Microsoft's 'vague threats' against Intel investigated Software giant might have stifled technology

Computers

August 26, 1998|By NEW YORK TIMES NEWS SERVICE

The government is investigating whether Microsoft Corp. has used its market muscle to force even Intel Corp., its only real peer in the personal computing industry, to shelve new technology efforts that conflicted with Microsoft's ambitions.

Federal and state investigators appear particularly interested in an August 1995 meeting between Intel executives, including Chairman Andrew Grove, and Microsoft executives, led by Chairman Bill Gates, at which Gates made "vague threats" about supporting Intel competitors, according to one of many internal Intel memos that the company was required to hand over to investigators.

Gates, according to a memo written by an Intel executive who attended the meeting, was "livid" about Intel's "investments in the Internet and wanted them stopped."

In the last few weeks, federal and state investigators have been taking depositions from Grove and three other Intel employees, people close to the inquiry said. The investigators are pursuing additional evidence that might be included in the sweeping antitrust case against Microsoft filed by the Justice Department and 20 states.

The federal government and the states accuse Microsoft of using unfair business practices to protect its monopoly in operating systems and to extend that monopoly into the new markets for Internet software and commerce. The case, scheduled to go to trial Sept. 23, focuses mainly on Microsoft's tactics in the market for browsing software for navigating the World Wide Web.

The Intel employees' depositions could strengthen the case if the evidence suggests a pattern of Microsoft's abusing its monopoly power. The Justice Department and the states say that, in addition to thwarting competition, Microsoft has the ability to control the pace of innovation in computing -- the focus of the investigation of Microsoft's dealings with Intel.

Microsoft says the antitrust suit is misguided and that the company is a champion of innovation, enriching not only itself but much of the high-technology economy and benefiting consumers.

The Justice Department would not comment on its investigation of Microsoft.

The August 1995 meeting came only weeks before the introduction of Windows 95. Microsoft already was well along in its plans for the Internet, though it would not announce them until December 1995. None too soon, for by early August 1995, Netscape Communications Corp., the pioneer in browser software, was a hot start-up about to sell shares to the public, setting off an Internet mania on Wall Street.

On Aug. 2, 1995, Grove met with Gates on Intel's corporate campus in Santa Clara, Calif., according to the Intel documents.

The three-hour session in a windowless, second-floor conference room was attended by several executives from each company. It was mainly a confidential exchange of product plans and market strategies -- not only for Microsoft's operating systems and Intel's microprocessors, but in areas such as multimedia software and the Internet.

There was a heated discussion of software, according to Intel documents, but it was software that had been developed by Intel rather than by Microsoft. Though its business is making microprocessor chips, Intel also works on software, just as Microsoft does research and development work on hardware.

Gates expressed concern about Intel's software work in two areas -- a layer of multimedia software called native signal processing, or NSP, and the possibility that some of Intel's Internet software development might be at odds with Microsoft's strategy.

The differences between Microsoft and Intel over NSP technology were widely reported in the trade press in 1995. But the memos now reveal that the two companies were also at odds over Intel's plans for developing support for Internet features and a software engine for Java, a programming language created by Sun Microsystems Inc., a Microsoft rival.

A microprocessor that supported Java would have enabled programs written in that language to run on any operating system -- a serious threat to the dominance of Microsoft's Windows.

According to an internal memo written by an Intel executive who attended the meeting, Gates left no doubt that he wanted the software development at the Intel Architecture Labs, or IAL, curbed. At the same time, he publicly announced that Microsoft would share technologies and spend up to $100 million to train engineers to develop and service products on a version of Windows written for a competitor's microprocessor.

"Gates didn't want IAL's 750 engineers interfering with his plans for domination of the PC industry," the Intel memo stated. "Gates made vague threats about support for other platforms, and on the same day he announced a major program to support the Alpha microprocessor made by Digital Equipment Corp., an Intel competitor. Gates was livid about IAL's investments in the Internet, and he wanted them stopped."

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