Microsoft Tries To Crack AOL's Case With the trial set to resume, our diarist returns to check in on a key deposition, and finds that Microsoft is still...well, Microsoft.
By Joseph Nocera

(FORTUNE Magazine) – Friday, May 21: Deep in the bowels of a Washington, D.C., hotel, Steve Case, the chief executive of AOL, sits at the end of a very long table, surrounded by lawyers. To his left are some AOL attorneys, then some Department of Justice attorneys, then some Microsoft lawyers: 14 in all. The CEO is wearing a dark-blue shirt and a red tie, which stand out because he's the only one with his jacket off. When he looks ahead, he can see not only John Warden, the Microsoft attorney asking him questions, but also two video cameras recording his answers. Behind the cameras he can see rows of reporters furiously taking notes. "Have you ever been deposed before?" asks Warden. "A few times," Case replies with a wry grin. "But not quite at this level of enthusiasm." The 50 or so people in the room--the usual suspects at the Microsoft antitrust trial--laugh appreciatively.

Almost to a man, high-profile tech executives have run the other way when they've seen the Microsoft case coming. Scott McNealy of Sun Microsystems, Andy Grove of Intel, Ted Waitt of Gateway, Lou Gerstner of IBM, and Michael Dell of Dell Computer have all had employees dragged into the case, via either depositions or court testimony. But the bigwigs have kept their distance. Among tech executives there is a perception that there's no percentage in getting involved.

Case stayed out of the line of fire last October, when the trial began. The government's second witness was from AOL--a negotiator named David Colburn, not one of the top brass. The key point he made was that Microsoft's monopoly power over computer makers was the main reason AOL adopted Microsoft's browser instead of Netscape's. This, of course, jibed with one of the government's central charges: that Microsoft uses its Windows monopoly to force companies to do its bidding in other areas.

Just weeks after Colburn's testimony, though, AOL announced something it had kept under wraps for months: It was buying Netscape. At the trial all hell broke loose. Microsoft's lawyers and flacks immediately contended that the deal proved one of their main points: that competition in the technology industry was flourishing--and that the rapidly changing marketplace would ensure that competition remained strong.

Microsoft's spokesmen made another, darker argument as well. They claimed that Microsoft's enemies were now shown to be "conspiring" against it, possibly even to the extent of delaying the deal in order to help the government. Indeed, so adamant has Microsoft become about that possibility that it plans to call Colburn as one of its "rebuttal" witnesses when the trial starts again on June 1. The company's lawyers claim that with Colburn back on the stand they will explore the impact of the deal--and his credibility as a government witness who failed to disclose that very important fact. Though the government dismisses this line of inquiry as a "sideshow," Microsoft has spent most of the past three months, with the trial in recess, digging into details of the merger.

Case's deposition is part of that digging--and Warden wastes no time boring in on the negotiations. Case quickly concedes that AOL began talking to Netscape about a deal in late summer 1998--negotiations that AOL's board learned about in October just as the trial was getting under way. But Case makes a rather obvious point about why keeping quiet was key: "We were in sensitive negotiations with a company that it made sense for us to buy. But there were a lot of thorny questions. We did not want any public disclosure of the fact that we were evaluating this to leak out."

Isn't it true, Warden growls, that in early October AOL's general counsel contacted an old friend, government lead prosecutor David Boies, to warn that AOL and Netscape were negotiating? True, Case admits. But, he insists, Boies was never told what the negotiations were about.

So, continues Warden, why did the AOL lawyer make the call? "He wanted the DOJ to know that we might have to object to questions that would cause us to disclose the negotiations," Case replies. For another half-hour, Warden comes at this issue from various angles, trying to get Case to admit that AOL had, in effect, tipped off the DOJ while keeping Microsoft in the dark. Case is too nimble to be trapped, though, and we spectators can't help wondering: Even if the allegation is true, so what?

After barely an hour of interrogation, a recess is called--just like at the Microsoft trial! And out in the hallway, a spin session breaks out--just like at the Microsoft trial! "The government has to make a good-faith effort to make sure Microsoft has a fair chance at discovery," says Microsoft lawyer Michael Lacovara, offering the justification for why this matters. But is the government required to divulge the contact between AOL and Boies? The answer that emerges is no--though that's not how Lacovara puts it. "The government is not just another litigant," he replies. "They have the highest duty to be fair and open.... I'm not saying they broke the law--but don't you think they should have divulged the contact?" Microsoft is grasping at straws, I think.

As it turns out, Warden doesn't have much more to ask. He spends the next hour quizzing Case about AOL's prospects. He asks about the coming of broadband Internet access, about AOL's most recent upgrade, and about statements Case made at a recent analysts' meeting. For his part, Case seems to enjoy answering, especially in front of so many reporters. He keeps cracking wise--and the press laughs at his jokes.

By lunchtime it's over. Outside the hotel, Boies tells the assembled press that Microsoft's efforts to pry open the AOL-Netscape deal is an attempt to sidestep the real issue--namely, whether Microsoft is a monopolist that abuses its power. Case, he points out, said in his deposition--in response to a question by Boies--that AOL has no intention of competing with the software giant. Microsoft, though, believes AOL is already a potent rival. With the growing importance of the Internet, a Microsoft spokesman tells a reporter, "it's disingenuous to say they're not a competitor."

Perhaps the real meaning of the Case deposition is that it neatly illustrates the vast gulf between the government and the company--and why neither side is willing to settle. I can't help having another reaction, though. As the reporters laugh at Case's jokes, I think back to Bill Gates' now notorious deposition, in which he was by turns improbably clueless and needlessly combative. That set the tone for the trial, and Microsoft has never really recovered. There were no reporters at that deposition--it was taken while Microsoft was still appealing the judge's ruling that the press had to have access. But what if reporters had been let in? Would Gates have acted differently if he had seen the press snickering at his responses? Would the whole case have a different feel if Microsoft had not fought so hard to prevent the public from watching its CEO answer questions?

Just a thought.