T H E M I C R O S O F T C A S E S E M I N A R :|
United States: Steven McGeady
from Laura Pirri (firstname.lastname@example.org)
[Note that I've borrowed Matt's citation scheme where 9PM11 refers to testimony on p.11 from the Nov. 9 P.M. session.]
DOJ MCGEADY NOTES: ADVANCEMENT OF THE DOJ CASE BY MCGEADY'S TESTIMONY
1. Steven McGeady testified that MS leveraged its monopoly power in Windows to restrict Intel's ability to compete with MS:
a) McGeady testified that MS feared competition from Intel's software development. (9PM11, 12PM37) Consequently, at an August 2, 1995 meeting Bill Gates allegedly threatened to terminate Windows support for Intel's new microprocessors unless they were able to "get alignment" between Intel and MS on Intel's internet and communications software programs. (9PM14-6) At the same meeting Gates allegedly told Andy Grove to shut down the Intel Architecture Labs, which drove Intel's internet software engineering. (9PM29) It seems that alignment on internet software programs meant wholesale termination of the programs. Gates allegedly suggested that, instead of software, Intel should put its internet resources into a high-end web server tied to MS's Tiger program. (9PM12-3) According to McGeady, this web server presumably would generate "very small sales," have "very little impact on the marketplace," (9PM13) and bind Intel to MS's web server technology. (12PM24) (Note that McGeady's testimony undermines Gates's claim that he knows of no internet software work done by Intel. (9PM7))
b) McGeady testified that MS was upset that Intel was in MS's "OS space" (9PM22) and was "shifting the software boundary" without MS's permission (9PM26). This concern grew out of Intel's development of Native Signal Processing (NSP) technology. NSP was a layer of software that interfaced with both the Windows OS and the hardware in order to support realtime audio, realtime video, and 3D graphics. (9PM18-9) NSP specifically aimed to provide consumers with an audio-visual experience that was as good as television, and NSP generally promised greater innovation in the hardware and software arenas. (9PM46) According to McGeady, NSP threatened MS because it was software at the level of the OS that MS considered to be theirs. (9PM26) MS believed that they "owned software to the metal," or all the software above the hardware. (10AM17, 12PM13) Thus, McGeady testified, MS wanted Intel to stop NSP (9PM31-2) and so "chilled" OEM support for NSP, (9PM33, 12PM36) support that was necessary for the adoption of NSP. (9PM20) Ultimately, according to an Andy Grove statement about NSP, Intel "caved" in "introducing a Windows-based software initiative that Microsoft doesn’t support." (12PM46-8)
c) Gates allegedly said regarding Intel Architecture Labs: "Having 700 software engineers running around in the industry is an okay thing as long as Microsoft knows what they’re doing first." (9PM34) According to McGeady, MS did not want to relinquish control over APIs (Application Programmer Interfaces) (9PM35) and so wanted Intel to obtain MS permission prior to any software development. (9PM34) To take advantage of hardware devices that offer multimedia capabilities, Intel was writing DDIs (Device Driver Interfaces), which allow OS and application developers to use the device. (9PM36-7) MS was threatened by Intel's DDIs which allowed application programmers to circumvent the Windows OS and write directly to the DDIs. This meant that applications would have stopped depending so much on the OS APIs and would have begun depending on the DDIs. (9PM38) As Gates allegedly said, "today’s API is tomorrow’s DDI." (9PM35) To prevent this loss of control, McGeady testified, MS threatened to continue bad-mouthing Intel’s software and also to not support Intel’s MMX microprocessor. (9PM42-4) According to McGeady, this failed support would slow the chip’s adoption by PC manufacturers and ultimately kill it. (9PM44)
2. Steven McGeady testified that MS leveraged its monopoly power in Windows to restrict Intel’s support for Netscape and Java. McGeady also testified to MS's plans to compete with Netscape through predatory pricing, through the leveraging of their Windows OS monopoly, and through the creation of incompatible HTML standards:
a) McGeady testified that MS generally discouraged Intel from working with Netscape and from fostering a Netscape standard. (9PM57) Gates allegedly urged Groves to push Intel’s internal information technology group away from its Netscape standard towards an IE standard and then stressed that it’s "very important" to MS that Intel "NOT ever publicly say they are standardizing on Netscape browsers." (9PM49) Paul Maritz (MS Sr VP) allegedly insisted that Netscape was a common enemy of Intel and MS because Netscape’s cross-platform capabilities undermined PC, and hence WINTEL, dominance. (9PM56) Gates allegedly specified that Intel should commit its resources "30/70," where 30% could be devoted to third-party technologies and 70% would be devoted to MS technologies. The 30/70 split would ensure that Intel did not "set up the positive feedback loop for Netscape that allows it to grow to the de facto standard." (9PM59, 12PM20) According to McGeady, if Netscape became the standard, software engineers would develop browser applications using Netscape APIs in lieu of developing Windows applications using Windows APIs. (9PM57) MS wanted to prevent the standardization of Netscape because it threatened MS control over software development and the pace of software innovation. (9PM61) McGeady testified that MS pressure probably influenced Intel's last-minute decision not to ship its "Internet In A Box" product with Netscape's web server product, but to instead reengineer the product around MS's server product despite studies that indicated that Netscape's server was substantially faster on Intel hardware. (12PM25-7)
b) McGeady testified to MS's three prong strategy to defeat Netscape. (9PM55) MS allegedly stated that it would "cut off Netscape’s air supply" by giving away IE for free. This would prevent Netscape from deriving any revenue from its browser and would make it impossible for Netscape to pay its developers to build new products. (9PM53-5, 12PM42-5) McGeady testified that MS asserted it would "fight with the OS and the apps arm." MS meant that it would create various levels of dependencies between the Windows OS and the IE browser that would differentially advantage their browser over Netscape's. (9PM54-5) McGeady also testified to MS's professed strategy of "embrace, extend, extinguish." MS planned to "extend" the HTML standard to the point where it would be incompatible with the Netscape browser and then to encourage developers to use the MS HTML such that web pages couldn’t be read with Netscape’s browser. (9PM55)
c) McGeady testified that MS made it clear to Intel that Intel support for Java would be a "show stopper in the relationship." (9PM67) According to McGeady, this was a threat to terminate the MS cooperation that Intel required for its new microprocessors. (9PM68) MS allegedly proposed that Intel and MS prevent the Java component model, or the Java model for how Java class libraries should work and be interfaced to, from becoming established as the de facto standard. (9PM70-1) To do this, MS suggested a MS Java that would be incompatible with Sun Java, would defeat Java’s "write once, run anywhere" capabilities, and would tie Java to the Windows OS. (9PM71-2, 10AM10-1) MS would distribute its Java Virtual Machine (VM) as part of its free IE distribution. (9PM80-1) McGeady testified that this was a different variant of MS’s "embrace, extend, extinguish" strategy, here targeted at Java which threatened MS because it presented a competitive platform. (9PM68,71-2) When MS learned that Intel had implemented its own Java VM that ran very fast on the Intel architecture, MS allegedly became very upset that Intel was working in Java. McGeady testified that MS did not want the Intel VM to become part of the Netscape Navigator, and that MS wanted Intel to use MS code that would be MS's architecture for Intel’s VM implementation. (10AM6-7, 12PM22-3) According to McGeady, MS was also very upset that Intel was creating multimedia class libraries to work within Sun's Java environment, and MS wanted Intel to stop because MS viewed this work as competitive. (10AM13)
Microsoft: Steven McGeady
from Jim Doak (email@example.com)
MICROSOFT NOTES ON THE McGEADY TESTIMONY
Steven McGeady led several Intel groups associated with the Internet and Intel's programming efforts. Because of his position at Intel, he participated in Microsoft/Intel meetings, knew most of Intel's technological initiatives, and communicated with many major players across the industry.
DoJ Direct Examination
The DoJ advanced four major arguments in McGeady's testimony:
1. McGeady testified that Intel and its software development effort fell victim to Microsoft's bully tactics.
McGeady related the now familiar tale of Microsoft identifying potentially competitive software entering "its space" and using its market weight to it snuff out by chilling market acceptance and threatening support for future microprocessor development. McGeady accused Microsoft of snuffing out Intel's Native Signal Processing (NSP) effort. McGeady felt NSP threatened Microsoft's bottleneck position in software/hardware interface. Lying under the operating system, it would have presenting programmers with a more universal way to program than to Windows APIs. Microsoft chilled the acceptance of the technology and punished Intel by working with DEC. McGeady was adamant that NSP could have fostered innovation and improved the PC product for consumers. Microsoft suggested that Intel exit broader software applications and apply its software efforts to the server market.
