MS/DOJ: Gates denies coercing Apple

Despite being confronted with internal e-mail messages to and from him, Microsoft Corp. Chairman Bill Gates repeatedly denied he was out to coerce Apple Computer Inc. to "undermine" rivals and to threaten to cancel a key Macintosh application as a bargaining chip.

The testimony was introduced into evidence in the government's antitrust trial against Microsoft Corp. in the form of portions of Gates' videotaped deposition taken in August.

Appearing at times ill-at-ease and combative and at other times befuddled, Gates maintained under intense questioning that discussions with Apple were initiated last year by that company's new interim chief executive officer, company founder Steve Jobs.

Gates denied that coercing Apple to give preferential treatment to Microsoft's Internet Explorer browser was the motivating factor for Microsoft's interest in the discussions. And he also indicated that he did not remember sending or receiving some of the most damaging evidence -- e-mail -- that the government is using to try to prove that Microsoft is engaged in unfair and illegal business practices.

In one of the most damning documents, Gates wrote an e-mail to subordinates on Aug. 8, 1997 after Microsoft and Apple entered into a pact. Under the pact, Apple agreed to make Internet Explorer the default browser on all Macintosh computers and, in turn, Microsoft would make a $US150 million investment in the then-floundering Apple.

"I want to get as much mileage as possible out of our browser and JAVA relationship here. In other words a real advantage against SUN (Microsystems Inc.) and Netscape (Communications Corp.)," Gates wrote. "Do we have a clear plan on what we want Apple to do to undermine SUN?"

US District Court Judge Thomas Penfield Jackson has already heard testimony from James Barksdale, the president and chief executive officer of Netscape Communications Corp., about an alleged proposal by Microsoft officials to illegally "divide" the market for browser software.

After Netscape refused the proposal, Barksdale testified that Microsoft withheld important technological information about the company's market dominant operating system and entered into exclusionary deals with computer manufacturers and Internet service providers. Sun was perceived as a rival by Microsoft because Sun developed the Java programming language, which operates across software platforms and may pose a threat to Microsoft's dominance.

Prior to Microsoft's agreement with Apple, a Microsoft engineer in charge of developing products for Apple, Ben Waldman, wrote an e-mail to Gates that indicated the company was considering the discontinuance of the Microsoft Office program for the Macintosh and knew that would be a devastating blow to Apple.

Waldman wrote: "The threat to cancel Mac Office 97 is certainly the strongest bargaining point we have, as doing so will do a great deal of harm to Apple immediately. I also believe that Apple is taking this threat pretty seriously…."

Under questioning, Gates said he did not recall receiving the e-mail on June 27, 1997. And he provided attorneys for the US Department of Justice (DOJ) and 20 states with confusing answers as to what the message meant.

"Well, Mr. Waldman was in charge of this update," said Gates, in the videotaped testimony, going on to say: "And the Mac Office product had been shipping for over a decade by now. And there was a financial question of whether to do this update and he felt it made good business sense to do it. Other people, irrespective of the relationship with Apple, had said that it didn't make sense to do the update. And so there was some mail from Ben, including this one, where he was saying he thought we should go ahead and finish the product. I'm not sure what he means about the negotiations with Apple. I'm not sure what we were negotiating with Apple at this point."

The DOJ's hired counsel, David Boies, repeatedly tried to buttonhole Gates on whether he believed that cancelling Mac Office would "do a great deal of harm to Apple". But Gates appeared to either not understand the question or be attempting to avoid answering that directly by repeatedly providing an explanation about how other officials at Microsoft wanted to cancel the "update" of the product because it did not make sense financially.

"I told you I think it would be better for Apple to have everybody doing major upgrades like this," Gates said at one point, appearing exasperated. "I doubt - I can't characterise the level of benefit of the upgrade to Apple, but certainly it's something they wanted us to complete."

Microsoft officials contend that the government is using the videotape and transcripts of Gates' deposition to try to "demonise" Gates. The company fought, unsuccessfully, to block the release of portions of the videotape to television and cable television stations. No other person deposed in the case has had their videotaped testimony released to the public and no cameras are allowed in the court.

Microsoft officials contend that the government case took some hits last week when witnesses from Netscape and America Online Inc. were subject to extensive cross-examination. In one instance, it was revealed that AOL and Netscape considered staying out of each other's markets --- in what Microsoft's attorney intimated was a deal to "divide" markets in the same way Microsoft is accused of doing with Netscape.

