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Newly Released Documents Shed Light on Microsoft Tactics
Published on Wednesday, March 24, 2004 by the New York Times
Newly Released Documents Shed Light on Microsoft Tactics
by John Markoff
 

Even as Microsoft prepares to face penalties from the European Union, which accuses the company of abusing the Windows monopoly, new details about the tactics Microsoft used to secure a dominant position in software markets for nearly two decades are emerging in a state courthouse in Minneapolis.


All of Microsoft's conduct was designed to acquire and hang on to their monopoly. Consumers were harmed by being deprived of choice.

Eugene Crew, a lawyer at Townsend, Townsend & Crew
Testimony during the second week of trial in the consumer class-action lawsuit in Minnesota has revealed some embarrassing internal documents from Microsoft which were not disclosed in the bitter 1997 federal antitrust lawsuit that focused on the company's attempt to control the browser markets in the 1990's.

Among the documents introduced in court this week was a letter from June 1990 in which Bill Gates, Microsoft's chairman, told Andrew S. Grove, the chief executive of Intel at the time, that any support given to the Go Corporation, a Silicon Valley software company, would be considered an aggressive move against Microsoft.

Other evidence presented by the plaintiffs' lawyers at trial yesterday gave an account of how Microsoft violated a signed secrecy agreement with Go and showed that Microsoft possessed technical documents from Go that it should not have had access to.

A Microsoft spokeswoman said that many of these newly disclosed documents were not relevant to the trial, which focuses on Microsoft pricing actions.

"These are very old documents, taken out of context for the sole purpose of obscuring the real issue of this case," said Stacy Drake, the Microsoft spokeswoman.

But lawyers for the plaintiffs contend that the documents show how Microsoft unfairly dominated the market. "All of Microsoft's conduct was designed to acquire and hang on to their monopoly,'' said Eugene Crew, a lawyer at Townsend, Townsend & Crew, based in San Francisco. "Consumers were harmed by being deprived of choice. The greatest harm out of the Go story was the suppression of innovation and new technology by Microsoft."

Microsoft has already paid $1.6 billion in its efforts to settle consumer antitrust claims filed in 10 states.

The new lawsuit, which contends that Microsoft overcharged Minnesota customers from 1994 to 2001, seeks almost $500 million from the company. If the company, based in Redmond, Wash., loses, it could also be forced to pay triple that amount under Minnesota state law.

This week, the lawyers representing the Minnesota consumers are focusing on Microsoft's efforts to undercut Go, a start-up company that was developing an operating system for hand-held computers.

The first witness appearing at the trial yesterday was Jerry Kaplan, the co-founder of Go. Mr. Kaplan, who was a software developer at the Lotus Development Corporation before he started Go, has been a longtime opponent of Microsoft.

Yet he said he was surprised by what was revealed about Microsoft's activities in the documents. "I was shocked," Mr. Kaplan said in a telephone interview. "This was a corporate mugging that went uncorrected and unknown."

The events surrounding the failure of Go have often been cited as a reason for the animosity between Silicon Valley executives and Microsoft. Go was one of the most prominent efforts by Silicon Valley entrepreneurs and venture capitalists to create software for tablet-sized devices. In addition to an all-star cast of technologists, the start-up had backing from major industry players like I.B.M., Intel and AT&T.

The plaintiffs contend the new documents show that Microsoft violated nondisclosure agreements with Go, and then used that information to build PenWindows, a competitor to Go's PenPoint operating system. The documents included Microsoft's internal e-mail messages showing that it had detailed knowledge of Go's product plans.

The documents also suggest that Microsoft sought to pressure Intel to cancel its plans to invest in Go. On June 28, 1990, Mr. Gates wrote a letter to Mr. Grove trying to convince the Intel executive that he should back a version of Windows for portable computers, then code-named Windows-H, rather than Go's PenPoint software.

"I guess I've made it very clear that we view an Intel investment in Go as an anti-Microsoft move, both because Go competes with our systems software and because we think it will weaken the 386 PC standard," Mr. Gates wrote.

Shortly after the letter was written, according to Mr. Kaplan, Intel reduced its planned investment in Go from $10 million to $2 million, and stipulated the investment be kept a secret.

An Intel spokesman declined to comment on the events.

Silicon Valley executives said that Microsoft's aggressive behavior in the early 1990's led to a widespread belief among technology companies that Microsoft was using its operating system monopoly and unfair tactics to compete in markets where its technology was inferior.

Microsoft was well aware of this perception, and in 1991 tried to alter the way the company was viewed.

In a document titled "Microsoft Criticism," the company's outside public relations consultants recommended training for its executives on "personal demeanor and style." The advice read in part that the focus should be shifted from "killing the competitor" to "providing a better solution to the customer's problems."

"It's a bit of artifact, but in its day it was a good memo," said Marianne Allison, an executive at Waggner Edstrom, Microsoft's longtime public relations firm.

In late 1993, Go was sold to AT&T where it was ultimately merged into the company's portable computer subsidiary. In 1994 the phone company shut down the effort in portable computing. Three months later Microsoft canceled its PenWindows project.

In 1996, Mr. Kaplan wrote a book, "Start-Up: A Silicon Valley Adventure" (Penguin USA), in which he blamed Microsoft, in part, for the demise of Go. Two years later, Marlin Eller, a former Microsoft programmer who was part of the PenWindows project, wrote in "Barbarians Led by Bill Gates" (Owl Books) that the intent of the PenWindows project had been primarily to undermine Go.

© Copyright 2004 The New York Times Company

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