Court battle of the computer giants

News Analysis: Conspiracy or just the way business works? The evidence cuts both ways in the Microsoft antitrust case

IT SEEMS unlikely that Bill Gates has often featured in conversations that included mention of Joseph Stalin and Franklin Roosevelt, except perhaps in the muttered asides of conspiracy theorists or the dreams of megalomaniacs.

But just such an exchange - by e-mail, of course - is one of the key pieces of evidence put forward by Microsoft as it sought to defend itself against US Government charges that it abused its powers in the market place. As the trial in Washington ended its second week, Microsoft was fighting back, and using the words of its enemies against them.

The case is moving at a snail's pace, each witness questioned in intricate detail over not just what they did, but what they thought and why they did it. The star turn - Bill Gates - may appear this week on video, but the case will not turn on what Gates alone says.

The federal case rests on a finely-assembled argument about the nature and tactics of Microsoft; the corporation's response will rely on an equally carefully-constructed version of events, which says that Microsoft is no monopolist, acts no differently to any other company, and cannot be penalised for the mistakes of its rivals.

Next on the stand is Apple executive Avadis Tevanian, whose written testimony was released on Friday. He claims that Microsoft altered a key piece of software specifically to disable an Apple multimedia product called "Quicktime" and put pressure on America's largest manufacturer of personal computers, Compaq, not to use the product.

And he says that Microsoft offered a $150m investment in Apple to persuade Steve Jobs, Apple's co-founder, to take the browser. Microsoft is also threatening to take away key software support for Apple, Mr Tevanian claimed.

"Microsoft was aware that Apple desperately needed to maintain support for Microsoft Office for Macintosh," said Mr Tevanian. Apple believed it was "dead" unless it co-operated with Microsoft and accepted the Microsoft browser.

It may sound like damning evidence. But the way that Microsoft has dealt with earlier evidence gives a clear idea of its strategy. The government contended, for example, that Microsoft put the squeeze on America On Line, the largest internet services provider, and persuaded it into a contract that gave AOL a unique relationship with Microsoft to the exclusion of Netscape. On this view AOL was partly the tool and partly the victim of Microsoft.

John Warden, Microsoft's lawyer, presented AOL in a rather different light. AOL had itself sought a unique deal with Netscape, he said.

"We can use our unique respective strengths to defeatthe Beast From Redmond that wants to see us both dead," Netscape co-founder Marc Andreessen wrote to AOL President and CEO Steve Case. "I think it's clear that we have enough respective strengths to give it a hell of a try."

Steve Case was Roosevelt and Netscape President James Barksdale was Stalin, Case argued, in a coalition against Mr Gates, who was, by extension, Adolf Hitler.

AOL, it seems, was playing both sides of the fence. It was also talking to Sun Microsystems about a similar agreement. And when Microsoft came up with a deal, on very advantageous terms, it went with it. That was because Microsoft offered a better deal, Mr Warden contended, and not because of some conspiracy.

The government's case relies heavily on the argument that Microsoft is in a unique position as a monopolist, and that it abused that position to try to put its rival Netscape out of the market for internet browsers. But everything that the government paints as black or white, Microsoft is turning into a delicate shade of grey.

The key June 1995 meeting between Netscape and Microsoft, where the bigger of the two allegedly proposed that they slice up the market between them, has been variously depicted as Netscape's idea, a fiction, and a government set-up. Netscape itself has been painted as, essentially, not up to the task of competing.

David Boies, the government lawyer, repudiates the argument that there is any parallel between what AOL and Netscape may have cooked up in their e-mails, and Microsoft's grand strategy. "You had two companies, neither of which, separately or together, would have monopoly power in any market," he said last week.

Microsoft is a monopolist, the government argues.

But to prove this, it will rely crucially on academic experts who will take the stand over the coming weeks. Franklin Fisher, professor of economics at the Massachusetts Institute of Technology, and Frederick Warren-Boulton, a former chief economist at the Department of Justice, will argue the Government case.

Network effects, Mr Fisher will argue, meant that as more people used the Microsoft product, so the benefits for users increase. "There is nothing inherently anti-competitive about this," he said in a declaration to the court.

"However, network effects create high barriers to competition and entry in operating systems. This increases the risk that anti-competitive conduct by Microsoft will increase barriers even further."

Microsoft has its own experts, including Richard Schmalensee, dean at MIT's prestigious Sloan School of Management, to argue against this. Microsoft is not disputing that it is a dominant force in the industry, but it will argue that this is not monopoly, in the same way that John D Rockefeller owned the oil industry before the Justice department broke up Standard Oil.

Microsoft hopes to establish that if Mr Gates was indeed a Great Dictator, he was only one of several.

"Our agreements were completely common in the industry and they were also completely legal," said Mark Muray, a spokesman for Microsoft.