2. Microsoft used Intel as a pawn in the Browser Wars.
McGeady related Microsoft's pressure tactics associated with destroying Netscape. Intel's internal use of Netscape was minimized and non-publicized. From his direct testimony, it appeared that McGeady attended several meetings where Microsoft officials discussed Netscape's "air supply," the strategy of "embrace, extend, extinguish," and the Microsoft two-pronged battle strategy. Microsoft attempted to convince Intel that Netscape should be considered a mutual enemy and a competitor for the "hearts and minds of the independent software developers." Microsoft desired that Intel program away from universal technologies that Netscape could use and toward Microsoft technologies.
3. McGeady performed as an expert witness on software standards, innovation and competition in the industry.
Generally, McGeady appeared as proponent of competition and an opponent the "monoculture around Microsoft" which had, in his opinion, slowed innovation and decreased consumer options.
4. McGeady felt Microsoft hampered Java development.
McGeady testified that Microsoft saw Java as a threat to their hold over software programmers and related Microsoft attempts to derail and proprietize Java technology. These tactics included additional bullying of Intel to avoid publicly supporting Java, to avoid programming its media components for an open Java environment, and to foster Microsoft's entrance into the Java environment by supporting its code. Microsoft also sought Intel's complicity in surreptitiously rewriting the Java Virtual Machine and demanded exclusive access to Intel technologies to the exclusion of Netscape and others.
Microsoft Analysis of McGeady's Direct Examination:
McGeady's direct testimony contained several pro-Microsoft threads. First, Intel practiced similar cross product subsidization, distributing free Intel Architecture Labs software funded by microprocessor revenues. Second, most strategic decisions seemed to be made between Gates and Groves, and depended on more than monopolistic practices, encompassing economics, business gambles, and egomaniacal emotions at both firms. Third, while labeled as the familiar bully tactics, Microsoft's influence over Intel and its microprocessors operated differently than the downstream software segment. To this end, McGeady's use of the term "support" is not synonymous with compatibility and is misleading. Intel feared that Microsoft would slow its technological (computational) advance, discontinuing the profitable cycle of new software requiring increased computing power. Intel always needed a market for its latest chips, Microsoft controlled the software programmers. Microsoft also had the power to turn to other microprocessor providers. This raises an interesting question, as an OS monopolist, is Microsoft forced to evolve its products in ways that support the efforts of its core supplier (to the benefit of its monopoly)? Could MS threaten not to develop that fast?
Cross-examination of McGeady revealed conflicting interpretations of Microsoft/Intel and intra-Intel meetings, differing rationales for Intel's strategic decisions, and the strong personal anti-Microsoft biases of McGeady.
1. Microsoft defended its attempts to coordinate strategy and tried to dispel the bully image.
Microsoft attempted to suggest that coordination, especially between two key players like Intel and Microsoft avoids redundant of efforts and confusion across the industry. (10am25-28) While McGeady proved generally resistant to this line of questioning, Microsoft created a complex, multi-faceted image of Wintel involving a mix of collaboration, competition, and reciprocal pressure. Contrary to McGeady testimony, Microsoft suggested that it supported Intel and its microprocessor technologies. While Intel was not receiving complete support because it failed to disclose its technology and worked toward its own proprietary standards, Microsoft was still designing compatible 64-bit Windows programs. (12am12)
2. Microsoft presented many reasons for NSPs evolution and discontinuation.
Microsoft presented documents and depositions of Intel superiors that contradicted McGeady and created plausible alternative rationale for why NSP was effective cancelled. Microsoft suggested: Gates and Grove actually worked out an agreeable NSP compromise (10pm11); Microsoft was always receptive to the hardware portions of NSP (10pm20); and the technology appeared in other products. (10pm77,80) While some of Microsoft's technological concerns with NSP appeared questionable, apprehension surrounding NSP's memory utilization and functional redundancy carried more weight. McGeady admitted that Intel made a major mistake designing NSP for Windows 3.1, and not Windows95. (10pm22) Microsoft suggested additional business reasons for NSP's failure: it had been created without notifying Microsoft, it was being promoted midst the hype surrounding the release of Windows 95, and it had not been tested for widespread consumer roll-out. (10pm52) Microsoft painted McGeady and Intel's software developers as oblivious to consumer perception issues, and suggested that NSP compatibility failures would be interpreted as Windows problems, damaging Microsoft's reputation.(10pm53) Microsoft also viewed NSP as an Intel move to suppress competition by driving the microprocessor market toward an unshared proprietary technology. (10pm71)
3. Microsoft highlighted Intel practices that resemble Microsoft's alleged anti-competitive behavior.
Intel's business practices included: incorporating functionality into its host CPUs, killing the market for separate co-processors and hardware (10pm 18-19, 10pm64); denying development kits as a form of punishment (10pm47); maintaining proprietary control of technology to stunt competition (10pm66-67); selectively withholding proprietary micro-processor instructions (10pm93), engaging in vapor-hardware. (12am10), and designing software with hundreds of engineers to be distributed free (12am34). At one point, McGeady was caught suggesting that Microsoft was correct to worry that Intel had enough clout with OEMs to distribute software against Microsoft's wished Intel had a superior product. (10pm60) McGeady also found himself defending Intel's collaboration with HP on the P7/Merced processor as a superior alternative to the would-be competitors working independently.
4. Microsoft defended its attempts to improve Java and defend Wintel with Intel's help.
Microsoft placed its anti-Java comments to Intel in the context of their relationship, where Microsoft gives lots of unheeded advice, and in the context of a larger industry competition, were Sun stands as a killer competitor to the Wintel platform. Microsoft noted Intel still supported Java development (although not as much as McGeady felt it should have). Similarly, Intel still had hundreds of engineers working on software.
5. Microsoft aggressively attacked McGeady to discredit him as a witness.
McGeady's notes suggested that portions of his testimony could be considered embellishments or stories heard in other contexts. McGeady was frequently forced to suggest that he had a recollection of meetings and conversations superior to that of other Intel officials, as well as Netscape officers. (12am75) Microsoft revealed Intel documents that painted McGeady as a maverick who received negative reviews, was criticized for his department's belligerence toward Microsoft (12am25) and was placed on sabbatical at MIT as a form of punishment.
Additionally, McGeady's actions suggested that he considered himself above Intel policy and an extra-corporate defender of truth and justice in the Internet world. He suggested that Intel's open interference with Microsoft's software development and promotion would aid the industry. (10pm48) He leaked confidential memos to the press and embellished the information he gave. He corresponded and met with Netscape's Jim Clark to keep Netscape from being complacent. Not only envisioning entrapping Microsoft in an anti-trust suit, he then indirectly volunteered to testify against the company he considered to be the Devil.
6. McGeady comments supported other Microsoft arguments.
McGeady suggested that IE was integrated into the Windows operating system. He also attended a Netscape conference where Netscape apologized for its failure to adequately support software developers. (12am96)
United States: Glenn Weadock
from Eric Liu (firstname.lastname@example.org)
What follows is a digest of the testimony of Glenn Weadock, president of Independent Software, Inc. and the technical expert called by the Department of Justice. The theme of Weadock’s testimony was that Microsoft has tried to achieve through software code what users in the market would otherwise reject – a "commingling" of Windows and Internet Explorer that cannot be undone without potential damage or cost. The attorney for Microsoft, Richard Pepperman, attempted through complicated technical questioning to demonstrate that this "commingling" was a natural and beneficial result of the evolution of the operating system. Weadock fought off much of Pepperman's questioning, and was careful not to concede unnecessarily what the letter of Pepperman's questions sometimes implied. The attorney for the Department of Justice, Mr. Holtzman, outlined a less technical – and perhaps to the judge, more accessible – narrative about customers in the computer market who value choice and flexibility but find themselves frustrated at every turn by Microsoft’s tactics.
Microsoft: Glenn Weadock
from Bryan Hancock (email@example.com)
The following is a summary of Microsoft's themes in its cross-examination of Glenn Weadock. The DOJ notes posted by Eric Liu provide a good overview of the government's testimony and serve as a good starting point for this analysis of the testimony from the Microsoft perspective. Mr. Peppeman, attorney for Microsoft, advances three basic themes during cross-examination and re-cross:
1. IE is part of the Windows 98 operating system. 2. Technical integration of IE provides some user benefits. 3. Mr. Weadock's methodology and credentials are questionable.
