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February 21, 1999


By CBR Staff Writer

By Dan Jones in Washington

Microsoft Corp yesterday sought to prove that some of the doubts the government has attempted to sow about the nature of the relationship between Compaq Computer Corp and Microsoft were unjustified. Microsoft counsel Rick Pepperman addressed the period between April and August 1995, where Compaq negotiated two separate agreements with Microsoft – one regarding the featuring of the MSN and Internet Explorer icons on the desktop of the Presario consumer PC range, as well as an agreement that gave the America Online Inc icon pride of place on the Presario. When Microsoft signed the agreement with AOL on August 23, 1995 it removed – or never installed – the MSN and IE icons on the Presario’s desktop, breaking a verbal deal with Microsoft forged on August 8 of the same year. Pepperman and the witness, Compaq executive John Rose, tried to lay responsibility for what had earlier been referred to as a communications breakdown squarely at the feet of one woman, Celeste Dunn. Ms Dunn, who was at the time vice-president of the consumer software business unit at Compaq, had been unaware of the earlier agreement with Microsoft when she signed the AOL contract, according to Rose. However, when lead Department of Justice attorney David Boies returned to the topic he tried to show – using Celeste Dunn’s deposition – that Microsoft had been aware of Compaq’s intention to remove its icons from the desktop before the event and long before the May 31 notice of intent to terminate the Windows license which Microsoft had sent Compaq to force it to reinstate the icons. In the deposition, Miss Dunn said that Microsoft’s Don Hardwick, among others, had been aware of Compaq’s plans and nothing had been said to Compaq. Hardwick was on the telephone call that hashed out the verbal agreement and wrote out the business rules regarding the icons on August 15.

Aggressive AOL?

Microsoft’s Pepperman tried to point to AOL as the aggressor in any battle regarding the removal of any icons. He used two letters – both to Ms Dunn – from AOL to show how AOL had attempted to hold Compaq to their August 23, 1995 agreement. The first asked that Compaq insure that the AOL and its Global Network Navigator (GNN) service were prominently singled out on the desktop above other named services such as AT&T and MSN. The second letter, dated September 25 1996, notifies Compaq that its August 23 agreement will be terminated unless the AOL and GNN icons take precedence above both the Netscape (and associated ISP) and MSN icons, as per their agreement. Asked about the disagreement, Rose noted that he did not know when it was resolved but said that a new Presario, bought by his legal team that week, featured both the AOL and Netscape icons. Rose also denied that the presence of the Netscape icon on the desktop had any thing to do with Microsoft threatening to terminate Compaq’s Windows 95 license. Rose claimed that to the best of his knowledge Microsoft had never objected to the presence of AOL and Netscape icons on the Presario desktop. In his final examination of the witness, Boies tried to show that Microsoft had done just that – pressured Compaq to remove the icons. He asked about a December 12, 1996 Compaq email which said, Someone at Compaq leaked to Microsoft the email on the verbal agreement we reached with Netscape to put Navigator on all Presario systems at $0 royalty (with revenue sharing to Netscape). Microsoft wants to prevent this from happening and will concede some revenues to block it. Rose denied all knowledge of a leak. Boies then highlighted a May 29, 1996 email from Celeste Dunn to Compaq’s Lori Day that complained that the agreement that Compaq and Microsoft were preparing – which was result of the August 1995 verbal understanding and was eventually signed on 26 June 1996 – would block two profitable revenue streams, namely the deals with Netscape and AOL over the desktop icons. Rose denied any knowledge of a Netscape agreement and again reiterated that the Microsoft deal did not preclude Compaq having the Netscape and AOL items on the desktop. And with that the court adjourned for the day, Rose – having done his agreed two days on the stand – left in the car waiting for him outside the courthouse. Microsoft’s Dan Rosen – who disputes the account of the Netscape ‘market split’ meeting on which so much of the government’s case rests – will be next up, this morning (Monday) in what looks likely to be the last full week of witness.

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