MS/DOJ: Microsoft exec admits Intuit deal

A Microsoft executive has conceded on the witness stand that his boss, Bill Gates, said Intuit must use the company's Internet browser in exchange for a prime position on the desktop of Windows. The US government has alleged from the beginning of its antitrust case against Microsoft that the company used favorable placement on the Windows desktop to convince content providers, Internet service providers and independent software vendors to forgo business relationships with Netscape.

A Microsoft executive has conceded on the witness stand that his boss, Bill Gates, said Intuit must use the company's Internet browser in exchange for a prime position on the desktop of the Windows operating system

The government has alleged from the beginning of its antitrust case against Microsoft that the company used favorable placement on the market-dominant operating system desktop to convince content providers, Internet service providers and independent software vendors to forgo business relationships with Netscape.

Today, William Poole, senior director of business development for Windows, became the first company official to concede that there was a quid pro quo in the company’s agreement with Intuit to place that company’s Web site on the Windows 98 Channel Bar, or “active desktop.” Content providers, including Intuit, clamored to enter into “platinum agreements” with Microsoft to create channels, cross-promote products and win distribution on every PC desktop. At the same time, Microsoft placed a condition on such agreements that limited their relationships with Netscape.

“The terms for participation at the top level had limitations on how they could market other browsers,” Poole said, adding that “Netscape was the primary one.”

He declined to agree with the characterisation of US Justice Department lawyer David Boies that Microsoft ordered companies that won placement on the channel bar to give up business relationships with Netscape. Intuit's chief executive, William Harris, testified at the trial that Intuit was required to “forgo any business relationship with Netscape” in exchange for a desktop placement that he said was “critical” to the success of its Web sites.

“I take exceptions when you say ‘cease working with Netscape,’” Poole said. “I would never have said that nor would I have said Bill Gates said that, because he didn’t.”

During Poole’s cross-examination, which started this morning and is expected to continue tomorrow, he conceded that he once estimated the channel bar could bring in US$100 million [M] in revenue for Microsoft. Poole added that it was a rough estimate, as it dealt with the then-new "push" technology, and that the estimate turned out to be completely wrong as Microsoft later decided not to charge for placement on the channel bar. Company officials now say the channel bar is unlikely to be included with subsequent versions of the Internet Explorer browser or Windows.

Poole, Microsoft’s fifth witness on the stand in the trial that has entered its 15th week, was the company executive in charge of negotiating placement on the channel bar. He summed up a 1997 agreement with Intuit in an e-mail to a colleague this way, “Bottom line: we give then a fairly standard 2nd bar platinum ICP deal for IE4 and they … ship IE3 and IE4 preferentially and in a big way starting with Quicken 98….”

The agreement with Intuit capped negotiations that were underway for many months, in which top Microsoft executives, including chairman and chief executive officer Gates, were trying to convince Intuit to design products, such as Quicken, with IE instead of Netscape’s browser. In a July 24, 1996, e-mail from Gates that was displayed in court today, Gates tells subordinates that he had discussions about that with Intuit’s then chairman Scott Cook. “I was quite frank with him that if he had a favor we could do for him that would cost us something like $1 million to do that in return for switching browsers in the next few months I would be open to doing that,” Gates wrote.

When confronted with the e-mail, Poole said Microsoft’s chairman and chief executive was simply trying to tout his company’s products. “Mr. Gates is saying that our technology is advanced and the Netscape browser is an inferior product,” Poole said. “But I’m perhaps not an expert at interpreting his words.”

Boies jumped on that statement outside the courthouse, telling reporters, “I think it is, in economic terms, a bribe. In other terms, it is an inducement.”

Microsoft spokesman Mark Murray said that he was “shocked” at the allegation and that the 1996 negotiations over the IE browser never came to fruition because Intuit was in the process of shipping its Christmas supplies to stores using the Netscape browser. “They had put some costs into product development,” Murray said of Intuit. He said that the million-dollar offer was “to compensate Intuit for those costs.”

During his cross-examination Monday afternoon, Poole was confronted with contracts that Microsoft signed with several contract providers in which Microsoft required “differentiated” content to be developed for use with IE exclusively. Under the 1997 contract with Intuit, Microsoft specified that “some differentiated content may be available only to IE users, some may simply be ‘best when used with IE,’ with acceptable degradation when used with other browsers.”

(Elizabeth Wasserman is Washington bureau chief for The Industry Standard.)

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