Curtain Call In the last act of the antitrust trial, Microsoft made another dogged attempt to plead its case. But the judge was obviously unmoved.
By Joseph Nocera

(FORTUNE Magazine) – MONDAY, JUNE 14: Here's the great mystery of the Microsoft trial: How can a company this smart put on a defense this dumb? As Microsoft presented its case last winter--and as government prosecutor David Boies reduced it to rubble--that was the unspoken question that hung over Judge Thomas Penfield Jackson's courtroom. Here in the trial's last weeks, it's still the great imponderable. There are times when it seems as if the Microsoft legal team has a death wish. Like today, for instance.

On the stand is an AOL executive named David Colburn. A lawyer turned negotiator, Colburn was the government's second witness last October--and a memorable one at that. Sardonic, tough, and snarky, Colburn came to court each day ostentatiously unshaven and gave the impression on the stand that he was one mean S.O.B. He not only was unruffled by the rough cross-examination he underwent at the hands of Microsoft's lead litigator, John Warden, but actually seemed to enjoy it. Even Boies, whose side Colburn was on, found examining him unpleasant.

So why is he back? He has been recalled as a rebuttal witness for...Microsoft! The company says it needs his testimony for two reasons. First, it wants to use him to explore the ramifications of the now-completed AOL-Netscape merger, which Microsoft believes makes this whole antitrust trial moot. (The company argues that the deal proves Microsoft faces plenty of competition.) Second, Microsoft hopes to show that Colburn was being evasive the last time around by not mentioning the Netscape negotiations, which were under way when he testified. In other words, the company that claimed last February that "credibility doesn't matter" when it came to its witnesses now seeks to impeach the credibility of a government witness. Go figure.

Sure enough, the gambit is quickly exposed as boneheaded. Warden begins with a series of hostile questions aimed at showing that Colburn is a liar. Colburn swats them back with bemused contempt. Then Warden tries to skewer him for withholding the fact that AOL and Netscape were in merger talks. This is even easier for Colburn to brush off. Microsoft's lawyers, he points out, never asked him whether the companies were negotiating a deal. What was he supposed to do? Blurt it out voluntarily?

Finally, Warden tries to get him to describe AOL's strategic rationale for buying Netscape. The Microsoft lawyer would like to show that AOL is now well positioned to compete with Microsoft--and that Netscape's browser will again become a threat to the software giant. But Colburn doesn't take the bait. As Warden trots out AOL strategy documents, Colburn shrugs nonchalantly. He has never seen them before, he says--after all, he's just a negotiator, not a company strategist.

By early afternoon, Jackson has lost all patience with Microsoft. He calls a bench conference and lights into Warden. "I confess, I'm not sure where you're going here," says the judge. Warden protests: "I'm trying to show that the an important part of the deal to Netscape and AOL." "Well, he isn't going to agree to that, and he hasn't," Jackson replies tartly.

Warden digs himself in ever deeper. When Jackson complains about Colburn's lack of knowledge, Warden replies, "He seemed like the best person for us to call." But as Jackson well knows, Microsoft recently deposed AOL chief executive Steve Case--who obviously has personal knowledge of AOL's strategies, but who didn't exactly help the Microsoft cause during his deposition. "The best person to call, you didn't want to call," Jackson says. Then he adds ominously, "And I don't blame you."

WEDNESDAY, JUNE 16: My oldest son, Matt, who is 11 (and a Microsoft shareholder, I must add in the interest of full disclosure), has been hankering to attend the trial, and today's the day. He sits quietly through this morning's examination of Microsoft rebuttal witness No. 2, a Silicon Valley veteran named Gordon Eubanks. The former CEO of Symantec (and current CEO of Oblix, a startup), Eubanks is a bit player in this drama, called as a "character witness" for the company, as the New York Times aptly puts it. His main point is that Microsoft is a force for good in the software industry--a position he holds despite the fact that Microsoft has, from time to time, added features to Windows that eliminated the need for certain Symantec products. "I think Microsoft has the right to expand and extend the operating system as they see fit," Eubanks says jovially. He adds that even though Symantec and Microsoft compete, the company has never had trouble getting the technical data it needs to write software for Windows. When the direct examination is over, I ask Matt if he has seen enough. No way. "I want to see David Boies do a cross-examination," he says. And why not? Ever since the trial began, Matt has wondered how his beloved Microsoft could be brought so low by one man.

Boies does not disappoint. In just over an hour, he turns the morning's confident witness into a blubbering, cowering mass of jelly. It's amazing to watch Boies do this--and a reminder of why this trial has been so much fun to cover. For pure theater, you just can't beat it.

