued.

``The government has a curious view,'' said the lawyer, who was familiar with Schmalansee's testimony. ``They don't look at this business over time. They look at a snapshot in time and say, oh, you are supplying 80 percent to 90 percent'' of operating systems.

But the Justice Department says Microsoft has won each round by less than fair means and calls the company's stance ``dazzling hypocrisy.''

``What Microsoft has done to damage competition is to use its dominance in the operating system market to crush any innovation that threatens to challenge that dominance,'' a Justice Department lawyer said . ``That's the nub of our case.''

The result of Microsoft's action is that its share of the operating system market has remained extraordinarily stable and high for almost a decade.

``For them to suggest that their extraordinary hold on the market is not a monopoly simply defies belief,'' said the government attorney who declined to be identified.

Microsoft argues that even now it faces a new threat. ``Alliances can change quickly,'' said the Microsoft lawyer. ``Markets tend to competition, not monopoly.''

In the time since the trial began on Oct. 19 the computer world has shifted, the company argues. Netscape's agreement in November to be acquired by America Online Inc. (NYSE:AOL - news) proves its point.

Microsoft also rejects government charges that it has unfairly incorporated its Web browser into it Windows operating system to blunt competition.

``The history of software is that free standing programs become part of others,'' said the Microsoft lawyer pointing to the migration of spell-checkers into word processing programs and the linking of e-mail to a wide variety of software.

The AOL-Netscape combination, which has signed an alliance with Sun Microsystems Inc.(Nasdaq:SUNW - news) and its Java technology, may wind up with a ``platform'' to compete with Microsoft's operating system, the Microsoft lawyer speculated.

In December, District Judge Thomas Penfield Jackson raised the possibility that the new alliance might in fact have changed the market definition and have an effect on the outcome of the trial.

But just last week, Jackson read from a newspaper article quoting the chief executive officer of AOL as saying he would never try to compete with Microsoft's core business -- its operating system. Jackson underscored the importance of the article by entering it into the record and asking if either side planned to call to the witness stand AOL CEO Steve Case.

Microsoft will present a dozen witnesses and after that each side may call up to two rebuttal witnesses. So far, neither side has said it will call Case.

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