By Jonathan Collins in Washington
As its antitrust trial crawled on, Microsoft Corp tried to raise Linux start-up Red Hat Software Inc as a specter haunting its operating system business, but its efforts were thwarted. On Thursday, Microsoft worked to win government witness Frederick Warren-Boulton to the view that Red Hat poses a significant threat to Microsoft. The economist dismissed the proposition outright, just as Red Hat itself has done in the past. If you believe this [Linux] will constrain Microsoft’s profits, then run, don’t walk, to your broker and short Microsoft, said Warren-Boulton, shorting Microsoft has never been a good bet. Microsoft lawyers spent all yesterday day cross-examining Warren- Boulton, an antitrust consultant at MiCRA Inc in Washington. The lawyers sought to refute his testimony that Microsoft has monopoly power in the PC operating systems market. Microsoft presented the packaging for the latest version of Red Hat’s Version 5.1. It maintained that the look and feel of the operating system was similar to Microsoft Windows – something Warren-Boulton had already testified was a key to winning over Windows users. Microsoft’s defense also maintained that applications already bundled for the platform, including WordPerfect and Netscape Navigator, along with development and connectivity tools, showed that Linux also had the applications and support that users would demand of a rival operating system. Microsoft even presented an interview with the initial designer of Linux, Linus Torvalds, in which he said he now viewed Windows 98 and NT as his main targets. I wish him well, but I am not sure I would bet on him, said Warren-Boulton. In defense of his position, Warren-Boulton maintained that if there were any kind of long-term threat to Microsoft, the financial markets would not be backing its share price so strongly. Financial markets look ten years ahead, he said, they have given Microsoft P/E ratios of over 50, more than twice the average. They do not believe Linux will constrain Microsoft’s monopoly profits. Whether Linux or any other operating system will be able to win market share in the future is, of course, very much dependent upon how District Judge Thomas Penfield Jackson rules at the end of this trial. On the steps outside the Court house Microsoft dismissed Warren-Boulton’s statements, given that prior to the presentation of Red Hat’s software in the court he had not even been aware that there were versions of Linux available pre-loaded onto PCs shipping today. On this basis, Microsoft spokespeople argued that when Warren-Boulton testified that Microsoft had more than a 90% share of the PC operating system market, he based his testimony on an poor definition of what constitutes a PC operating system. The Linux exchange came at the end of a full day’s cross- examination of Warren-Boulton by Microsoft attorney Mike Lacovara. Lacovara said he expects the entire cross-examination will take several days. The Microsoft lawyer sought to show that Microsoft maintains its strong position only by dint of its huge R&D effort. Microsoft stressed that if it faltered or relaxed, as previous companies defined as monopolies have done, it would soon lose its position. Warren-Boulton maintained that such efforts were by no means evidence that a monopoly did not exist; only that it was in Microsoft’s interests to invest so as to stay in its current position. Lacovara pressed on, citing Warren-Boulton’s use in his testimony of a December 16 1997 memo by Microsoft executive Joachim Kempin. In it, Kempin referred to both Compaq Computer Corp and Intel Corp as potential rivals in the operating systems business. The memo said Microsoft’s Windows license prices were high, and suggested that the largest OEM companies might look to bypass the company. Our high prices could get a single OEM (Compaq might pay us $750m next year) or a coalition to fund a competing effort (say in India), Kempin wrote, though he expressed doubt that the effort
would succeed against Windows. Meanwhile, Kempin argued, Intel would be able to increase prices for its processors if it could avoid paying Windows licenses by using its own software instead. However, Intel is unlikely to take such a step directly, as the company would then have a dominant role in both hardware and software in the PC market, putting itself in line for the same treatment that Microsoft is facing. Warren-Boulton pointed out that these comments were made in a draft of an article being prepared by Kempin for a public defense of Microsoft’s alleged monopoly practices. As such, he maintained, it was more like a PR document than an insight into any competition Microsoft may or may not have feared. The cross- examination of Warren-Boulton will resume on Monday.
