Muddied, But Unbowed After three months of testimony, the government closed its antitrust case with two witnesses, one powerful, one pathetic. As Microsoft emerges to present its defense, one thing is clear: Gates & Co. have been embarrassed, but the government has not landed a knockout blow.
By Joseph Nocera

(FORTUNE Magazine) – MONDAY, JAN. 4: For weeks we'd been hearing rumors about the Intuit testimony. Intuit CEO William Harris, scheduled to be the second-to-last witness in United States v. Microsoft, would make some powerful charges against the software behemoth, according to the whispers; his written direct testimony, said one person who claimed to be familiar with it, was "incendiary." In December, during the dog days of this trial, the prospect of hearing from one last juicy anti-Microsoft witness before the government rested was akin to a desert oasis off in the distance: If you could just keep going...a...little...bit...longer, you'd get to it at last. A few days before Judge Thomas Penfield Jackson mercifully recessed for the holidays, the Wall Street Journal ran a story that speculated about Harris' upcoming testimony. An Intuit insider told the Journal that Harris would allege "that Microsoft forced it to dump a competitor's software from its best-selling personal finance programs in exchange for a valuable link to Windows...." Hot stuff!

But now, as the trial reconvenes after a two-week hiatus, we all know the truth about Harris' testimony; it was posted on the Intuit Website a few days ago. The whispers were all wrong. Harris' testimony is no oasis. It's nothing more than a mirage.

When you think about it, the appearance of Intuit on the government's witness list was always a bit strange. Every other tech company that has had an executive testify--Netscape, Apple, Sun, even Intel--could claim to have experienced firsthand Microsoft's alleged anticompetitive behavior. Netscape CEO James Barksdale told the court that Microsoft had proposed a scheme to divide the browser market--and that when Netscape refused, Microsoft began its efforts, in Barksdale's phrase, to "cut off Netscape's air supply." Apple's witness said that Microsoft strong-armed it into dropping Netscape's browser and taking Microsoft's. And so on. (Microsoft, of course, vehemently disputes those allegations.)

But Intuit? Intuit's flagship product, Quicken, has between 70% and 80% of the market for personal finance software--and it has held on to that dominant position in the face of a competing product called Microsoft Money. It is rare that Microsoft fails to gain control of a market it decides to compete in, but Intuit has bucked the odds. Indeed, a few years ago Microsoft became so frustrated by its inability to overtake Quicken that it arranged instead to buy Intuit. The merger was eventually called off--irony of ironies--when the government objected on antitrust grounds.

David Boies, the government's chief prosecutor, says that Intuit's success against Microsoft is precisely what makes Harris an effective witness: Harris can't be accused of holding a grudge. But Boies seems to be trying to turn lemons into lemonade. As with several other government witnesses, Harris is here, one senses, only because the feds couldn't find anyone better.

Two things make his testimony particularly weak. First, it's almost entirely theoretical. Harris claims that the Windows operating system has become a "chokepoint" to the Internet but offers not a shred of evidence. And he makes broad claims about what Microsoft might do to hobble competitors--even though Microsoft is sometimes doing just the opposite. Example: Harris says that Microsoft could force PC users to gain access to the Net through a default Web page of its choosing; in fact, as we will learn in an almost surreal way tomorrow, Microsoft is making it easier for people to pick their own default Web page.

Second, the portion of Harris' testimony that concerns Intuit's relations with Microsoft is so thin as to be vaporous. For instance, Harris claims that one reason Intuit agreed to be acquired was out of fear that if it didn't go along, Bill Gates would fold banking services into Windows. But nowhere does Harris say that such a threat was made or even implied. It was simply something Intuit execs worried about. Sure, Windows gives Microsoft a huge competitive advantage. But can Microsoft really be held responsible whenever a competitor starts worrying about what it will do?

The strangest part of Harris' testimony is a section entitled "Possible Remedies to Anti-Competitive Use of the Operating System." Over the past few months there have been numerous stories speculating about possible remedies should Microsoft lose the case. But inside the courtroom, the issue is rarely broached; certainly no other witness has had the chutzpah to propose a remedy when the trial is still less than half over. And when Microsoft's chief litigator, John Warden, begins his cross-examination--and goes directly to the remedies section of Harris' testimony--one quickly understands why it's such a touchy subject.