"The more we see of the government's case, the less we see about harm to consumers, and the more it is becoming an unfair personal attack on Bill Gates, a person whose vision and hard work have helped bring the opportunities of the Information Age for tens of millions of Americans," said William Neukom, Microsoft's senior vice president for legal affairs, in a prepared statement. "The government is resorting to an edited videotape instead of actually calling Bill Gates as a witness. This is little more than a scheme designed to get around the judge's limit on the number of witnesses, and a gimmick to get snippets in the headlines rather than get at the facts pertinent to this lawsuit."

Gates was deposed for three days in August and September. The government has 20 hours of videotape of his questioning. Government attorneys selected an hour-long series of questions and answers that they wanted to play in court before calling their next witness, Avadis Tevanian, senior vice president of software engineering for Apple.

The Gates e-mail asking subordinates whether they had a "clear plan on what we want to do to undermine SUN" was written in response to an e-mail to Gates from Tevanian asking about collaboration on Java technology and also pointing out that IE disabled the Apple QuickTime multimedia application. Tevanian is expected to testify that Microsoft tried to run Apple out of the multimedia business when he takes the witness stand, which is expected Wednesday. That correspondence came after the two companies had entered into a wide-ranging agreement, that also included the cross-licensing of each others' patents.

Gates, under questioning, maintained that his main goal in dealing with Apple was the cross-licensing agreement because Apple had accused Microsoft of infringing on Apples' patents. But in a June 25, 1996 e-mail to colleagues -- written a year before the Apple deal -- Gates wrote that a very different deal with Apple was under discussion. This deal had very different goals.

"I have 2 key goals in investing in the Apple relationship -- 1) Maintain our applications share on the platform and 2) See if we can get them to embrace Internet explorer in some way," Gates wrote. In a separate section of the e-mail, he outlines a "deal" he proposed to Apple and listed what each side would get. The cross-licensing issue is listed under a category entitled "both get" -- along with "we both look friendly and cooperative".

At the deposition, DOJ attorney Boies asked, "And when in describing the deal five paragraphs later the very first thing that Microsoft gets is, 'Apple endorses Microsoft Internet Explorer technology', did that indicate to you that that was an important part of what you were getting in terms of the deal?"

Responded Gates: "No such deal was ever struck, so I'm not sure what you're saying."

At one of the most heated points on the videotape, Boies pressed Gates about what Microsoft got out of the Apple deal.

Asked Boies: "I'm asking whether in 1996 or otherwise, at any time did you get Apple to endorse Microsoft Internet Explorer technology?"

Snipped Gates: "Well, you can get a copy of the agreement we reached with Apple and decide if in reading that you think it meets that criteria or not."

The Gates deposition also delved into Microsoft's intentions with regard to Sun's Java programming language. The two companies are currently awaiting a federal judge's ruling in San Jose, California, regarding a contractual dispute over Microsoft's use of Java. But Gates was confronted with an April 14, 1997 e-mail from a prominent developer at Microsoft, Ben Slivka. "When I met with you last, you had a lot of pretty pointed questions about Java, so I want to make sure I understand your issues/concerns," the e-mail states. The e-mail continues to list questions, starting with "1) What is our business model for Java? 2) How do we wrest control of Java away from Sun?"

Asked about the second question, Gates said, "I don't think I would have put it that way. Certainly there was an issue about the popularity of Sun's runtime APIs (application programming interfaces) versus our runtime APIs."

Outside the courthouse, Boies didn't want to characterise the responses made by Gates. One of the reasons you have a videotape, he said, is so the judge can make his evaluation of the credibility of the witness. "The court will have to determine what weight to give what parts of the testimony" and "what implications, if any, to draw from them," he said.

The reason for interviewing Gates was to determine what Microsoft did and what was the company's intent. "What the CEO of the corporation says is obviously relevant to both of those issues," Boies said.

Microsoft spokesman Mark Murray said it was not clear what the government was trying to accomplish by playing the deposition videotape. "But it's pretty clear to us that they probably didn't accomplish their objective," Murray added.

He said the Gates tape shows Gates responding to questions precisely. "We think that the deposition shown today actually undermines the government's case," Murray said. For example, Gates insisted that the top priority for the agreement with Apple was to settle a patent dispute.

The agreement between Apple and Microsoft was announced Aug. 5, 1997 and included a number of provisions, including the cross-licensing of company patents. Other provisions included Microsoft's purchase of a $150 million stake in Apple, which was followed by another $100 million payment to the company. Microsoft officials said the payments to Apple were in response to Apple's patent claims, which were against Microsoft's most profitable products, including Windows 95, NT, 3.0 and Microsoft Office products. They denied that the payments were to ensure IE a preferred position among Mac users.

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