1. IE IS PART OF THE WINDOWS 98 OPERATING SYSTEM
IE IS CONSISTENT WITH THE FEATURES OF AN OPERATING SYSTEM
Microsoft successfully compels Mr. Weadock to testify that the features of operating systems have changed over time and "reasonable people can disagree" over weather certain features are a part of the operating system. Microsoft presents the addition of TCP/IP and advanced memory management as examples of OS functionality which were not originally included in Windows but were added later.
Mr. Weadock protested when Microsoft attempted to have him draw an analogy between browsers and other functionality which had been built into Windows. Microsoft had Mr. Weadock grudgingly agree that web-browsers "in their simplest form" retrieve data from other computers on a network and present it to the user, and this was consistent with the functionality included in operating systems. However, Mr. Weadock attempted to distinguish web-browsers from other OS functions based on the added features browsers provided
In the redirect, the government attempts to distinguish web-browsers from other OS functionality by comparing OS functionality to "plumbing." Web-browsers, according to the government's line of questioning, are not "plumbing" because a browser is "an application that users interact with to do productive work." In the redirect, Mr. Weadock does not address how the shell functionality of the Windows OS differs in kind from a web-browser user interface.
PEOPLE OUTSIDE OF MS HAVE CATEGORIZED IE AS PART OF OS
Mr. Pepperman attacked Mr. Weadock's direct testimony that "No one outside of the Microsoft organization has ever described a web-browser to me as operating system software…." Mr. Pepperman presented evidence that Netscape characterized IE as an OS upgrade in a marketing document entitled "Netscape Communicator and the Competition."
In re-cross, Mr. Pepperman entered testimony from the deposition of Mr. Vesey, the Windows Browser Product Manager at Boeing to demonstrate at IE is more OS-like than application-like in some respects. "Many applications do make changes in the Windows systems subdirectory. Fairly few of them make the kind of modifications that Internet Explorer makes. They would be more on the order of an operating system upgrade."
IE IS TECHNICALLY INTEGRATED WITH WINDOWS 98
Mr. Weadock insists that the "commingling" of IE and Windows 98 code in DLLs is not necessary and the IE subroutines could be removed by Microsoft. Under cross-examination, Mr. Weadock testified that it is not possible for IE to be removed from Windows 98 once installed because of the integration of code at the DLL level. End-users do not have the ability to split-out the subroutines. Even users who "remove" IE remove only a small portion of the code used by the user to launch IE directly.
Through his testimony, Mr. Weadock is not challenging that IE IS integrated with Windows 98. He is challenging whether or not Microsoft should have integrated IE. The following exchange captures Mr. Weadock's views:
Mr. Pepperman: And it's also true, isn't it sir, that the file Explore.exe cannot be removed from Windows 98 without disabling features of Windows 98 that users typically require?
Mr. Weadock: That's my point. Microsoft designed it that way.
Mr. Pepperman: In fact, isn't it your understanding, sir, that if the file Explore.exe were removed the Windows 98 user interface would break?
Mr. Weadock: That is at the same time true and irrelevant.
This may be irrelevant to Mr. Weadock's complaint about Microsoft's integrated design; however, it is not irrelevant to the DOJ complaint and prayer for relief which requested for the option of de-coupling of Windows 98 and IE at the OEM level.
During cross-examination and recross, Mr. Weadock repeatedly argues that IE is too integrated with Windows 98, and that level of integration harms certain consumers. The level of integration, and in particular, the inability to disable IE entirely, provided a major concern. Mr. Weadock asserts that Novell's "loose bundling" of a web-browser with their OS is superior to the fuller integration achieved by MS in Windows 98. Mr. Weadock values the increased ability for end-users to choose the browser they want to use, no matter how integrated the browser becomes with the OS.
2. TECHNICAL INTEGRATION OF IE PROVIDES BENEFITS
RATIONALE FOR THE "PERVASIVE" NATURE OF INTEGRATION
According to Mr. Weadock, there are at least 28 ways of calling IE from Windows 98. Even for users who have chosen another default browser, IE will still be chosen by the OS for certain tasks such as reading HTML help files and obtaining Windows Updates.
Mr. Pepperman successfully showed that most of these tasks require the use of ActiveX, which is included with IE, but requires a plug-in for Netscape use. Furthermore, Microsoft's use of Active X for help and other functions is consistent with Netscape's requirement to use a Netscape browser to use Netscape help.
BENEFITS FOR IE USERS
Mr. Weadock emphasized that for users who have chosen not to standardize on IE, the integration of IE into Windows 98 does not provide benefits, and indeed entails some potentially substantial costs. (The costs arise from the higher system resource requirements to run IE and the costs of maintaining training and support for multiple browsers). However, as Mr. Weadock states in cross-examination "Nowhere in my testimony do I say that there are no organizations anywhere that find the integration of Windows 98 and IE appealing. Certainly, there are those that do. My point is that there are some that don’t and they don't have an easy choice to get rid of it."
For users of IE, Mr. Pepperman successfully showed that integration does provide some technical benefits. The sharing of code between IE and Windows 98 will result the saving of memory for those who wish to use IE. Furthermore, over 100 ISVs depend on IE-related code to function. (Even a competing browser requires IE DLLs to operate.)
3. ATTACK ON MR. WEADOCK'S METHODOLOGY AND CREDENTIALS
COMPANIES INTERVIEWED ARE NOT REPRESENTATIVE
Mr. Pepperman advances the point that companies interviewed by Mr. Weadock and DOJ (or by DOJ alone) were not reflective of general corporate opinion and the pool from which the companies were picked to be interviewed was biased against Microsoft. The organizations interviewed had either: a) voluntarily expressed interest in the investigation to the DOJ b) been selected by Netscape c) had requested the removal of the IE icon from the desktop as identified by Dell or d) a random sampling of 18 Fortune 500 companies.
Mr. Weadock emphasized that these companies provide "illustrations," but that the bulk of his testimony is "based on nearly two decades of experience in the business." Mr. Weadock stated that by using the corporations as illustrations of his beliefs that he was "not building anything here that is intended to be a scientifically valid or statistically valid cross-section of American corporate opinion."
By successfully separating Mr. Weadock's opinion and "illustrations" from a more representative corporate sentiment, Microsoft opened the door for presenting the benefits of combining IE with Windows 98 for corporate users.
ATTACK ON MR. WEADOCK'S CREDENTIALS
Microsoft effectively challenged Mr. Weadock's position as one of the government's three technical witnesses at the beginning of the cross-examination. Mr. Weadock testified that he was not an expert in OS software design, had never provided consulting services or lectured on OS software design or development, and had never been published in a peer-review journal or publication on Windows 98. Furthermore, Mr. Weadock testified that he has no knowledge of the programming language C, had never seen the source code for Windows 95 or Windows 98, and even if he had seen it, could not understand it because it was written in C.
As discussed above, Microsoft made significant gains by having Mr. Weadock admit that IE is "integrated" with Windows 98 to the extent that OEMs and end-users cannot remove completely remove IE without "breaking" windows. These gains may have been mitigated by Microsoft's earlier attacks on Mr. Weadock's technical credentials. I believe the testimony below captures the overall effectiveness of the attacks.
Mr. Pepperman: WELL, YOU'RE AWARE, AREN'T YOU, SIR, THAT THE DEPARTMENT OF JUSTICE ALLEGED IN ITS COMPLAINT IN THIS ACTION THAT BUT FOR MICROSOFT'S OEM LICENSE AGREEMENTS, IT WOULD BE, QUOTE, TECHNICALLY FEASIBLE AND PRACTICAL FOR OEM'S TO REMOVE INTERNET EXPLORER FROM WINDOWS 98?
Mr. Weadock: I NEVER READ THE COMPLAINT.
Mr. Pepperman: WELL, YOU WOULD AGREE THAT EVEN YOU, ONE OF THE UNITED STATES OF AMERICA'S THREE TECHNICAL EXPERTS, COULD NOT FIND A WAY OF DELETING ALL MEANS OF ACCESS TO, AND ALL VISIBLE MANIFESTATIONS OF, INTERNET EXPLORER IN WINDOWS 98, MUCH LESS REMOVE ALL THE INTERNET EXPLORER CODE FROM THE OPERATING SYSTEM?
Mr. Weadock: DID YOU JUST DESCRIBE ME AS ONE OF AMERICA'S THREE TECHNICAL EXPERTS?