Harris' "remedy" calls for something he labels "operating system neutrality." That is, he believes that Microsoft should not be able to use its operating system to favor one company's technology over another's by, say, granting it special placement on the Windows desktop. Nor does he believe that Microsoft should be able to fold applications into the operating system, as it has done with its browser. As attractive as that idea may sound in theory, how would one bring it about in practice? Harris, as Warden gleefully establishes, doesn't have the foggiest. Should the operating system be frozen with the features it has now, with no new functions ever again added? No, replies Harris. But, he adds, "I believe there is a role for someone--perhaps the court--to make a distinction between the operating system and the applications."

Harris has just proposed everyone's worst nightmare--a system in which some government entity would rule on what could and could not be part of the operating system. Even Microsoft's most bitter enemies don't want that. Warden pounces. "Should we have a National Operating System Commission?" he bellows.

"I'm not proposing any such thing," protests Harris. But he's not proposing anything else either--which is precisely the problem. It's easy to say that "operating system neutrality" is a good thing; it's next to impossible to say how that might be accomplished without serious government intervention. By bringing up the issue--and allowing Warden to underscore that point to Judge Jackson--Harris hasn't helped his cause at all. But he certainly has everyone at the Microsoft table smiling happily.

TUESDAY, JAN. 5: Well, here's a new one. In violation of court rules--not to mention plain common sense--Microsoft is trying to spin the witness! It happens late in the morning. Toward the end of his cross-examination, Warden spends a few moments sparring with Harris over the part of the testimony in which he claims that Microsoft can control the default Internet page. Watching this exchange is a Microsoft executive named William Poole, who--not coincidentally--is the person at Microsoft who has had the most interaction with Harris over the years. (It has become standard Microsoft practice to have such an executive attend the trial while "his" witness is testifying.)

When Warden ends his questioning, the judge calls a short recess. As people mill around the courtroom, Poole approaches Harris and talks to him for a moment. Nobody seems to notice, not even the usually eagle-eyed marshal who is supposed to make sure all the rules are being followed.

When Boies begins his redirect a few minutes later, he starts with questions about a deal in which Intuit agreed to abandon Netscape's browser for Microsoft's. The Microsoft negotiator was none other than William Poole.

"When was the last time you spoke to Mr. Poole?" Boies asks offhandedly.

"Well," replies Harris, "he's in the room, and he came up and chatted with me on this break."

Boies looks up with a start--as do Judge Jackson and the marshal. "What did he say to you at the break?" Boies asks

"He said that I should be aware that in IE 5"--the newest version of Microsoft's browser--"Microsoft was making it easier to change the default browser page and that, in fact, that was their strategy and intent...." Boies doesn't press the issue, but he doesn't have to. Everyone--except maybe Poole himself--knows that this is a serious breach. The marshal looks appalled. The judge doesn't say a word. But he spends a long moment glaring at the Microsoft table.

WEDNESDAY, JAN. 6: The government's 12th and final witness is an eminent MIT economist named Franklin M. Fisher, a rumpled, slow-talking, 64-year-old. He took the stand yesterday afternoon, and he'll be on for the rest of the week. In the field of monopoly economics, Fisher is a giant; indeed, Microsoft's economist, Richard Schmalensee, also of MIT, did his doctoral thesis under Fisher's direction. Nor is Fisher a stranger to the courtroom, having testified, by his count, in more than 40 antitrust cases over the past decade. He and Boies go way back; two decades ago, when Boies was the lead litigator for IBM in its 13-year antitrust struggle with the government, Fisher was the company's chief economic witness.

The lawyer Microsoft has chosen to cross-examine Fisher is a Sullivan & Cromwell partner named Michael Lacovara. On the surface, the two men could not be more different. Lacovara is 35, a sleek, glib, funny man whose flashy suits never show so much as a hint of a wrinkle. He is self-confident to the point of cockiness. His father, Philip Lacovara, was counsel to the Watergate special prosecutor and argued the Nixon tapes case before the Supreme Court.

"Michael likes the limelight," says Microsoft's general counsel, William Neukom. It's true. Lacovara seems to view the courtroom as his personal stage, and if he isn't Microsoft's best lawyer, he's certainly the most fun to watch. He has the natural charisma of a courtroom star.

