Microsoft's week took a major downturn the next Tuesday with a ruling by Judge Judge Ronald Whyte forcing the company to fix Java in 90 days or stop distributing Windows 98, Internet Explorer and Visual J++. The ruling is only temporary, but it could signify that the Judge thinks Sun will win after everything is over and done with. Whyte agreed with Sun's charge that Microsoft behaved anti-competitively when it forced software licensees to distribute Microsoft's WinJava in order to qualify for the "Designed for Windows95/NT" logo on their products. Sun was ordered to put up a $15 million security bond for Microsoft to get if it wins the lawsuit, which should come up before the courts next summer. Sun representatives said later that they would seek damage if Microsoft loses.
Microsoft immediately rushed to reassure investors & WinJava developers that the ruling was no big deal and that they would continue to "support" Java in all products. After waiting a few days (while Sun stock soared), the company announced that it would modify Windows 98, Visual J++ and IE4 to meet Sun's specifications, but didn't give any exact dates on when that might happen. Contradicting the earlier announcement, Microsoft later said that the Unix and Mac versions of IE will lose their Java support all together. And although the company has yet to annouce it, we have no doubt that they plan to appeal.

COURT NOTES: Starting the antitrust trial's 5th week, government lawyers played 50 more minutes of Bill Gates' testimony for the court. Most of the clip showed Gates arguing with lead Justice Department attorney David Boies about the meaning of words he used in e-mails. Boies confronted Microsoft's CEO with an e-mail he wrote to a subordinate in 1996 that said in part, "winning Internet browser share is a very, very important goal for us." Gates said he didn't remember writing that specifically. Boies then asked him about what companies he would include in the term browser share. "There's no companies included in that," Gates responded. "Well, if you're winning browser share, that must mean that some other company is producing browsers and you're comparing your share of browsers with somebody else's share of browsers," Boies replied. "It doesn't appear I'm talking about any other companies in that sentence," Gates shot back.
The court's attention, however, was on Judge Thomas Penfield Jackson, who couldn't stop himself from laughing out loud as the billionare rocked while thinking up responses and acted as if he could barely even remember his own name. Once the video clip was finished, Jackson asked David Boies how long the deposition had taken to complete. Boies repsonded that the interview had consumed three days, mostly because Gates had problems with the meanings of words like 'concerned', 'competition', 'non-Microsoft' and 'we'. Boise later settled that issue by bringing out a copy of the Microsoft Press Computer Dictionary, which had clear definitions of the terms used. Microsoft attorneys then protested that the DOJ was simply playing games and tried to block the rest of the tape, but Judge Jackson said it seemed to be more a problem with the witness rather than with presentation of his testimony.
To rebutt Gates' statements, Boies brought Independant Software's Glenn Weadock out as an expert witness. Weadock testified that bundling Internet Explorer with Windows gives "few real-world benefits and several significant real-world costs and risks" to corporate customers. Weadock had earlier said in written statements that "managers at many organizations .. have told me that they value the flexibility to make browser decisions independently from operating system decisions." He went on to say "the forced inclusion of Internet Explorer with Windows 98 or Windows NT 5.0 forces organizations to either forego new technology, incur the costs of supporting two browsers or removing the unwanted one, or alter their choice of browsers." Then the following day Boeing manager Scott Vesey testified how his employer decided to use the first version of Windows 95 in order to avoid the IE integration.
Later on Tuesday the government played another eight minutes of the video testimony, where Gates, even after being shown an e-mail he wrote in 1996 calling IBM "rabid Java backers" and asking it to "tone down" the rhetoric, denied that Microsoft asked Big Blue to stop publicly supporting Java. They then called IBM executive John Soyring to the stand and asked his perspective on Microsoft's relationship with the computer company. Soyring testified that OS/2 has failed in the consumer market because of a minimal amount of software. He then explained how that problem is due to how Microsoft limits Windows software developers from porting products to that platform.
After the crossexamination of Soyring on Wednesday, government lawyers submitted written testimony from economist Frederick R. Warren-Boulton, chief US federal antitrust economist in the 1980s. In his statements Thursday, Warren-Boulton stated "consumers will be significantly harmed if Microsoft succeeds in crushing the cross-platform threat that independent browsers pose to the Windows operating system monopoly. ..The important point is that the market should not be prevented by Microsoft's anti-competitive practices from making that decision."
Also on Thursday the DOJ released a memo written by Senior Sales VP Joachim Kempin in 1997 to Bill Gates and Steve Ballmer. The memo suggested that Microsoft begin charging Windows users an annual fee to use the operating system. The annual charge, which Kemplin called an "annuity," was described as being "the best thing long term." When asked about the message, Microsoft spokesmen said that it was just a suggestion, not anything that the company would actually do. Microsoft then finished out the week by attempting to show that it doesn't have a monopoly on operating systems, explaining how the PDA OS market is still dominated by other products, and then claiming that Linux is actually threatening sales of Windows.
When trial resumed Monday, Microsoft attempted again to have the case thrown out, saying that the AOL/Netscape merger [see story below] eliminates DOJ arguments about market dominance. Government lawyers correctly argued back that both America Online and Netscape are internet companies and the deal between them will have no impact on Microsoft's ability to sell desktop computer operating systems. Frederick Warren-Boulton was called back to the stand to explain the definition of monopoly, and debate over that topic consumed the remaining two days of trial time for this week. (court was not in session Wednesday or Thursday to commemorate Thanksgiving, court is never in session on Friday)

