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Government: Compaq Passed
Rival's Secrets to Microsoft

Associated Press
WASHINGTON — Microsoft Corp. repeatedly has pointed to tiny Be Inc. when the software giant, during its antitrust trial, has needed examples of the competition it faces in selling computer operating systems.

Denying the government's claim that it is a monopoly, Microsoft contends it cannot rest easy because of the possible success of Be's computer software, which even Microsoft praised as "designed with special capabilities" for software programs "certain to be major growth areas in the years ahead."

So it was particularly dramatic Thursday when the government disclosed that the world's largest computer maker, Compaq Computer Corp., which is testifying in support of Microsoft, recently passed secret information to Microsoft that it obtained from Be under a confidentiality promise.

Justice Department lawyer David Boies made the accusation as he tried to discredit Compaq's testimony.

Compaq's witness, John T. Rose, a senior vice president, said he was unaware that his company had passed along to Microsoft any confidential information.

But Jean-Louis Gassee, the chairman and chief executive officer for Be, based in Menlo Park, Calif., said in a telephone interview later with The Associated Press that Compaq had called him "a little embarrassed" about three months ago confessing what it described as an inadvertent disclosure to Microsoft.

"Microsoft is such a threat to the livelihood of PC (makers), there is a climate of fear," Gassee said. "They will do things almost instinctively to propitiate Microsoft."

Bois charged that "Microsoft has such power in the industry that Compaq feels it is in Compaq's interest to share the details of confidential negotiations."

A lawyer for Compaq, William Coston, called the accusation a "cheap trial stunt."

U.S. District Judge Thomas Penfield Jackson ended the matter after Rose denied any knowledge of a disclosure. But Jackson seemed content with assurances from Boies when he asked, "You have a good-faith basis for that?"

Another Compaq lawyer, Tom Siekman, said outside the courtroom that the company "takes its obligations very, very seriously."

"It's not appropriate to make an allegation of this kind in open court," said Siekman, who added that Compaq was investigating.

The government alleges that Microsoft violated antitrust laws by using its monopoly power to dissuade Compaq and others from doing business with its software rivals. Microsoft denies it possesses monopoly power.

Boies' allegation was not the only problem facing Compaq on Thursday.

The judge openly questioned the credibility of a key piece of its evidence, saying a disparity over dates in a particular contract with Microsoft "makes no sense at all if this was a genuine agreement."

Jackson noted that the agreement in question was dated August 1995 but was not signed or executed until June 1996.

Compaq is widely believed to enjoy among the lowest prices for its Windows operating system that Microsoft charges any computer maker, but the actual costs are among the industry's most closely guarded secrets.

The government showed e-mail Thursday disclosing that Compaq and Microsoft actually signed two new price contracts last spring, less than two months before the government filed its antitrust case.

One contract, with more favorable terms toward Compaq, immediately replaced the other. Boies did not suggest a reason for dual contracts, but noted: "If you're not going to use the false (contract) then there's no reason to have it."

The e-mail said Compaq wanted dual contracts "given Microsoft's concern that our agreement be 'defendable' to other (computer makers) and the Department of Justice."

Rose asserted that Compaq was trying to hide details of the price it negotiated from its own employees.

The government has charged that Microsoft's ability to use Windows prices to discriminate among computer makers illustrates its monopoly power.

A Microsoft spokesman, Jim Cullinan, called it "outrageous" to suggest that the relatively low price for Windows given to Compaq was at all related to the company's offer to testify on its behalf during the antitrust trial.

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