WASHINGTON--The federal judge overseeing the Microsoft antitrust trial said America Online's $4.3 billion planned acquisition of Netscape Communications could affect the outcome of the case by producing a "very significant change" in the high-tech industry.
In granting Microsoft's request for documents related to the transaction, which also includes Sun Microsystems, U.S. District Judge Thomas Penfield Jackson said the three-way alliance "might be a very significant change in the playing field as far as this industry is concerned."
The transaction "could very well have an immediate effect on the market and the definition of that market," he added. The vitality of the software industry is a critical factor in the government's case against Microsoft.
Antitrust enforcers disagree /SpecialFeatures/0,5,27528,00.html about the transaction's impact on their case, though U.S. Justice Department lead attorney David Boies has said the alliance could affect any remedy ordered should the government win the case. The Justice Department and 19 states have accused Microsoft of illegally protecting an alleged Windows operating system monopoly.
Microsoft's search for documents related to the AOL-Netscape-Sun transaction shouldn't damage the government's antitrust case, according to Boies. If anything, "it shows that Netscape as a result of Microsoft's conduct was not able to continue as a going concern," he said.
Microsoft argues that the AOL-Netscape-Sun transaction shows how competitive the high-tech industry is and that the government's claims are baseless. The company has said it plans to ask Jackson to dismiss the case after the government finishes presenting its witnesses.
Microsoft General Counsel William Neukom said he wants the AOL documents to check whether the testimony of government witnesses matches what they are doing in practice. All three companies involved in the transaction have testified against Microsoft at the two-month-old trial, now in recess for the holidays until January 4.
The proposed transaction would join three companies that compete with Microsoft in different arenas. AOL is the country's biggest online service provider, and distributes Microsoft's Internet Explorer Web browser to its customers. Netscape is Microsoft's biggest competitor in the browser market. Sun originated the Java programming language, which trial witnesses have said poses a threat to Windows' dominance.
Jackson's comments echoed sentiments Microsoft has been trumpeting via full-page advertisements in newspapers nationwide since the planned three-way alliance was announced November 24.
"That's a good day for them--Merry Christmas," said Washington antitrust attorney William Kovacic. "It gives [Microsoft] some encouragement to make their pitch that the AOL deal not only is relevant to remedies and solutions but also to whether they have market power."
Shares of Microsoft's stock rose after the judge's mid-afternoon comments. The stock closed up 1.875 at 133.75 after hitting an all-time high of 135.125. The software giant's shares rose 0.6 percent, the biggest percentage gain on the Standard & Poor's 500 index.
When the trial resumes next month, the government plans to call as a witness Intuit chief executive William Harris, who's expected to make charges similar to those leveled by AOL, specifically that Microsoft used its Windows monopoly as leverage to get Intuit to choose Internet Explorer over Navigator. Earlier today, an executive of Packard Bell NEC testified in a videotaped deposition that his company would like the option of loading Windows 98 onto its computers without extra features.
Jon Kies, senior product manager at the world's fifth-largest maker of personal computers, said Packard Bell's corporate customers prefer to have Windows without the browser. "We found out that our customers preferred to receive only the base OS [operating system] and drivers and not have any of the other third-party applications pre-installed," Kies said in a September deposition.
"Browsers are considered by most of our customers as a third-party application," he added.
Sacramento, California-based Packard Bell was the first company to take advantage of a January settlement between the Justice Department and Microsoft in another case that allowed computer manufacturers to offer Windows 95 without the integrated browser. Kies said Packard Bell wants the same option for Windows 98, the latest version of the operating system.
Kies's testimony cuts to the heart of the government's case, which alleges that Microsoft's business practices deny consumers the freedom to choose which software products are loaded onto their computers.
Microsoft contends it offers a choice to computer makers--and by extension consumers--because the manufacturers can add Netscape's browser as they assemble their machines. The company also argues Windows 98 delivers technological advantages to computer users that could not be offered without integrating the browsing technology into the operating system.
Antitrust enforcers also allege the world's largest software maker illegally tried to undermine two technologies--Netscape's Navigator browser and Sun Microsystem's Java. To snuff out Netscape's browser, Microsoft forced computer makers to load Internet Explorer onto their machines if they wanted the right to also load Windows, the government alleges.
Government attorneys further claim Microsoft negotiated exclusionary agreements with Internet companies such as AOL to cut off Netscape's distribution. It also "polluted" Sun's Java language, originally designed to run on all computer systems, so software written in Java wouldn't run well on systems other than Windows, the government says.
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