May 6, 1999

Microsoft Presses Rival on Details of a Deal

By JOEL BRINKLEY

ASHINGTON -- A lawyer for Microsoft tried to make the case today that America Online planned to use "all of its marketing muscle" to promote its newly acquired product, the Netscape Navigator Web browser. But an America Online executive disputed that, saying the company thought "the browser business is dead."

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The back and forth came this morning as Microsoft took the deposition of Barry Schuler, the president for interactive services at America Online, in preparation for the resumption of the antitrust trial late this month.

Microsoft plans to make the case that America Online's purchase of Netscape Communications for $10 million this year seriously undermines the Government's argument that Microsoft is a monopolist with no serious competition. If America Online stepped up Netscape's competition with Microsoft's browser, that could seem to support this assertion.

Quoting company documents obtained by subpoena, the Microsoft lawyer, Steven Holley, noted that one America Online executive proposed in December to increase the marketing of Netscape's browser -- perhaps, Holley said, even using direct mail to send millions of copies of the software, as America Online has done with its own software.

Schuler said the executive's suggestion was just an opinion, not company policy, adding that America Online was "not actually considering" direct-mail marketing.

In some cases it was hard to know which of Holley's assertions came from America Online documents that Microsoft had obtained and which might have been his own suggestions because America Online tried to insist that every document be marked as confidential -- even newspaper clippings and news releases. Holley managed to persuade the America Online lawyer to take the confidential markings off the newspaper clippings.

Schuler insisted that America Online had little interest in Netscape's browser. The company was much more interested in Netscape's Internet portal business, he said.

The browser business was decimated, he said, by Microsoft's decision to bundle a competing browser with the Windows operating system.

Holley spent most of the morning questioning Schuler about the timing of America Online's decisions in the Netscape deal. He pressed Schuler to acknowledge that an America Online lawyer had informed David Boies, the lead Justice Department lawyer, about the company's proposed acquisition of Netscape in early October, before the trial began, but kept it secret from the Government and the judge.

Mark Murray, a Microsoft spokesman, said, "If that was the case, it would cast the testimony of Netscape and AOL witnesses in a very different light."

An acquisition by America Online is under scrutiny.

Microsoft plans to call David Colburn, a senior America Online executive, as a hostile witness to question him about earlier testimony and how it related to the acquisition plans.

But Schuler said George Vradenburg, a senior company lawyer, had simply told Boies on Oct. 3 that America Online and Netscape were in "a very preliminary conversation of a sensitive nature about a potential commercial relationship." Vradenburg and Boies are former law partners, and Boies was preparing to take a deposition from Colburn that day. America Online said Vradenburg wanted to make sure Boies did not stumble into that confidential area.

This Oct. 3 discussion is central to Microsoft's assertion that America Online, Netscape and the Government plotted, in essence, to keep the proposed deal from Microsoft and the judge until the other companies' witnesses had testified.

A senior Justice Department official said Boies and Government lawyers had taken Vradenburg's imprecise remark on Oct. 3 to mean that America Online was considering using Netscape in its online service, adding, "for the life of me I don't quite understand the relevance."

But Murray added, "These issues will be a significant part of our rebuttal case."

A Government lawyer, Philip R. Malone, asked Schuler if America Online and Netscape had "delayed or postponed" their acquisition agreement "because of any concern about the impact it might have on the trial."

"No, we did not," Schuler said.