October 31, 1998 - Week Two
As week two of the trial closes we see not only the business practices that Microsoft engages in but also their trial strategy. As to the first issue it is very clear that Microsoft thought it was more important to have AOL distribute IE than to keep alive MSN. Microsoft felt that it was better to let MSN die off if necessary. But, it was absolutely essential to rub out Netscape. So. Microsoft offered what only it could offer, a place on the desktop for AOL.
But, if you were to listen to Microsoft's attorney you would think that Microsoft were composed only of a bunch of nerds trying to sell their slightly better product. Microsoft might be able to fool some consumers with this approach, but everyone in the industry knows very well that the deal depended upon non-technical factors. Mr. Colburn so testified despite Microsoft's attempt to sound like they do not understand marketing in the computer software industry.
And, now we have the testimony from Apple. Avadis "Avie" Tevanian, Apple's senior vice president of software engineering, offers his testimony. It is really strange how witnesses from companies other than Microsoft seem to understand the power in the marketplace that a monopolist holds and how deals can be made or forced by using that power. Whereas, Microsoft acts dumb about the issue. These positions by Microsoft are false. And, they are pretty bad actors. That quote from Bill Gates back in 1994 that he would just bundled IE with the OS if anyone dared enter the browser market for Microsoft platforms is very telling. Bill Gates and everyone else at Microsoft know all about the forces that allow them to make these deals. But, now their lawyers are advising them to act dumb and unaware to avoid legal liability. This trial strategy is making Microsoft employees to actually look dumb.
Microsoft's approach to these issues is simply not believable. No one in the software industry thinks for a moment that Microsoft does not understand the power and influence they bring to a table. They can testify that they do not understand. They can testify that the only reason AOL took the offer from Microsoft was for technical reasons. But, no one believes it. Not even their attorneys.
What is really going to be interesting is just how dumb and unknowledgeable Microsoft's employees will sound when they get up on the stand. Keep in mind, these people work for the most successful marketing organization in the personal computer industry. You would think that they understand some of the basics.
October 29, 1998 - Thursday
As the questioning of Mr. Colburn continues by Microsoft, it becomes apparent that Microsoft seeks to establish marketing agreements targeted at precluding specific competitors from specific Microsoft markets. The agreements between AOL and Netscape are legal (or proper) agreements. What Microsoft tries to do and does by its agreements are not. Microsoft targets competitors to preclude them from the market.
What is the difference?
It is the focus upon the harm caused to specific competitors. Microsoft sought agreements specifically to preclude Netscape from selling a competing browser. It is not just signing an agreement with AOL, it is signing an agreement with the specific intent to harm a competitor.
Can two companies agree not to compete with each other? Assuming neither one has a monopoly, sure. No problem.
Can a company get an agreement to limit who the other company does business with? Sometimes and sometimes not. You can have a whole range of agreements. However, when any agreement is structured so as to specifically prevent a third company from doing business or having a viable market, it must be suspected as violating the antitrust laws.
You can see the difference in the agreements between AOL and Netscape versus Microsoft and AOL. Microsoft sought and got an agreement that limits what AOL can do with other companies (specifically Netscape).
The suggestion by Microsoft's attorneys that somehow these two kinds of agreements are similar is a poor one. They are not.
In this case, Microsoft, having a monopoly has sought to force other companies to not do business with Netscape. That is an unavoidable conclusion. And, this is precisely the kind of agreements that the antitrust law attempts to address.
85% or more? The Microsoft agreement with AOL apparently required that IE be distributed to no less than 85% of AOL's customers. I just wonder if Microsoft would complain if Congress passed a law declaring that Microsoft would have to cease business of any kind until 85% of the consumers no longer used Microsoft operating systems?
Do you suppose that being blocked out of 85% of the market might be considered by Microsoft to be harsh or just fair play?
Listening to the questions and answers with Mr. Colburn you really wonder if Microsoft's lawyers know anything about the computer software industry. When dealing with Microsoft, the product is just not that important. Anyone in the industry knows for a fact that what Microsoft agrees to do or not do is the deal. In this agreement with AOL, the only important issue was what Microsoft was willing to give to AOL on its desktop. That was significant. Any difference between the products was all but immaterial. AOL would much rather provide customers a choice of either one without preference.
But, it is very clear and obvious that Microsoft's ability to offer AOL exposure on the desktop was very significant.
October 28, 1998 - Wednesday
David M. Colburn, Senior Vice President of Business Affairs, AOL will take the stand for a cross examination by Microsoft. His direct testimony has been published in full by the DOJ.
Mr. Colburn's testimony illustrates the power that a monopoly can exert upon others.
A monopoly does not need to developer superior products or even sell them at lower prices. Only Microsoft could offer a promotional spot on the desktops of millions of computer systems. So as long as Microsoft maintains its monopoly in the consumer OS market, it can dictate the agreements that other companies maintain. In this case, Microsoft dictates the agreement between Netscape and AOL. It dictates the products offered by AOL and it dictates how AOL can offer them.
Microsoft will argue yet again that AOL choose IE because of its technological superiority. AOL refutes that but that is not the real issue here. The real issue is the ability of one company to exclusively control what another company does simply because they have a monopoly on a related product. Microsoft does not yet have a monopoly on web browsers. But, they can easily get that one too just be "selling" the icon space on their OS (a product category over which they do hold monopoly power). In fact, the ability of Microsoft to require AOL to go with IE and restrict AOL's promotion of Netscape is evidence of the monopoly in the consumer OS market. One does prove the other. In other words, without the monopoly on the consumer OS, Microsoft would have been less likely to succeed in forcing the IE deal with AOL.
