Prosecutors challenge Gates video testimony

IN A DRAMATIC start to the US government's landmark anti-trust lawsuit against Microsoft, prosecutors yesterday disputed Bill Gates' pre-trial video deposition about his knowledge of contacts with arch-rival Netscape Communications in June 1995.

The opening arguments set the tone for a trial that may last for two months. Prosecutors questioned assertions made by Mr Gates, the founder of Microsoft, in testimony taped in August, that he had no knowledge of the meeting between executives of his company and the Netscape chief James Barksdale.

What actually happened at that meeting is likely to be pivotal to the government's case that Microsoft attempted to strong-arm Netscape into limiting the marketing of its Navigator Internet browser tool, which at that time stood in the way of the development of Microsoft's own browser, the Explorer.

The government intends to demonstrate that Microsoft has been guilty of trying illegally to extend the dominance it has achieved in the operating systems market, where Windows 98 is the unassailable leader, into other computing niches such as for browsers.

It will attempt to prove the company used unfair pressure tactics on other companies, including Apple, America Online, Intel and Sun Microsystems.

Microsoft faces a combined lawsuit filed by the federal government and 20 US states back in May. The case has been widely touted as the most important against a US corporation for many years and certainly since the forced splintering of AT&T in 1974.

Some believe that if Microsoft loses the case, which is almost certain to be appealed to the US Supreme Court, it too could be forced to break up.

David Boies, a prosecutor for the US Justice Department, yesterday opened the government's case by playing sections of Mr Gates' testimony taken on 27 August. In it, Mr Gates insists that he only found out about the meeting with Netscape earlier this year.

At that meeting, the Microsoft camp allegedly pressured Netscape to market the Navigator only to non-Windows users, in return for a stake in Microsoft. This would amount, in Washington's view, to illegal market collusion. As it happened, Netscape demurred.

In his testimony, Mr Gates - who is not expected to appear at the trial - insisted that such a tactic would have been "very much against the way we operate". But Mr Boies yesterday revealed a May 1995 memo from Mr Gates, in which he stated: "A new competitor born on the Internet is Netscape". Another memo from Mr Gates said: "I think there is a very powerful deal of some kind we can do with Netscape".

It also emerged yesterday that America Online has submitted additional evidence about the meeting with Netscape to federal prosecutors. It consists of a memo sent between AOL executives relating an account they received from a Netscape engineer who attended the meeting with Microsoft. The engineer reported that if Netscape did not go along with the approach, "Microsoft would crush them".

Unusually, the presiding judge, Thomas Penfield, has limited both camps to just 12 witnesses each and two rebuttal witnesses at the trial's conclusion. All but one of the witnesses have already submitted testimony in pre-trial testimony and will take the stand only for cross-examination.

The government witnesses are expected to be a parade of some of the most powerful executives from Silicon Valley, with Sun, Apple and Intel all expected to be represented. Microsoft will field its own executives and perhaps two outside experts.