Microsoft’s Gates Faces More Questions in Novell Lawsuit

Microsoft Corp. (MSFT) Chairman Bill Gates faced more cross-examination on allegations that the world’s largest software maker undermined Novell Inc.’s WordPerfect program.

Novell said in its 2004 complaint that Microsoft unfairly restricted competition by using its monopoly on personal computer operating systems to suppress a rival word-processing program. Jeffrey Johnson, Novell’s lawyer, continued his questioning of Gates, 56, today in federal court in Salt Lake City.

Johnson began his cross-examination yesterday by asking Gates about the U.S. government’s landmark antitrust case against Microsoft that was settled more than eight years ago. In that case, Redmond, Washington-based Microsoft was declared an illegal monopolist.

Gates acknowledged “there was a lawsuit” and “findings” concluding Microsoft engaged in anticompetitive conduct.

Gates told Microsoft lawyer Steven Holley yesterday that he “absolutely” denied the central allegation of Novell’s suit, that in 1994, in developing the Windows 95 operating system, Microsoft blocked an element of the software to thwart Novell’s WordPerfect and Quattro Pro programs.

‘Pretty Irrelevant’

While the elements restricted from the operating system may have been useful to companies developing e-mail programs, they were “pretty irrelevant” to word-processing, Gates testified.

Johnson today showed the court an e-mail that Microsoft lawyers had asked Gates about yesterday. The Oct. 3, 1994, e- mail from Gates to Brad Silverberg, a Microsoft senior vice president, and other employees concerned the “shell,” which displayed file names in the Windows 95 operating system.

The message addressed Gates’s decision to restrict outside programmers’ access to “extensions,” or programming code, a decision that Novell claims deliberately targeted WordPerfect and made it impossible to run properly on Windows.

“I have decided that we should not publish these extensions,” Gates wrote in the message. “We should wait until we have a way to do a high level of integration that will be harder for likes of Notes, Wordperfect to achieve, and which will give Office a real advantage.”

Microsoft lawyer Holley yesterday asked Gates if those extensions were “crucial” to the development of WordPerfect.

‘Absolutely Not’

“Absolutely not,” Gates said. He also testified that he restricted the extensions because they generated instability in the Windows operating system, and could cause it to crash.

Steve Aeschbacher, a lawyer for Microsoft, said in an interview that Gates wanted to wait to add the extensions to a future operating system Microsoft called “Cairo,” which Microsoft never completed or shipped.

Novell, which was bought by Seattle-based Attachmate Corp. in April, has argued that WordPerfect’s share of the word- processing market fell to less than 10 percent in 1996 from almost 50 percent in 1990.

Its value dropped from $1.2 billion in May 1994 to $170 million in 1996, when it was sold to Ottawa-based Corel Corp., said Novell. The company settled separate antitrust claims against Microsoft for $536 million in 2004.

In May, the U.S. Court of Appeals in Richmond, Virginia, revived the case, which had been dismissed by a lower court. The appeals court ruled that Novell, which briefly owned WordPerfect in the mid-1990s, didn’t cede its rights when it transferred claims related to its personal-computer operating system products to Caldera Inc. in 1996.

The appeals court ruling sent the case back to U.S. District Judge J. Frederick Motz in Baltimore, who had originally rejected it. Motz is conducting the trial in Salt Lake City, where the original lawsuit was filed.

The case is Novell Inc. (NOVL) v. Microsoft Corp., 04-01045, U.S. District Court, District of Utah (Salt Lake City).

To contact the reporter on this story: Joel Rosenblatt in Salt Lake City federal court at 7129 or jrosenblatt@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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