Dave Heiner MEMO

[James Love <love@cptech.org>]

The following rather long memo, apparently from Dave Heiner,
Senior Corporate Attorney,  Microsoft Law and Corporate Affairs,
was just forwarded to me. It provides the MS talking points on 
the antitrust case.
  Jamie



---------------------- Forwarded by [censored] on 03/09/99 09:50 AM
---------------------------


I received this from a firend who is a manager at Microsoft, and I
thought
a few people might be interested in the internal "propaganda" about the
antitrust suit against MS.


-----------------------
In case any of you care to hear "our" side...   : )

-----Original Message-----
Sent:     Wednesday, March 03, 1999 11:01 PM
Subject:  DOJ Case: What's Happening


Last week we finished the first phase of the DOJ trial.  We thought it
would
be useful at this juncture to provide you with a report concerning the
claims asserted against Microsoft and how the evidentiary record is
shaping
up.  You may forward this mail within your organization if you wish.

INTRODUCTORY COMMENTS

It is not easy for any company to be the subject of a full scale
monopolization case brought by the U.S. government. This case has been
no
exception.  Here the DOJ, nineteen states and Microsoft's leading
competitors (Netscape, AOL, Sun, IBM and Apple) have allied to attack
Microsoft's efforts to develop and market Internet-related software (and
other software).  As you know, the allegations of wrongdoing -- some of
them
quite sensational -- have received a great deal of attention in the
press.

Microsoft did everything it could to avoid this lawsuit.  Most
importantly,
in the weeks before the case was filed we worked cooperatively with the
government to try to find a resolution short of litigation that would be
acceptable to both sides.  Unfortunately, we were unable to find any
solution that satisfied the government while preserving Microsoft?s
freedom
to design and develop innovative new software products.

So we have this lawsuit, and all the allegations that go with it.
Fortunately, lawsuits are decided on the basis of law and facts, not
allegations and mere hearsay.  The law is fairly well understood, having
been established by more than 100 years' worth of cases decided under
the
nation's antitrust laws.  Similarly, although press reports inevitably
focus
upon points of controversy, the central facts relevant to the applicable
legal principles are largely undisputed.  We believe that these facts --
now
established in the evidentiary record -- clearly show that none of the
Microsoft conduct challenged by the government is anticompetitive. 
Quite
to
the contrary, nearly all of the Microsoft conduct at issue in the trial
is
affirmatively pro-competitive -- conduct that antitrust law is designed
to
promote.

Competitors are supposed to compete, and that is what Microsoft has
done.
We are proud of the great job our platform developers have done building
strong support for Internet standards into Windows.  We are proud of the
great job the Java team has done building the fastest, most compatible
implementation of a Java virtual machine and the industry's leading Java
dev
tools.  We are proud of our efforts to rapidly disseminate improved
versions
of Windows to the marketplace, both through new releases of Windows and
through broad distribution of Internet Explorer upgrades to existing
Windows
installations.

All of this conduct directly benefits ISVs, OEMs and customers.  And all
of
it has been challenged by the government.

We believe that the government's case against Microsoft is profoundly
anti-consumer.  Developing innovative new technology and broadly
distributing that technology to consumers is exactly what every computer
company is supposed to do (regardless of its market share).

The government has created a lot of noise around various random
incidents
or
pieces of email.  Although these incidents have generated headlines,
much
of
this evidence has been largely or even entirely irrelevant to any of the
issues in the case.  Much of it simply reflects the intensity of
competition
with the software industry, routine interactions among computer
companies,
or internal discussions of ideas that were never implemented.  Strong
language, however, is not illegal.

Notably, the government has been unable to rebut certain key facts,
known
by
all to be true, that undermine all of its claims.  We have methodically
and
somewhat painstakingly developed an extensive evidentiary record,
running
to
thousands of pages, that establishes these key facts, and does so in
considerable detail with extensive reference to contemporaneous
documents.
The government has not even attempted to refute the vast majority of the
testimonial and supporting documentary evidence presented by Microsoft.

