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WASHINGTON, D.C., Dec. 16, 1998 -- Government Microsoft Responds to New Round of Edited Depositions

MAL RANSOM, PACKARD BELL

Ironically, the testimony of Mr. Ransom supports many of Microsoft’s points in this case.

  • Mr. Ransom’s testimony provides strong support for Microsoft’s argument that Netscape made little effort to license its software through the OEM channel. When asked how much better Navigator would need to be in order for Packard Bell NEC to pre-install Netscape's technology, Ransom testifies that Netscape "never came to us and made us any sort of a business proposition that made sense to us." (p. 48)

  • Mr. Ransom testified that Microsoft Windows is the only operating system "that's been presented to us that has the richness, the compatibility with software that's on the market today." (p. 9)

  • Mr. Ransom also undermines the government’s contention that consumers have no choice by testifying that Packard Bell ships UNIX operating systems on its computer products when customers request it. (P. 40)

  • He also testified that Packard Bell is always open to new operating system options if they prove to be viable. (P. 12)

Microsoft noted today that a number of PC manufacturers currently preinstall competing operating systems on new computers, including the following:

PC Manufacturer Operating system
Hitachi BeOS
Compaq Novell, SCO UNIX (server), Dec UNIX
NCR UNIX
Unisys Clearpath, Solaris, Novell (server)
Gateway BeOS
IBM PC-DOS and OS/2, AIX
Dell Linux
Toshiba Linux
HP HP- UNIX

Mr. Ransom testified that one important reason Packard-Bell installs Windows with its personal computers is because customers value the ability to run the wide range of applications and tools that run on Windows. While the government seeks to portray Windows as a negative, consumers get enormous benefits from Microsoft’s ongoing effort to give developers all the tools and support they need to write great applications for Windows.

Another reason Packard Bell installs Windows is because the company is committed to shipping the latest technology, according to Ransom. He testifies that Windows 98 supports DVD technology, communications, Internet functionality and new hardware and software technologies that are sought after by Packard Bell’s customers.

Packard Bell NEC offers customers a choice of browsers with its Versa line of notebook computers, according to Ransom.


JEFFREY L. HOWARD, IBM

Mr. Howard’s testimony supports one of Microsoft’s central arguments in this case; that consumers demand Internet technologies as part of a modern operating system. Different operating system manufacturers may provide Internet browsing functionality in different ways, but there is no question that consumers expect Internet browsing as part of their operating system.

Like other operating system manufacturers, IBM’s marketing materials told consumers that Internet browsing was integrated into IBM’s operating system, even though company officials now claim that it was merely bundled. By contrast, Microsoft actually gives consumers what other companies promise and fail to deliver – Microsoft has integrated Internet browser capabilities deeply into the Windows operating system, providing significant benefits to consumers and software developers alike.

Ironically, the DOJ alleged in the October 1997 lawsuit that Microsoft had engaged in wrongdoing because IE was merely "bundled," not integrated. In this lawsuit, the DOJ alleges that Microsoft has engaged in wrongdoing because IE is integrated, not bundled, making "removal" more difficult. Neither claim has merit.

Numerous IBM documents shown in Mr. Howard’s deposition demonstrate that IBM recognized that consumers want Internet browsing integrated into their operating system:

  • (Deposition Exhibit 3 - OS/2 and Network Computing) - "Network connectivity is not new in OS/2 -- a large suite of Internet tools have been integrated into the OS/2 Warp family of products, including Internet browsers, TCP/IP for OS/2, telnet, FTP tools, 3270 and 5250 emulators, and many other networking functions. These are not ‘add-ons’ to the operating system, but are fully integrated." (p. 50)

  • (IBM exhibit 4) - "OS/2 has also integrated one of the best TCP/IP stacks available." (p. 52)

  • (IBM exhibit 8) - "In addition to the improved Web browser that’s built into OS/2 Warp 4’s user shell, users now have the option of using Netscape Navigator for OS/2 Warp." (p. 94)

Mr. Howard admits that corporate network administrators, who do not want their employees browsing the Internet, can simply turn off access to the Internet in a variety of ways. (pp 118-119). The government tries to assert that IBM customers may not want Internet technologies integrated with the operating system. Nevertheless, Mr. Howard acknowledges that IBM has included Web browsing technology with OS/2, and he admits that he cannot recall any specific customers who did not want Internet technology with the OS/2 operating system.


