A big day for Microsoft, in and out of court

While Microsoft's managers court top executives in Seattle, its lawyers are meeting before a federal judge in a Washington court. Both events are crucial to the software maker: the former for charting new technology territory and the latter for preserving the status quo.

On the West Coast, Microsoft chairman Bill Gates will host the company's fourth annual summit for chief executives from throughout the corporate world. More than 160 executives plan to attend.

Gates is expected to outline his vision for the "third generation of the Internet," according to a representative. The technology-oriented speech is expected to set the stage for an event to be held next month, at which Microsoft is expected to detail its plans to tie its Windows franchise even more closely to the Internet.

But Gates' pitch is clouded by Microsoft's ongoing legal woes, which could lead to a breakup of the software giant. If the government gets its way, Microsoft will be broken into two companies: operating systems and software applications, such as Word and Excel.

If that proposal is accepted, essentially all of Microsoft's Internet technologies--including Internet Explorer and Internet Information Server--would be ripped from the operating system and given to the applications company.

Microsoft is betting much of its future on its Windows 2000 corporate operating system and a set of technologies called Next Generation Windows Services, hoping to extend the use of Windows beyond the PC to the wider set of devices proliferating, such as cell phones and personal digital assistants similar to the Palm.

Microsoft CEO Steve Ballmer has argued the government's breakup plan would truncate the software maker's Next Generation Windows Services strategy and strip the operating system of any competitive advantage.

"They may have to junk some of these things if they're not allowed to do them," said International Data Corp. analyst Roger Kay. "But we don't know there's going to be a breakup remedy."

But Kay doesn't expect Microsoft to wait and see what the government will do. "If they were to say, 'Look, we're getting sued by the government, and we better stop development on everything while we see what's going to happen,' that would be a bad thing from Microsoft's point of view."

While Gates makes his Internet speech on the West Coast, Microsoft and government lawyers will attend a hearing in Washington, D.C., before U.S. District Judge Thomas Penfield Jackson, the same jurist who last month ruled that the software maker violated U.S. antitrust law.

The hearing had been tentatively scheduled to wrap up the remedy portion of the case, where the judge will decide how to address Microsoft's antitrust wrongdoings. Unlike criminal court, where those found guilty are punished for their offenses, antitrust proceedings are more concerned with restoring competition. This will be the judge's task as he evaluates remedies.

Jackson had ruled that Microsoft, among other things, illegally maintained its PC operating systems monopoly and attempted to unlawfully extend that monopoly into the Web browser market.

"The goal of any remedy will be to prevent Microsoft from repeating the same mistakes," said Dana Hayter, an antitrust and intellectual property attorney with Fenwick & West in Palo Alto, Calif.

Jackson will be weighing the government's breakup proposal against Microsoft's, which would merely restrict its business practices. The judge is not obliged to accept either proposal, wholly or in part.

Rich Gray, an intellectual property attorney with Outside General Counsel Silicon Valley in Menlo Park, Calif., said there is another possibility, similar to the movie "The Verdict," where at the end of the trial the jury asks the judge if it can award more damages than the plaintiff sought.

"The equivalent of that moment for Microsoft's attorneys would be if Judge Jackson came in and said, 'I think the government's approach is too lenient, and I agree with the Brookings Institution on where we go from here," Gray said.

Brookings Institution fellow Robert Litan has advocated a more serious remedy of breaking Microsoft into four companies, or "baby Bills," with three devoted to the Windows family.

No one knows for certain what Jackson will do today, although he is most likely to hear arguments from both sides on their remedy proposals and entertain a Microsoft request for more time to review the government's proposal. If more time is granted, the remedy portion of the trial could extend well into summer before Jackson issues his final ruling, Hayter said.

Much could be determined by who makes the better pitch--Gates or his lawyers. The Microsoft chairman must sell top executives on his vision for the Internet and Windows' role beyond the PC. Microsoft's lawyers must convince Jackson that breaking up the company--and effectively removing the browser and other Internet technologies from Windows--is wrong.

"Interestingly, their objectives are the same," Kay said.