For example, every single one of the government's claims is premised on
the
assertion that Microsoft blocked Netscape's ability to distribute
Netscape
Navigator to customers, in part by our Internet-related improvements to
Windows and in part by contracts with third parties.  We have shown in
many
different ways that the claim is false.  Netscape has successfully
distributed Navigator in vast quantities.  This year alone Netscape will
distribute about 159 million copies of Navigator -- which is two or
three
copies for every man, woman and child using the Internet.  The source of
that testimony, and much more of similar import, is Jim Barksdale, the
CEO
of Netscape.  Faced with testimony like this, the government has not
attempted to quantify in any way the alleged "foreclosure" of Netscape's
distribution, leaving a complete failure of proof on this key point.

The government has also alleged, as it must, that the Microsoft conduct
it
challenges does not make "business sense" apart from its alleged
negative
effect on Netscape.  This too is plainly false.  For example, the
government's lead economist, Professor Fisher, testified that
Microsoft's
"browser development" does not "make sense from a business standpoint."
But
who can doubt the benefits for Microsoft and its customers of developing
innovative Internet client software?  And who can doubt the benefits of
integrating such client software tightly into Windows?

In fact, we have thoroughly documented the many benefits for ISVs, OEMs
and
end-users of Microsoft's Internet-related improvements to Windows.  The
government has not attempted to refute the testimony of Jim Allchin,
Mike
Devlin (CEO of Rational, an ISV that leverages the Internet Explorer
technologies in Windows), Glenn Weadock (the government's own expert
witness), and others, all of whom have testified to the customer
benefits
inherent in Microsoft's integrated design.  (Remember all the drama
around
Jim Allchin's testimony?  That drama related to a narrow sideshow issue
--
certain defects in a software program designed by the government -- not
to
the central thrust of Jim's testimony, which concerned the benefits of
Microsoft's integrated design.  The government cannot, and has not,
challenged those benefits.)

The case against Microsoft will be decided by applying the relevant
legal
principles to the evidentiary record.  As explained more fully below, we
believe that none of the government's claims can be sustained on the
basis
of the record as it now stands.

You are no doubt thinking that most of the press coverage paints a far
different picture of how the trial is going for Microsoft.  I will not
dwell
upon press coverage in this mail, other than ask that you consider the
following:

First, most news accounts don't undertake the somewhat difficult task of
assessing the significance of the evidence presented each day against
the
legal standards on which the case will be decided.  Trials can be pretty
dull (think of an afternoon spent listening to testimony on the
intricacies
of native code interfaces in Java class libraries).  Given the tedious
nature of court proceedings, most news accounts of the trial focus upon
moments of seeming "drama," even though such vignettes may be irrelevant
to
the likely outcome of the trial.

Second, most news accounts have given far more attention to the
accusations
than to the Microsoft rebuttals (which often come much later, when our
witnesses take the stand).   "Apple Exec Claims Sabotage" is a lot more
interesting headline than news three months later that a Microsoft
witness,
as expected, denies the charge (and proves it false).

Third, and most importantly, remember that press coverage was quite
negative
in connection with both of our prior antitrust cases.  In both cases,
however, we won in court, and did so by unanimous decisions of the Court
of
Appeals.  (Appeals are heard by panels of three judges.)

In late 1994/early 1995, we saw negative press coverage in connection
with
Judge Sporkin?s review and ultimate rejection of a proposed "consent
decree"
between Microsoft and the Department of Justice.  The Court of Appeals,
however, unanimously determined that Judge Sporkin erred, and agreed
with
Microsoft that he should be disqualified from presiding over the case
for
failing to maintain the appearance of impartiality.  (We had been
criticized
in the press for arguing that the judge appeared to be biased.)

A little over a year ago we saw negative press coverage in connection
with
Judge Jackson's issuance of a preliminary injunction concerning OEM
licensing of Windows 95.  In June 1998, however, the Court of Appeals
unanimously determined that Judge Jackson erred in issuing the
injunction.
The Court based its decision on an evidentiary hearing held in the trial
court in January 1998 that would not have taken place if Microsoft had
followed the pundits? advice to accede to DOJ demands concerning the
injunction.  The resulting Court of Appeals decision should help us
greatly
in the current case.