JOHN ROMANO, HEWLETT-PACKARD

Despite the government’s efforts to portray Microsoft’s relationships with computer manufacturers in a negative light, the testimony of John Romano of Hewlett-Packard supports several of Microsoft’s arguments.

  • OEMs have many ways to differentiate their products to compete in the marketplace. A good portion of Mr. Romano's testimony talks about the flexibility HP had under its OEM license with Microsoft. In particular:
    • HP had the opportunity to display branding at BIOS startup and to co-brand the Windows 95 splash screen. (p. 72:9-22)

    • HP had the opportunity to configure and offer a separate user interface called the Personal Page, which users could "enable" and boot into after the computer was configured. (pp. 71:19- 72:8)

    • HP had the ability to run another operating system, prior to the Windows boot sequence, to run certain HP software (HP chose not to pursue this).

    • HP could insert custom multimedia content and a custom mouse tutoring application, and alter the normal Windows wallpaper in favor of a substitute of HP's choosing. (pp. 62:22-63:24)

  • Contrary to the few snippets offered by the government, OEMs also have complete flexibility to install any icons and applications on the Windows desktop, and to enter into business arrangements with third parties to generate additional revenues for the OEM through services offered to customers.

  • Mr. Romano testifies that HP had the opportunity to install any software and icons they chose. (p. 68:18-19)

  • He further testifies that HP was free to enter into agreements with Internet Service Providers (ISPs) or Online Services (OLS) where HP would receive a payment for each customer they delivered to that service. (pp. 65:3-66:9)

  • HP also had the opportunity to provide an icon for an entirely different user interface that, once enabled, would boot in the place of the Windows desktop. In fact, Romano testified that in its agreement with Microsoft, HP had the ability to point out the icon that would supplant the standard Windows desktop to consumers by naming it something like, "Click here after first boot." (pp. 67:24-69:24)

Several other points are important to put the government’s accusations into perspective:

  • Despite the government’s accusations about the price of Windows compared to the overall price of a PC, the fact remains that the Windows operating system is still a very small part of the overall cost of a PC, typically 2-5 percent of the total cost.

  • Microsoft invests hundreds of millions of dollars in research and development to constantly improve Windows, and Microsoft has kept the price of Windows 95 essentially the same for three years even as we’ve added thousands of new features.

  • By providing a popular operating system platform and licensing our operating system widely to computer manufacturers, Microsoft has helped generate rapid advances in hardware and software that are providing consumers with ever-expanding choices and better products.


JOSEPH KANICKI, JR., DELL

Dell Computer is an important customer and partner for Microsoft. Nothing in Mr. Kanicki’s testimony has any bearing on our continuing relationship. In fact, Mr. Kanicki supports many of Microsoft’s arguments in this trial:

  • The Government would have the Court believe that Dell is somehow unable to provide its customers with competing browsers. However, Mr. Kanicki testifies that Dell has always had the ability to ship competitive browsers and has done so. (p. 54:16-23). Mr. Kanicki also testifies that Dell has always had the ability to load both Netscape and Internet Explorer on its products. (pp. 54:24-55:20)

  • Mr. Kanicki’s testimony also will be used by the government to say that some unnamed customers may not want their employees to have a browser pre-installed. Mr. Kanicki says the reason for this is that some companies do not want their employees spending time browsing the Internet on company time. This is not an argument for giving customers crippled operating system products. For example, many ISVs are building applications on the IE platform software in Windows. If IE were removed, those applications would fail.

