WASHINGTON--The federal judge overseeing the antitrust case against Microsoft expressed renewed interest about the effect a proposed three-way transaction involving America Online, Netscape Communications, and Sun Microsystems might have on the software market.
U.S. District Judge Thomas Penfield Jackson, still grappling with the impact that transaction could have on Microsoft, questioned Massachusetts Institute of Technology economist Franklin Fisher about a Washington Post opinion article published today. Jackson first commented on the AOL-Netscape-Sun transaction in mid-December.
The opinion piece, titled "Knowing When Not to Compete," quotes AOL chairman /SpecialFeatures/0,5,27528,00.html Steve Case debunking any notion that his company's $4.3 billion acquisition of Netscape could affect the market for personal computer operating systems. Microsoft's Windows dominates this market, running on more than 90 percent of the world's personal computers.
Jackson read from a column by David Ignatius, who quoted Case as saying, "AOL's merger with Netscape has no bearing on the Microsoft case, as nothing we're doing is competitive with Windows."
The judge then asked Fisher whether the comments are "consistent" with the economist's "understanding of the impact this consortium will have insofar as developing viable competition" to Windows.
Fisher said yes.
The acquisition of Netscape by AOL, and an attendant technology-sharing arrangement with Sun introduced a new variable into the case. The government alleges Microsoft has engaged in illegal anticompetitive behavior to protect the dominance of its Windows operating system and promote its Internet Explorer Web browser. The software giant, for its part, says the transaction showed that the software market was evolving too rapidly for effective government intervention.
"These companies were perfectly plain on November 24, 1998, [when the three-way transaction was announced] that we're going to redouble their efforts to compete with Microsoft," said Microsoft general counsel William Neukom during a noon recess in the trial.
Antitrust experts have said the three-way transaction most likely would have the biggest bearing on what remedies the government may seek if Jackson rules that Microsoft violated antitrust law.
In another development, lawyers for ten media organizations filed a motion with Jackson asking him not to place off-limits from the public broad segments of Fisher's testimony. Microsoft has asked the judge to close the courtroom for testimony that deals with its pricing structure and contracts with computer makers.
Jackson asked attorneys for both sides whether they planned to call Case as a witness in the antitrust trial. Microsoft lead attorney John Warden jumped up and said, "Not at this time, your honor, but we each have our rebuttal witnesses."
Each side will have the opportunity to call two rebuttal witnesses after presenting their cases. With Fisher, the final government witness on the stand, the Justice Department and 19 states that have sued Microsoft are about a week away from resting their case before Microsoft begins its defense.
Antitrust enforcers claim Microsoft has used its dominance and illegal tactics to snuff out possible competitive threats to Windows from new technologies, including Netscape's Internet browser and Sun Microsystems's Java computer language. Those developments, in as much as they diminish the importance of a computer's underlying operating system, weaken Microsoft's monopoly power, the government says.
AOL, the nation's largest online service, has said it will continue to provide Microsoft's Internet Explorer browser technology to its customers even after it acquires Netscape. Microsoft attorney Michael Lacovara raised the prospect that AOL might back away from that position, citing comments by Case and executives that AOL planned to substantially increase support for Netscape's Navigator browser.
Antitrust enforcers were caught off guard by the news that three of the companies related to its prosecution of Microsoft would team up. Still, they have been quick to caution that the transaction's effect on the computer software marketplace may be slight, given that Microsoft still controls the most critical part of a computer--its operating system.
"Microsoft has pinned a lot of hopes on" this transaction, said David Boies, the Justice Department's lead attorney. Boies said that, even were AOL to choose Netscape's Internet browser over Microsoft's Internet Explorer, "the power of the Microsoft monopoly is such that the need of AOL to have access to the Microsoft desktop will continue."
Aside from the discussion about AOL and Netscape, Lacovara continued where he left off yesterday, trying to discredit Fisher as an expert witness on the economics of the computer software market.
After questioning why Fisher hasn't logged more than a week's time preparing for his turn as a government witness, Lacovara today asked the economist factual questions, some of which the economist couldn't answer.
"This expert has no knowledge about the software industry," said Microsoft spokesman Mark Murray, questioning Fisher's ability to judge Microsoft's business practices.
On December 16, Jackson granted a Microsoft request to gather information about the AOL-Netscape-Sun transaction to see how it could affect its defense. In doing so, the judge said it appeared the transaction "could very well have some immediate effect on the market or the definition of the market as we are contemplating it here. That's my initial take on the matter."
Microsoft shares rose 4.75 to 151.25 in today's trading.
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