Set forth below is a summary statement of the key legal standards and
facts
concerning the primary claims against Microsoft.  For more information
on
the case, visit the Microsoft PressPass site, which has copies of the
written testimony of all the Microsoft witnesses and other trial
materials.
The PressPass Trial Update is at:
http://www.microsoft.com/presspass/trial/
<http://www.microsoft.com/presspass/trial/>


SUMMARY OF CLAIMS AND EVIDENCE

A.   WEB BROWSER DISTRIBUTION:   As noted above, all of the government's
claims are premised on the theory that Microsoft "foreclosed" Netscape
from
distributing its Web browsing software to consumers.  Since competition
on
the merits can have the effect of depriving competitors of certain
distribution outlets, courts require proof of a great deal of
"foreclosure"
before they will consider such a claim.  In this case, Judge Jackson has
already ruled that the government "must establish foreclosure of greater
than 40% to prevail on their exclusive dealing claims."  But the
following
facts -- all undisputed by the government -- show that Netscape has
enjoyed
great distribution for Navigator.  In fact, as shown below, the evidence
at
trial shows that every distribution channel remains open to Netscape.

*    Jim Barksdale admitted on cross-examination that Navigator is
"ubiquitous."

*    Jim Barksdale admitted that under Netscape's "Unlimited
Distribution" program the company would distribute approximately 159
million
copies of Navigator -- more than the "total number of people connected
to
the web."

*    Jim Barksdale admitted that are currently "somewhere between 40
million and 70 million" users of Netscape Navigator.

*    Jim Barksdale admitted that more than 26 million copies of
Navigator
were downloaded off the Internet from January through August 1998.  (The
government alleges that downloading software is too hard, and thus is
not a
realistic channel of significant software distribution.)

*    Microsoft's expert economist, Professor Richard Schmalensee,
calculated that the number of Netscape users has more than doubled in
less
than three years, despite intense competition from Microsoft.

     B.   UNLAWFUL TYING:  The government claims that one of the primary
means by which Microsoft has "foreclosed" Netscape's ability to
distribute
its browser is through "tying" Internet Explorer to Windows.  Yet the
government has flip-flopped 180 degrees on this issue.  Less than one
year
ago, the DOJ insisted that Windows and Internet Explorer were two
entirely
separate products (not a single, integrated product), connected only by
an
alleged contractual requirement that OEMs who want Windows must also
take
Internet Explorer.  That claim has since been shown to be false -- by
Microsoft, by counsel for Netscape, by the Court of Appeals and even by
the
DOJ's own expert witnesses, all of whom understand that Internet
Explorer
software is an important aspect of Windows.  So the government has now
reversed course, arguing that Internet Explorer is indeed tightly
integrated
into Windows, but shouldn't be because some customers might prefer a
browser-less version of Windows.

     In other words, the government is simply arguing  that a design
other than the design chosen by Microsoft might be optimum.  Several of
the
government witnesses have emphasized that Microsoft "could have"
designed
Windows differently.  That conclusion, however, is legally irrelevant. 
The
courts have long been clear that the government has little or no role to
play in product design, for fear that any contrary approach would create
undue legal risk and thus chill legitimate product innovation.  In
particular, in the June 1998 decision the Court of Appeals ruled that
challenges to an integrated product fail as a matter of law (meaning
without
the need for further factual inquiry) if "there is a plausible claim
that
[the integration] brings some advantage."  Judge Jackson has already
determined that the framework set forth in the Court of Appeals decision
applies in the current case.

     In this case, as noted above, we have exhaustively documented and
demonstrated the clear ISV, OEM and customer benefits from Microsoft's
inclusion of Internet Explorer in Windows.  The benefits are described
in
detail in the testimony of Paul Maritz and Jim Allchin.

     The benefits of Microsoft's integrated design are so plain that the
government knew it could not challenge them.  Instead, it merely
established
that installing Internet Explorer 4.0 on Windows 95 provides many
(though
not all) of the Internet-related benefits of Windows 98.  (The
government
established this point with great fanfare in court, asking variations on
the
same question 19 times.)  Jim explained, of course, that the ability of
IE
4
to provide many of the Internet-related benefits of Windows 98 merely
reflects the fact that IE 4 was designed as an operating system upgrade,
which overwrites key system files upon installation.  Ignoring that
statement of fact, the government argued to the press that Jim's
testimony
showed that customers do not benefit from integration because they get
almost the same benefits if IE 4 is delivered separately.  This
government
argument was well-received by the press.

     The government argument is unlikely to fare well in court, however,
because the identical argument, on identical facts, has already been
flatly
rejected by the Court of Appeals.  The Court explained that consumers
benefit from Microsoft's integrated design:  "if Microsoft presented
[OEMs]
with an operating system and a stand-alone browser application, rather
than
the interpenetrating design of Windows 95 and IE 4, the OEMs could not
combine them in the way in which Microsoft has integrated IE 4 into
Windows
95."  The fact that software can be upgraded after it is initially
installed
is a benefit for customers, not a reason to condemn a beneficial
integrated
design as "unlawful tying."