    Mr. Kanicki agrees that "there are most likely other ways that would be technically feasible" to prevent employees from accessing the Internet. He also testifies that companies could deny access to the Internet via a modem or proxy server. (pp. 55:21-57:19)

    Finally, Mr. Kanicki suggests that Microsoft attempted to impose certain Windows User Guidelines that he alleges would have constrained Dell in some way. However, Mr. Kanicki admits that, in fact, these user guidelines were never enacted. (p. 135:1-12)


    RICHARD BROWNRIGG, JR., GATEWAY 2000 COMPUTERS

    Mr. Brownrigg is chief engineer, Internet initiatives, at Gateway. In his deposition he testified that effective October 19, 1998, Gateway would begin offering purchasers of Gateway computers a choice whether to designate Microsoft's browser or Netscape's browser as the default browser on their PC. (Pg. 54:16). This amplifies a central point that Microsoft has made throughout the trial: that computer manufacturers (OEMs) have always had the freedom to choose whether to install Netscape’s browser or any other company’s browser on their PCs, and consumers have always had a choice of which browser they wish to use.

    Gateway’s recent initiative has given consumers yet another way to choose Netscape’s browser, but consumers have always had complete freedom to use any browser they wish, and computer manufacturers have always had complete freedom to pre-load any browser they wish.

    With respect to Windows 95, Mr. Brownrigg said Gateway only offered Microsoft's Internet browser because "there were some technical reasons why we could not utilize the Netscape piece." (p. 12:10). However, he said this had nothing to do with Microsoft’s operating system, but with certain limitations in Gateway’s "registration servers." (p. 60:24). Mr. Brownrigg acknowledged that Netscape’s browser runs fine on Windows 98. (p. 55:8).

    Mr. Brownrigg also acknowledged that when Gateway asked Microsoft whether it could remove the icon for accessing Microsoft's Internet Explorer browser during the initial bootup sequence, Microsoft responded that doing so would mean, in his words, that "there would not be a consistent customer experience across all Windows desktops." (p. 19:24). Mr. Brownrigg is entirely accurate in reflecting Microsoft’s concern that customers who purchase a computer with the Windows operating system installed are entitled to a consistent and reliable user experience as they boot up their computer for the first time.

    In cross examination, Mr. Brownrigg also acknowledged the inaccuracy of a statement he made earlier in his deposition – that shipping Internet Explorer 4.0 with channels activated would have been an impediment to loading Netscape’s browser. When queried by an attorney for Microsoft, Brownrigg admitted that there was no relationship between a user having channels activated in Internet Explorer and any kind of conflict with Netscape’s browser. (Pg. 60:7). In any event, OEMs are entirely free to turn the channel bar on or off by default on new PCs.


    PHIL SCHILLER, APPLE

    Despite the government's attempts to create a tempest in a teapot over multimedia discussions between Microsoft and Apple, the record clearly shows that Microsoft’s commitment to its Macintosh customers is unquestioned. With 200 people in its Macintosh Business Unit, Microsoft has more people working on Mac software today than at any time in its history. Microsoft has the largest Macintosh software organization outside of Apple Computer, and we are proud of the work we have done to bring leading-edge software applications like Mac Office98 to our Macintosh customers.

    Microsoft and Apple entered into a series of discussions to determine ways for the two companies to cooperate on multimedia technologies for the Windows platform. Microsoft looked at whether it could take all of the excellent work Apple had done on the QuickTime technology and combine it with the excellent work Microsoft had done on the Windows media technologies. The result would have been better products for customers, increased opportunities for Apple and QuickTime, and a strong endorsement of industry standards what would help grow the multimedia software market. At no time did Microsoft suggest Apple stop development of its QuickTime for Windows software. Apple chose to go its own way, and QuickTime has continued to flourish. According to Mr. Schiller's testimony, Apple has distributed more than 100 million copies of its QuickTime software worldwide.

    Mr. Schiller’s stories about Microsoft business practices may be interesting in the re-telling but they fail to support the Government’s case because there is no consumer harm. While he was an employee at Macromedia, Mr. Schiller alleges Microsoft somehow prevented a hardware manufacturer from supporting QuickTime on Windows, an important technology for Macromedia. Yet miraculously, by the time Mr. Schiller had finished with that portion of his testimony, the companies had worked out their technical issues and the hardware shipped with support for that software. Microsoft's agreements with its technology partners are pro-competitive and pro-consumer. The end result here is: interesting story, no relevance. This is a common theme in Mr. Schiller's testimony.

