UPDATE: MS/DOJ - States' remedy hearing starts

The states that are seeking tougher remedies against Microsoft Corp. asked a federal court today to make Internet Explorer software code open source as a way of denying the company the benefits of its illegal conduct.

In U.S. District Court, Brendan Sullivan, the attorney representing the nine states that have refused to sign the Bush administration's settlement in the case, told Judge Colleen Kollar-Kotelly that tougher remedies are needed to protect new technologies from a company that left "nothing to chance" in attacking its competitors.

Microsoft lawyer Dan Webb also spoke Monday morning, labeling the states' proposed remedies as "extraordinarily harsh and unfair." The states' remedies go far beyond the scope of the hearing, he said, and, if applied, they would force the software company to pull Windows off the market.

Sullivan also told the court that the company should pay a price for its actions, and called on the judge to give developers complete access to Internet Explorer's programming code.

The browser "is the fruit of Microsoft's statutory violations -- it is the fruit, there is no clearer fruit and it should be denied them," said Sullivan.

Today marks the start of two months of hearings on a set of remedy proposals offered by the nine states, as well as the District of Columbia, that have rejected the government's settlement as having too many exceptions and being unable to unfetter the market from Microsoft's dominance. Nine other states agreed to the settlement, reached last year.

"The plaintiffs are not here to seek the destruction of Microsoft," said Sullivan. "The plaintiffs' goal is to make sure Microsoft behaves properly.

"Microsoft has done much good in this world, but it has also acted very, very badly," said Sullivan.

In his presentation, Sullivan reviewed key pieces of evidence that were entered during the 76-day trial that ended two years ago to frame and explain the rationale behind the state's remedy proposals.

After another lawyer for the states, Steven Kuny, described the remedies as necessary to modify Microsoft's sweeping antitrust behavior, Microsoft's attorney said that the states' remedies will not only harm Microsoft, but consumers as well. "The only beneficiary is Microsoft's competitors," Webb said. He added that the company will show evidence that proves Microsoft competitors such as Sun Microsystems Inc., AOL Time Warner Inc., and Oracle Corp. were involved in drafting the remedy proposal.

Beyond the effect that they would have on the company, the remedies should be thrown out for two other reasons, Webb said.

First, the remedies go far beyond the findings of a court of appeals decision last June that said Microsoft violated antitrust law by attempting to extend its monopoly in the PC operating system market into the middleware market, he said. Those findings should be the basis for this remedy hearing, Webb added.

Kuny, who followed Sullivan Monday morning, said testimony will show how Microsoft is attempting to extend its dominance into other markets, such as handheld computers, servers, and television set-top boxes. But such arguments have no place in this case, Webb said. "There was only one market determined by the court of appeals -- Intel-compatible PC operating systems."

Microsoft's counsel added that while the court of appeals did find Microsoft in antitrust violation in the middleware market, the court confined that finding to the middleware platform market. "The remedies can include (Sun's) Java and (Netscape Communications Corp.'s) Navigator; all others can't constitute a platform threat," Webb said.

The second reason why the states' remedies aren't valid is because the states are bringing this case against Microsoft under a different section of the Clayton Act than the federal government's case, and therefore the states have a different burden of proof in order to establish the need for relief, according to Webb. The states must show that there is a threatened loss or damage to their interests as a result of Microsoft's anticompetitive behavior.

"The nonsettling states don't have that -- I don't see any in the evidence they have," Webb said. "I believe that the evidence will show that (Microsoft's) anticompetitive acts ... stopped a long time ago."

During the hearing, Microsoft will call 25 to 30 witnesses, including Microsoft Chairman Bill Gates and Chief Executive Officer Steve Ballmer, to explain how the states' remedies would wreak havoc on the company and the "PC ecosystem," according to Webb.

If the states' remedies were imposed, Microsoft would be forced to pull Windows from the market because the company could not redesign the OS (operating system) to meet the demands of the remedies, Webb continued. The software company would be forced to develop a version of Windows without middleware that is the functional equivalent of Windows with middleware, which Webb argued is technically impossible. For example, if Microsoft took its Internet Explorer browser out of Windows, it would also remove the OS' help options, because the two sections of code are integrated, he said.

"What's wrong with integration? Integration is one of the strengths of the Windows operating system," he said.

The heart of the state's case will be based on testimony from witnesses such as Peter Ashkin, president of product strategy at Dulles, Virginia-based America Online Inc., who is expected to tell the court that the settlement doesn't provide PC makers with sufficient flexibility to choose non-Microsoft products. An official from Sun Microsystems Inc. is supposed to argue about shortcomings in the settlement's Java protections.

The states will also bring in new evidence. San Diego-based Gateway Inc. plans to testify that Microsoft's recent implementation of uniform licensing terms favors some PC makers over others. Carl Ledbetter, chief technology officer at Novell Inc., is to testify that the settlement won't restore competition in the server market. And Santa Clara, California-based handheld device maker Palm Inc. wants to address its interoperability concerns.

Anticipating the company's arguments, Sullivan reviewed Microsoft's actions against competitors, which he said included rewards, punishments, threats and sometimes "plain old trickery and deceit" to attack potential threats to its operating system dominance.

Sullivan said Microsoft viewed Netscape's Navigator Web browser and Sun's Java as top threats that held the potential of commoditizing the underlying operating system. Instead of writing applications to the Windows operating systems, developers could have written applications to Java and Navigator instead.

Microsoft officials' fear that the Windows operating system could be reduced to a commodity was like "Kryptonite to Superman" -- something "that they can't deal with," Sullivan said.

He added that a remedy must be strong because "it must control one of America's strongest companies."

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