Government Knew of AOL-Netscape Talks in Advance, Says Msoft

Computergram International, May 24, 1999

By Siobhan Kennedy

Microsoft Corp's chief attorney, John Warden, yesterday sought to discredit the Department of Justice by implying the government knew of secret talks between AOL and Netscape but chose not to ask any questions for fear the possible disclosure of a merger would weaken its case against the Redmond software giant.

During the deposition of AOL chairman and CEO Stephen Case in Washington on Friday, Warden said AOL's counsel, George Vradenburg, had gone to the DOJ early in October 1998 and informed the government that AOL was in "sensitive negotiations" with Netscape. The conversation, between Vradenburg and the DOJ's lead attorney, David Boies, took place prior to the deposition of AOL senior VP David Colburn. Because of the discussions, Vradenburg told Boies there would be certain questions that Colburn wouldn't be able to answer during his deposition.

But rather than push Vradenburg on what those discussions were, Warden and his team of attorneys implied that Boies and the DOJ deliberately chose to avoid the issue. During Colburn's deposition there was a closed session to honor AOL's request for privacy, but at no point did the DOJ enquire as to the nature of the talks between Netscape and AOL. "Wouldn't you think the government might ask some questions?" said Michael Lacovara, one of Microsoft's attorneys during a short recess, "that's not the way the government normally behaves I don't think...they're required to put on a good faith case."

Microsoft asserts that AOL's $10bn acquisition of Netscape, announced just a month after Colburn's deposition, proves there is competition in the industry. When the news broke, Microsoft immediately went to the DOJ and requested the government drop its antitrust case. Moreover, Microsoft now thinks AOL believed the deal would hurt the antitrust case and therefore delayed making an announcement until after Jim Barksdale, former Netscape chief executive officer, and David Colburn had testified in the trial.

"Is it fair to say that Mr Vradenburg warned Mr Boies off any line of questioning that might have brought the deal to light?" Warden asked Case. "We were just trying to advise [the DOJ] that the discussion was happening," Case replied, "it was still early stages but we recognized as David was about to testify that some questions might emerge which would make us disclose our intentions too early." In addition, Case said AOL had realized that it would need to partner with Sun Microsystems to develop Netscape's e-commerce solutions but that it didn't want news of the possible partnership to leak out early.

Speaking during a press conference after the deposition, David Boies dismissed Warden's claims that the Government could have probed further into AOL's discussions with Netscape as a "side show....an effort to detract from what the central issues of the case are." Boies reiterated evidence given by Pace earlier that he and his colleagues were "quite surprised" when they learnt of AOL's intention to buy Netscape, adding that the DOJ had presumed that the companies' sensitive discussions were related to browser technology. He said both the DOJ and Microsoft knew AOL was having discussions with Netscape that it didn't want to take into the public domain. "That's why we went into closed session," he said, "and during that time Microsoft had every opportunity to ask about those discussions, what they were about and who they involved."

When asked by a member of the press why the DOJ hadn't pushed AOL on the Netscape talks, Boies said he thought that what Microsoft had asked during the closed session "covered every area that was relevant to the trial." Boies went on to describe Case's deposition as one of the most significant pieces of testimony in the trial to date. He said Case had managed to prove three important issues, namely that Microsoft has a monopoly over the desktop PC market, that AOL is not in any way a threat to that monopoly and that the merger between AOL and Netscape had nothing to do with the DOJ's case against the software giant. "And that came in about five minutes of a two hour deposition," Boies said, referring to his brief questioning of Case after Warden had spent nearly two hours trying to prove otherwise.

Furthermore, he said that Case had finally put to rest Microsoft's argument that the only reason AOL had bought Netscape was for its Navigator browser, the main competitor to its Internet Explorer (IE) technology. Earlier, under questioning from Warden, Case had repeatedly stated that AOL's primary motive for buying Netscape was to get its hands on the company's Netcenter portal. "We did not buy Netscape because of the browser business, we bought Netscape, to some extent, despite the browser business," Case said. He added that AOL went into the Netscape deal aware that the company's browser share was likely to decline. "We were concerned that if it declined on our watch it would reflect poorly on AOL but we decided on balance, given the other assets, it would make sense for us to pursue the acquisition, which is what we did."