Mr. Pepperman: THE UNITED STATES OF AMERICA'S THREE TECHNICAL EXPERTS.
Mr. Weadock; GEE, I'M NOT COMFORTABLE WITH THAT CHARACTERIZATION.
Mr. Pepperman: GLENN E. WEADOCK OF GOLDEN, COLORADO.
Mr. Weadock: NO. I THINK THERE ARE LOTS OF PEOPLE THAT I THINK WE ARE GOING TO SEE FROM SOME OF THE OTHER WITNESSES THAT THE GOVERNMENT PLANS TO CALL, PEOPLE THAT HAVE A MUCH GREATER BACKGROUND IN PROGRAMMING.
Mr. Pepperman: BUT YOU, SIR, COULD NOT?
Mr. Weadock: RIGHT. AND AS YOU POINTED OUT THIS MORNING, I'M NOT A C-PLUS-PLUS PROGRAMMER.
United States: John Soyring
from Wendy Seltzer (firstname.lastname@example.org)
Testimony of John Soyring, Director of Network Computing Software Services for IBM.
Soyring spoke from IBM's experience as OS developer and PC distributor. On paper, at least, his testimony was not overly combative, so he appeared to be a credible witness.
The cross examination often puts IBM as marketer in conflict with IBM as Microsoft- competitor. Soyring keeps having to dismiss rosy statements about IBM technology (the network computer, even OS/2) as "marketing hype" as he tries to portray MS as a monopolist with no real competition, or to oppose MS on integration.
IBM made some early attempts to clone the Win32 APIs in OS/2, but underestimated the expense. Soyring blames Microsoft's "FUD" (fear, uncertainty, and doubt) tactic for halting OS/2 development more than technical difficulties: "Microsoft instilling fear amongst our customers that we could not [clone the APIs]." 17pm85 He said that time, expense, and license restrictions on the ActiveX source code balked IBM's attempts.Integration
Further, even had IBM cloned the APIs, license agreements would have prevented ISVs from using the reusable code of Microsoft developer kits (Microsoft Foundation Classes) to create OS/2 products. 18am13 Holley asks whether IBM ever negotiated with Microsoft about changing the license terms, but Soyring did not know.
IBM has abandoned efforts to get ISVs to write to the OS/2 API, and is instead encouraging them to write in Java for use on the OS/2 platform.
Soyring distinguishes between the OS and the shrink-wrapped product. 18am29 While the installation routine (and the OS/2 box) may present OS/2's web browser as an option as if it were integrated with the OS, the browser remains a separate product. The OEM or consumer can choose not to install the browser and the OS still functions normally. Soyring distinguishes between integrated as technical specification and as a marketing term. On the marketing level, it is frequently used just to indicate that an application will function seamlessly with the OS. It still uses only the public exposed APIs.Java
Soyring is asked about two more technical definitions of integration he used in his deposition: one level of integration, where an application exposes APIs to third-party apps, and a "deeper level," in which another part of the OS has a cross-dependency on the app's APIs. 18am48 He attempts to show that only the deeper integration produces a synergy benefit for consumers.
On redirect, he says further that OS/2 Warp installation routines were trying to solve a "perception problem," to give users the impression that they were installing one program while they were installing many separate ones. Only the installation interface was "integrated" to handle the install routines of different programs in the same way. 18pm84
Distinguish customizing the Java virtual machine to the specific operating system from customizing the Java itself. The point is to put the system-specific calls into the JVM and keep the program cross-platform.Best line: "I am confident that there is no folder on the IBM desktop for the Thinkpad as it's shipped that has litigation support." 18pm10
IBM customers, particularly in e-business concerned about Microsoft's fragmentation of the Java standard, such as non-standard keywords.
While MS makes Java's RMI available on its site for free, customers aren't confident that it will continue to support that part of the standard.
Holley tries to establish that OS/2 failed because of design flaws such as requiring more resources than most PCs had. When Soyring responds that large customers had the necessary RAM, Holley pushes him to say that IBM was focusing on the enterprise market, and not really trying to compete in the PC market with MS. 17pm72 On redirect, Soyring focuses on efforts to make the product competitive in the home PC market. 18pm59
Microsoft used its branding program for the Windows-compatible logo to push ISVs to develop for the Win32 APIs before Win95 was introduced to market. 17pm100 "Good Housekeeping seal" 18pm62
Port of DB2 to Linux not an indication that Linux is taking off, but because it wasn't a big jump from AIX.
Microsoft: John Soyring
from Greg Harris (email@example.com)
John Soyring is IBM’s Director of Network Computing Software Services, and testified on behalf of IBM--both as an OS developer and as a PC distributor.
Demeanor: Soyring was a great witness. His answers were thorough, articulate and largely consistent. He was not combative, and even found a few opportunities to launch humorous, if biting, jabs at Microsoft in the form of self-deprecating remarks about OS/2’s failure. For example, when asked about difficulties in cloning the OS/2 APIs: “Yes. If someone wanted to clone it--I wish there was someone--that has made it more difficult.” (17pm95) The following exchanges, at 18am40-1 and 18am24 respectively, also emphasize his attempt to win sympathy for IBM:
Goodwill: IBM didn’t have much to harm. Observer Soyring’s self-depricating manner:
Q. But if I go out to buy this box of OS/2 Warp 4, which I did, I pay
one price for everything in it, correct?
A. Well, first, thank you for buying it.
Q. Microsoft paid for it, you will be glad to know.
A. Well, thank Microsoft then.
Mr. Holley: I would be happy to give the box [of OS/2 Warp] to Mr. Houk, your honor, when I’m finished.
Mr. Houk: No objection.
Witness: It would help increase our shipments.
Q: Excuse me, Mr. Soyring. You choked me up there.
Beyond this verbal sparring, however, Soyring provided a convenient opportunity for Microsoft support the “everyone else is doing it” defense it often relies upon, and to reinforce its other arguments regarding consumer preference and the inability of its competitors (IBM, Netscape) to meet consumer needs and deliver the best product.
Industry Practice (“Everyone Else is Doing It!”)
Microsoft’s arguments here were the highlight of the cross.
1) Licensing Agreements: Here, MS ground Soyring down by confronting him with a series of restrictive IBM licenses OEMs. At first, Soyring was able to argue that each restrictive license was excused by a particular circumstance, but he finally admitted that he didn’t understand why certain of the restrictions were in place. These restrictions were very similar to the oft-maligned MS licenses, and this supported MS’s contention that this is standard industry practice.
2) Integration of Features and Applications into the OS/2 System
- Regardless of Consumer Desires
- At the expense of third parties (Adobe) or separate IBM applications (ViaVoice)
3) Integration of Applications (word processor, etc.) 2-45, (on desktop) 3-22
4) Integration of Browser
- inability to buy browser without the OS - no separate marketing
- Integration language is not just “marketing hype,” but appears in internal IBM documents as well!
- And this was smart, logical business!!
5) “Customizing” Java to IBM OSs 2-78
6) Adding Applications to the Desktop or “Workplace Shell”
Problems with OS/2 (“It’s your own fault!”)
Microsoft asserts, as it did against Netscape, that OS/2’s problems
were home-grown and cannot be attributed to MS’s sharp business
1) OS/2 was targeted at business, not broadly. It required too much RAM (two to three times as much), which was prohibitively expensive for home-users. 17pm66-7, 81
2) To make things easier for its own programmers, IBM incorporated non-standard graphics plotting, which complicated porting from other OS. 17pm69
3) IBM targeted backwards compatibility at the expense of OS/2 native aps. Since it advertised that OS/2 would run Windows programs better than Windows did, Developers had little incentive to port or to write OS/2-native programs.17pm80-1
4) IBM was not prohibited by contract/law from cloning Win32 APIs. In fact, Apple has done this with MS’s support. 17pm84-5
5) IBM lied about, or at least mischaracterized the ease of Win-OS/2 porting. When they wished to encourage developers to port, IBM called it “easy.” Now they maintain that it was too difficult. 17pm89-90
6) Finally, MS showed that WinNT had similar problems when it first came out, including that IBM bugaboo of “too few applications.” But MS stayed the course, worked with developers, and fixed these problems in subsequent releases. 17pm101-2
7) Nobody needed to go to MS in order to write OS/2 programs. 18am11.
8) Even Lotus and IBM’s PC division dropped OS/2 due to lack of consumer demand, and not due to MS contractual misconduct. 17pm105, 18am13-4.
