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Burst.com Alleges Microsoft Cover-Up

UPDATED: One of the last two companies standing against what it calls Microsoft's anti-competitive behavior said it has smoking-gun proof that Redmond deliberately destroyed e-mail evidence in an antitrust case.

Burst.com, creator of video and audio delivery software for IP networks, claims that Redmond stole technology and trade secrets acquired during two years of negotiations.

In a June 2002 civil suit, Burst.com accused Microsoft of anti-competitive behavior and violating federal and state antitrust laws.

Now, court documents claim, Burst.com has evidence that Microsoft followed a policy of deliberately destroying e-mail that could be used as evidence against it. Legal documents made public on Wednesday include evidence of a 1995 "do-not-save-e-mail directive," and a "30-Day E-Mail Destruction Rule" promulgated by Jim Allchin, group vice president of Platforms.

Microsoft spokeswoman Stacy Drake responded that the company retains every e-mail or document it generates, and there is no obligation to do so.

"Mr. Allchin's guidance on e-mail retention was entirely consistent with our policy to meet all legal obligations as well as sound business practice to provide for the efficient management of corporate e-mail which is not covered by any retention obligation," she wrote in an e-mail.

Burst.com asked Judge J. Frederick Motz of the U.S. Federal Court for the State of Maryland to bar Eric Engstrom from the witness stand. Engstrom was the Microsoft executive in charge of some negotiations with Intel that are key to Burst.com's case.

Because Engstrom's e-mails relating to the Burst.com negotiations are missing, the document said, "Mr. Engstrom now is free to remember history in a way most convenient for Microsoft, a luxury he would not enjoy had Microsoft preserved his document [sic]."

In support of the request, the Burst.com pleading quotes a January 23, 2000 memo from Allchin to the Windows Division, saying, "Do not archive your mail. Do not be foolish. 30 days."

Microsoft had been ordered in 2000 to preserve all relevant documents in more than 100 class actions and antitrust suits brought against it. But Burst.com presented evidence that Microsoft not only failed to comply, but "implemented three distinct, reinforcing and institutionalized practices to make sure that incriminating documents disappeared."

"Several of the documents we uncovered were never produced in any other cases," Burst.com CEO Richard Lang told internetnews.com. "Microsoft previously was able to hide the systematic way in which they prevented evidence from coming to light." He said his company's case is the first time all the pieces were put together.

Lang said a combination of luck and lawyering led to the discovery of a document laying out a Microsoft policy of destroying incriminating documents.

Lang said his legal team was alerted by a passing reference made by a Microsoft employee in a deposition; he couldn't disclose the employee's name. In response to Burst.com's request for more information about that remark, Lang said, Microsoft shipped over a box containing hundreds of thousands of pages -- with one document that mattered.

Microsoft's Drake noted that her company had searched the electronic equivalent of more than 8 million pages of documents in response to Burst's requests.

"We have provided more than half a million pages of documents from more than 60 employee files specifically in response to Burst's broad discover requests," she said.

She added that in the course of its various legal proceedings, the company had produced" literally millions and millions of documents," and that no other party had claimed that it hadn't complied with discovery obligations.

"Microsoft ... floods these cases with paper in order to hide the needle," Lang said. "The luck is that we found the needle. And good lawyering helped us put it together."

Only the day before Burst.com was set to accept Microsoft executives' repeated statements that no one knew why the do-not-save-e-mail policy had been put in place, its attorneys found the telling document, "OTG File Servers Policies & Guidelines."

"Due to legal issues, mail files (PST files) cannot be stored on any corporate servers that are backed up to tape," it stated.

Burst.com said this is the smoking gun that proves Microsoft's policy of destroying e-mails that could be used against it in legal battles.

Burst.com also asked the judge to tell the jury that Microsoft failed to retain documents it should have retained, and that they should feel free to infer that Microsoft had something to hide.

Judge Motz ordered Allchin and Microsoft Chairman Bill Gates to testify in the case.

Burst.com claims that its technology provides superior-quality, uninterrupted picture and sound, while optimizing network bandwidth. The company spent two years working with Microsoft and joined its official Partner program, even demonstrating the "Burst-enabled" Windows Media Player in a booth at the Microsoft Partner Pavilion at the National Association of Broadcasters trade show in April 2000.

But things went sour in 2001, when Microsoft unveiled its next-generation media technology, code-named Corona. Burst.com alleges that Microsoft had simply taken its technology and incorporated it directly into its own media platform.

According to Lang, Microsoft originally offered Burst.com a one-time payment of $1 million for global rights to its technology. Burst.com countered, asking for $11 million a year for seven years.

"It took them 45 minutes to tell us talks were off," he said.

Lang believes that while negotiations were ostensibly going on, Microsoft executives were stalling in the hopes that his company would fold.

"They had invested hundreds of mil into alternative solutions to make video delivery look good, and they weren't working. Once they were sure we had the solution, instead of paying us, they thought that if they waited long enough, we'd go out of business. They referred to it as a game of chicken," Lang said.

But Burst.com hung on. In July, the Santa Rosa, Calif.-based company raised $780,000 in a new round of private financing. Lang said the company has enough money to operate and pay legal fees for the length of the trial, which should begin next summer in U.S. District Court in California and last about a year.

"Microsoft has a great criminal business model: They steal technology as fast as they can, and in the end, only a small percentage of the companies they steal from can get it together to come after them," Lang said. Even after settling or paying damages, he said, "The money they have to part with at the end of the day is an infinitesimal percentage of the value of what they've stolen."

Nevertheless, Lang said he would consider settling the suit.

"If Microsoft made us a reasonable offer that we thought would make our shareholders whole, we'd have no choice but to consider that," he said. "We're not on a quest to punish Microsoft, but to get paid for technology they are already using."

Corrects prior version to clarify Eric Engstrom's role in the case