     Microsoft's inclusion of Internet-related client services in
Windows
obviously does not prevent Netscape and others from building standalone
Web
browser applications for Windows, and they have done so with great
success.
In fact, Microsoft's integrated design plainly facilitates development
of
such software (and thereby promotes competition) since browser
developers
can leverage all or some of the Internet Explorer components in Windows
if
they wish to do so.  We showed in court, for example, that many leading
PCs

come with the Encompass browser pre-installed (even though the
government
alleges that OEMs are reluctant to install more than one browser).

     Through the testimony of Joachim Kempin, we have shown that OEMs
are
free to, and do, install competing browser software on new PCs running
Windows, including Netscape Navigator.  Indeed, all OEMs are free to
configure Navigator as the default browser on the system.  All OEMs are
free
to heavily optimize the appearance of new PCs to promote Netscape
Navigator.


     In addition, we have introduced proof on all of the following
points
relating to the government's tying claim:

*    Several of the government's witnesses testified that Internet
Explorer is integrated into Windows 98.  In March 1998, Netscape?s
counsel
told the DOJ in writing that Internet Explorer was so tightly integrated
into Windows 98 that it could not be removed without impairing the
operating
system.

*    The benefits of Microsoft?s integrated design, and much of the
utility of the Windows platform generally, would be lost if OEMs were
free
to install as much or as little of Windows as they please, such as with
or
without IE (as the DOJ proposes).

*    All modern operating systems include Web browsing software.
Microsoft is the leader in bringing customers the benefits of an
integrated
approach to accessing and displaying information across Internet and
non-Internet related data stores.

*    Microsoft?s decision to build great Internet support, including
full
Web browsing capability, into Windows pre-dates the company?s awareness
that
Netscape even existed.  Our integration efforts accelerated as
competition
with Netscape intensified.

*    The so-called ?IE removal program? developed by Professor Felten
does NOT remove IE from Windows and does not even fully hide access to
the
IE software in Windows.  Felten?s testimony to the contrary is plainly
false.  Our video demonstration showed how to browse the Web in Windows
98
after Felten?s IE removal program is run.  The DOJ never challenged this
aspect of the videotape.

*    The government has failed even to identify what software
constitutes
the allegedly "tied" product.  (The answer cannot be simply "Internet
Explorer software" because the government proposes that nearly every
line
of
that software remain in Windows.)

*    Nothing about Microsoft's integrated design keeps Navigator from
running well on Windows 95 and Windows 98.  In fact, Navigator itself
takes
advantage of some of the Internet-related system services in Windows.

*    Jim Barksdale testified that Netscape distributes Navigator through
such leading OEMs as Compaq, Fujitsu, Gateway, IBM, Hewlett-Packard, NEC
and
Sony.

     C.   EXCLUSIONARY CONTRACTS:  In addition to "tying," the
government
alleges that Microsoft entered into a series of contracts with online
service providers (OLSs) like AOL, Internet Service Providers (ISPs) and
Internet Content Providers (ICPs) to foreclose Netscape's browser
distribution.  But the evidence introduced at trial shows that none of
these
types of contracts impaired Netscape's ability to distribute software to
its
customers.  These three categories of contracts are briefly discussed,
in
turn, below.

          1.   OLS AGREEMENTS

     Microsoft licensed Internet Explorer 3.0 and higher to OLSs to
enable them to build custom access software for their services on
Internet
Explorer's state-of-the-art componentized technology.  (To this day
Netscape
Navigator still is not componentized.)  Microsoft also included access
software for the OLSs in Windows and the OLSs agreed to use the Internet
Explorer software and promote such software in various ways.  Of these
agreements, only the agreement with AOL appears to be commercially
significant.  Through the testimony of Brad Chase, Professor Schmalensee
(our economist) and others, Microsoft introduced the following evidence
concerning AOL:

*    Although the government alleges that Microsoft's agreement with AOL
provides for "virtual exclusivity" for Internet Explorer, 22% of AOL
customers use Navigator as their primary Web browsing software.

