The Microsoft Trial June 23, 1999

Dahlia Lithwick worked for two years in a family law firm in Reno, Nev. She is writing a novel about how divorce affects children.

Live or Memorex? Let’s go to the tape:

Late yesterday afternoon, while I am tapping out the words “Holy Roman Empire” to describe Microsoft, Judge Thomas Penfield Jackson uses the words “benevolent despot” to describe them to their chief economic witness (flipping said witness’s own grocery-store analogy better than the omelet chef at Circus, Circus). Lesson to witnesses: Those analogies can and will bite you in the ass if you let them off their leashes for so much as a minute.

Or try this: Richard Schmalensee, Microsoft’s final expert in the case, testifies yesterday on his direct examination about the explosion in Web-based applications and Judge Jackson wonders aloud why software vendors aren’t “writing Web-based applications in droves.” Two hours earlier (at 11:50 Pacific Time) someone called Paul Festa writes on C/Net News an article titled “Web-based Applications Debut in Droves.”

Cut to this morning. Sullivan & Cromwell’s Michael Lacovara, leading Schmalensee back through the judge’s “in droves” comment of yesterday, offers into evidence Defendant’s Exhibit No. 2789–a C/Net article by Paul Festa titled “Web-based Applications Debut in Droves.” Laughs Lacovara, “Sometimes, Your Honor, you just get lucky.” The judge laughs too, calls the article “prescient,” and listens carefully as Schmalensee testifies that there are no barriers to entry for Microsoft competitors seeking to develop Web-based applications.

The 60 or more journalists packing the courtroom (Boies’ cross-examinations will do that) for this second-to-last day of testimony in the Microsoft trial all write this down. Weird. Yesterdays news becomes yesterday’s comment by the judge becomes today’s evidence will be tonight’s story. Moments before, Lacovara examines Schmalensee on something he’s downloaded from the Internet hours earlier. Then, he questions him on a Washington Post story (from today) about AOL’s support for 3Com’s Palm Pilots allowing its users e-mail access. Throughout this trial, articles written the previous day–sometimes by journalists seated just on the other side of the bar–have morphed into evidence.

What does it mean when the folks reporting the trial are also creating it? Is this the information superhighway’s equivalent of the high-speed chase of O.J. in the white Bronco? It certainly shores up the sense that both high technology and those who report on it move faster than the speed of justice. No one doubts anymore that long after this case has been decided by the media, the markets, and the microchip, it will still be grinding its way through the appellate courts and beyond.

Which brings us to how David Boies–the attorney hired by Justice to lead the plaintiff’s team in this case–makes a witness look bad.

First he says, in the hour before lunch and without a scintilla of awkwardness, “Good-morning-Dean-Schmalensee-I have-to-ask-you-an-awkward-question.” Then he asks Microsoft’s chief economic witness how much Microsoft has paid him.

“Ever?” asks Schmalensee.

“Start with that,” grins Boies.

The witness hems some and haws some. “It’s been seven years,” he says. “The receipts are in a drawer,” he says. Then he says something that sounds like $100,000.

“Isn’t it true that you’ve been paid more than $250,000 [by Microsoft] over the last two years?” urges Boies.

“More likely than not that’s correct,” says the witness. We then learn that in addition to being paid $800 per hour for his work on this trial, Schmalensee received approximately $300,000 over the past two years in bonuses from his firm, National Economic Research Associates, who retain him for expert testimony. Some quick long division from my counterpart at the Washington Post reveals that Schmalensee has earned $1,000 per hour in bonuses for his last two years’ work on this case. That does not include his hourly rate of $800.

$1,800 per hour? Jump back, you say? It gets worse. After 10 minutes (cost to Microsoft: $134 sans bonus) of bickering about Schmalensee’s pay stubs, Boies segues to a set of charts from which Schmalensee testified earlier. The charts purport to reflect the numbers of Netscape browsers shipped with PCs. Boies asks if Schmalensee has satisfied himself that the charts are correct. Schmalensee admits that he has “looked at the one on the left but had not compared it to the one on the right.” He pauses and says a comparison of the two “suggests there is a difficulty.”

Boies, as close to losing his temper as I’ve yet witnessed, says that it’s more than a difficulty. The witness admits the charts cannot be reconciled.

$800 per hour. Not including bonus. Schmalensee could have pocketed an easy $67 just for the five minutes it might have taken to check over his charts when they came back from Kinko’s. I find myself wondering if the judge earns $67 for the five minutes it takes to write down “witness hasn’t reviewed charts.”

At a break, my friend from Reuters calculates that if Bill Gates put the $90 billion he’s now worth into an account earning 4 percent simple interest, he would earn $35,000 in interest in the five minutes it would take him to call his chief economic witness and tell him to review his damn charts before he testifies in the Caldera trial.

Jump back indeed.

This leads me to a midafternoon safari in which I try to hunt down the highest-paid individual in the courtroom. David Boies, I am told (but not by Boies himself) bills his time at approximately $600 per hour, although DOJ is paying him government rates for this litigation, which works out, says the DOJ’s spokeswoman, Gina, to about $50 per hour. Franklin Fisher, the DOJ economist (and formerly Schmalensee’s professor) costs $1,000 per hour but testified in this trial for half that. I get this information from Sullivan & Cromwell’s Michael Lacovara who also tells me that S&C does not bill by the hour but, rather, by a complicated formula combining the difficulty of the case, seniority of partners involved, and other stuff. One wonders whether someone at S&C–had they been billing in six-minute increments like the rest of us–might have taken the time to review their expert’s charts when it came back from Kinkos.

Mark Murray, the Microsoft PR guy who looks less like James Woods from the side today because he is wearing the same little round glasses as all the Sullivan & Cromwell attorneys, cracks at the break that we might all want to be thinking about making the career switch to Dean Schmalensee’s seat as the dean of MIT’s Sloan School of Management.

I’ve heard it said that Schmalensee likens being cross-examined by Boies to being poked with sharp sticks. I wouldn’t want to be in that seat tomorrow morning for anything. But for $1,800 an hour, I’d probably give it a try.

Click here   for dispatches from the last session of the Microsoft trial between October 1998 and February 1999.