MS/DOJ: Microsoft: Witness in conflict of interest

A lawyer for Microsoft has accused the US government's lead economist of having a conflict of interest in the outcome of the antitrust trial against the software giant because of his role in a business consulting firm - because other economists at his company might one day represent Microsoft's competitors in damages claims.

A lawyer for Microsoft has accused the US government's lead economist of having a conflict of interest in the outcome of the antitrust trial against the software giant because of his role in a business consulting firm.

The economist, Franklin Fisher, of the Massachusetts Institute of Technology, conceded that he is chairman of the board of Charles River Associates, a publicly traded consulting company. He testified that other economists at the company might end up representing companies that intend to sue Microsoft privately for damages if it is found to have a monopoly in the personal computer operating system market.

Under the Clayton Act, part of the nation's antitrust laws, once a company is found to have a monopoly and to have abused that monopoly, competitors can sue in civil court for damages without having to first prove liability.

The questioning came during a series of attempts by the Microsoft lawyer, Michael Lacovara, to chip away at the credibility of Fisher and his economic analysis. Fisher has testified that Microsoft has a monopoly in the PC operating system market and that it has abused its power keep out potential competitors. Those actions, he testified today, have resulted in harm to consumers because it has denied them choice and has led to lack of innovation in the software field.

But David Boies, the attorney for the US Justice Department, said outside the courtroom that the accusation showed that Microsoft was "grasping at straws" because it can't attack Fisher's economic analysis. "It would only be a conflict if you thought it was affecting his testimony," Boies said. Boies went on to point out that Microsoft's lead economist, Richard Schmalensee, the dean of the economics department at MIT, has been paid by Microsoft for several years for his analysis. He also said that he never questioned Microsoft witnesses, some of whom own hundreds of millions of dollars worth of company stock, as to whether they had conflicts.

Lacovara, however, also questioned Fisher's economic analysis. He did get Fisher to admit that figures he used in his analysis for the average price of a personal computer did not include the monitor and were based on retail sales, which comprise only about 25 percent of all PC sales.

The day's testimony provided several humorous and sometimes illuminating moments. During a discussion of competition posed to the desktop PC by Internet appliances, such as 3Com's Palm Pilot, Fisher referred to a recent Newsweek interview of Microsoft Chairman Bill Gates. Gates, in the interview, said that these appliances would never defeat the PC. But Lacovara turned the issue around and pointed out that Fisher himself has sometimes found that Gates' public utterances are not necessarily backed up by Microsoft's in-house documents.

Fisher's second day on the witness stand during the trial's rebuttal phase started with Boies trying to patch up some holes in the government's case during his direct examination of Fisher. Fisher, who first testified in January, has been called as the first government witness in the rebuttal phase of the trial, which started on Tuesday.

Boies started his direct examination of Fisher by citing an open letter to President Clinton, signed by 240 U.S. economists and published in newspapers today, addressing "runaway antitrust protectionism."

The letter, from The Independent Institute, a public policy institution based in Oakland, California, alleges that various antitrust cases underway don't relate to consumer well being, Boies noted.

"Does Microsoft conduct impact consumers?" Boies then asked Fisher.

Fisher said it does, "because it limits choice."

Earlier in the trial, Fisher had testified that consumers weren't yet being harmed by Microsoft's conduct.

But that response was somewhat "misquoted," Fisher said today, because his testimony was taken while Microsoft's campaign of predatory pricing -- that is, its addition of browser technology for free as part of the operating system -- was underway. Fisher stressed that he was only testifying specifically that the low

prices consumers were getting were not harming them.

However, Fisher noted, "in the meantime consumers have been injured by having their choices restricted" by Microsoft. He said that a Boeing official had testified in the trial that the company felt it had to give up its use of Netscape Communications' Navigator browser after Microsoft incorporated its own Internet Explorer browser into Windows.

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