*    Under AOL's agreement with Microsoft, every single one of AOL's
customers could elect to use Navigator, and nothing in the AOL/Microsoft
agreement prevents them from doing so.

*    AOL is free to promote Navigator in limited ways within its
service.
AOL even includes links within the service from which Navigator can be
downloaded.

*    Notwithstanding any contractual provision, AOL was likely for
business and engineering reasons to attempt to standardize on client
software from Microsoft or Netscape, not both.  Microsoft and Netscape
competed aggressively for this business, and Microsoft won because
Microsoft
was willing to offer more value to AOL than Netscape did.  (Evidence
from
Netscape shows that it was focusing on business software at the time,
tempering its interest in any deal with consumer-oriented AOL.)  That is
competition at work.

*    In view of the recently announced merger of AOL and Netscape, it
seems likely that AOL will migrate its big customer base over to a new
Netscape-based client.  If that were to happen today, Microsoft would
lose
about half its usage share for Internet Explorer, and Netscape's share
would
grow by about half.  In that event, Netscape would be the clear leader
by a
very substantial margin in Web browser usage share, instantly rendering
moot
all of the claims that Microsoft is likely to succeed in dominating Web
browser usage through the conduct alleged in the complaint.


          2.   ISP AGREEMENTS

     Microsoft entered into agreements with certain ISPs relating to
their inclusion in an Internet sign up "referral server" run by
Microsoft,
and accessed from Windows 95.  The government alleged that ?[t]hese
contracts have the purpose and effect of excluding the Netscape
Navigator
browser from distribution through the vast majority of U.S. [Internet
Access
Providers].?  Through Cam Myhrvold, we introduced the following
evidence:

*    The challenged agreements pertained to only about ten of the 4,500
ISPs in existence today.  Plenty of ISP distribution remained available
to
Netscape regardless of the terms of the challenged agreements with ten
ISPs.

*    Contrary to government allegations, the challenged agreements did
not require the ten ISPs to distribute IE exclusively.  In fact, as Cam
testified, "every one of the ISPs in the Windows 95 Referral Server also
distributed Netscape's web browsing software, sometimes in large
quantities,
and almost all still do."  For example, Concentric and Earthlink, two of
the
ISPs in the Windows 95 Referral Server, collectively distributed
millions
of
copies of Netscape Navigator.

*    The usage share for Navigator among customers of ISPs in the
Windows
95 Referral Server is about the same as among all users of the Internet.
In
other words, the challenged agreements had little effect.

*    Microsoft's agreements concerning the Windows 98 Referral Server
contain none of the challenged provisions.


          3.   ICP AGREEMENTS

     Microsoft entered into agreements with certain ICPs relating to
their development of content formatted for the Internet Explorer 4
"Channel
Bar."   The government alleged that these agreements ?exclude competing
browsers? and thereby ?threaten to tip the browser battle decisively in
Internet Explorer?s favor . . . .?   Through Will Poole, we introduced
the
following evidence:

*    Microsoft entered into the challenged agreements with only about 24
ICPs (relating to 31 Web sites).  But there are far more than one
million
sites on the Web, thousands of which are commercially significant and
available to Netscape for any deals it might like to do.

*    The agreements could not have had any effect on Web browser
distribution because only six of the 24 ICPs distributed any Web
browsing
software at all.

*    The agreements placed no limits on the ICPs ability to format their
content to enable it work grea
t with Netscape, including Netscape's
implementation of the Channel Bar concept, called NetCaster.

*    All of the agreements were short-term, and all have expired as of
December 31, 1998.  Furthermore, in April 1998, just seven months after
IE
4
(and its Channel Bar) shipped, Microsoft waived the contract terms
challenged by the government.

*    Although the government alleged that access to the Channel Bar was
a
"must have" for ICPs hungry for viewers, in reality the Channel Bar did
not
find favor with customers, and will not appear in Internet Explorer 5.0
and
higher.


     D.   OTHER "BAD ACTS":  There are various other allegations in the
case, most of which the government attempted to inject into the case
only
after the June 1998 Court of Appeals ruling, which made clear that much
of
the government's original case was without merit.  These additional
allegations are very briefly addressed below.

          1.  THE NETSCAPE MEETING

     The government alleges that at a meeting in June 1995
representatives from Microsoft attempted to "divide the market" with
Netscape.  In particular, the government alleges that Microsoft proposed
that "Netscape provide the sole browser for non-Windows 95 operating
systems
and that Microsoft provide the sole browser for Windows 95 operating
systems."  The government alleges that when Netscape refused this offer,
Microsoft set out to crush the company.

