Did Microsoft want to 'whack' Dell over its Linux dealings?

Barely a week after a U.S. judge approved a landmark antitrust agreement with Microsoft, company executives were swapping e-mails suggesting Dell deserved a beating for its growing interest in Linux, according to documents filed with a state court.

But Redmond representatives said Friday that the 2002 exchange, made public this week as part of an antitrust suit unfolding in Iowa state court, only tells part of the story. They said it omits evidence that Microsoft executives were simultaneously seeking legal advice on how to ensure they were responding to such competitive threats without shirking their antitrust responsibilities.

The e-mail thread (PDF), which occurred over three days in November 2002, showed up in the latest batch of court exhibits posted to a Web site maintained by attorneys representing a class of Iowa consumers embroiled in an ongoing antitrust suit against the Windows maker. It was reported earlier by Bloomberg News.

In the first e-mail, Bill Veghte, now a company vice president, described a panel discussion he had recently attended in which a Dell executive boasted that the company was the top distributor of the open-source operating system among equipment manufacturers and was "committed to seeing that position grow."

Veghte and others went on to express concern about the competitive threat potentially posed by Linux and Red Hat.

"We should whack them, we should make sure they understand our value," wrote Paul Flessner, a senior vice president in Microsoft's server applications unit.

U.S. District Judge Colleen Kollar-Kotelly in Washington, D.C., had approved most of the federal government's antitrust decree with Microsoft about a week before the exchange began.

Microsoft spokesman Jack Evans on Friday downplayed the messages.

"While this may sound provocative, what counts at the end of the day is what actually happened," he said. "Looking at subsequent portions of this e-mail thread, which the plaintiffs chose to exclude from their exhibits, it's evident that we didn't take any retaliatory action against Dell. In fact, we very clearly increased our investment with Dell."

Participants in the same e-mail thread also sought confidential legal advice about how to proceed in such situations where competitive threats existed, given the limits imposed by Microsoft's antitrust agreements, Evans added.

Iowa antitrust suit unique

The Iowa suit, filed in February 2000 on behalf of a businessman in the state, is one of the last remaining state antitrust proceedings against Microsoft. The company has already reached settlements in 17 states and had class-action suits dismissed or decertified in 18 others.

The Iowa case is unique because it allows consumers, as opposed to just equipment manufacturers, to sue Microsoft directly. The class, which is made up of the so-called "indirect" purchasers of Microsoft's operating-system software and of its applications software including Word and Excel, seeks $330 million in damages. The trial, which began in December, is expected to last at least six months.

Microsoft has reportedly turned over 25 million pages of documents to Iowa prosecutors, and it has already had to do some explaining to the public about what they contain.

In December, the blogosphere took note of a 2004 memo (PDF) in which retiring Windows chief Jim Allchin professed, "I would buy a Mac today if I was not working at Microsoft." (He later said he was being "purposefully dramatic.")

The plaintiffs have already uploaded thousands of pages for public consumption. A spokesman for the plaintiffs said more are likely to be on the way, as the court admits them as evidence.

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