November 9, 1998 4:20 PM PST

Intel: Microsoft made threats

WASHINGTON--Microsoft made "credible and fairly terrifying" threats against Intel, trying to bully it into killing certain research projects, a senior executive from the chip giant testified today.

Microsoft was especially concerned about a technology known as NSP, or native signal processing, as well as Internet software Intel's research arm was developing, Steven McGeady, the company's vice president for content, testified.

At an August 2, 1995, meeting, Microsoft chief executive Bill Gates allegedly said Microsoft's day in court he would withhold support for two forthcoming Intel chips unless the company shut down its NSP research team. In addition to NSP, the Intel architecture labs (IAL) was developing Internet software, including technology based on Sun Microsystems' Java.

McGeady's account contradicted portions of videotaped testimony by Microsoft chief executive Bill Gates shown today. In it, Gates said he never pressured Intel to drop the projects and claimed he was unaware Intel was developing Internet software. After today's session, Microsoft said it would refute McGeady's account of events, using documents and sworn testimony from Intel.

Gates became "enraged at one point about what he described as the 600 or 700 engineers in IAL who were, in his view, competing with Microsoft," McGeady told the court in his first day of testimony here. About three weeks after the meeting, McGeady sent his colleagues at Intel an email that carried the subject line "Sympathy for the devil."

"Gates was livid about IAL's investments in the Internet, and wanted them stopped," McGeady reported in the email. "All of this was said in the presence of executives from both companies."

McGeady said that Microsoft threatened to withhold support for two forthcoming products that were crucial to Intel if it went ahead with the software projects. One of them, the MMX chip, runs multimedia more smoothly. The other, then known as the P7, is a 64-bit microprocessor architecture for running high-end corporate machines. McGeady said Intel spent more than $500 million on development of MMX alone.

"If these processors didn't run Windows, they would be useless in the marketplace," McGeady testified. The threat, he added, was "credible and fairly terrifying."

McGeady is the fourth government witness to testify in the ongoing antitrust trial under way here. His testimony differs from the previous three in at least two important ways: First, McGeady's company is not considered a Microsoft competitor, in sharp contrast to Netscape Communications, America Online, and Apple Computer. Second, according to McGeady's testimony, Microsoft was able to back Intel into a corner despite the chip giant's tremendous power in the computer industry.

McGeady, who refused to submit his testimony in written form, made a number of similarly explosive allegations. The Justice Department (DOJ) and 20 states, which sued Microsoft in May, claim that the actions are part of a broad series of acts that violate antitrust laws.

Among other allegations, McGeady claimed that a top Microsoft executive said he intended to "cut off Netscape's air supply" by eliminating revenue sources for the Mountain View, California, browser maker. At a meeting in the fall of 1995, Microsoft vice president of development Paul Maritz also described Microsoft's strategy as "embrace, extend, and extinguish," McGeady testified.

McGeady, who attended the 1995 meeting, explained that the strategy was aimed at extending competing technologies in ways that make Microsoft's product incompatible. Eventually, the move would "extinguish competition," he said.

Outside of court today, Microsoft spokesman Mark Murray said McGeady See CNET Radio: Our Man in Washington "had an ax to grind" with Microsoft and urged the public to "stay tuned" when it is the software giant's turn to cross-examine the Intel executive. "Over the next day or so, Microsoft will have the opportunity to introduce into evidence sworn statements of Intel executives and documents that refute many of the witness' claims," he said.

Setting the stage for McGeady's testimony, government attorneys today showed more videotaped testimony of Microsoft chief executive Bill Gates, who denied ever threatening the chip giant to stay out of the software business.

In about 20 minutes of videotaped deposition shown, Gates also alluded to tensions between the two companies. For instance, Gates said that Microsoft was profoundly unhappy with some of Intel's software initiatives, which Gates insisted hurt both companies by creating "bad customer experiences."

Asked if Microsoft's objections were inconsistent with a cooperative relationship, Gates replied: "I suggested that it wasn't helpful to any of their goals or our goals to have software that had incompatibilities and was low quality and broke." Gates later added that "Intel was wasting its money by writing low-quality software that created incompatibilities for users, and those negative experiences weren't helpful for any goals that Intel had."

McGeady also testified that Microsoft attempted to draw boundaries between markets it and Intel would compete in. Intel was essentially to limit itself to the hardware market, while Microsoft was to remain in software. While more subtle, McGeady's testimony resembles allegations already made by Netscape chief Jim Barksdale and Apple senior executive Avadis Tevanian, who claim that Microsoft proposed carving up markets in which each would compete.

Earlier today, Tevanian wrapped up a third day of testimony, reiterating allegations made in his written testimony that Microsoft used its dominance in the industry to create a stranglehold on the emerging market for software that writes and plays multimedia content.

 

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