Tech Center -- WSJ Interactive Edition (http://interactive.wsj.co

=0A= August 27, 1998=0A=	=0A= =0A=
=0A= =0A=

Old E-Mail Dogs Microsoft
=0A= In Fighting Antitrust Suits

By JOHN R. WILKE=0A=
Staff Reporter of THE WALL STREET=0A= JOURNAL
=0A=

SALT LAKE CITY -- In 1991, when a competitor threatened to break Microsoft Corp.'s lock on = desktop=0A= software, Microsoft engineers discussed an unusual counterattack: a=0A= software bug to be hidden inside an early version of Microsoft = Windows.

In a Sept. 30, 1991, message about the plan that referred to members = of=0A= his team in the shorthand of electronic mail, David Cole, head of = Windows=0A= development, told another executive that "aaronr had some pretty wild = ideas=0A= after three or so beers -- earleh has some too." If the bug detected = a=0A= rival's program, he further wrote, it would "put competitors on a=0A= treadmill" and "should surely crash at some point shortly = later."

Mr. Cole also warned that the existence of the bug had to be kept=0A= secret. "We need to make sure this doesn't distract the team for a = couple=0A= of reasons," he wrote. "One, the pure distraction factor, and two, the = less=0A= people know about exactly what gets done, the better."

Mr. Cole's e-mail came in response to a challenge from what = Microsoft=0A= saw as a clone of its DOS operating-system software. Now it is a key = piece=0A= of evidence in a private antitrust suit brought two years ago in = federal=0A= court here by tiny Caldera Inc., of Orem, Utah, with the backing of = Ray=0A= Noorda, the 72-year-old former chairman of Novell Inc., of Provo, Utah. = The=0A= suit charges that Microsoft intended "to destroy competition in the=0A= software industry."

The e-mail is among previously secret internal documents subpoenaed = by=0A= the U.S. government in a 1995 antitrust suit against Microsoft that = was=0A= settled; these documents are at the center of the Caldera suit and = could=0A= become part of the government's current antitrust suit against = Microsoft,=0A= which is scheduled to go to trial next month. (In pursuing its suit = against=0A= Microsoft, the U.S. government has subpoenaed documents from Intel Corp.)

'It's Where Ideas Are Explored'

Microsoft concedes the authenticity of Mr. Cole's e-mail, but its=0A= lawyers deny Caldera's antitrust allegation and have asked that the = lawsuit=0A= be dismissed. Thomas Burt, a senior Microsoft attorney, said in an=0A= interview that something mentioned in an e-mail between managers = doesn't=0A= make it company policy. "An e-mail message in a company like Microsoft = is a=0A= conversation -- it's where ideas are explored, and sometimes shot = down," he=0A= said. "Because it is both informal and not conclusive, you can't = really=0A= look at any single e-mail or excerpt out of context."

Mr. Burt says that the Salt Lake City lawsuit is unrelated to the=0A= current U.S. case and, in any event, is a fight over products long = since=0A= obsolete. But a federal judge in Utah disagreed earlier this year = and=0A= instead broadened Caldera's case by expanding Microsoft's potential=0A= financial liability to include the potential damages caused by Windows = 95.=0A= A trial is scheduled before a Salt Lake City jury next June.

The hundreds of e-mail messages and documents collected by the=0A= government in the 1995 case, but never released to the public, could = have a=0A= strong emotional impact on a jury. Some also could be introduced as=0A= evidence in the current federal case, which goes to trial next month = in=0A= Washington, as investigators try to show a longstanding pattern of=0A= predatory actions by Microsoft against potential rivals.

Microsoft executives say they weren't concerned about DR-DOS, the = rival=0A= program then owned by Novell, which had less than 5% of the market. But = the=0A= subpoenaed Justice Department documents suggest that top Microsoft=0A= executives were in fact worried and devised a campaign to win = long-term,=0A= exclusive contracts with personal-computer makers "to freeze DR-DOS = out,"=0A= and "derail the train before it starts," according to an Aug. 7, 1991, = memo=0A= by senior Microsoft marketing executive Brad Chase.

Among the memo's prescriptions: Build "unique synergies" between = MS-DOS=0A= and Windows, and "lock in PC makers to long-term contracts." The memo = shows=0A= concern that DR-DOS could take off, especially if International Business = Machines=0A= Corp. adopts the program. A Microsoft spokesman said that restrictions = on=0A= its contract lengths weren't imposed by the government until the = settlement=0A= of the 1995 case.

DR-DOS was one of the few products presenting an alternative = operating=0A= system to Microsoft. That posed a threat to Microsoft's most basic=0A= strategy: controlling the software plumbing of desktop computing, = and=0A= leveraging that control to sell more PC software.

Microsoft dismissed DR-DOS as a knockoff, but the lineage of the = two=0A= programs is more complex. The original code for Microsoft's DOS was = itself=0A= a technical cousin of C/PM, an early operating system on which DR-DOS = was=0A= also based. DR-DOS was a product of Digital Research Inc., a = software=0A= company famous in high-tech lore for missing an early a chance to = supply=0A= IBM with the operating system for its first personal computers. That = was=0A= the very contract that vaulted Microsoft to prominence. Novell later = bought=0A= Digital Research and then sold it to Caldera.

