Although he wasn't a particularly willing participant, IBM Corp.'s Garry Norris was a damaging and effective witness that brought a "human face" to Microsoft's discriminatory practices, said David Boies, lead attorney prosecuting the antitrust case against Microsoft Corp.
The government had to subpoena both Norris and the series of documents that accompanied his testimony.
Boies said that although Norris did not say a lot that was different from written testimony the government has presented from other OEMs such as Hewlett-Packard Co., he added a "human face' to the equation.
"I have said from the beginning that a PC manufacturer would be a useful witness," Boies said.
Boies said Norris' testimony indicates that Microsoft used its monopoly power to discriminate in terms of who it would give favorable terms in licensing its products. "When you have monopoly power, you shouldn't abuse that through discrimination. And they [Microsoft] are not allowed to use that power to induce people not to compete," Boies said.
The government called Norris, who served as the program director for software strategies in the IBM PC Co. from March 1995 to April 1997. Norris testified Monday that during his tenure, Microsoft used its market power to coerce IBM into accepting unfavorable and costly terms for licensing Windows 95, Windows 3.11 and Windows NT 4.0.
In fact, Norris testified that Microsoft in effect disciplined IBM for sticking to its plans to offer competing products to Microsoft in areas such as operating systems and office productivity suites.
Norris testified that his group's negotiations for a Windows 95 license had been going along well until IBM announced its intent to acquire Lotus Development Corp. in June 1995. In July 1995, after IBM completed its acquisition of Lotus and announced plans to bundle Lotus SmartSuite with its PCs, Microsoft began to aggressively pressure IBM about an ongoing dispute over royalties IBM owed Microsoft, eventually linking the settlement of the royalty dispute to an agreement on Windows 95 licensing, Norris said.
As part of what was termed an act of good faith, Microsoft Senior Vice President Joachim Kempin told IBM executives that Microsoft would forgive IBM's royalty payment if IBM would agree not to bundle SmartSuite for a period of between six months and one year, Norris said. Mark Murray, a spokesman for Microsoft, said Microsoft at the time estimated that IBM owed Microsoft somewhere between $50 million and $100 million in unpaid royalties.
Norris, however, said that because of Microsoft's tactics, which included increasing prices to IBM for Microsoft operating system products and reducing the discount incentives the PC maker could attain, IBM spent at least $48 million a year in additional fees to Microsoft. In fact, Norris said IBM's Windows licensing fees rose from $40 in 1996 to $440 in 1998.
Kempin, in a letter to an IBM executive, called Microsoft actions a response to IBM's "own self-imposed restrictions" for insisting on competing with Microsoft, according to a document Phillip Malone, a U.S. Department of Justice trial attorney showed in court.
Norris also testified that Mark Baber, Microsoft's lead negotiator with IBM in the process, told Norris that the additional costs and restrictions were merely "the price of doing business with Microsoft."
Meanwhile, Boies said that Norris was a key witness, one the government sought, because he represented the PC OEMs who were hurt by Microsoft's discriminatory practices. U.S. District Judge Thomas Penfield Jackson, who has hinted that he might be inclined to rule on a remedy in this case that included modifications to Microsoft's licensing agreements with OEMs, appeared very attentive to Norris' testimony, taking notes and asking questions of the witness.
Microsoft's Murray said the government has put on only one side of the story. "We will set the record straight tomorrow on the very selective, one-sided marathon the government has put on" today, he said. Microsoft has suggested that it was IBM and not Microsoft that insisted on linking the Windows 95 licensing to the settlement of the royalties issue.
Norris will take the stand for more questioning by the government tomorrow, before Microsoft has a chance to cross-examine him.