9) As a side note, however, OS/2 does enjoy success in Europe and in certain markets (banking, insurance, etc.), and has beaten WinNT in these markets.
Threats to Microsoft (“They’re out to screw us!”)
This is related to the “everyone is doing it” argument, in that
everyone else teams up, too.
1) NOISE coalition teaming up to compete with MS.
- NOISE = Netscape, Oracle, IBM, Sun and Everyone else (Novell,
- Reminiscent of the MS/AOL “how much do we have to pay you to screw Netscape?” meeting.
2) The Future is Open to Innovation (“If someone has a better idea...”) - IBM network computers, which Sun and IBM seems to think are the
future, have no MS software in them! 17pm52-3
- Despite lack of applications for Linux, IBM ported DB2 to this OS. 18am7-8.
MS made a few more miscellaneous points through its questioning of
1) Networks. It is natural for OS markets to tip. (Actually, this was in Soyring’s direct.)
2) Soyring doesn’t really know about MS’s contracts with OEMs, other than what he’s heard in the paper. 18pm6,16-7
3) Also, there are many different MS Operating Systems, with varying degrees of “monopoly.” 17pm64-5, 17pm103-4
4) MS is good
United States: Frederick Warren-Boulton
from Laura Steiner (firstname.lastname@example.org)
Frederick Warren-Boulton (WB), an economist in a private consulting firm who worked an the chief economist for the DOJ antitrust division, testified about the economic effects of MS’s actions regarding browsers. His basic point is that through its exclusionary and predatory conduct, including exclusionary contract restrictions and tying, MS has attempted to monopolize the browser market and maintain its monopoly in OS’s. His main conclusions are the two browser stories we discussed in class—defensive monopolization of browsers to maintain the OS monopoly and offensive monopolization of the browser market for its own sake.
Although WB repeatedly refers to the fact that he’s not a lawyer during the trial, his direct testimony is basically a brief without case citations. His conclusions are the elements of antitrust monopolization claims, with assertions that, if accepted by the court, would allow the DOJ to prevail in the rule of reason analysis used for monopolization claims.
Note: The following summary is quite long. My apologies! I believe that summaries should be short and manageable, but I had a lot of trouble getting all this testimony into a manageable size. I’ve tried to make things a bit easier for people who are in a rush by marking the section headings with *’s so you can find out WB’s basic arguments and read the ones that most interest you. I’ve put a few of the most important arguments first.
***A Couple of Economic Points***
Throughout cross, WB assets that monopolists have incentives to innovate so people will continue to buy their products. Thus evidence of MS’s improvements or response to customer demand does not disprove the claim that MS has monopoly power. For example, MS’s adding API’s in response to requests by software vendors for them is profit maximizing behavior for MS and does not suggest that MS doesn’t have monopoly power.
In cross, WB repeatedly emphasizes the importance of market tests. If OEM’s want to offer their customers choice of browsers, they should be permitted to do so, even if MS feels it makes a better product that’s integrated.
***IE and Windows are Two Separate Products***
As we know, the central debate about tying is determining whether or not there are two products. In WB’s opinion, browsers and OS’s are separate products because an item is a separate product if there is "sufficient demand such that it is efficient to offer that item separately from other items." (par. 71) (This economic analysis bears a striking resemblance to the Jefferson Parish test.) In cross, WB emphasizes that the focus of the test should be on the value to the people who want the two products separately, not the benefits that may accrue to people who receive the product as an integrated whole. It seems WB would allow MS to charge users who want Windows without IE more, the costs of separating them. Because he considers removing the user’s awareness of IE as untying the products, this cost is probably not prohibitively high.
WB’s lists several facts to support the conclusion that Windows can be offered profitably without IE and IE can be offered profitably without Windows. IE is already sold as a separate product. Windows is also a separate product, because there is demand for it without IE (e.g. from OEM’s and corporate buyers) and removing IE costs MS little/nothing (Uninstall works in Win95, and a substitute browser can be used without harming Win98). Further illustration that they’re separate: MS tracks demand for IE separately from demand for Windows. Other OS’s who aren’t threatened by browsers consider browsers separate products. Note: WB’s basis for the crucial point about Win98 is Prof. Felton’s report.
In cross, WB stated that generally economists wouldn’t be concerned if firms add functions to OS’s that had previously been offered separately, but there is a concern when a firm with monopoly power does so because it can manipulate network effects. WB dealt with the need to limit the ramifications of his position by stating it is not of economic concern if MS does not offer Windows without every feature that fits his definition of separate product, but browsers are a special case because they are also potential competitors with Windows. The fact that Netscape Communicator bundles software is thus not a concern.
***There Has Been Significant Exclusionary Impact***
Evidence? MS predicted it would substantially gain market share in browsers. IE has a high flow percentage and Netscape’s is declining. (In cross, he said IE had 60% and Netscape had 30%.) It seems one of his central pieces of evidence is data he received from Adknowledge, a company that monitors Internet ad viewing and clicking, which kept track of the ISP’s and the browsers of the people viewing the Web pages. WB identified 4 groups of ISP’s—1)AOL/Compuserve, which have severe restrictions against their associating with non-IE browsers, 2) those which prefer one browser and have some shipping restrictions, 3) those which prefer one browser but don’t have shipping restrictions, and 4) the parity group, which is neutral as to IE and Netscape. He found that the restrictions correlate with higher use of the unrestricted browser. His central finding seems to be that IE’s share in the AOL/Compuserve group is 49% and in the parity group is 30%, from which he concludes the exclusive arrangements between AOL/Compuserve and MS have caused IE to gain a significant amount of market share.
I’ll just note that (of course) MS disputes much about this data, whether it is representative, how to interpret it etc. I’ll have to admit that I am having difficulty making the leap from the correlation shown in this data to WB’s conclusion that the agreements with AOL and Compuserve caused the shift in IE’s market share from what it would have been. MS suggested other explanations of Netscape’s loss of market share, MS including IE’s higher quality, Netscape’s initial higher price, Netscape’s being difficult for programmers to work with while MS courts programmers, and MS’s larger sales force. WB didn’t have much information about these.
***MS Conduct Was/Is Predatory***
MS’s exclusionary actions were predatory because MS’s expectations of profits came from excluding rivals and gaining or preserving market power. MS gave up money for its desk top real estate in order to make exclusionary arrangements. Giving IE away for free lost revenue for them in terms of fees and reduced demand for Win98. WB doesn’t believe that MS really wanted to make money on IE through ancillary services. Furthermore, there is no evidence that MS even bothered to calculate whether or not its actions were profitable. In redirect, WB pointed out that other firms won’t enter the browser market because MS is giving the browser away for free.
***The Relevant Market is PC OS’s***
WB uses the hypothetical monopolist test (find the smallest group of products over which a monopolist could sustain a small but significant increase from a competitive price) to determine that PC OS’s are the relevant market. He asserts that MS OS’s are priced significantly above competitive level, though he seemed unenthusiastic during cross about disclosing exactly what that price is or how one is to determine it. He thus relied on other indications to determine that PC OS’s are the proper market. If the price of a PC OS is raised, people will just pay more instead of switching away from PC’s, because of network effects (high number of applications written for PC’s), time/money learning a new OS, and potential compatibility with others. Furthermore, the OS is a small part of the computer price, so a significant increase in OS price is barely felt by the computer buyer. Other evidence includes that fact that OEM executives say they won’t switch to a new OS if Windows’s price were increased by 10%.
WB doesn’t win the consistency award this year for his discussion of market definition. One of his central points is that MS felt its OS monopoly was threatened by Netscape + Java, because cross-platform applications could be written. Then others OS’s could enter the market and compete with MS. But he doesn’t consider Netscape/Java to be part of the relevant market for purposes of discussing monopoly power. On redirect, he explained that this was because Netscape/Java is only a partial substitute for an OS.
***Browsers Are the Main Threat to MS’s OS Monopoly.***
You know the story—programmers could write to a browser’s API’s instead of the OS’s. Cross-platform applications written for browsers could make the OS less important. MS was aware of this threat. Also, WB asserts that there are network effects with browsers which create barriers to entry since Websites can be written for specific browser technology. WB offers no support for this. He mentions that there are also economies of scale for browsers but doesn’t explain why browsers are different from other software in this regard.
In cross, WB notes that it would be almost impossible for someone to clone the full set of Windows’ API’s, so the threat of other companies creating a substitute OS is unlikely.