Isn't it true, Boies charges, that Symantec had to agree to play ball with the software giant in return for that technical data? Eubanks says he's not aware of any such arrangement--whereupon Boies shows him the contract. He displays an e-mail in which a Symantec employee writes, "We need to be totally in bed with [Microsoft]"--and he makes Eubanks squirm as he tries to explain it away. In another e-mail Eubanks seems to ask for a business favor in return for pro-Microsoft testimony. "Coincidence," says the witness--to derisive laughter from the press. And on and on. My pro-Microsoft son whispers to me: "It's obvious, Dad. He's lying." That's what Boies does: He makes reputable people look like liars. It's what makes him a great lawyer.

At the recess, Boies walks directly up to my son. "Good job!" Matt says to him. The prosecutor laughs and laughs.

TUESDAY, JUNE 22: Here in the final week, I'm ready to say out loud what I've been thinking for some time: Microsoft is going to lose this trial. The company's defense, at once arrogant and ham-handed; Boies' brilliant trial skills; Bill Gates' terrible deposition; the dozens of incriminating e-mails--it all adds up to one thing: Microsoft will be declared a monopoly that has abused its monopoly power. (I also believe that whatever the ultimate remedy is, it won't include anything as draconian as breaking up the company.)

There's one other key factor that has me thinking this way: Judge Jackson appears to have made up his mind. It has been obvious for some time that the judge doesn't have much patience for Microsoft's witnesses or most of its lawyers. He has been especially dismissive of Microsoft's absurd attempts to put a benign spin on its nasty e-mails. But in the past few days, as the trial takes its final curtain call, Jackson has seemed more willing than ever to show his hand.

On the stand is Microsoft's third and final rebuttal witness, MIT economist Richard Schmalensee. Under the friendly questioning of Michael Lacovara--the one Microsoft lawyer who has become a star during this trial--Schmalensee makes the basic Microsoft pitch: The company did nothing to harm consumers; it lacks monopoly power because of the competitive threats it faces; its behavior has not been anticompetition but pro-competition. These are the core Microsoft arguments. And Judge Jackson clearly isn't buying them.

He has signaled this in a dozen different ways. Yesterday, for instance, during a discussion about what constitutes predatory behavior, Schmalensee tried to tell the judge that "intent" should never be a factor. This is a key issue, because the more weight Jackson gives to intent, the worse it will be for the software giant. After all, Microsoft's e-mails are filled with suggestions that the company wanted to put rivals out of business.

But Schmalensee claimed that it's almost impossible, really, to know whether a company intended to drive a rival out of business; after all, he said, you can always find a document in a company's files that says "let's kill them." "I believe most economists...would not attach a high weight on evidence of intent," Schmalensee added. But Jackson shot right back: "You know, that's what courts do every day." During the next 15 minutes he made several other comments along the same line--a clear sign, it seemed to me, that he plans to make Microsoft's intent a major focus of his decision.

Today, again, Jackson weighs in in a way that must frighten the Microsoft troops. Late this afternoon, with Schmalensee in the midst of a convoluted comparison of the software business with the grocery business, the judge breaks in. "I have trouble with your grocery store analogy," he begins, and then forces Schmalensee to stretch the analogy to include a megastore like Wal-Mart--the kind of store than can put rivals out of business and prevent other stores from starting up. Jackson pipes up, "Then you have a benevolent despot with"--and for the first time I can remember, he uses the word Microsoft most dreads--"a monopoly."

THURSDAY, JUNE 24: It's the last day of the trial, and the courtroom is a little giddy. Antitrust chief Joel Klein has come to court today, as he often does on big days. He grins from ear to ear as he listens to Boies cross-examine Schmalensee. John Warden has a twinkle in his eye. Even the normally stiff William Neukom, Microsoft's general counsel, seems unusually relaxed. The litigation, of course, is far from over--still to come are closing arguments and Judge Jackson's ruling, not to mention a "remedy phase" and, no doubt, an appeal. Yet this last day of trial is unquestionably a marker of some import. We're all going out to celebrate tonight. It promises to be a very late night.

Truth to tell, Boies' cross of Schmalensee has been pretty desultory; at long last the prosecutor appears to have run out of steam. But late in the morning, he springs a last, delicious surprise. He introduces a Microsoft document purporting to analyze the AOL-Netscape deal. On one page, scrawled in the margin, is something Bill Gates apparently said. He said: "AOL doesn't have it in their genes to attack us in the platform space." In other words, Microsoft's CEO has just been caught contradicting the notion that AOL is now positioned to threaten Windows--which has been the singular focus of Microsoft's rebuttal.

It's too perfect for words, isn't it?