After turning on Microsoft and testifying in the antitrust trial, AOL (just like Intel before it) then moved to embrace a Microsoft competitor. Netscape and America Online stock prices soared on rumors that AOL would make Netscape its primary web browser after their contract with Microsoft expires on January 1. The move would make sense since Microsoft is a competitor with AOL on many fronts, specifically its MSN online service and network of web sites. As we're writing this report, the companies have agreed to a merger involving another Microsoft competitor, Sun Microsystems. According to information we have received, Sun will get the software side of Netscape and continue producing that line of servers and web browsers, giving them a distribution point for Java. America Online gets Netscape's Netcenter portal site and will buy several hundred thousand dollars of equipment from Sun. AOL will NOT, however, dump Internet Explorer for a Netscape browser as was originally rumored. So America Online will basically pay $4.3 billion for Netcenter and will then rent the rest of Netscape to Sun.
This new deal has implications on several fronts. It will definately be bad for MSN (a good thing), but it will also be bad for independant ISPs (not a good thing). It could complicate the antitrust trial by allowing Microsoft to claim that their monopoly is smaller than AOL's (very bad thing). People that hate AOL more than they hate Microsoft will switch back to IE, and people that use AOL will still be running IE, since - we suspect - AOL decided to stick with IE to keep the merger from affecting Microsoft's antitrust trial [see story above]. Ralph Nader is calling for the merger to be blocked, and if they don't his consumer groups could turn from boycotting Microsoft to boycotting AOL.
We also have to consider the future of Netscape's investments. The internet company owns small shares of Newhoo, Linux-distributor Red Hat Software and others, as well as providing all funding for the Mozilla open-source browser project. Would America Online be generous enough to continue funding Mozilla and hang on to Netscape's shares of those small companies? And what happens to Netscape executives like Jim Barksdale, James Clark and Marc Andreessen? Several rumors have one or more of them moving to run the Mozilla project, possibly turning it into another open-source software company like RedHat or Caldera. Overall we feel like the merger is a bad deal, both for consumers and Netscape stockholders. Luckily the merger does still have to be approved by the stockholders, and those of us here who own Netscape shares will be voting from our hearts, not from our pocketbooks.

On the 18th, Microsoft announced that it has started selling the $30 million investment made in RealNetworks back in July 1997. Microsoft originally paid the company a $30 million licensing fee and another $30 million for 3.3 million shares of stock, worth about $9 each at that time. The investment has appreciated nicely, closing Friday at 41 9/16 per share. This move has been expected for a while since Microsoft and Real are competitors now, plus their relationship wasn't exactly helped when RealNetworks' CEO Rob Glasser testified against Microsoft before the US Senate in July. Real also recently struck deals with Intel, Netscape, Lotus and AOL, all of which now compete with Microsoft in some form or another.

Columnist Michael Lewis resigned from Slate last week, with an explanation from the e-zine's editors that he needed more time to work on a book. Another resignation from the Microsoft-owned magazine wouldn't be newsworthy, except for the fact that Lewis was hired by Slate specifically to cover the Microsoft antitrust trial. Mr. Lewis had been highly critical of Slate's parent company in his reporting, recently describing Chairman Gates looking "as if he had swallowed a bad oyster," and calling lead Ms lawyer John Warden "a great Hogarthian ball of pink flesh." He was replaced by Nixon-era politician Herbert Stein, who quit after only two reports and was replaced by Washington editor Jodie T. Allen. Allen began her first column by showing whose side she's on: "I will not pretend to be an objective observer of the Microsoft trial. You wouldn't believe me if I did."

Yet another group filed suit last week against The Behemoth on behalf of temp workers who formerly worked for Microsoft. The suit asks for back benefits for several thousand temporary employees - some of whom worked in Redmond five years - because they were denied pay raises, company health coverage, stock options and other benefits enjoyed by workers classified as full-time. In the last year Microsoft has lost several other lawsuits filed by temporary employees and was forced to allow hundreds of contractors into its 401(k) retirement plan after the US Supreme Court denied an appeal.

Qualcomm was apparently thinking "if you can't beat them, join them" when it decided to set up the new Wireless Knowledge joint venture with Microsoft. So what's this all about? Basically, it means Microsoft and Qualcomm each paid $25 million to set up a company allowing wireless carriers like BellSouth, GTE, AT&T, Us West, Bell Atlantic Mobile, Sprint PCS, AirTouch Cellular and Bell Mobility of Canada to offer low-cost hook ups to Internet for those working with a portable and digital phone in the middle of nowhere. Provided services include e-mail, calendar functions and access to MS Exchange-based corporate networks. Sounds great except for one 'but': You can only use Windows-based PCs and WinCE handhelds to access the services.

Last week Microsoft cofounder Paul Allen purchased one third of the Ziff Davis computer-news cable channel ZDTV. This is another one of many telecommunications groups Allen has bought in the last year, most notably Marcus cable. Allen, who left his job inside Microsoft more than a decade ago, also recently filed to sell some $1.4 billion of his Microsoft stock along with 200,000 shares of C|Net stock.
Intel competitor AMD has discovered a bug in the way Windows 95 works with some of its top-end CPUs. According to a notice on the AMD web site, starting Windows 95 OSR2, OSR2.1 and OSR2.5 on a computer with a 350-MHZ or faster AMD K6-2 processor may result in several error messages. The problem is apparently caused by a processor-frequency sensitive timing loop in Windows 95 and reportedly does not affect 98 or NT.

_{Microsoft offers patch for IE security hole
Privacy advocates seem to never forget
Japan probe favorable to Microsoft}