***MS Has Monopoly Power in the Relevant Market***
WB’s proof of MS’s monopoly power is somewhat dubious. He suggests that there are several indications of MS’s monopoly power in PC OS’s: MS’s high share level (measured by flow—IE’s percentage of new browsers), the economies of scale in software, the high barriers to entry, network effects (applications written for Win), and the high sunk costs for developing a new OS. WB wasn’t overly successful in cross at distinguishing the sunk costs for OS’s and those for any other software.
Further evidence of monopoly power: MS engaged in conduct that "it could not profitably pursue" (par. 60) if it didn’t have monopoly power. It threatened to terminate Compaq’s license because Compaq was going to take IE off the desktop. Another indication of MS’s monopoly power—MS has very high profit margins.
In cross, WB notes that the fact that MS tried to determine from a focus group whether they should charge $49, $89, or $120. Only an entity with monopoly power would be able to make a decision like this, reasons WB. (MS’s suggestion during cross that these prices are lower than other operating systems’ prices does not seem to address his point.)
Another indication of monopoly power: OS prices have accounted for an increasingly higher percentage of the price of computers—while hardware components have gone down in price even though they increased significantly in quality, Windows has gone up in price. WB denied that he was claiming that Windows’ and the components’ quality increases were the same. Maybe Warden (MS lawyer) and I are alone in not quite understanding the point of this comparison.
***Exclusionary Conduct ***
(Note: as we have discussed MS’s exclusionary agreements with OLS’s, ISP’s, and ICP’s already, I am not going into detail about the specific arrangements.)
MS gets users to use IE—and cuts off Netscape’s access to the best distribution channel, OEM’s-- through many types of exclusionary conduct, including tying IE to Windows, giving IE free with Windows, requiring OEM’s to install IE and disallowing the removal of IE.
Although MS allows other browsers to be installed, it’s costly to do so, even if the other browser had no license fee, since there are testing costs as well as increased support costs, especially because consumers are confused by having two products that perform similar functions. MS used placement on the desktop, in bootup sequences, on the Online Service Folder, in the Internet Connection Wizard, and in the start menu to induce Online Service Providers (OLS’s), ISP’s, and ICP’s to promote and/or distribute IE as their exclusive or primary browsers, even sometimes refusing to ship more than a certain percentage of competing browsers to customers who request them. MS gave discounts to ISP’s if they used technologies that worked better with IE such as ActiveX.
WB deals with the fact that many of the restrictions were lifted last spring by arguing that 1) some restrictions still remain, 2) reversing the restrictions will not reverse their effects, and 3) MS can impose these types of restrictions again if its not sanctioned. Also, although ordinarily it is not anti-competitive for MS to sell its desktop real estate, states WB, the deals MS has made are exclusionary.
***MS Has Dangerous Probability of Monopolization in Browser Market***
WB projected using a somewhat mysterious model that IE will soon have 80% market share, as opposed to its current 60%. Thus, there is a dangerous probability of monopolization in the browser market (which, interestingly enough, is an element of attempt to monopolize). Thus, MS will also preserve its monopoly in the OS market. Once Netscape’s market share is small enough, or software developers fear that this is so, developers won’t write their software for Netscape/Java.
***MS Couldn’t Have Legitimate Business Justifications for MS’s Conduct/ Less Restrictive Alternatives Exist ***
WB suggests various justifications MS could claim to have for its exclusive conduct and rejects them because the justifications aren’t credible or their are less restrictive alternatives. For instance, even if the integration of Windows and IE is beneficial to users, MS does not need to have agreements with OEM’s disallowing the removal of IE since IE can be removed without impairing Windows’ functionality. A competitive market should be allowed to decide.
Consistency of start-up experiences is difficult to believe as a justification, since MS allows many modifications of the initial boot sequence and desktop. Also, this justification doesn’t explain why OEM’s can’t promote third party brands but can promote their own.
Having a consistent platform for software developers is not a convincing justification because important shared files can be left in the OS. Furthermore, the IE icon can be removed, but the IE functions can remain for programmers. Older versions of Windows force developers to include necessary program libraries with their software.
Maintaining high quality can be achieved through preventing only modifications that impair the ability of software developers to access Windows’ API’s.
MS doesn’t need restrictions to prevent the reduction of quality. The competitive market will take care of OEM’s, for example that produce low quality products. Also, MS can require an OEM to label its changes so the users know whom to blame if there’s a problem.
Instead of making restrictive arrangement in exchange for desktop real estate, MS could simply get money for this valuable commodity.
***Some of My Reactions***
From the DOJ perspective, WB’s testimony has some flaws. He makes too many broad assertions with little support.
I can accept as reasonable his story that MS is using tying and other exclusionary practices in a predatory fashion to gain market share in browsers to protect its OS monopoly. But his claim that MS is attempting to monopolize the browser market for its own sake by tying and predatory pricing (among other things) doesn’t work well, in my opinion, especially as I am not convinced by WB’s assertions that there are high barriers to entry in the browser market. It doesn’t make sense to me that a monopolist would leverage his monopoly power in the tying market to force people to buy the tied product for free. Instead of telling one coherent economic story based on the facts, he seems to be analyzing in the alternative.
Microsoft: Frederick Warren-Boulton
from Kimberley Isbell (email@example.com)
Dr. Warren-Boulton is a Principal with MiCRA (Microeconomic Consulting and Research Associates, Inc.), and specializes in antitrust and regulatory matters. Dr. Warren-Boulton served as the chief economist for the Antitrust Division of the Department of Justice from 1983-1989. Dr. Warren-Boulton became involved in the current litigation when the Department of Justice asked him to perform an economic analysis of actions by Microsoft, and is testifying as an expert witness about his findings.
Dr. Warren-Boulton testified that he was of the opinion that 1) Microsoft has a monopoly in the relevant market (based on Microsoft's share of the Intel-based PC OS market), 2) that Microsoft engaged in practices which had the effect of impeding the commercial opportunities of producers of competitive Internet web browsers (specifically citing agreements and restrictions Microsoft negotiated with OEMs, ISPs, and OLSs), and 3) that, in his opinion, these measures cannot be justified on efficiency grounds (based on the supposed increased difficulty for a limited of consumers who might strongly prefer to seek their browsing capabilities from another source, or not at all, rather than having their system come prepackaged with a default set of browsing capabilities).
In defining the market applicable to his first proposition, Dr. Warren-Boulton considered only the Intel x86/Pentium-compatible market, leaving out other personal computer manufacturers like Apple. In reaching his conclusions about Microsoft's monopoly power and supposedly anticompetitive practices, Dr. Warren-Boulton rests his testimony on a number of assumptions, including:
1. Internet Explorer and Windows 95/98 represent separate products, rather than an integrated suite offering users maximum utility in one product, which can be provided separately without any functional impairment. Part of this assumption is the proposition that IE can be defined as simply the executable program without the corollary DLLs and other files which make up Internet Explorer and cannot be removed without impairing the functioning of Windows 98.
2. Browsers supplied by competitive producers represent a potential threat to Microsoft's ability to continue competing effectively in the OS market, by hypothetically serving as a potential platform for applications.
3. Agreements between Microsoft and OEMs, ISPs, ICPs, and OLSs were undertaken with the goal of harming Netscape's ability to compete, rather than for legitimate goals.
4. Distribution of Internet Explorer without cost (as Netscape has done with Communicator) occurred without regard for profitability, and thus were "predatory." This assumption requires the corollary assumption that Microsoft's primary source of income from Internet Explorer had to come from either a) revenues from sales, or b) maintenance of Microsoft's supposed monopoly in the OS market; this assumption leaves no room for the possibility that Microsoft sought to reap financial gains from Internet Explorer in other ways (such as paid advertisements on Microsoft's portal site).
5. Microsoft's maintenance of its position in the OS market will inevitably stifle competition and innovation. In a world where Java and Netscape have solved the problem of cross-platform compatibility, Dr. Warren-Boulton assumes the existence of a hypothetical market for specialized OSs which will be tailored to a user's individual needs, while the browser takes over the all-purpose role currently filled by the OS; however, the supposed benefits resulting from replacing an OS monopoly with a cross-platform browser monopoly aren't fully explained.
A number of important points about Dr. Warren-Boulton's testimony were made during cross-examination, including:
1. For almost a year prior to the current litigation, Dr. Warren-Boulton has been employed as a consultant economist for the State of New York, among others, in litigation against the Microsoft Corporation. In addition, Dr. Warren-Boulton is on governmental (state and federal) retainer for at least seven other antitrust cases over the past three years, as well has having previously been retained to help the FTC build a case against Microsoft by the Novell Corporation. In his academic papers dealing with the software industry, Dr. Warren-Boulton on several occasions critically addressed practices in which he alleged Microsoft participated.