The AOL deal is just an illustration of why it is illegal for the holder of a monopoly to use that power to achieve yet another monopoly in a related marketplace.
Microsoft knows that even having a superior product (as they will argue) does not constitute a legal defense at all. There is no exception in antitrust law that allows superior products a free ride.
Microsoft is truly showing their own arrogance as they suggest that since Netscape was not completely eliminated from the market that Microsoft's acts fit into this "no harm ...no foul" category. Antitrust law does not require 100% effectiveness. But, Microsoft continues to insist upon its right to distribute to all customers (at the customer's expense) IE, while arguing that since Netscape has not been put through bankruptcy, no antitrust violations have occurred. In the AOL testimony, Microsoft is even able to force AOL to help out this campaign of forcing IE upon the consumer. And, Microsoft has done this by again bringing in its monopoly power.
Stay tuned on this testimony and watch how Microsoft attempts to convince the court that they have no power in these markets nor have they abused the power they do not have.
Does Microsoft really think that anyone is going to believe their argument that AOL choose IE only because it was better? This position that Microsoft is taking is quite amazing. It presumes that Bill Gates and the rest of the crew have no understanding at all about the business Microsoft is in. It presumes that no customer buys a Microsoft product unless they have decided it to be superior to alternative choices. Is Microsoft going to argue 6 months from now that everyone who installs Windows 98 installed IE because it was superior? No Microsoft customer has any choice but to install IE. How can attorneys for Microsoft suggest a voluntary choice? How can attorneys for Microsoft suggest that AOL had any real choice?
In summary today, it must be said that Microsoft's attorneys are trying to defend their actions by suggesting that no person at Microsoft took a economics or marketing class. I can not think of anyone in the computer software industry that would argue that any technological difference between the Microsoft and the Netscape browsers provided a more important factor than doing a deal with Microsoft. AOL was truly concerned about prospective and real competition that might develop from Microsoft. To suggest that AOL was not aware of their own situation is a bit ridiculous.
And as to Bill
Gates showing up on the stand or not, we just do not yet know the final
answer to that yet.
October 27, 1998 - Tuesday -
Jim Barksdale continues with re-directed testimony.
Would Microsoft really stop developing applications for Apple if they did not bundle IE with Apple products? Mr. Barksdale seems to recall conversations that was in fact the deal. So did Microsoft give Apple a deal they could not refuse? It Microsoft did put it that way to Apple, it would be a deal they could ill afford to pass up.
Would Microsoft drag its feet in supplying information to Netscape? Sounds a bit like the Bristol case. Or is it the Real Networks affair?
Companies have suggested for years that Microsoft favors itself and harms competitors just by being a little slow in telling everyone what is going on with the OS. (By the way, why does 98 pre-allocate 90 megabytes of memory on boot up? Does 98 really have 90 megabytes of stuff to get ready at a moments notice?)
...testimony continues...
October 26, 1998 - Monday
The "we were set up defense" (Zdnet article) shows up on time. Just who does Microsoft think it is fooling here?
Does Microsoft really think that Netscape is making them violate the law? Does Microsoft really think that Netscape made Microsoft bundle IE with the OS? This defense is starting to sound like the mean bully going home after a day a the beach and complaining to his mom that no one will play with him.
The truth is that there is practically nothing that Netscape could have done that would cause Microsoft to violate the antitrust laws. In fact, everything that Microsoft has done (bundle IE with the OS) was threatened by none other than Bill Gates himself as early as 1994.
Netscape is not responsible for anything that Microsoft has done. Nothing. (Including coming up with some pretty funny legal arguments.)
In the afternoon, Microsoft continues to argue by their questioning that their own acts are somehow caused by the very competitor they tried to eliminate from the market by illegal means.
Microsoft would like to think that the report by Marc Andreessen was fabricated sometime after the original meeting. As it turns out, that was not the case. And, Microsoft knew that was not the case. They may not have been aware of the evidence (somehow an e-mail was mis-filed), but they did speak with their own people and do in fact know what was said at that meeting.
And, now Microsoft would like to think it was set up. Microsoft is beginning to sound like the rapist that blames the victim.
Let's get one thing straight. Netscape could do nothing to cause Microsoft to violate the antitrust laws. Indeed they were powerless to do so. The only act that could have worsened Microsoft's case would have been to agree with Microsoft to split up the market. But, this they did not do to their credit.
Microsoft is still bound and determined to blame someone else for their own violations of law. They claim to not be liable since Netscape has not been driven into bankruptcy. They claim to be successful because of mistakes that other companies might or might not have made. They claim to be entrapped by the powerless Netscape into violating antitrust law by being set up. And, now they begin to claim that Netscape has not done well due to inferior products rather than Microsoft illegally leveraging the OS position in securing a contract with Intuit.
Microsoft would have you believe that they know nothing about the power and influence that a monopoly product has in the market place. Microsoft would have you believe that they are the "innocent babes" being falsely accused. These arguments just do not stand up to reality. Microsoft fully understands the power it can exercise and has exercised. Suggesting that their problems now are only the result of what others have done is absurd.
If anyone knows how to leverage the power of a monopoly product, it
is Microsoft. Microsoft did not bundle IE with the OS for any reason other
than the impact that act would have upon the ability of competitors to
sell their products. Bill Gates himself expressed his understanding of
this power as far back as that 1994 conference. Bundling IE for the purpose
of precluding competition was illegal in 1994 and it is illegal now.
Daily Wrap and Flow - Week One