    Although competitive efforts to satisfy consumer demand have led to the development of new operating systems with built-in Internet support, the DOJ alleges in this case that it was wrong for Microsoft to develop such an operating system. Thus, for its efforts to protect a single company -- Netscape -- the DOJ seeks to sell out the interests of millions of customers and ISVs who value strong Internet support in Windows.


    SEAN SANDERS, NOVELL

    Novell is a competitor to Microsoft in the operating system market, and Mr. Sanders' testimony supports Microsoft's position that operating systems must be continuously improved to meet the needs of customers. Mr. Sanders also admits that one of the primary messages that Novell promotes with customers is the Internet features of its Netware operating systems.

    Microsoft and Novell have both recognized that consumers want Internet capabilities as a part of their operating system. The two companies have taken slightly different routes – Novell has chosen to merely bundle Netscape’s browser, while Microsoft has integrated browsing into the Windows operating system because it offers consumers and software developers additional benefits.

    It’s important to note that Novell bundles the Netscape browser technology with its operating systems free of charge. While Mr. Sanders testifies that Novell does allow its customers the option of not installing the browsing software, Microsoft has developed an integrated operating system. Developers and consumers benefit from the integration of Internet technologies into Windows. While end-users always have the option of removing the Internet Explorer icon from the desktop, the Internet technologies on which hundreds of software developers depend for their applications remain in the operating system.

    Mr. Sanders admits that as early as 1996 Novell recognized the importance of including Internet-related technologies in their products because of the importance of the Internet to their customers. He also said that competitors were including Internet technologies as part of an operating system at that time. So, contrary to recent attempts by the government and some of its competitors to rewrite history, the marketplace decided long ago that Internet technologies must be a part of any modern operating system. Microsoft recognized this as early as 1994, and included Internet Explorer 1.0 in the initial release of Windows 95. Microsoft has continued to innovate, just as others including Novell have done, to meet the needs of customers.

    According to Mr. Sanders, Novell did not develop its own browser technology but chose to license the Netscape browser. This refutes another of the government's allegations, because Novell joins the many other channels of distribution for Netscape's browser. Novell included this technology for free even before Netscape made its browser free in early 1998.

    Mr. Sanders also testifies that Novell is a strong supporter of Java and that Novell was working to optimize the Novell operating system so that Java applications would run faster and better on their operating system. Microsoft not only agrees with this goal, but also has met it by offering developers and consumers the best, fastest and most compatible Java implementation in the marketplace. Microsoft simply offers Java developers an additional choice -- to write "cross-platform" Java applications or write great applications that take advantage of the unique innovations in Windows using the Java programming language.


    WAYNE BERGLAND, SANTA CRUZ OPERATION

    Mr. Bergland's testimony merely indicates that Santa Cruz has a different business model than Microsoft. SCO focuses on specific segments of customer demand. Microsoft develops and promotes mass-market software. SCO offers OEMs and other customers a menu of operating system components. SCO allows its customers to license components of its operating system, and to modify the operating system before including it on its hardware. Microsoft devotes significant time and resources to evangelizing the Windows platform to developers so that the best applications will use the best and latest Windows technology.

    If Windows "components" were offered to OEMs on an a la carte basis, ISVs would not know whether they could rely n needed Windows components being available on customers’ PCs. Fewer applications would be written, and they would be more expensive.

    His testimony clearly shows that competition is alive and well. Customers can choose SCO’s model, many other variants of UNIX, Windows or other operating systems options.

    Mr. Bergland testifies that SCO earns revenues from contracts with OEMs -- including Compaq, Lucent and NCR. Despite the claims of the government, OEMs continue to license the products that best meet the needs of their customers. Windows is a popular product because it makes the personal computer easier to use and because of its superior integration. Other customers choose SCO’s approach. That’s competition.

    Mr. Bergland admits that he is not a software engineer, and his claim that an operating system can run with or without a browser is truly irrelevant because he has no understanding of what constitutes Microsoft's Internet technologies. Just because SCO decided to bundle Netscape's browser into its operating system does not mean that Microsoft designed its operating system the same way – or that it should be expected to.