2. The guidelines used by Dr. Warren-Boulton in determining a) what the relevant market for analysis was and b) whether or nor Microsoft had a monopoly in that market were guidelines promulgated by the FTC and the DOJ to assess the impact of a proposed future merger; they were not designed to track the monopoly position of a single company in the current marketplace. Further, the guidelines were designed to account for generic industries, rather than the software industry which exhibits a number of unique features such as network effects, and the interaction of the market with federal copyright laws. In fact, the DOJ puts out specific guidelines for use in analyzing industries in which intellectual property rights play a significant role; guidelines that Dr. Warren-Boulton couldn't remember consulting in preparation for his testimony in the instant case.
3. Dr. Warren-Boulton's determination of Microsoft's market share, which he used in his analysis to determine whether Microsoft exercises monopoly power, is based upon an aggregation of all Microsoft OSs, including MS-DOS, Windows 3.x, Windows 95, and Windows 98. In each of these cases, Dr. Warren-Boulton agreed that Microsoft faced market pressures to come out with increasingly innovative products providing the customer with ever more value for their dollar, rather than being able to rest on it's "monopoly power" to continue extracting profits from sub-par products.
4. Dr. Warren-Boulton acceded to the proposition that, as the Internet became increasingly important to computer users, Microsoft was faced with market pressure to provide Internet capabilities in future versions of the OS in order to continue putting out a popular product which meet its customers' demands. Dr. Warren-Boulton agreed that in doing so, Microsoft included functionality within Windows which overlapped or duplicated the functionalities previously provided by independent software vendors, as with the inclusion of TCP/IP stacking capabilities in Windows 95, and that there wasn't anything wrong with such actions in principal.
5. Dr. Warren-Boulton also acknowledged that internal Microsoft documents identified several key competitive threats to Microsoft's position in the OS market, aside from the potential threat from a Netscape-Java cross-platform system, including the possibility of Intel getting into the OS business and offering OEMs a large discount on the cost of an OS when purchased with an Intel CPU, a threat made particularly acute given the fact that Intel has been developing a 64-bit chip which would require an entirely different OS design from the current Windows line, which relies on 32-bit technology. This latter development would necessarily affect what Dr. Warren-Boulton terms the "durability" of Microsoft's alleged monopoly power in the PC OS market.
6. In defining the relevant market for his analysis of Microsoft's supposed monopoly power, Dr. Warren-Boulton left out of his calculation the product he acknowledges posses one of the greatest threats to Microsoft's competitive position, one which already can serve as a substitute for the Microsoft OS in certain areas-Netscape with Java capabilities.
7. In his earlier testimony, Dr. Warren-Boulton discussed extensively the applications barrier to entry into the OS market. This barrier, which Dr. Warren-Boulton claimed would make it difficult for an entering firm to compete in that market, appears to have already been overcome by commercially available versions of Linux, such as Red Hat. The potential viability of Red Hat, which include not only a Windows-like operating system, but also copies of WordPerfect 7, Netscape, CAD, and various other popular computing programs as shown by plaintiff's exhibits 1901 A and B, as a competitor to Microsoft Windows had not been considered by Dr. Warren-Boulton when he performed his analysis of Microsoft's market position, as Dr. Warren-Boulton admitted to being unaware of the various features included as standard with Red Hat.
(11/23, 11/24, 11/25AM) from Ben Edelman (firstname.lastname@example.org)
Warren-Boulton Cross Examination (continued, 11/23, 24, 25AM)
During cross-examination, Microsoft attempts to show a number of points about Dr. Warren-Boulton's testimony, including:
Microsoft brings into question the validity of W-B’s use of P/E ratios to determine the extent of Microsoft’s alleged monopoly power. W-B responds by adding additional criteria to the test specified in his testimony, but it’s not clear that his test works with intuitively obvious real-world examples. (23AM6) Furthermore, W-B admits that he may not have considered all the oddities of Microsoft’s accounting practices, so it’s possible that MS’s P/E would have to be adjusted downwards somewhat in order to make meaningful comparisons between MS and the other companies with which W-B compared it. (24AM66-68)
Microsoft brings into question W-B’s ability to testify to the per-copy or per-user costs of various distribution mechanisms since W-B doesn’t know how much Netscape spent total to distribute 200 million copies of their browser or how many new users were obtained from that distribution effort. Microsoft suggests that, without such knowledge, W-B cannot make accurate judgements about the relative costs of distribution mechanisms, and that he therefore cannot speak to the economic viability of particular mechanisms or the superiority of one over another. (23AM26)
Microsoft attempts to show a variety of inconsistencies between W-B’s testimony and that of Barksdale. In particular, Microsoft notes that Barksdale had argued that online software distribution had been helpful to Netscape, while Microsoft interprets W-B’s direct testimony to say that online software distribution was more of a handicap to Netscape since consumers find large downloads so troublesome. (23AM30)
W-B testifies that not only does Netscape have a lead in the installed base of corporate browsers, but the lead is widening. Although W-B asserts that Netscape’s strong position in the corporate market is due to Microsoft’s inability to intervene between Netscape and its major customers (preinstallation on new computers, distribution via ISPs, and other similar techniques are allegedly less effective on big companies than on small businesses and consumers), Microsoft cites Barksdale’s testimony (which W-B at least partially accepts) that Netscape has always focussed on the corporate market. In this way, Microsoft draws into question W-B’s suggestion of a causal relationship between the “relatively level” playing field between browsers due to the structure of the corporate browser market and Netscape’s apparent current victory in that market. (23AM34)
W-B is at a loss to address Microsoft’s claim that Netscape’s international failure in international usage/sales is its own fault – due to its failure to dedicate staff to international sales, to write versions of Netscape in different languages, to establish an international distribution channel. (23AM77)
Microsoft questions W-B’s determination of the scope of the OS market, suggesting that W-B was too narrow in defining the market because he excluded, for example, the Mac OS, which at least some consumers treat as a substitute to Windows. (23PM6)
With respect to the barrier to entry into the OS market caused by the need for high-quality applications, W-B admits that the Mac has applications of each general type written for PCs, suggesting that perhaps applications don’t present so great a limitation on inter-OS competition as W-B had previously suggested. W-B attempts to argue that OS/2’s lack of applications was primarily responsible for the OS’s failure, refusing to accept Microsoft’s assertion that IBM’s technical and marketing mistakes (requiring too much RAM, charging too much, etc.) were at least as serious; Microsoft suggests, with W-B disagreeing, that it’s not appropriate to use OS/2 as an example of the need for good applications to gain acceptance for an OS since the OS was so badly flawed in other respects (23PM17-24) and since IBM has had relatively little success writing PC software programs in general (24AM9-10).
Continuing in the theme of confounding factors, Microsoft questions W-B’s assertion that IE3 and 4’s increased acceptance was due to Microsoft’s alleged anticompetitive strategies, noting the many favorable reviews recent version of IE received. (23PM27-28)
W-B agrees that Microsoft’s Java implementation is superior to others in that Microsoft’s Jdirect technologies provide improved performance, and he agrees that some well-informed developers may choose to write to Microsoft’s standard because it works better for their particular application and user base. (23PM38-39)
W-B admits that there are features common to all modern OS’s (the ability to store files on a LAN, for example) that he considers not to be part of operating system software. (23PM60)
W-B admits that it would be “extraordinarily expensive” to use workstations instead of Windows PCs, and he further acknowledges that Microsoft’s large market share reflects consumer preferences to at least some extent. (24AM7)
W-B agrees that, in the absence of cross-platform applications, consumers benefit from a single OS standard that runs the greatest number of applications. (24AM18) W-B also agrees that users face a tradeoff when evaluating cross-platform applications in that those applications that run on a variety of platforms have “costs,” impliedly in the sense that they run more slowly, provide fewer features, or are less reliable, although W-B wouldn’t agree to Microsoft’s particular assertions re the failures of specific cross-platform programs. (24AM26-30) Finally, W-B agrees that there is little or no demand in the marketplace for alternatives to Windows. (24AM51)
W-B agrees that a valid analysis of pricing trends in OS’s needs to recognize the increase over time in features included in the OS. (24AM62)
W-B is not sure whether or not there are any PC operating systems such that the current version does not include a free browser, although it is his testimony that Microsoft should be required to provide such an OS. (24PM40-41)
from Kimberley Isbell (email@example.com)
Cross-examination of Dr. Warren-Boulton, cont.
