This week marked a major turning point in the government's broad antitrust case against Microsoft, as the US Department of Justice and 19 states rested their case against the software giant, which then immediately moved to give a glimpse of a major argument in its defense -- that it doesn't have a monopoly.
The government is alleging that Microsoft is illegally wielding monopoly power in the desktop operating system market to damage competition.
It may seem counterintuitive to argue that a company that holds what most observers agree is over 90 percent market share of the desktop operating system market is not a monopolist. But Microsoft's first witness made some technical legal and economic arguments in an effort to show that the company does not enjoy the type of unfettered power traditionally associated with a monopoly.
In a twist, the witness, economist Richard Schmalensee, dean of the Sloan School of Management at the Massachusetts Institute of Technology, is a former pupil of the government's last witness -- Franklin Fisher, another economist.
Schmalensee's argument is that the Intel-based PC desktop operating system is not a "relevant market" because Microsoft is threatened by cross-platform technologies, such as Java, and Internet browsing technologies. This is key, because if Microsoft can show that the government has not defined a relevant market for its allegations, then Microsoft does not have a market monopoly -- even if Windows does run on 90 percent of the world's personal computers.
Microsoft can't charge whatever it wants for Windows, because its competitors aren't necessarily operating system vendors, and in the fast-paced world of IT, competitors could rise up at any moment, its witness argued. Therefore the company does not enjoy the kind of power over pricing traditionally associated with monopolies, Schmalensee said.
Lead government attorney David Boies, however, poked holes in the argument by taking Schmalensee through the historical record of the PC industry, arguing that Microsoft hasn't had a serious operating system challenge in at least 12 years.
And anticipating Schmalensee's argument, the government examined pricing data with the judge, Microsoft and its last witness, the economist Fisher, in a closed door session on Monday. Though details of most of the data were withheld from the public at the request of Microsoft and manufacturers, enough arguments about the prices were heard in court to allow the government to make its main point heard by observers -- that Microsoft charges different PC makers different prices. This shows that the software company can in fact charge whatever it wants to whomever it wants, and this control over pricing is consistent with monopoly power, Boies argued.
The U.S. government wrapped up its sweeping antitrust case against Microsoft Corp. Wednesday by releasing 1,000 pages of potentially embarrassing e-mail and transcripts of the videotaped deposition of company co-founder, CEO and Chairman Bill Gates.
For example, in one segment, Gates is questioned about whether he asked an employee to probe the business model of software rival Netscape Communications Corp. "I don't think I did,'' Gates said. "I'm quite certain I wasn't the one who asked for the information.''
An attorney for the U.S. states, Stephen Houck, then confronted Gates with a December 1996 e-mail asking, "What kind of data do we have about how much software companies pay Netscape?''
This effort to show Gates dissembling about business practices is a ploy the government has used throughout the 11 weeks (not counting the holiday break) of its case. In order to request eventual remedies, it's important that the government show that Microsoft's alleged abuse of monopoly power is wielded by the company leadership, and not by renegade employees, according to observers.
Before it started presenting its case Microsoft made a pro-forma motion for Judge Thomas Penfield Jackson to dismiss the case on grounds that the government had not established the facts underpinning the case -- but the judge, as was expected, threw out the motion.
Meanwhile, Schmalensee is expected back on the stand after a holiday break Monday, after which most of the witnesses will be the company's own employees, as Microsoft attempts to put into what it considers proper context the avalanche of e-mail and video tape segments that have been embarrassing to Microsoft.
After Microsoft gets a chance to present its own list of 12 witnesses, both sides get two more rebuttal witnesses. Judging from the pace of the trial so far, and the amount of evidence Microsoft has to put into the perspective it hopes will rehabilitate the image of its patriarch, the remainder of the trial should last at least as long as it has run until now.
(This article is based on trial reports by Patrick Thibodeau, a senior writer at Computerworld, and Elizabeth Wasserman, Washington bureau chief for The Industry Standard.)