April 25, 2002 1:35 PM PDT

Gates vs. states: Who came out on top?

WASHINGTON--Microsoft Chairman Bill Gates clearly dominated the courtroom during his three days on the witness stand, legal experts said. But states' attorney Steven Kuney still managed to give the judge in the case some clues as to how an acceptable antitrust remedy could be crafted.

Gates effectively portrayed the states' proposed remedy--which, among other things, would compel Microsoft to sell a stripped-down version of Windows, free of middleware such as browsers or media players--as ambiguous and impossible for the company to comply with.

"Certainly there are many, many problems with the states' remedy proposal," said Rich Gray, a Menlo Park, Calif.-based lawyer closely following the nearly 4-year-old case. "Mr. Gates has raised many legitimate problems" with it.

But Kuney used his cross-examination of Gates to put forth alternatives to the proposed remedy that could be drawn on by U.S. District Judge Colleen Kollar-Kotelly when she drafts her eventual court-ordered remedy.

The fact that some of the states' solutions may not be workable doesn't negate the violations those solutions are trying to address, Gray said.

"There are two issues before Kollar-Kotelly regarding Mr. Gates' critique of the states' proposed remedy," Gray said. "Do you accept the states' objectives, or not? If you do, there may be other means of accomplishing the same goals. It sounds like Mr. Kuney may have used Mr. Gates' testimony to put some of those alternatives before the judge. That's good lawyering."

Seeking clarity
Throughout his three days on the witness stand, Gates repeatedly told Kollar-Kotelly that Microsoft wants to comply with whatever the court eventually orders but it needs clear, unambiguous guidelines. He alluded to the 1994 consent decree with the Justice Department that expired in February.

That document "didn't have funny definitions in it," Gates testified. "It was, we thought, quite clear." But even given such clarity, "there was (still) a claim made against us that we had violated (the) decree," Gates said.

In 1997, a year before bringing the current antitrust case against Microsoft, the Justice Department prosecuted the company for violating the 1994 agreement. Microsoft won the case on appeal.

"With that kind of experience," Gates testified, "we would like clarity of our obligations that allows us to direct our employees, you know, how to steer absolutely clear of ever violating one of these things."

Middleware muddleware
The issue of integrating middleware technologies such as Microsoft's Internet Explorer browser with Windows dominated a good chunk of the states' cross-examination of Gates. Microsoft's co-founder repeatedly charged that the states' definition of middleware, which includes the company's Office software, reaches too far.

Gray agreed. "There's no question the states' middleware definition is too broad," he said.

The states' middleware provision is an attempt to address the Court of Appeals finding that Microsoft's commingling the code for Internet Explorer and Windows 98 was an anti-competitive act, intended to hamstring Netscape's Navigator product. The remedy provision also aims at similar actions on the part of Microsoft in response to products such as RealNetworks' RealPlayer media player and AOL's Instant Messenger messaging software.

Gates contended that the only way he knew to comply with this provision was to pull Windows from the market. But Kuney suggested Microsoft already has a product out there that proves the technical feasibility of creating a middleware-free version of its OS for PCs. That product is Windows XP Embedded.

On the witness stand Wednesday, Gates conceded that XP Embedded, a customizable version of Windows designed to run cash machines and other non-PC devices, could be configured to run on everyday computers. During the installation process, XP Embedded can be installed with or without Internet Explorer, Windows Media and other middleware components, depending on a company's needs.


"It appears the states' attorney did a fair job of showing the technological feasibility for removing at least some components," said Hillard Sterling, an antitrust attorney with Gordon & Glickson in Chicago.

Kuney also used this line of questioning to establish clearly defined middleware components that Kollar-Kotelly could ask Microsoft to remove from Windows.

Kuney asked Gates if XP Embedded could be installed on a PC without its Internet Explorer, Windows Media Player, Windows Messenger and Outlook Express components--middleware clearly defined in the Justice Department's and nine other states' separate settlement with Microsoft. Gates said it could.

Kuney's line of questioning essentially laid out an alternative route for Kollar-Kotelly to follow, Sterling said. If she were to find the states' middleware definition too broad, the judge could order Microsoft to distribute XP Embedded for use on PCs, from which computer makers could remove the already fairly defined middleware components.

During Tuesday's cross-examination, Kuney also got Gates to admit that the only thing Microsoft has done to address the commingling ruling is to allow PC makers to remove user access to Internet Explorer, but not the underlying code. Windows XP Service Pack 1, scheduled for late-summer release, would also allow the removal of access to the other middleware components identified in the Justice Department settlement.

For states, more work ahead
But despite Kuney's efforts, the states have more hurdles to jump, Sterling said. They need to show that Microsoft must remove these applications to preserve competition. That point is "not coming through loud and clear."

Still, Kuney scored a few points in this area. In his written testimony submitted to the court Monday, Gates argued that the states' remedy would damage what he called the "PC ecosystem" by forcing Microsoft to pull Windows from the market.

"Are you suggesting," Kuney asked, "that in your view the well-being of all these different participants in the industry somehow depends upon the continued well-being of the Windows monopoly?"

And he later asked: "You're not suggesting that somehow it's only Microsoft that provides benefits to the ecosystem, are you?"

"No," Gates responded.

Kuney had a far more difficult time rehabilitating other portions of the states' remedy, such as a provision that would compel Microsoft to give away the source code, or blueprint, to Internet Explorer.

"Office" politics
But Kuney may have hit pay dirt on the other major code provision of the remedy: that Microsoft must, through auction, license the code of its Office software to three other companies for development on competing operating systems, such as Linux.

"In some ways this one provision strikes at the very core of the antitrust ruling against Microsoft: that it illegally maintained a monopoly in Intel-based operating systems," Gray said.

The states have charged that Microsoft uses the overwhelming popularity of Office, which is only available for Windows and for the Mac OS, as a way of protecting its operating-system monopoly. Making Office available for other operating systems would, in theory, foster competition among them. During cross-examination, Kuney got Gates to acknowledge the importance of Office to Windows sales.

"The availability of Office on Windows is an important reason why consumers want to use Windows; correct?" Kuney asked.

"It's one of the reasons that they use Windows," Gates replied.

"And I take it, Mr. Gates, that the lack of availability of a program as popular as (Office) would also be a reason why consumers might not want to use certain operating systems; correct?" Kuney continued.

"Yeah," Gates responded. "They would look at the full range of applications available to decide what they wanted to do."

At a different point in the cross-examination, Gates argued that the mechanism for the licensing of Office--which would give Microsoft a one-time upfront fee but nothing later--would lead to economic "chaos." Gates argued that competitors could easily undersell Microsoft, which would have to seek to recoup the cost of research and development given free to the auctioneers.

But Kuney got Gates to partly agree that the provision would be more workable if, instead of a one-time fee, auctioneers paid a running royalty based on sales of Office for Linux or Office for Unix or whatever it might be. That concession could suggest a way for Kollar-Kotelly to address the Office issue in her eventual court-ordered remedy.

Kuney also scored on a states' provision that would effectively bar Microsoft from retaliating against companies that don't do its bidding. Gates charged that the wording of the provision was ambiguous. But later, Kuney got the Microsoft chairman to admit that the provision would have stopped the anticompetitive actions that the Court of Appeals found Microsoft had taken against Apple Computer and Intel.

Kuney scored similar concessions on technical disclosures vital to ensuring third-party software works with Windows.

 

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