November 30, p.m. session
Through cross-examination of Dr. Warren-Boulton, Microsoft lawyers showed the following:
1. When preparing his testimony about ISP contracts with Microsoft, Dr. Warren-Boulton focused on stated reasons which were most damaging to Microsoft, leaving out, for example, the fact that MCI wanted to go with Microsoft because it felt that being perceived as a major distributor of Microsoft software would be advantageous in the long run, outside of considerations about placement in the Internet Connection Wizard; and the fact that the primary reason for the creation of the ICW was the fact that connection to the Internet was one of the primary reasons most consumers bought computers, rather than as a means of leveraging inclusion in the OS as a tool to make ISPs use IE, as Dr. Warren-Boulton surmised.
2. That Microsoft has granted every request by an OEM to have its own Internet sign up materials appear before the ICW in the initial boot up sequence of Windows 98, making much of Dr. Warren-Boulton's testimony about the ICW in Windows 95 inapplicable to Windows 98. Furthermore, Dr. Warren-Boulton admitted he hadn't looked at the sign up sequences of the six OEMs who have taken advantage of this option in order to gauge whether or not the ISPs listed are ones which currently have agreements with Microsoft or not.
3. Q. HAVE YOU EVER HEARD ANYONE ELSE ON THE PLANET EARTH TALK ABOUT PORTING A WEB SITE?
A. NO. I'M TRYING TO MAKE A PARALLEL TO PORTING AN APPLICATION.
Q. HAVE YOU EVER HEARD ANYONE ELSE ON THE PLANET EARTH DRAW A PARALLEL BETWEEN WEB SITE DESIGN AND AN APPLICATION?
A. WELL, THEY'RE BOTH DONE BY SOFTWARE DEVELOPERS, SO YES. BUT I WILL SAY THAT USING THE TERM "PORTING" IS AN ATTEMPT TO--TO MAKE IT CLEARER.
4. Dr. Warren-Boulton, who admitted to not knowing what a mirror site was, didn't take into consideration an ISP's ability to create a mirror site for Netscape users when he made his determination about the effects of Microsoft's request that ISPs such as Mindspring use two ActiveX technologies in creation of their corporate websites. Dr. Warren-Boulton also acknowledged that he was not familiar with what costs would actually be involved in creating such a mirror site, but assumed based on an analogy to porting software that it was often prohibitively high.
5. Dr. Warren-Boulton acknowledged that when he compiled his testimony about the exclusionary restrictive effects of Microsoft's agreements with ICPs for inclusion on the Active Desktop, that he didn't take the time to learn that all of the contracts had already expired without being renewed. In addition, Dr. Warren-Boulton admitted that he only read four or five of the approximately 20 agreements, all of which were individually negotiated and therefore contained a great deal of variation. For example, Dr. Warren-Boulton neglected to consider the fact that Microsoft's agreement with Disney did not restrict Disney from distributing rival browsers, while Microsoft's agreements with the Hearst Corporation and the Hollywood Online Informational Service did not restrict their ability to enter into promotional agreements with Netscape, contrary to Dr. Warren-Boulton's claims about the exclusivity of these agreements.
December 1, a.m. session
In continued cross-examination of Dr. Warren-Boulton, Microsoft lawyers brought out the following key points:
1. In performing his study on the causes behind Netscape's steady decline in market share, Dr. Warren-Boulton admitted that he did not factor in Netscape's pricing of its software, and thus did not consider the fact that Netscape steadily raised its prices, even after it began facing competition from Microsoft. In addition, Dr. Warren-Boulton didn't consider what effect Netscape's reputation in the industry as being "arrogant, condescending, and not particularly helpful" had on its share of the browser market.
2. Dr. Warren-Boulton was unable to say what effect the proposed Sun-AOL-Netscape deal would have on the likelihood that Microsoft would achieve what he considered a "monopoly" share of the browser market, but acknowledged that such a deal would likely have an impact.
Re-direct testimony of Dr. Warren-Boulton
December 1, a.m. session
1. Dr. Warren-Boulton gave an analysis of the cost of Microsoft's OS as proportion of the overall cost of a machine shipped by and OEM, and concluded that the fact that the proportion of the cost went up indicated that Microsoft was exerting monopoly power. What this analysis masks is the fact that the price for Microsoft OSs has only increased $30 (not taking into account inflation, which would bring the cost differential down), while the amount of utilities and value included in the OS has increased exponentially. Between 1991 and 1996, however, the cost of the OS as proportion of the total cost of a PC never exceeded 3%; in fact, the percentage of the cost attributable to the OS only increased two percentage points.
December 1, p.m. session
2. Dr. Warren-Boulton, during his analysis of the effect Microsoft's agreements with ISPs had on IE's market share in the browser market, also looked at several ISPs who had similar arrangements with Netscape.
Re-Cross of Dr. Warren-Boulton
December 1, p.m. session
In their re-cross examination of Dr. Warren-Boulton, Microsoft lawyers elicited the following information:
1. Having previously testified that the cost of creating a new OS is very high, Dr. Warren-Boulton was asked what would happen to the price of OSs in a situation where most of the applications were written to a middleware browser plus Java application, therefore making the OS interchangeable with any other OS. Dr. Warren-Boulton answered that the price of OSs would necessarily go down; this would decrease the profit anyone could make off of a new OS product and make it difficult to recoup the large investment Dr. Warren-Boulton testified would go into any new OS. Further, with the large number of APIs in Windows 98, any attempt by a browser-Java application to become an alternate platform would require an extensive amount of development to compete effectively, especially since Microsoft continues adding APIs with each new release.
2. Mr. Sparks, whose testimony Dr. Warren-Boulton had relied on earlier, is an employee of Caldera, which is currently in the middle of litigation against Microsoft.
3. Dr. Warren-Boulton's assertion that consumers would see a cost savings if computers ran a middleware browser-Java application, plus an underlying OS, doesn't necessarily hold, since Sun plans to increase licensing fees of the Java technology if it ever becomes popular and well-entrenched, making it likely that the combined cost of Java, the browser, and the OS would equal the current cost for Windows 98 with the browser included for free.
4. Despite supposedly being forced to give away its browser for free, Netscape now earns more in portal, ad, and ancillary application revenues that it ever did from the sale of its browser.
5. The study which Dr. Warren-Boulton cited as proof that Microsoft exercises monopoly power, because it felt able to double the cost charged for Windows 98 with only a 30% decline in demand, was not in fact an economic study of Microsoft's market power. Instead, it was the results of a focus group of customers who were asked how much they would pay for Windows 98. Furthermore, while Microsoft investigated charging either $49, $89, or $129 for Windows 98, other OSs cost far more: OS/2 costs $249 , and Mac OS 8.5 costs over $129.
6. In performing his analysis of the percentage cost of the OS compared to other components of a new computer, Dr. Warren-Boulton did not compare the percentage cost of the OS to other software applications.
7. Dr. Warren-Boulton's additional testimony about the Adknowledge data, which attempted to correct for an understatement of the numbers of IE hits from AOL caused by caching, failed to take into account the fact that all major ISPs, not just AOL, use caching so that the numbers for other ISPs would also have been under-represented. In addition, Adknowledge implemented cache-fooling technology during the period covered by the study, causing an adjustment for caching to possibly overstate hits in some situations. Furthermore, the data provided by Adknowledge showed 98% of hits to come from Netscape and IE combined, despite the fact that at the time a large number of AOL users were still using Booklink, making any data which suggests that all other browsers accounted for only 2% of hits seem questionable. (In fact, there was some suggestion that Adknowledge simply counted all AOL hits as being from IE, rather than separating out IE and Booklink.)
8. During the time period Dr. Warren-Boulton studied to get his flow measurements of new browser usage, a non-Netscape, non-IE browser actually increased its usage dramatically: WebTV.
9. In Dr. Warren-Boulton's list of parity ISPs which it used as a control group to figure out the effect of Microsoft's agreements with ISPs on browser distribution, the six which were graphed were taken without further investigation from a Microsoft document listing them as "neutral" between IE and Netscape. In fact, upon calling those ISPs, Microsoft learned that four of the six offered only Netscape, one offered only IE, and the other didn't provide any browser, making the use of these six as a control group misleading.