    JAMES FRASCA, LUCENT TECHNOLOGIES

    James Frasca is a director at Lucent Technologies, and chief technical officer of the Inferno product division. Inferno is a computer operating system, developed by Lucent, which can run on Intel-based PCs.

    In Mr. Frasca’s view, an operating system includes not only the kernel, but also such features as device drivers, networking protocol and security protocols. (p. 36). Mr. Frasca testifies that the Inferno operating system also includes Internet technologies and functionality, even though Lucent does not currently offer a Web browser as an integrated part of Inferno. (pp. 31-33). According to Mr. Frasca, there were several important reasons why Lucent made the decision to design its operating system to include Internet technologies:

    • To enable users to connect to the Internet

    • To respond to consumer and OEM demand for Internet connectivity in operating systems

    • Because there was competitive pressure from other operating system developers to include Internet connectivity in the operating system

    Inferno, like Microsoft, does not allow OEMs to modify its copyrighted operating system. Their licensing agreements prevent that. Mr. Frasca testifies that Lucent insists on this prohibition because it does not want variants of Inferno getting out into the marketplace and making the product diverge. "Because once the product diverges, when we come out with further releases you will have compatibility issues," Mr. Frasca says. (p. 54)

    It is for this reason that Microsoft does not want to license OEMs to install Windows with and without its IE technologies.


    BRUCE JACOBSEN, REALNETWORKS

    Bruce Jacobsen is president and chief operating officer of RealNetworks, a software company based in Seattle. It sells software products that allow users to view streaming media content over the Internet. The designated excerpts of Mr. Jacobsen’s deposition testimony focus primarily on the relationship between RealNetworks and Microsoft, a relationship which has been one of both partnership and competition.

    The Government attempts to raise questions about the relationship by focusing on a discussion between Mr. Jacobsen and Bob Muglia of Microsoft in 1997. Whatever may have been said during that conversation, Microsoft disputes Jacobsen’s characterization. What is important is not what was said, but what the companies actions were.

    In the summer of 1997, Microsoft and RealNetworks entered a partnership designed to accelerate the development of an open, industry standard for streaming multimedia. The standard, called the Advanced Streaming Format (ASF), was to promote interoperability for customers and to enable content providers and software developers to concentrate on providing great features and value to customers, while industry partners continued to improve and evolve the standard. Such standards in this industry (HTML is a prime example) tend to accelerate innovation and help to grow the marketplace.

    But over the next year, RealNetworks developed two new proprietary streaming media file formats that were not compatible with the developing ASF standards. It was then that it became clear RealNetworks was choosing to innovate in another direction, and while Microsoft continues to work with the industry on the ASF standard the cooperation with RealNetworks came to an end – something that happens all the time among competitors in this industry.

    RealNetworks has bragged continuously about its market share and the number of players it distributes over the Internet. Add to that the recent announcements of distribution deals with Netscape and AOL, and Mr. Jacobsen seems to be crying wolf.

    Mr. Jacobsen’s allegations about Microsoft’s technology interfering with RealNetwork’s G2 media player are old news. When RealNetworks CEO Rob Glaser first made that charge at a Senate hearing, Microsoft ran tests proving conclusively that the problem was a bug in the RealNetworks software, and not something Microsoft had done. Several independent testing laboratories quickly corroborated that, and Microsoft posted a simple downloadable patch that allowed consumers to fix the problem.


    PHILIP BARRETT, REALNETWORKS

    Mr. Barrett’s testimony focuses on his time as a Microsoft employee, and his recollections of meetings and technology trends during his final months at the company.

    The government seems to damage rather than help its own case with the following highlights from Mr. Barrett’s testimony:

    • Early in 1994, at a retreat near Microsoft's headquarters in Washington state, a group of Microsoft employees gathered to discuss how the company was going to respond to the growing phenomenon of the Internet. Mr. Barrett's testimony is very clear about the discussions in which he participated at the retreat, and they tell the story of Microsoft's early efforts to begin integrating key Internet networking technology into Windows so that customers could take advantage of the Internet. The government will try to suggest that because Mr. Barrett did not participate in specific discussions about the "browser," these discussions somehow did not occur. But even Mr. Barrett suggests there was another group responsible for that subject, while his group was responsible for other underlying networking.

