A Year Ago : Microsoft on Trial: New 'Sabotage' claims

NEWS A senior executive of Apple has testified that the company was victim of strong-arm tactics by Microsoft , which went so far as to try to sabotage Apple's QuickTime multimedia technology. What's more, the Apple executive's testimony, released late Friday in the form of a 53-page document by the government as part of the proceedings in the Microsoft antitrust trial, included a bold prescription: Avadis "Avie" Tevanian Jr., the senior vice president of software engineering, claimed Microsoft must be subjected to "fundamental structural change" before its dominance significantly curtails innovation in the computer industry. Although many of the accusations detailed in the Tevanian testimony have already leaked out, it adds up to potentially another damaging critique of Microsoft. Microsoft was quick to refute the charges. In a posting on its Web site, Microsoft painted itself as a friend to Apple even as other developers were abandoning the company. The testimony of Tevanian, the government's third witness, will be offered as proof in court this week that Microsoft used its leverage as a monopoly, rather than technical excellence, to win favour for its products. To expedite the proceedings, U.S. District Court Judge Thomas Penfield Jackson is insisting that a written document take the place of direct testimony delivered in person from the stand. Tevanian will appear in Jackson's courtroom today, but further testimony will take place under cross-examination by Microsoft attorneys. His testimony alleges Microsoft:

• Successfully bullied Apple into making Internet Explorer the default browser on the Macintosh.
• Unsuccessfully tried to get Apple to abandon the playback market for its QuickTime technology.
• Engineered Internet Explorer 4.0 so it would not work well with QuickTime.
• Convinced Compaq Computer Corp. and several other companies to favour Microsoft's technology over QuickTime.

"Microsoft has used its control of certain critical application programs to impede competition with Microsoft's popular Internet browser, Internet Explorer," Tevanian testified. "Once Microsoft dominates the market for Internet browsers, it will use that power to extend its control over not only the operating system market, but also other emerging markets that rely on the Internet." As an example of Microsoft's willingness to bully competitors, the Apple (Nasdaq:AAPL) executive testified that Microsoft ceo Bill Gates threatened to stop developing applications for the Macintosh operating system unless a patent dispute between the two companies was resolved in Microsoft's favour, and unless Netscape Navigator was removed from its status as the default browser for the Macintosh. (Both browsers were loaded on new Macs at the time, but the Netscape software was favoured as the default selection.) The threat struck home with Apple executives. If programs such as Microsoft Word and Microsoft Excel -- both business staples -- were not available to Macintosh users, Apple would have been severely crippled, Tevanian wrote. "Withdrawal of Microsoft's support for its Microsoft Office for Macintosh program would have a devastating effect on the Mac OS," he testified. The threat "compelled Apple to resolve the dispute on terms that gave significant advantages to Microsoft's Internet Explorer," Tevanian said. In the resulting deal, Apple agreed to bundle IE with Macintosh products for five years, and to make it the default browser. Apple could bundle other browsers, but not promote any browser other than Internet Explorer, according to the testimony. In return, Microsoft (Nasdaq:MSFT) invested $150 million (£88 million) in Apple and entered various technology-sharing agreements. Most important, Microsoft agreed to continue making software for the Mac market. "If Microsoft had not exercised its monopoly power in the office application market by threatening to stop supporting Office for Macintosh, Apple would not have resolved the disputes on the terms outlined above," Tevanian testified. But Microsoft said Internet Explorer was chosen because it was the best product -- not because of coercion. And it trotted out Steve Jobs' own words to make the point. "At the Macworld show in July 1998, Apple ceo Steve Jobs said, 'Hey, I gotta tell you, I use Internet Explorer and I like it. I think it's the best browser out there... Our colleagues at Microsoft continue to demonstrate that they're genuinely interested in creating great Macintosh products such as Microsoft Office 98 and Internet Explorer 4.0.'" In another area, Tevanian said Microsoft tried to sabotage Apple's QuickTime Internet multimedia technology, which competes with Microsoft's own Direct X, Windows Media Player and NetShow products. Other makers of so-called "streaming media" products, including market leader RealNetworks (NASDAQ:RNWK), made similar complaints before a congressional panel in the summer. Microsoft has steadfastly denied the allegations. "Microsoft has written steps into its operating system to ensure that a QuickTime file will not operate reliably on Windows," the Apple executive testified. "Microsoft has also caused misleading error messages to appear that trick the user into believing that QuickTime technology is part of the problem actually caused by the Windows operating system. Finally, Microsoft has employed threats and exclusionary practices against third parties, compelling them to refuse to deal with QuickTime." Over a series of meetings from April through October, 1997, Microsoft repeatedly pressured Apple to abandon the streaming, or "playback" market, in return offering Apple the much smaller market for software tools used to create multimedia content, he said. After Apple declined to abandon the market, Eric Engstrom, the manager of Microsoft's multimedia technology, is quoted as saying his company was prepared to put 150 engineers on a project in order to displace Apple from that market. Finally, Microsoft offered to allow Apple to stay in the playback market in the Macintosh market if it pulled out of the Windows arena. Apple refused. Tevanian said he was concerned the new arrangements with Microsoft would give the company access to the inner workings of the Macintosh operating system, "while, at the same time, Microsoft was seeking to exclude Apple's multimedia technology from Windows." Even an e-mail from Jobs to Gates outlining Apple's objections did not prevent other Microsoft executives from continuing their efforts to pressure Apple out of the playback market. Later, Microsoft would propose that the two multimedia technologies be merged -- an offer Jobs rejected, according to the Tevanian testimony. Microsoft denied those charges as well, saying any incompatibilities between Windows and QuickTime were the work of incompetent Apple engineering. "The facts show that Apple's engineers did not properly author the QuickTime set-up program for Windows. When Microsoft's development team was notified of the issue, they began working with Apple to explore solutions. Despite Dr. Tevanian's accusations, the only known interoperability issues affecting QuickTime were caused by Apple, not Microsoft." It said the claim that Microsoft attempted to force Apple to abandon the multimedia market was "completely false," saying the government witness misconstrued normal business negotiations. Microsoft also called a claim that the company threatened Compaq and other companies to not use QuickTime as "false and completely without merit." In sum, Tevanian said the actions demonstrate Microsoft's willingness to use its muscle -- at the expense of innovation and choice in the marketplace. "If competition is to be restored and fostered in critical markets, fundamental structural change is necessary," Tevanian said. "Such change must address Microsoft's ability to move on many fronts, to exploit its power in one of many markets in order to acquire or consolidate in others. "As long as Microsoft can dominate new markets by leveraging its unchallenged control of both the Windows operating system and essential application programs, competition -- which has been the engine of innovation and growth in this industry -- will be curtailed."