Microsoft, States Debate Remedies

WASHINGTON—Attorneys for Microsoft Corp. and the states that have yet to settle with the software giant on Monday presented opposing views on the companys history and remedies that should be crafted to prevent it from abusing its monopolistic power.

While the states want to stretch the case and tailor remedies to Microsofts behavior in markets such as Web services, Microsoft is trying to convince U.S. District Court Judge Colleen Kollar-Kotelly to limit any new remedies to Windows-related arenas, such as Internet Explorer and Java.

During the first day of the trial in U.S. District Court here, Microsofts lawyers also revealed that the Redmond, Wash., software company is planning to call Chairman Bill Gates, CEO Steve Ballmer and Senior VP Jim Allchin to testify during the trial, which is expected to last eight weeks.

Microsofts attorneys and lawyers representing the District of Columbia and the nine states that have refused to settle their antitrust suit with Microsoft each spent two hours making their opening remarks.

Representing the litigating states, Williams & Connolly attorney Steven Kuney introduced memos that allegedly showed how Microsoft has extended its Windows monopoly power into new markets. He said that other technologies, such as Web services and middleware that includes Windows Media Player—which the Department of Justice and states had touched upon during the initial Microsoft antitrust case heard by Judge Thomas Penfield Jackson--had evolved into major areas of concern in recent months.

Kuney introduced a Microsoft memo to Ballmer, from the spring of 2000, that called into question Dell Computer Corp.s backing of Linux. The memo said it was "untenable that a Windows Premier Partner would be promoting Linux." A subsequent memo, from early 2001, showed that Dell had disbanded its Linux business unit, laid off the head of the unit and dispersed the talent, Kuney said. He introduced other similar memos regarding Compaq Computer Corp.s Linux push and Microsofts alleged pressure on Compaq to "meet demand but not help create demand" for Linux.

Kuney continued to bang the drum over Microsofts alleged pressure on OEMs by introducing a summer 2000 memo from Microsofts former OEM chieftain Joachim Kempin to Gates. "Im thinking of hitting the OEMs harder than in the past with anti-Linux. ... They should do a delicate dance," Kempin said in the note. Those who did not dance to Microsofts tune would be hit with restricted source code deliveries, Kuney told the courtroom. Gates forwarded the Kempin memo to Ballmer, without questioning such strategies, Kuney added.

Microsoft had quite a different take on its evolving role in the computing market. Lead litigator Dan Webb, with Winston & Strawn, of Chicago, said Gates and other Microsoft witnesses would highlight the positive and historic role that Microsoft has helped play in developing the "PC ecosystem."

"The Court of Appeals said this was to be a remedy hearing, not a second liability trial," an aggressive Webb told the courtroom. Based on Kuneys remarks, he said, the non-settling states seemed to want to turn the current hearings into a second liability trial by introducing new evidence and talking about new conduct.

Webb said the remedies proposed by the litigating states are fair only to Microsofts competitors. He introduced one America Online document that he alleged became a foundation for the litigating states remedy document. He said the document showed the extent to which Microsofts competitors had a hand in developing the proposals that are currently on the table. He characterized these remedy proposals as "spurious" ideas that were rejected, dismissed, dropped or never alleged by the U.S. Court of Appeals.

Echoing words often used by Microsoft during the Department of Justices antitrust trial, Webb called the litigating states proposals "truly Draconian," "extraordinarily harsh" and "unfair." Webb claimed the states remedies would result in a fragmentized and destabilized Windows market, and the confiscation of "vast amounts of Microsofts intellectual property."

The result of "unbinding" Windows via removing Microsoft middleware from the base product, and allowing OEMs to plug in competing software, Webb said, would be the creation of four different operating systems running 10 different middleware products. Thousands of applications would need retesting, as they would need to be certified on "4,096 different versions of Microsoft products," Webb said.

He said the states proposals were worse than the structural remedy of splitting Microsoft into two companies (an operating system vendor and an application vendor) that was favored by Judge Jackson, as they would ultimately force Microsoft to remove Windows from the market. Ballmer was quoted earlier this month saying that if Microsoft were forced to comply with the proposals put forth by the litigating states, the company would opt to pull Windows from the market all together, rather than make freely available its Windows source code.

As the remedy trial continued Monday afternoon, Sun Microsystems Inc. was trying to close the court room, claiming that some sealed information could unwittingly be exposed during cross examination. Sun Java Vice President and General Manager Rich Green is slated to take the stand later Monday.

For more on the Microsoft antitrust case, check out eWEEKs special report, "Microsoft vs. DOJ."