The secret email the Microsoft VP wrote Buffett

An email message that may become part of a Minnesota antitrust case is providing a rare glimpse into the way a top Microsoft executive tried to persuade an iconic investor to buy into the company's software business.

In the trial in Minneapolis, which began this week, lawyers who filed a class action suit on behalf of state residents claimed that Microsoft overcharged consumers for its Windows operating system and its Office application software. The suit, which asks for damages of up to $425m, is one of a handful of class actions Microsoft has not been able to settle.

The seven plaintiffs, representing a class of one million homes and businesses in Minnesota, have about seven weeks to present their case, after which it will be Microsoft's turn.

Chairman Bill Gates and CEO Steve Ballmer are on Microsoft's list of witnesses and are likely to testify, according to Microsoft spokeswoman Stacy Drake.

Numerous emails and other information are likely to find their way into evidence during the trial in front of Hennepin County District Court Judge Bruce Peterson. The court expects the first documents to be released today.

One such document could be a 1997 email note from Jeff Raikes, a Microsoft group VP, asking billionaire Warren Buffett to consider investing in the Redmond, Washington-based software company. Some observers have likened Microsoft's lucrative operating system dominance to a 'toll bridge', Raikes wrote in an exchange that The Wall Street Journal first reported on Wednesday. With a worldwide sales force of just 100 to 150 people, Raikes wrote, "this is a 90%+ margin business".

Buffett is the CEO of Berkshire Hathaway, a kind of umbrella company that owns the Geico insurance company and portions of other businesses, including 11.8 per cent of American Express, 18.1 per cent of The Washington Post Co. and 8.2 per cent of Coca-Cola. One of the world's most successful investors, Buffett is famous for his aversion to technology stocks.

Raikes, who noted in the email message that his own net worth was "well into" the hundreds of millions of dollars thanks to Microsoft, tried to convince Buffett to change his mind. "A PC is just a razor that needs blades and we measure our revenue on the basis of $ per PC," Raikes wrote. "In FY96, nearly 50 million PCs were purchased and Microsoft averaged about $140 in software revenue per PC or $7bn... I don't really see our business as being significantly more difficult to understand than the other great businesses you've invested in."

On the other hand, Raikes acknowledged, one difference between Microsoft and Coca-Cola is the width of the "moat" protecting the entrenched company from upstart rivals. "With Coca-Cola, you can feel pretty confident that there won't be a fast shift in user preferences away from drinking sodas, and in particular Coke. In technology, we may more frequently see 'paradigm shifts' where old leaders are displaced by new. Graphical user interface replaces character user interface, the Internet explodes, etc.," Raikes wrote.

In his reply, Buffett said that compared to Coca-Cola, Gates "has an even better royalty - one that I would never bet against but I don't feel I am capable of assessing probabilities about, except to the extent that with a gun to my head and forced to make a guess, I would go with it rather than against. But to calibrate whether my certainty is 80 per cent or 55 per cent, say, for a 20-year run would be folly."

Since then, Buffett has not changed his mind. He continues to talk about the "economic moat" that successful companies must have. In Berkshire Hathaway's 2003 annual report released this month, Buffett said he was still interested in buying businesses but only simple ones: "If there’s lots of technology, we won’t understand it."

Other internal memos and email correspondence may become public in the trial, which is taking place in state court before a jury. Microsoft denies the allegations and is planning a vigorous defence.

Representatives of Microsoft and Berkshire Hathaway were not immediately available for comment on the emails.

Declan McCullagh writes for CNET News.com. Reuters contributed to this report.