The Microsoft Trial June 7, 1999

The Microsoft Trial June 7, 1999

The Microsoft Trial June 7, 1999

Notes from different corners of the world.
June 7 1999 8:03 PM

The Microsoft Trial June 7, 1999

Dahlia Lithwick worked for two years in a family law firm in Reno, Nev. She is writing a novel about how divorce affects children.

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If the press twittered, they'd have twittered. Since they don't, there's lots of leaping up to file in the middle of the day. Today the Justice Department puts the guy it's been dreaming about on the stand. And he has e-mails.

Garry Norris negotiated IBM's licensing agreement with Microsoft for Windows 95. When he began that job in March 1995, there was already bad feeling between Microsoft and IBM and there was already a time crunch. Microsoft's Windows 95 launch was scheduled for August 24 and IBM still didn't have its licensing agreement. Norris (who's boss's boss's boss is IBM CEO Louis Gerstner) would "escalate matters" to his superiors when the two sides reached an impasse. Seems they reached one pretty quickly.

Norris, the government's second rebuttal witness, is a study in minimalism. He answers Justice attorney Phillip Malone's direct examination with as few words as possible. He has a quick, broad smile that might be relief or just terror. As he speaks, he sketches out invisible cubes and spheres and cones with his hands. At times he sounds like he's reading off a teleprompter.

Norris' testimony offers an insight not only into the way Microsoft negotiates with its competitors, but also into the Dilbert-like world of corporate IBM. There, it seems, one can be on a "matrix management team." At IBM one communicates mainly in bullet points. Often with one's boss's boss. And at IBM one doesn't read a letter from Bill Gates. One "takes it in internally" and "attempts to do an analysis of its contents."

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Ah, but the stories Norris can tell. Like the one about Microsoft's 1994 Marketing Development Agreement. The MDA is Microsoft's equivalent of the Jujubes my brother uses to potty train his two-year-old. One Jujube for just sitting on the potty. Another for appropriate disposition of toilet paper. It seems Microsoft has a little menu of services that PC manufacturers can perform in exchange for reductions in the price of Windows 95. By complying with certain Microsoft requests, IBM in 1995 could have chipped $27 off the $75 price of Windows 95. So what did Microsoft ask IBM to do? Stop shipping OS/2, IBM's rival operating system, for one thing; adopt Windows 95 as the standard IBM operating system for another; mention Windows 95 as the only operating system in IBM advertisements. In brief, stop competing with Microsoft products.

Another good Norris story is about how he was frantically trying to negotiate the Windows 95 licensing agreement in the spring of 1995. This one sounds like the tale of an affair between a Parisian chorus girl and her lovelorn suitor. Microsoft pouts and threatens and withholds favors until it gets its trinkets. IBM begs and pleads and talks about the relationship.

The affair began to sour in June 1995 when IBM announced a hostile takeover of Lotus. According to the e-mails, Gates had "heard rumors in South America ... that IBM was planning to pre-load Lotus Smart Suite on all IBM's PCs." Evidently, Gates was upset.

On July 17, when IBM announced that Lotus Smart Suite was going to be its "primary desktop offering," Gates got really upset. Norris testifies about a conference call between his superiors and Gates in which Gates was "pretty loud." Three days after IBM's Smart Suite announcement, Microsoft cut off negotiations with IBM. It based the decision to stop negotiations on an incomplete audit of 1993 and 1994 Microsoft shipments, although resolution of the audit had never before been linked to the Windows 95 agreement.

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The lover's quarrel escalated:

The chorus girl was jealous: "Why does IBM help Lotus so much?" (e-mail from Gates to an underling).

The defiant suitor stood firm: "IBM's personal software products people will continue to compete with Windows 95" (August '95 IBM letter to Microsoft).

Yet he was still wheedling and cajoling: "IBM is very serious about pursuing a Windows 95 license agreement ..." (same August '95 letter).

The petulant chorus girl: "As long as you're competing with Microsoft you will continue to have problems in this relationship ... " (a Microsoft exec).

The wily chorus girl asked for "an offer of good faith from IBM ... something [s]he could show Gates." Then the dancer thought for a minute. Her eyes sparkled. She tapped her fan. She suggested that IBM "not bundle Lotus Smart Suite on [IBM] systems for six months to one year." Since after all, she said, "the 'threat of bundling' [is] a 'core issue' in the relationship." (an IBM record of an August 9 meeting with Microsoft).

"No" said the suitor.

The chorus girl--in the form of Microsoft executive Mark Baber--fluttered her lashes: "Where else are you gonna go? This is the only game in town."

The judge calls the morning break. David Boies, Justice's lead attorney, crows that this is some of "the best evidence of the case." Asked why Justice couldn't find a senior IBM executive to testify, Boies answers that they wanted someone from "the trenches."

Back in court: It turns out that on August 24, 1995, IBM and Microsoft signed their Windows 95 licensing agreement, 15 minutes before the operating system was launched. The audit was resolved the same day and never mentioned again.

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This is Norris' story: Microsoft was raising prices, making threats, insisting that IBM could have a "first-tier" deal--the one Compaq has--only when it stopped producing rival products.

But wait, I think to myself, what about the hearsay rule? Even the boom operator on Ally McBeal knows enough law to know that Norris shouldn't be allowed to talk about statements he's heard third- or fourth-hand. (That boss's boss thing again). Objection? Anyone? Why is everyone in this trial testifying about statements made by folks who aren't here? I ask some people. Jim Cullinan, a Microsoft PR "manager," tells me that the hearsay issue is "the very heartbeat of this trial."

"But what's up with the hearsay testimony?" I urge him. He tells me the judge decided early on in the case to let everything in and give it the weight he thinks it deserves.

"Guys from Apple and Intel were up here testifying about things said by people two levels below them," he says. This echoes something Chris Crook from Justice told me last week. That CEOs have been given more-or-less free rein to testify on behalf of all their little people.

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I am perplexed. The federal rules of evidence don't say that there's a hearsay exception for judges who feel comfortable with hearsay.

Hearsay is bad.

Hearsay lets Mr. Norris tell the story about "when IBM stops competing with Microsoft, they can have Compaq's deal," in response to three different questions. Who made that comment anyway? When? To whom? I think the guy in the mailroom said it to Bill Gates. I am sure there's a reason why everyone in this trial feels comfortable speaking on behalf of their underlings (or overlings). I just hope we don't have to wait till the appeal to find out what it is.

Click here   for dispatches from the last session of the Microsoft trial between October 1998 and February 1999.