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So who is this Schmalensee guy anyway?

Graham probes the background to Microsofts economics expert

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Dean Richard Schmalensee of the MIT Sloan School of Management freely admits "my 1978 article on the ready-to-eat breakfast cereal industry is probably my best known" so what a pity that it's software this time around for Microsoft's expert economist. In common with many US academics, Schmalensee has a sesquipedalian (OK, foot and a half) CV, although it doesn't say much about the amount of lecturing to students that he does, any tutorials he holds, or what happens to his salary while he's working for somebody else. Schmalensee was put up by Microsoft to swear that the software giant was not a monopolist, which is a tough assignment. We thought he might have had a team from Microsoft breathing down his neck while his direct testimony was being prepared, but assiduous study of the document shows that this was unlikely. He must have run out of nails when trying to hammer his nine conclusions to the door of the court, because this latter-day Luther has only eight numbered conclusions in the executive summary -- two of which are labelled '1'; in the full version there are two numbered '4', but out of sequence. A disadvantage for him in the present case is that the DoJ's David Boies has had his people (nobody seems to do the work themselves) look at Schmalensee's work in detail, so that he can be confronted with inconsistencies between his testimony and previous writings. Musing in the abstract for a moment, incompatibilities between published views, and views published in consultancy reports and testimony, suggest that views can be bought. Schmalensee is a committee rather than a person. It turns out that he was a remarkably selective reader of the trial record: "I have had colleagues read it all and suggest parts to me that I should look at." It turns out that he is backed up in court by a team of at least three people, young Boswells one might muse, from National Economic Research Associates, a private Cambridge, Massachusetts-based consultancy to whom Schmalensee has been a special consultant since 1981 (with just one break of a year in 1990). Microsoft is paying for his team, although Schmalensee makes the same claim. Of course Professor Fisher had his backup group too, but it was rather less overt than Schmalensee's. Judge Jackson asked Schmalensee what NERA was, which proved the judge had not read the direct testimony. Schmalensee is arrogant about the alleged expertise of economists, and scornful of computer scientists. His opinion would not matter were it not for the fact that he thinks he is an expert in computing. He is a Mac user at home and at the office, which makes his views even more strange, and has used Microsoft software with PCs, as is evidenced from his comment that "I have spent many days wrestling with computer software and peripheral devices for my family". As a declared reader of PC Magazine "since the early 1980s" he is clearly well-informed about industry issues. So when Boies asked him about Linux, Schmalensee said he had bought Red Hat. On further enquiry, he said that in fact "one of my associates at NERA" bought the copy, and all Schmalensee did was look at the box, and not install it. He said he was "fascinated to find it was on sale two blocks away" from his office [in Cambridge] which shows how very out of touch he is with the computer industry, if that surprised him. He didn't know about the 300-page installation manual. Schmalensee has been retained by Microsoft since 1992 "on antirust [sic - it's that Word spelling checker playing up again] matters" as he claimed in his testimony, advising on the FoxPro acquisition (not a great success), the Caldera litigation (now scheduled for June) and various other litigation, including the Bristol case. Richard Urowsky, Schmalensee's legal minder during the cross-examination by Boies, mentioned that there would be a request for a closed session during his redirect, so that Schmalensee can attempt to shoot down Fisher's analyses in the secret sessions. Boies cross-examination style is infinitely more interesting than that of any of the Microsoft legal team. He is able to persuade a reluctant witness to give the answer he wants. Boies works very much on the fly, listening carefully to responses and following up, rather than relying on a list of questions, as was the case in much of the Microsoft cross examination. Schmalensee had apparently been briefed during a coffee break by David Heiner, a Microsoft in-house lawyer, about his mistake with the number of Linux servers ("most" Linux was for servers, according to the breakfast cereal expert). Judge Jackson ordered that there be no briefing of witnesses during cross examination. Another briefing that Schmalensee had had was from Gates. He was clearly overawed, since he could not remember much about what was discussed, and made no notes, nor prepared a subsequent memorandum ("I don't remember whether we talked about Linux or clones or Palm..."). He did remember Gates giving him his version of how IBM was such a powerful competitor. Schmalensee was faced with a desire not to miss a plane back to return to the East Coast, it turned out, and so the conversation with Gates was shorter than it might have been. John Warden, Microsoft's lead counsel, asked for a conference with Judge Jackson to discuss how witnesses may be confronted with documents they had not seen before, or were not expecting. Judge Jackson was adamant that he did not want witnesses under cross-examination to confer during recesses or overnight "to improve the quality of their testimony". The judge said that Schmalensee could talk to the President of MIT or in-house counsel for MIT, but not party lawyers. He emphasised that he did not want "any witnesses to be wood-shedded". ®

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