January 24, 2002 2:10 PM PST

Microsoft fires back at AOL

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WASHINGTON--Microsoft's antitrust woes are generating enough legal briefs to level several Northwestern forests.

Late Wednesday, the software maker filed a brief with the U.S. District Court for the District of Columbia Circuit alleging that rival AOL Time Warner is not supplying information subpoenaed as part of a discovery process for a March 11 hearing in the ongoing antitrust case against Microsoft.

The hearing will involve debate over potential penalties against Microsoft. Nine states and the District of Columbia have proposed forcing Microsoft to open up the source code to its Internet Explorer Web browser, among other penalties.

On Thursday afternoon, AOL asked the court for the opportunity to file on Jan. 29 a legal brief responding to Microsoft's allegations. Microsoft would have until Feb. 1 to file a response.

Hours later, Microsoft shot back with a tersely worded legal brief of its own.

"Counsel for Microsoft will not dignify the misrepresentations in AOL's reply unless and until the Court indicates a desire to receive such a reply," the document states.

Also on Thursday, the American Antitrust Institute (AAI) filed papers alleging that the Justice Department and Microsoft failed to properly disclose all communications during settlement negotiations as required by the Tunney Act. The Nixon-era statute sets up rules for reviewing federal antitrust settlements to ensure, among other things, that backroom political deals did not influence the process.

Microsoft, the Department of Justice and nine of 18 states agreed to the settlement in November.

The AAI, based here, describes itself as an independent nonprofit organization aimed at promoting competition through education, research and advocacy. It supports the proposals of nine states calling on District Judge Colleen Kollar-Kotelly for stiffer sanctions against Microsoft for violating antitrust law in preserving its monopoly in personal computer operating systems.

The AAI said 45 organizations contribute to its funding, including software maker Oracle, a Microsoft competitor. Oracle funding constitutes less than 10 percent of the organization's budget, according to an AAI representative.

See special coverage: Microsoft, DOJ reach settlement

Microsoft's Wednesday filing fires a hefty salvo at AOL, alleging that the media giant refused to disclose subpoenaed information, while lobbying the nine litigating states on developing a proposed remedy.

AOL has produced 851 documents vs. 27 boxes from SBC Communications and seven boxes accompanied by 14 CDs from Novell, Microsoft's brief claims.

Hillard Sterling, an antitrust attorney with Gordon & Glickson in Chicago, described the allegation in part as a legal maneuver.

"Microsoft is positioning to exclude evidence in the proceedings by the states and in Netscape's suit," Sterling said. "If a party doesn't respond appropriately to a subpoena, the other party has the right to exclude the evidence not produced. So Microsoft is making leverage for an argument that Netscape cannot support the remedy request with sufficient evidence."

But Microsoft has another motivation for the filing. "It's a chance to give AOL a black eye in the courtroom and the public arena," Sterling said.

In its Thursday filing, AOL charged that Microsoft filed the brief in response to a lawsuit filed on Tuesday by AOL subsidiary Netscape. That suit seeks unnamed damages for Microsoft's anticompetitive behavior during the browser wars. Before the filing, the two technology giants had been engaged in negotiations to resolve their differences over discovery.

"Microsoft's decision to cease discussions and to file a motion to compel curiously coincides with a lawsuit filed on Jan. 22, against Microsoft by Netscape, a subsidiary of AOL," the Thursday filing states. "Indeed, when asked about this, Microsoft's counsel did not deny that the filing of the Netscape complaint caused Microsoft to suddenly change its position. There is no exigency."

"We filed this motion because AOL repeatedly refused to cooperate, even though the court instructed everyone to do so," said Microsoft spokesman Jim Desler. "AOL can't have it both ways. Their uncooperative attitude on document production stands in stark contrast to their active, behind-the-scenes involvement with the non-settling states."

Microsoft also alleges that AOL submitted to the nine non-settling states a 39-page "preferred remedy."

"AOL's proposal bears a striking resemblance to the requested relief that the non-settling states ultimately filed with the Court on Dec. 7, 2001," the brief charges.

"(Regarding) the suspicion that the state attorneys general are colluding with Netscape--let me fall over," said Emmett Stanton, an antitrust attorney with Fenwick & West in Palo Alto, Calif. "Of course they're talking."

AOL spokesman John Buckley said, "We're not going to dignify this with a response."

Justice or retaliation?
Since the split between the Justice Department and nine states on the one hand, and nine other states and the District of Columbia on the other, the case has been moving forward on two tracks.

The first track is the proposed settlement, which Kollar-Kotelly will not likely accept, amend or reject before the end of February. The other track is ongoing litigation and the judge drafting a remedy following a March hearing. But the Netscape lawsuit casts a shadow over both proceedings and opens up yet another legal front for Microsoft.

"There's no doubt about it," the Netscape lawsuit is giving the states "air cover," Sterling said.

"This is another chance to secure the relief AOL wanted from the government's lawsuit," he continued. "This lawsuit, if it proceeds before a different judge, gives AOL a shot in the arm at unbundling Microsoft's operating system."

Sterling described Netscape's lawsuit as "a third, independent attempt at securing a stripped-down Windows operating system."

Microsoft's charges that AOL is trying to manipulate the legal process take on new meaning when viewed in the context of the Netscape lawsuit, say legal experts.

The filing of the Netscape lawsuit could be viewed as providing support to the litigating states, which are likely to face increasing pressure to follow the lead of the Justice Department settlement.

"These things don't happen by accident," Stanton said, referring to Netscape's lawsuit and AOL Time Warner's alleged lobbying of the litigating states.

"This is very high-stakes public-policy litigation," Stanton continued. "Companies are trying to move industries and gain competitive advantage. Big companies don't just compete in the marketplace. Often the place they like to compete the most is in the courts or the legislature. If you can get the government on your side, you have a huge advantage over your competitor that doesn't have the government on his side."

Deadlines aplenty
Several deadlines loom in the case. On Friday, Microsoft and nine states opposing the settlement are due to identify expert witnesses and provide the court with accompanying materials supporting their testimony. Monday marks the end of a 60-day public comment period on the November settlement cut between Microsoft, the Justice Department and nine states.

Depositions, which Microsoft has asked Kollar-Kotelly to close to the public, begin Feb. 1 and would include the media. She could rule on the request at any time.

Adding to Microsoft's legal burden is a new challenge issued Monday, when AOL's Netscape division filed suit in federal court seeking damages for Microsoft's anti-competitive behavior during the browser wars of the late 1990s.

Netscape also is asking for an injunction that could compel Microsoft to sell a stripped-down version of Windows without the Web browser, media player and other "middleware" components.

"It's going to be raining paper," said Bob Lande, an antitrust professor with University of Baltimore Law School. "We thought the case was going to be almost over on Nov. 6," when Microsoft and the Justice Department announced their settlement.

"Boy, were we wrong. It's not even close to over," he added. "Especially with the Netscape lawsuit we could all be still doing this two or three years from now."

 

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