States Bend, Microsoft Wont Budge

In response to Judge Kollar-Kotelly's call for compromise in the Microsoft antitrust case, the states offered several changes to their proposal, but the software maker refused to budge an inch.

Attorneys for Microsoft Corp. and the nine states suing it for strict antitrust sanctions were told to offer the court potential modifications to each others proposals, in an effort to lead to a remedy more acceptable to both sides. The states suggested several areas for change in their own proposal and the federal settlement crafted by Microsoft, but the software maker refused to budge an inch.

Microsoft lead attorney John Warden told Judge Colleen Kollar-Kotelly that the states proposed remedy was punitive, Draconian and fundamentally flawed. "We cant remedy any of this by changing a few words here and there," Warden said this afternoon in presenting his closing argument in the antitrust case that began in 1998.

The judge also asked Microsoft to suggest changes in its own settlement proposal, which the Department of Justice and nine other states agreed to in November. In perhaps the greatest surprise of his presentation this afternoon, Warden suggested several provisions that could be removed, but their removal would make the settlement more lenient on Microsoft and therefore less satisfactory to the non-settling states. The settlement provisions Microsoft is willing to give up include requirements regarding API disclosures, IP licensing, anti-retaliation and uniform pricing – not the kind of concessions the judge is widely believed to have been seeking.

Kollar-Kotelly had ordered the parties to prioritize their remedies and offer suggestions for modifications late yesterday on the eve of the closing arguments. From the outset of the case, the judge pressed upon the parties to offer areas of potential commonality, but nine weeks of witness testimony and thousands of pages of documents only persisted in presenting contradictory views of both the facts in the case and the relevant legal issues.

Microsofts response to the judges specific questions regarding the alternative proposals contrasted starkly with the states response earlier in the day. Steven Kuney, attorney for the states, ranked the provisions in the states remedy proposal and listed several points that could be altered. He also suggested ways in which the federal settlement proposal could be modified, including broadening the scope to include nascent platform threats, strengthening disclosure requirements and eliminating exceptions in the provisions regarding OEM flexibility.

In a surprise to many in the courtroom, Kuney did not list the states proposed requirement for a modular version of the Windows operating system as the states top priority. Instead, he said that disclosing APIs and other technical information is the most important remedy. A modular version of Windows, which was the first provision in the states proposal, is only the fourth most important remedy behind information disclosure and more flexibility and retaliation protection for OEMs.

"In this industry more than any other, information is the life blood because it is vital to innovation," Dick Blumenthal, attorney general of Connecticut, said following todays court hearing. "Nothing could be more central to sparking competition in the future."

Tom Miller, attorney general for Iowa, said that making the modular Windows provision – the thorniest remedy in the case – the fourth priority, the states primarily considered the impact of the provisions on competition but also gave some consideration to the judges explicit request to offer potential areas for modification.

As for Microsofts refusal to follow suit and specifically respond to the request for prioritization and modification possibilities, the attorneys general said they do not believe it was helpful to the judge. "Its a gamble that the judge may not mean what she said, but theyre not helping the judge by disregarding her questions," Blumenthal said.

Microsoft spokesman Jim Desler said that the company has always maintained that no remedy is in order, and the provisions outlined in the federal settlement go as far as the company is willing to go.

Brendan Sullivan, lead attorney for the states, reviewed the history of the case today, highlighting the illegal steps Microsoft was found to have taken against Navigator and Java to maintain a monopoly in the PC operating system market. He attempted to convince the judge that the remedy she approves must prevent the software maker from taking similar steps to squash nascent technologies. "They really are thuggish-like tactics that should shock any fair-minded person," Sullivan said about Microsofts attempts to block distribution channels for Navigator and Java.

Sullivan also rejected Microsofts claims throughout the trial that the states proposal would force it to remove Windows from the market, lay off employees, and cease innovating. He said the claims were doomsday predictions and hyperbole "to cause some fear and apprehension in the court itself. "

"I dont think Microsoft would rename its campus Sleepy Hollow," Sullivan said. "They can adapt."

Defending the scope of the federal settlement, John Warden argued that the states proposal "reconstructs Microsofts business" and "is a form of industrial engineering." He said that it goes beyond the boundaries of the case and that the inclusion of nascent technologies is not justified. "[Netscape] Navigator and Java were PC platforms, not handheld device platforms," Warden said.

Microsoft attorney Dan Webb spoke at length about the refusal of one of the states own witnesses, economist Carl Shapiro, to endorse the provision for a modular version of Windows. Webb said such a requirement would cause undue fragmentation, security problems and harm to consumers as well as the entire "PC ecosystem." Webb also argued that the states proposed requirements on information disclosure, royalty-free licensing of Internet Explorer and the porting of Office amount to confiscation of the companys intellectual property.

Webb reiterated the familiar complaints that the states proposal is too vague and ambiguous for Microsoft to implement with certainty and that Microsoft competitors held too much influence in crafting the proposal.

In addition to presiding over the states request for tougher remedies, Kollar-Kotelly is separately reviewing the federal settlement proposal, which was crafted last year after the U.S. Court of Appeals for the District of Columbia Circuit upheld District Court Judge Thomas Penfield Jacksons ruling that Microsoft illegally maintained a monopoly in personal computer operating systems. However, the appeals court rejected Jacksons order to split Microsoft in two (and removed Jackson from the case), and instead directed Kollar-Kotelly to determine behavioral remedies for the illegal conduct.

The states pursuing strict remedies are California, Connecticut, Florida, Iowa, Kansas, Massachusetts, Minnesota, Utah and West Virginia plus the District of Columbia.

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