     The government's allegation has been disproven by the testimony and
documents provided by Dan Rosen, who attended the meeting, and from
Netscape, including Netscape email.

*    It is undisputed that no "market division" occurred.  For this
reason alone, the government is unlikely to prevail on its claims
regarding
this meeting.  Under established legal principles, a mere "attempt" to
"divide a market" will not lead to legal liability except in very narrow
circumstances not present here.

*    The entire point of the Netscape meeting was the opposite of the
"market division" that the government alleges:  Rather than try to push
Netscape off Windows 95, Microsoft was trying to evangelize the
Internet-related platform technologies in Windows to Netscape for use in
their Windows 95 browser.  As established by contemporaneous documents,
Microsoft spent several hours showing Netscape new Windows 95 platform
technologies that we hoped Netscape would leverage in its own Windows 95
browser products.  These discussions would make no sense, if, as the
government alleges, Microsoft was urging Netscape not to build on
Windows
95.

*    Netscape's Chief Technical Officer, Marc Andreessen, explicitly
said
at the meeting that he wanted to avoid "dicking around with the low
level
stuff."  Again, this discussion makes no sense unless the premise of the
discussion was that Netscape would be building a Windows 95 browser --
and
that Netscape might want to use some Microsoft Internet-related Windows
technologies in so doing.  In fact, Netscape did use some of the cool
new
Internet technology we showed them that day, such as Internet Shortcuts.

*    The allegation that the meeting constituted "bullying" or a
"threat"
by Microsoft is belied many facts in evidence.  For example, the meeting
was
preceded by a series of other cordial and professional meetings between
the
companies in which they discussed a range of possible business
relationships, including a Netscape proposal that Microsoft ship
Netscape
client and server code in Windows.  Similarly, although Netscape has
accused
Microsoft of demanding an equity position in Netscape at the meeting, we
have written proof that it was Jim Clark, the Chairman of the Board of
Netscape, who initially suggested to Microsoft that we should invest in
Netscape.

*    After the meeting, Microsoft proceeded to give Netscape special dev
support in building their Windows 95 browser, including direct access to
Microsoft's Windows 95 developers (who were very busy preparing for the
commercial release of Windows 95 in August 1995).


          2.   JAVA

     The government alleges that Microsoft engaged in unlawful conduct
by
allegedly attempting to defeat the Sun promise of "Write Once, Run
Anywhere."  Bob Muglia testified that Microsoft simply provided
developers
a
choice:  they could write "pure Java" apps (as Sun terms it) that would
run
cross-platform to the extent permitted by Java today, or they could
write
apps in Java that would also benefit from unique Windows innovations.

     We believe that providing such innovative platform technology to
developers is the essence of pro-competitive conduct.  Certainly nothing
in
the antitrust laws compels any company to follow a competitor's lead in
implementing a new technology.  Like any other company, Microsoft is
free
as
a matter of antitrust law to follow as much or as little as Sun's lead
as
it
sees fit.

          3.   INTEL NSP SOFTWARE

     In April 1995 Intel announced that it had developed software called
"NSP" that was designed to allow Intel x86 microprocessors to perform
tasks
usually performed by separate DSP chips.  The government alleged at
trial
that Microsoft "bullied" Intel into withdrawing NSP from the market.
Through the testimony of Paul Maritz and contemporaneous documents,
however,
we have shown that Microsoft and Intel merely engaged in routine and
desirable technical discussions concerning the utility of NSP in the PC
architecture.

     There was one big problem with NSP:  it was designed to run on Win
3.1.  But in April 1995 Microsoft (and Intel) were looking forward to
the
release of Windows 95, which carried the prospect of boosting sales of
new
PCs (and thus Intel chips).  NSP was a full generation behind
Microsoft's
operating system development efforts.  Through a series of meetings and
technical papers (now in evidence), Microsoft advised Intel that
customers
or OEMs who installed NSP on machines running Windows 95 would
experience a
range of incompatibilities.  Microsoft also provided technical feedback
to
Intel regarding many other deficiencies in NSP, and offered to work with
the
company to make NSP suitable for commercial release.  (This too is in
evidence.)  Intel initially expressed interest in working with Microsoft
to
repair NSP, but later, without further communication with Microsoft,
decided
to discontinue its NSP efforts.  Intel and Microsoft continued to work
together, and much of Intel's NSP work has now been incorporated into
Windows in modified form.


