Judge to hear closing arguments Wednesday

Microsoft Corp. and the nine states pursuing litigation against it will get their final say in the remedy portion of the antitrust case when a federal judge hears closing arguments on Wednesday.

U.S. District Judge Colleen Kollar-Kotelly will listen to each side argue for their proposed remedies to Microsoft's anticompetitive behavior in this closing portion of the hearing, slated to last no longer than a day. Last year the U.S. Court of Appeals for the District of Columbia Circuit upheld a lower court's decision that Microsoft violated antitrust law by attempting to maintain its monopoly in the PC operating system market through anticompetitive behavior.

Kollar-Kotelly will likely choose remedies from each side's proposals in making her final decision, said Bob Schneider, an antitrust specialist and attorney with law firm Chapman & Cutler in Chicago.

"The way I think she'll go is to grant some of what the states want, and then go back and make some changes" to Microsoft's proposed remedies, Schneider said.

Throughout the remedy hearing, which began March 18, Microsoft lawyers have attempted to show that the states' proposed remedies are far too broad, exceeding the scope of liabilities that the Court of Appeals outlined last year and creating havoc not only for Microsoft but for the PC industry at large.

Perhaps the most controversial remedy proposed by the states would force Microsoft to sell an "unbound" version of Windows -- one free from additional programs such as a browser and media player that are referred to as middleware -- so that PC makers and end users could replace those programs with ones from competitors. In a dramatic reaction to that proposal, Microsoft Chairman and Chief Software Architect Bill Gates testified in April that the company would be forced to pull Windows from the market if the remedy was accepted by the judge.

Removing such middleware from Windows would cripple other aspects of the operating system, such as the help program, Gates told the court. Because the proposed remedy states that the unbound version of Windows must be a functional equivalent to the full operating system, minus the removed middleware, Gates said there is no way Microsoft could satisfy the provision and so the company would be forced to stop selling Windows to avoid violating the remedy.

Microsoft attorneys have said no remedies should be imposed on the company, but also offered up the terms of its settlement with the U.S. Department of Justice (DOJ) and nine other states as a workable solution. Last November, Microsoft reached an agreement with the DOJ and half of the states involved in the antitrust case, but the other half did not settle and have held out for tougher restrictions against the company's business practices.

Those nine holdout states are California, Connecticut, Florida, Iowa, Kansas, Massachusetts, Minnesota, Utah, and West Virginia, as well as the District of Columbia.

Once Kollar-Kotelly decides which remedies should be imposed, which is expected to take a couple of months, either Microsoft or the litigating states could appeal her decision. The case would then return to the U.S. Court of Appeals for the District of Columbia Circuit, said Ernest Gellhorn, a professor at George Mason University's School of Law in Arlington, Virginia.

"The strategic decision of whether to appeal depends very much on what the judge decides," Gellhorn said. "If what the judge decides is similar in scope (to Microsoft's settlement with the DOJ), but not particularly burdensome, Microsoft will have in essence its settlement. If the states lose and it looks like the court has written a fairly strong opinion, my guess is they will not appeal."

Last week, Microsoft and the holdout states filed to the judge their recommendations for resolving the case. In its filing, Microsoft said the states' case contained a number of flaws and did not show cause for remedies that go beyond its settlement with the DOJ. The states' described their case as a "powerful foundation" for relief that would correct the harm that Microsoft has inflicted on consumers and competition.

Also last week, Kollar-Kotelly denied Microsoft's motion to dismiss the states' case. Microsoft claimed the states had no right to pursue remedies since the company has already arrived at an agreement with the DOJ. The judge said in her ruling that the states could pursue separate remedies despite the DOJ's settlement.

That ruling could indicate Kollar-Kotelly is weighing the states' proposed remedies, Chapman & Cutler's Schneider said.

"The judge dismissed the Microsoft motion (to dismiss), so that shows that she is giving the states consideration," he said. However, Schneider added, the judge has offered very few clues regarding which way she will decide.

A group of six economists filed a "friend of the court" brief last week urging Kollar-Kotelly to seek tough remedies against Microsoft in order to increase competition and lower the barriers to entry in the PC operating system market. The six economists have each served as chief economist for the DOJ's antitrust division.

On Monday, Microsoft submitted to the court a memorandum in opposition to the brief, characterizing it as "unsworn expert testimony." At least two of the six economists advised the DOJ in its antitrust case against Microsoft, the memorandum said, which represents a conflict of interest and should disqualify them as "friends of the court."

"Far from assisting the court in resolving this matter, the proposed brief would serve only to prejudice Microsoft," the memorandum said.

In conjunction with forming her decision on what remedies should be applied to Microsoft, Kollar-Kotelly is considering the proposed settlement between Microsoft, the DOJ, and the nine settling states. In that decision, she must determine if the proposal is in the public's interest.

Earlier in the year Kollar-Kotelly deconsolidated these two cases, since the nine holdout states decided to pursue a path of litigation against Microsoft while the DOJ and nine other states agreed to settle. But the cases are still related because Microsoft's proposed settlement with the DOJ and nine states is also its remedy proposal in the case against the holdout states.

It may be inconsistent for the judge to decide that the proposed settlement is in the public's interest, and then add some of the states' remedies to Microsoft's proposal, said George Mason University's Gellhorn.

While the judge is not obliged to make these two decisions concurrently, "it would be hardly consistent to issue them separately," Gellhorn said.

(Marc Ferranti in New York contributed to this report.)

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