For all their differences, Lacovara and Fisher are well matched. Both are pros who give as good as they get, who know exactly what they're trying to accomplish in the courtroom. Though they have already clashed once--Lacovara took Fisher's deposition--they bear no grudges. On the contrary: During breaks they can sometimes be seen chatting amiably. Lacovara, in that glib way of his, has privately (and affectionately) nicknamed Fisher "the Fish." Most of the Microsoft people, meanwhile, call the young lawyer "Laco." Laco v. the Fish: Here's a lively way to wind up the government's portion of the trial!

Economists are the expert witnesses in an antitrust case. In the Microsoft trial, Fisher's task is to put forward the economic reason Microsoft should be viewed as a monopoly--which requires an analysis far more complex than merely tracking market share. He also has to explain why the actions Microsoft has taken, such as folding its browser into Windows, should be viewed as predatory and illegal. (Schmalensee, needless to say, will make the opposite argument when he opens Microsoft's defense next week.) Not surprisingly, Fisher's direct testimony is lengthy--it goes on for 110 pages, a kind of summation of the evidence that has come before. Unlike Harris' testimony, Fisher's is quite powerful.

There is no way Laco will ever get the Fish to back off from any of his conclusions; that sort of thing happens only in the movies. Nor will he trick Fisher into saying something foolish; the witness has been through this too many times before. The best he can hope for is to chip away at Fisher's credibility--to suggest that perhaps the data on which Fisher relied to reach his conclusions are flawed, or that he may not know enough about the software industry to render a credible opinion.

Yesterday, for instance, Laco and the Fish began with a long--and surprisingly engaging--to-and-fro about the data the government compiled on browser usage, with Lacovara trying to plant the notion that the data are highly flawed. Then he tried to use Fisher's invoices to the government to show he hadn't spent much time on the case. But Fisher trumped him, first by pointing out that Laco had missed one month's invoice--thus undercounting the hours--and second by noting that he reads so quickly that he can get through a day's worth of deposition testimony in an hour. Laco then moved on to the Fish's track record as an expert antitrust witness--putting into the record two cases where the judge rejected the Fish's analysis, once on the grounds that he didn't have enough knowledge of the industry he was testifying about.

Fisher just smiled. "You know what's going to happen on redirect, don't you?" he asked--meaning that Boies will introduce into evidence the dozens of cases where Fisher's analysis was accepted. The courtroom burst into appreciative laughter--including Judge Jackson. In fact, Jackson, who usually gets visibly annoyed when the lawyers try to chip away at a witness' credibility like this, has been smiling throughout these exchanges. He's plainly enjoying the show just as much as the rest of us.

THURSDAY, JAN. 7: The fun of the past few days comes to an abrupt halt this morning. Laco and the Fish get down to the substance of the case--and it gets very serious very quickly. Lacovara is trying to make the point that it's good for consumers that Microsoft gives away its browser as part of the operating system--but Fisher is having none of it. It may indeed make life easier for consumers, he replied heatedly, "but this case is not about being easy. If Henry Ford had a monopoly, we'd all be driving black cars. That's not what competition is about. That's not what helping consumers is about."

"You seem agitated," Lacovara says.

"I am agitated," replies Fisher. "I feel strongly on this point. We're going to live in a Microsoft world. It may be a nice world. But it's not a competitive world."

For most of the rest of the day, the two spar about browsers, arguing over whether Microsoft tried to "cut off Netscape's air supply" and whether Microsoft Internet Explorer is a better product than Netscape Navigator. Late in the afternoon, as Laco winds down his cross-examination, it hits me: He and the Fish are arguing over the same things John Warden and James Barksdale argued over when this trial began three months ago. After all that time, this case is still fundamentally about browsers. Despite the government's efforts to broaden the case--to make it about a pattern of Microsoft practices--it still revolves around one narrow question: Did Microsoft illegally attempt to use its Windows monopoly to try to dominate the browser market?

As the government prepares to rest its case, one senses that Microsoft is heartened by the current state of play. The government has put on some strong witnesses, but it's had its share of weak ones too. The software giant has taken its hits--and has been especially embarrassed by the videotaped testimony of CEO Bill Gates--but it's still standing. Once Fisher gets off the stand early next week, Microsoft will have its turn to hit back.

Some of my press colleagues are feeling heartened, too, though for a different reason. During the lunchtime spin session, a reporter asks Boies how long his cross-examinations of Microsoft's witnesses will take. "They'll be a lot shorter than their cross-examination of our witnesses," he replies. Well, we'll see. A little birdie has told me that Schmalensee has turned in his direct testimony. It's nearly 400 pages long. Plus ca change ...