          4.   APPLE

     Apple made three allegations against Microsoft.  They were
addressed
by Paul Maritz and Eric Engstrom.

     Sabotage.   Apple alleged that Microsoft "sabotaged" Apple
QuickTime
when running on Windows.  This claim got a lot of ink.  But, like
RealNetworks' similar claim before a Congressional committee, it isn't
true.

*    The Apple witness who claimed that Microsoft took "several steps to
sabotage QuickTime" admitted on cross examination that he had no basis
to
testify that Microsoft deliberately created any incompatibilities to
injure
any Apple product.  He also refused to be cross-examined on the
technical
interactions between QuickTime and Windows, saying that he was not
familiar
with the software in question.  Therefore, even apart from any rebuttal
from
Microsoft, there is a failure of proof on the sabotage claim.

*    The Apple developer who is familiar with the software in question
testified by deposition that he had never suggested that Microsoft has
intentionally created any incompatibilities with QuickTime.

*    Eric Engstrom testified, on the basis of exhaustive testing by
Microsoft, that the "incompatibilities" identified by Apple related
almost
entirely to programming errors in QuickTime.  In particular, Apple
failed
to
adhere to Netscape's specifications for how to install a Netscape
plug-in
(which Internet Explorer supports).  Microsoft easily created a patch
for
the Apple installation program, and the patch works.


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*    Eric testified that MindCraft, an independent lab, confirmed
Microsoft's conclusions.

We all know that subtle and sometimes not-so-subtle incompatibilities
often
arise between various components of PC systems, even components
developed
by
a single company.  Here the government has opportunistically seized upon
one
such instance, using it to gin up a claim of malicious conduct by
Microsoft.
But the state of the evidentiary record on the "sabotage" claim is (a) a
mere accusation, without supporting facts and (b) a detailed rebuttal by
Microsoft, identifying the Apple programming errors and fixing them.

QuickTime "market division".  Apple vaguely alleged that Microsoft
offered
to "divide" a "market" related to multimedia software.  Eric testified
that
he merely engaged in preliminary and exploratory discussions with Apple
to
determine whether there was any basis for the companies to work together
on
multimedia technologies for the benefit of both companies and customers.
Far from seeking to push Apple off Windows, the proposals Eric floated
would
have affirmatively promoted the QuickTime brand and various QuickTime
technologies on Windows.  In any event, nothing came of the discussions.

Microsoft Office 98 Macintosh Edition.  Apple alleged that in mid-1997
Microsoft threatened to "cancel" Office for the Mac unless Apple gave
preferred distribution to Internet Explorer on the Mac.  Paul Maritz
testified to the full scope of the negotiations between Apple and
Microsoft,
which primarily concerned Apple's threat to hit Microsoft with a major
patent lawsuit targeting Windows and Office, including Mac Office. 
Apple
demanded a $1.2 billion payment from Microsoft in connection with those
patents.  In the context of these negotiations, Microsoft advised Apple
that
it probably would not make business sense for Microsoft to continue to
invest in developing Mac Office absent some appropriate patent
cross-license
agreement between the parties.  (At the time Microsoft was considering
discontinuing Mac Office development even apart from any patent threat
against the product from Apple.)  Internet Explorer was a relatively
minor
part of the broad set of agreements, including a patent cross-license,
that
Apple and Microsoft executed in August 1997.



CONCLUSION

This case is likely to continue to progress through the courts for quite
some time.  The trial is scheduled to resume no earlier than mid-April,
at
which time each side will have an opportunity to present up to three
more
witnesses.  Later there will be briefing to the court on the application
of
the law to the facts, and closing arguments.  After that the trial court
will issue a decision, and one or both sides may elect to appeal.

We will continue to present facts and legal argument to the courts
concerning the claims asserted against Microsoft.  We are confident that
upon a proper application of well-established legal principles to the
facts
of the case, Microsoft will prevail.


Dave Heiner
Senior Corporate Attorney

Microsoft Law and Corporate Affairs


-- 
James Love, Director, Consumer Project on Technology
I can be reached at love@cptech.org, by telephone 202.387.8030,
by fax at 202.234.5176. CPT web page is http://www.cptech.org