October 23, 1997 9:00 PM PDT

PC makers testify on MS pressure

As key pieces of evidence emerged in the Justice Department's antitrust case against Microsoft (MSFT), details were revealed of how the software company required computer makers to bundle its Internet Explorer browser with its Windows operating system.

The documents, part of the evidence released by the government Monday, outline exactly how Microsoft forced computer vendors like Compaq Computer, Gateway 2000, and Micron Electronics to include Internet Explorer and Microsoft Network icons on all PCs that came preinstalled with the Windows 95 operating system.

The first hearing on the charges that the software giant violated a 1995 court settlement aimed at curbing anticompetitive tendencies is set for October 27 at 9:30 a.m. ET before U.S. District Court Judge Thomas Penfield Jackson. A court spokeswoman said the hearing will be for scheduling upcoming proceedings.

Among the evidence the court eventually will hear includes the following: a June 6, 1996 letter from Don Hardwick, Microsoft's group manager of OEM sales, to Celeste Dunn, Compaq's vice president of consumer software business. In it, Hardwick said Microsoft would terminate Compaq's Windows 95 license agreement unless the computer vendor carried the Explorer icon on the desktop. Compaq, at the time, was selling PCs equipped with Microsoft's rival Internet browser, Navigator by Netscape Communications.

"We would like to resolve the above-mentioned Notice of Intent to Terminate letter in as quick and mutually agreeable a manner as possible," wrote Hardwick. "To accomplish this, Microsoft is requesting that Compaq replace the Microsoft Network and Internet Explorer icons on the Windows 95 desktop on all Compaq Presario machines."

Less than three weeks later, Hardwick sent another letter acknowledging Dunn's agreement to replace the icons and rescinding Microsoft's threat of termination.

Another key piece of evidence is an October 17 deposition, in which Compaq's Steven Decker testified that although Netscape was its browser partner, Compaq put Microsoft's icon back onto its Presario line because of heavy pressure from the software giant.

In addition, James Joseph Van Holle of Gateway 2000 testified in a September deposition that Microsoft had not renewed Gateway's Windows 95 license agreement but merely extended it instead. Van Holle testified that he believed Microsoft was using the Windows 95 license agreement as leverage while it negotiated distribution of other products with Gateway. (One other document examined by CNET's NEWS.COM is an "interrogatory," or written answers to Justice Department questions, in which Gateway elaborates on its software license with Microsoft.)

Finally, in a similar unfolding of events, Eric Browning, a department manager at Micron, said in a declaration that Micron executives contacted Microsoft to see if the company could remove the Internet Explorer icon. Microsoft's response was no, he stated.

"In my view, it is desirable for Micron to be able to choose which browser(s) it preinstalls and to be able to customize the preinstalled browser(s)," Browning wrote. "By contrast, it is my understanding that as a result of the terms of the Microsoft license agreement covering Windows 95 (and Internet Explorer), Micron is prohibited from customizing or modifying in any way the version of Internet Explorer that comes bundled with Windows 95."

At least one of the computer vendors is attempting to downplay the significance of the evidence it provided to the Justice Department. In a prepared statement, Micron's chairman and chief executive Joe Daltoso, said: "We do not understand why some reports have characterized this declaration--which the Justice Department compelled us to provide--as a complaint against Microsoft," adding that his company's negotiations with Microsoft were standard practice in the industry.

Daltoso appeared to smooth over statements made by Browning, Micron's manager, saying that Explorer "is our solution of choice."

At a news conference in San Jose, California, Microsoft executive vice president Steve Ballmer summed up the software company's attitude succinctly: "I say to heck with Janet Reno."

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