In its suit, Caldera alleges that Microsoft tied Windows to its = version=0A= of DOS and then forced PC makers to take both programs, shutting out=0A= DR-DOS.

This was accomplished through a tactic known as per-processor = licensing,=0A= in which a computer maker must pay a set fee for every PC it makes,=0A= regardless of what operating system it installs, Caldera = alleges.

Illegal Tactic

The tactic was labeled illegal in a 1994 Justice Department = complaint=0A= against Microsoft, as were the long-term sales contracts and bundling = of=0A= one Microsoft product with another. After Microsoft settled that case = in=0A= 1995, the e-mail and other documents collected by federal prosecutors = were=0A= sealed.

Microsoft is likely to use the same argument in the Utah suit that = it=0A= embraced in Washington-that it has an absolute right to determine = its=0A= products" design. Governmental interference, the company says, = stifles=0A= innovation in an industry vital to the U.S. economy. Microsoft is = also=0A= likely to argue that consumers are better served by a single = integrated=0A= Windows product; and that selling the products separately would have = been=0A= inefficient for consumers.

Caldera, too, will argue it was defending consumers and innovation. = The=0A= DRDOS product was compatible, cost less and offered more advanced = features.=0A= It goaded a complacent Microsoft, after years without a major upgrade = to=0A= its flagship operating system, to add new features that matched those = in=0A= DR-DOS. Those features included support of larger disk drives, = improved=0A= memory management and other advancements, an edge that helped DRDOS = sales=0A= rise in 1990 and 1991-before Microsoft struck back, Caldera says in = its=0A= suit.

The lawsuit alleges that part of Microsoft's campaign against DR-DOS = was=0A= to hide a bug inside a test version of Windows, which was sent in 1991 = to=0A= thousands of developers working on software that would run on Windows = and=0A= to nearly every PC maker in the world. Many of these companies were = then=0A= considering whether to use DR-DOS, and the bug-triggered whenever it=0A= encountered DR-DOS-sowed doubt that it was compatible, the suit=0A= charges.

At the time, the bug was a mystery in the software industry. It = was=0A= encrypted -- the only piece of encrypted code in Windows -- so that it = was=0A= almost impossible to identify. But the author couldn't resist signing = his=0A= work, leaving one string of letters unencrypted, and the bug became = known=0A= among puzzled software engineers outside Microsoft as the AARD = code-letters=0A= that Windows developer Aaron Reynolds used to tag his code.

Microsoft said Mr. Reynolds and others involved in the case = wouldn't=0A= comment individually.

When a "foreign" operating system was detected, the bug froze the=0A= computer and displayed an ominous error message suggesting that the = user=0A= contact Microsoft. When developers questioned the message at the = time,=0A= Microsoft denied it was intended to derail DR-DOS. Documents to be = produced=0A= at the Caldera trial suggest otherwise. "What the guy is supposed to do = is=0A= feel uncomfortable when he has bugs, suspect the problem is DR-DOS and = go=0A= out and buy MS-DOS and not take the risk," a Feb. 10, 1992, Microsoft = memo=0A= said.

Enter the Sleuth

The bug was decoded by a self-appointed software sleuth, Andrew=0A= Schulman, who published his suspicions in a technical monthly with a = cult=0A= following, Dr. Dobbs Journal, in 1993. He thought the code may have = been=0A= placed there deliberately but wasn't sure, and unraveling it took = some=0A= work. The code "turned out to be XOR-encrypted, self-modifying and=0A= deliberately obfuscated-all in an apparent attempt to thwart = disassembly,"=0A= he wrote.

Mr. Schulman found that the code searches for two tiny = differences=0A= between MS-DOS and DR-DOS, and when it discovers the latter, it halts = the=0A= machine.

"It appears to be a wholly arbitrary test, a gratuitous = gatekeeper=0A= seemingly with no purpose other than to smoke out non-Microsoft = versions of=0A= DOS, tagging them with an appropriately vague "error" message," he=0A= wrote.

In a response published in a subsequent issue of Dr. Dobbs = Journal,=0A= Microsoft said "it has never been the practice of this company to=0A= deliberately create incompatibilities between Microsoft operating = system=0A= software and the system software of other operating system = publishers."=0A= Microsoft disabled the bug when it released the product to the = public.

A Microsoft spokesman yesterday said that "in a beta [test] version = of=0A= Windows 3.1 in late 1991, we had code designed to help reduce = product=0A= support costs by determining whether 3.1 was running on a version of = DOS=0A= for which it had been tested, and in the end, even that limited = function=0A= was disabled before it was released to consumers." Caldera insists in = its=0A= lawsuit that the damage was already done, because the target = audience-the=0A= people who were supposed to "feel uncomfortable"-were developers and = PC=0A= makers, not the public.

"Every one of these allegations was investigated years ago by the=0A= Federal Trade Commission and the Justice Department, and they did not = bring=0A= a case," the Microsoft spokesman said.

The Caldera suit says that the company's DR-DOS sales doubled from = $15=0A= million in 1990 to $30 million in 1991. Its sales in the first quarter = of=0A= 1992 soared again, to $15 million, but collapsed to $1.4 million by = the=0A= fiscal fourth quarter. Today DR-DOS has found a new life in devices = such as=0A= airline seatback entertainment centers and TV-set top boxes.