    • The presentation of Microsoft's evidence and testimony will clearly show that work on Internet technology was going strong in 1994, which is the period in question in this deposition. In fact, the government cites a news story from August 1998 that quotes Bill Gates explaining that the decision to develop browsing technology was made in April 1994 at that meeting in Washington state. In addition, Mr. Barrett clearly confirms some of the early Internet work that was underway at Microsoft around the time he left the company later in 1994. He specifically mentions a project called Internet Shortcuts, proving again that the integration of Internet technologies into Windows was already happening in 1994 while this witness was at Microsoft.


    ROBERT E. BERAN, BELL ATLANTIC

    In his testimony, Mr. Beran claims that Bell Atlantic wanted to continue to offer Netscape Navigator as a choice for its customers rather than enter into an exclusive deal with Microsoft. The excerpt shown by the government seems to be saying that Bell Atlantic had no choice, but in reality Bell Atlantic was negotiating a similar deal with Netscape. Bell Atlantic was trying to pit the two companies against each other and take the best offer.

    Microsoft did nothing to force Bell Atlantic into signing a contract. Bell Atlantic signed the best contract for its customers. It’s customers remain free to use any browser.


    A. STEPHEN RYS, AMERITECH

    Mr. Rys outlines why Ameritech believes it is important for customers to have a choice of browsers because of the specific needs consumers may have. Microsoft completely supports this belief, which is why Microsoft works with companies such as Netscape to ensure their browsers and other software products work flawlessly on the Windows operating system. Any consumer can use the Netscape browser on Windows, and the browsers are free and can be downloaded from the Internet.


    RAYMOND SOLNIK, SBC COMMUNICATIONS

    Mr. Solnik claims that Netscape was previously bundled with PCs in the OEM channel, and when Netscape lost that position in the marketplace it had a negative effect on the SBC-Netscape business relationship. Mr. Solnik admits he knows nothing about why OEMs make certain business decisions.

    In fact, every OEM is free to ship Netscape's browser on any PC and Windows Desktop they choose and many do so. Nothing Microsoft is doing or has ever done prohibits OEMs from adding any icon to the Windows Desktop.

    STEVEN L. VON RUMP, MCI

    The government is trying to portray a normal business negotiation between Microsoft and MCI as anti-competitive. MCI wanted something from Microsoft -- the Internet Connection Wizard -- and Microsoft wanted MCI to distribute its Internet technologies. Mr. Von Rump admits that this agreement did not prohibit MCI from distributing Netscape's browser to customers who wanted it. Any agreement between two companies in the normal course of business can mean that a competitor does not get that business. MCI’s customers are free to use Navigator.


    ERIC BOZICH, US WEST

    Eric Bozich is executive director of Internet product development at US West, a major provider of telephone and Internet services. In his deposition, Mr. Bozich testifies that Microsoft never proposed that US West should in any way limit its distribution of other companies’ browsers. (pp. 53-54)

    Microsoft has made it easy for computer manufacturers and Internet service providers to offer their customers a choice among multiple browsers that can be run on the Windows operating system. Microsoft’s support of multiple browsers also makes it easy for consumers to choose different browsers and download them from the Internet.

    The government has tried repeatedly to make the case that consumers find it difficult to locate and download browsers from the Internet, and they try it again in these excerpts from Mr. Bozich’s testimony. (pp. 73-75). Despite the government’s contention that downloading Netscape Navigator from the Internet is slow and not always successful, tens of millions of people have done exactly that. Netscape CEO James Barksdale testified that the Internet is a major distribution channel for his company’s browser, and Netscape Navigator is still the most widely used browser on the market. There is simply no compelling evidence to support the government’s suggestion that consumers find this option difficult or discouraging, but there are overwhelming numbers of Internet users with downloaded browsers to refute it.

    FOR MORE INFORMATION, CONTACT: Lisa Fels, 202-956-7668



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