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Compaq testimony points to murky secrets of MS relationship

And isn't it amazing how little Compaq execs are allowed to know? Apparently...

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MS on Trial John Rose, senior vp and general manager of enterprise computing at Compaq, spent an uncomfortable three days in the witness box at the Microsoft trial.

He frequently contradicted sworn evidence from Compaq staff, and caused Judge Jackson to be openly sceptical about his evidence. With many key exhibits being filed under seal and several in camera sessions, it is not possible to be certain of exactly what did happen between Compaq and Microsoft in recent years, even from a close study of the transcripts and available exhibits.

However, the curtains have been drawn back sufficiently to expose some of the murky secrets, and it is not a pretty sight, for Microsoft or for Compaq. Rose was protected by three personal bodyguards, known in Washington as lawyers: Tom Seikman, general counsel of Compaq, who had in tow two Washington-based lawyers, Bill Coston and Martin Saad from Venable, Baetjer, Howard & Civiletti.

The Compaq squad was also protected by Richard Pepperman of Sullivan & Cromwell, Microsoft's New York-based main external counsel, with John Warden in attendance. The presence of so many lawyers suggested that perhaps there was some concern that delicate matters might arise - and indeed they did.

Nobody in the industry would be surprised that Compaq does indeed get a particularly good deal from Microsoft, although the cost in terms of business ethics is high. The victims have been Go, AOL and Netscape. Rose agreed with Judge Jackson's assessment that there was no commercially viable alternative to Windows: but will this incline the judge to consider an essential facilities remedy?

Rose has executive responsibility at Compaq for the Microsoft relationship, but he does not seem to have been very aware of what was happening. For one so senior in Compaq, Rose seemed to have been kept in a clean room during his time there, since he claimed not to have seen several key documents. He had not even been shown key documents by his legal team in his preparation, including Decker's deposition, and several key legal agreements between Compaq and Microsoft.

Indeed Rose was so poorly informed that it might have saved the court's time if Rose had said what he did know at the outset, rather than what he didn't know. Rose said he had "no idea what the price paid by other OEMs is" which showed either his poor knowledge or how poor Compaq's intelligence was - or both.

Rose said his disagreements with some more junior Compaq employees resulted from their not having followed Compaq corporate strategy, yet it appeared that this was impossible since Compaq had agreed to conflicting terms in some of its major contracts, and was apparently paranoid about disseminating essential information to key staff who needed to know. It was not just a "breakdown in communications" as Rose claimed, but a failure of management and leadership.

Different policies have been followed internally as a result of excessive secrecy about Compaq's contractual arrangements with Microsoft. There was a concerted effort to pass the blame, particularly to Compaq junior staff, for breaches of contracts, and for conflicts in contracts with partners. Rose said that Decker was "many levels removed" from himself, which confirmed that Compaq's hierarchical management style belonged in an earlier century where the master and servant relationship was clear to all.

It was emphasized three times that Dunn was no longer with Compaq, which may be significant. Rose was very cautious about criticising her directly, but the implication was there. Rose said it was possible to change to Navigator as the default browser in four seconds with Window 98, and that he had bought a Presario in Washington at a retail store to check this.

He admitted that after the change to Netscape, "it keeps asking you whether you want to change it back". However, Rose had to admit that Compaq was now contractually bound to have IE on the desktop, and that it could not be removed by Compaq even if its DirectPlus customers requested this. Rose seemed to have thought through answers to some questions. Did he think a browser was an application? No, it's a feature, he said, remembering lessons from the lawyers. A Word processor is also a feature, he said.

Compaq demonstrated repeatedly that it has some serious management problems: with 75,000 employees, this is serious. In court, Judge Jackson asked about the status of Decker's testimony "because Mr Rose has repudiated virtually two-thirds of his testimony, and I'm just wondering who speaks with authority for the company."

It was a grave observation about Rose's credibility. Judge Jackson will have to decide the significance of all the near-Maxwellian complexity, but the net result seems to be a PR disaster for Compaq, and a seriously discredited witness for Microsoft. ® Complete Register trial coverage

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