Judge Asks About AOL-Netscape Deal

The judge who will decide the Microsoft antitrust case interrupted the trial Wednesday to ask a witness about comments by America Online's chairman that its planned deal with Netscape won't change Microsoft's dominance.

The unusual exchange was a clear illustration of the judge's deep unease about how the pending $4.2 billion AOL-Netscape deal might affect the competitiveness of the nation's computer industry, the main issue in the trial.

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Shares of Microsoft closed at a record high Wednesday, adding 4 3/4, to 151 1/4.

Microsoft argues that the deal, announced in November weeks into the Microsoft trial, illustrates that the computer industry remains viable and thus suggests that government intervention isn't needed to ensure competition.

But in the interview published Wednesday in The Washington Post, AOL Chairman Steve Case said: "AOL's merger with Netscape has no bearing on the Microsoft case. ... I have a lot of respect for Microsoft. I continue to live in fear of them."

At the time of the judge's questions, a Microsoft lawyer was questioning the government's final witness about AOL's purchase of Netscape, which sells browser software that competes directly with Microsoft's Windows to let people view information on the Internet.

The government alleges that, starting in mid-1995, Microsoft sought to crush Netscape by using illegal business tactics, in part because it feared the popular browser software might one day displace the importance of its Windows operating system.

On Wednesday, Justice Department lawyer David Boies called the potential deal's impact on the antitrust case a "red herring."

AOL is the world's largest Internet provider with more than 15 million subscribers. So, a decision by AOL to distribute Netscape's browser software could dramatically boost Netscape's now-flagging popularity.

"It will have some relevance," said economist Franklin Fisher of the Massachusetts Institute of Technology, the witness, who called the deal a "hopeful sign" of renewed cmpetition. But he said: "It won't have changed the fact that Microsoft took actions to reduce the threat from Netscape's browser."

U.S. District Judge Thomas Penfield Jackson interrupted the questioning, saying he read Case's comments, and briefly recessed the trial to find a copy of the article.

Case told the newspaper: "We have no flight of fancy that we can dent in any way, shape or form what is a monopoly in the operating system business. ... It's hard to imagine that PCs won't be the dominant way people connect with the Internet for many years to come, and Microsoft has a pretty amazing lock on that business."

Jackson read aloud several paragraphs, then turned to the economist.

"The question I have of you is ... is this consistent with your understanding of what the impact of the consortium will be, insofar as developing viable competition?" the judge asked.

Fisher replied: "It certainly is."

Jackson is clearly preoccupied with Netscape's purchase. Last month, in remarkably candid comments, he said the deal "might be a very significant change in the playing field."

AOL's purchase must be approved by the Justice Department, and the judge agreed last month that Microsoft should be allowed to review the merger request. In a letter to the government made public Wednesday, a Microsoft lawyer wrote: "I have not heard from you on the subject for more than two weeks and am anxious to move this matter along."

AOL currently distributes Microsoft's browser software to its subscribers in exchange for Microsoft prominently including AOL's software within Windows.

Case has indicated he will continue to distribute Microsoft's browser to AOL subscribers, but Microsoft Chairman Bill Gates recently said he expects AOL to distribute Netscape "sooner or later to all its online service customers."

Microsoft's lawyer questioned Fisher in detail later Wednesday about how browser software is distributed. Fisher frequently paused to search through four enormous binders of paperwork before answering.

The trial's slow pace clearly irked the judge. "It's no test of his credibility to put him through a memory test," he complained to the Microsoft attorney.

Written By Ted Bridis, Associated Press Writer