Ballmer: Sanctions would ruin Windows

Microsoft CEO Steve Ballmer said that the software giant would have to withdraw the Windows operating system from the market if a federal court approves sanctions being sought by nine states in its antitrust case, according to depositions released Monday.

During a Feb. 8 deposition, a lawyer for the states pressed Ballmer on the ramifications of the sanctions, which seek a "modified version" of Windows.

During the deposition, Ballmer said he would not "know how to comply" with the litigating states' proposal. "I actually think we would need to withdraw the Windows product from the marketplace. That...would be the only way I understand to comply with the proposal as put forward by the non-settling states," he said.

Ballmer also said that he did not talk to anyone from the U.S. Justice Department in connection with the settlement. In November, Microsoft reached a settlement deal with the Justice Department and half of 18 states after a federal appeals court upheld a ruling that the company was a monopolist but threw out earlier penalty proposals.

Microsoft released the depositions from Ballmer and Senior Vice President Jim Allchin in compliance with a court order that transcripts and videotapes of five interviews in the long-running antitrust case be made available to the media.

Microsoft posted transcripts on the company's legal news Web site, first removing material considered confidential. A deposition is sworn oral testimony generally available only to the parties directly involved in a lawsuit.

Depositions from former Netscape Communications Chairman Jim Barksdale and Liberate Technologies Chairman Mitchell Kertzman were also made available. Other depositions, including one from Microsoft Chairman Bill Gates, are not expected to be made public.

Kertzman revealed in his deposition that Liberate had made an offer to buy Microsoft's interactive television unit. However, the deal was never approved. He said in his deposition that Microsoft said it "would think about (the offer), and then they declined."

Releasing depositions is not typical, but major media organizations, including The Associated Press and The Washington Post, in early January pressed U.S. District Judge Colleen Kollar-Kotelly to provide tapes and transcripts.

Kollar-Kotelly later signaled that she would be willing to open some depositions to the media. In late February, she narrowed the number to five.

Microsoft, nine states and the District of Columbia have been holding the depositions in preparation for a remedy hearing that begins March 11. Each side has about 100 hours to present their witnesses, with some analysts estimating testimony could go on for as many as eight weeks.

The Justice Department and nine other states are following a separate track based on their settlement with Microsoft. They go before Kollar-Kotelly on Wednesday for a hearing that could decide the settlement's fate. Under guidelines set up by the Nixon-era Tunney Act, Kollar-Kotelly must ensure the settlement is in the public interest before approving the deal.

Stiff penalties
The litigating states are seeking substantially stiffer penalties than those laid out in the settlement. The proposed deal would place restrictions on Microsoft's business practices but have only marginal impact on the company's software--and essentially no effect on Windows XP, the latest version of the company's flagship software.

In their December remedy proposal, the litigating states, by contrast, asked that restrictions be placed on how Microsoft develops and releases software.

On Monday, the nine states and the District of Columbia filed a revised remedy proposal, based in part on evidence collected during the discovery phase of the trial, including depositions.

Tom Miller, Iowa's assistant attorney general and one of the states' leaders, described the revisions as "only minor modifications," with one exception--a stripped-down version of Windows.

"As a result of discovery, we have concluded that, in addition to Microsoft's fully integrated version of the operating system, the company should be required to offer a modular version that will allow equipment manufacturers and others to make their own decisions on adding middleware products that consumers want such as browsers or media players," he said in a statement. "Microsoft therefore would not be required to provide numerous versions of the operating system."

In court papers filed Friday, Microsoft indicated that the states' proposed remedy would force the company to pull Windows from the market.

"The modified measures should deflate Microsoft's overblown rhetoric and apocalyptic predictions about the proposed remedies," Connecticut Attorney General Richard Blumenthal said in a statement. "The modifications focus the proposals more sharply on the very serious violations of law and harm to consumers found conclusively by two federal courts."

Microsoft releases Ballmer deposition tapes Steve Ballmer, CEO, Microsoft

8,000 versions of Windows?
The states' remedy proposal would compel Microsoft to offer Windows, or a version of Windows, without so-called middleware. The states say the term applies to technologies such as Web browsing and media playback. But Ballmer said that, as he understands it, middleware "basically refers to any piece of software," excluding disk compression and memory-management technologies.

From that perspective, the states' proposal means that "any part of the (operating) system can be pulled out at any time," Ballmer said during the deposition. "That's an impossible task. It's not a task we could give engineers and have them...do."

Ballmer emphasized that he saw no way to remove pieces without degrading performance or potentially breaking Windows. He estimated that Microsoft would have to create "4,000 (to) 8,000 unique versions of Windows" to fully comply with the litigating states' proposed sanctions.

One of the most revealing exchanges in the deposition involved Windows XP Embedded and indicated where the litigating states might take the case when it returns to court. XP Embedded is a version of the operating system composed of multiple components and designed for a variety of non-PC devices.

Steven Kuney, the litigating states' lawyer from Williams & Connolly in Washington, D.C., focused part of his questioning on XP Embedded's being configurable depending on its use--that is, some components might not be in service, depending on the application--suggesting that this shows that Microsoft could release a modular version of Windows.

Kuney also asked Ballmer to explain what he thought were the positive aspects of the company's remedy proposal, which is identical to the settlement cut with the Justice Department and nine states.

"The proposed final judgment that the Department of Justice and we have submitted to the court certainly goes well beyond the Court of Appeals' findings...(and) addresses certainly all of the key issues raised by the Court of Appeals," Ballmer responded.

In June 2000, a seven-judge appellate panel unanimously upheld eight separate antitrust violations against Microsoft. One of the conditions of the Tunney Act is that no backroom, political deal-making can influence an antitrust settlement.

Kuney spent a long time probing Ballmer about middleware and application programming interfaces (APIs) used by third-party software to work well with Windows.

For years, developers have complained of undocumented APIs that could be exploited by Microsoft to make its middleware software work better with Windows. In response to a Kuney question, Ballmer admitted there are undocumented APIs, but he in no way suggested this was intentional or something exploited by the software titan.

"I believe there were some interfaces that had been documented and some that had not been documented, and of course the (settlement) agreement actually is prospective," Ballmer said. "It's an obligation for us to document things that we might not have documented, but we now take on...the affirmative obligation to document interfaces in...new pieces of middleware, which may come to the marketplace in a certain form as...called out in the decree."

Allchin: Unlawful practices? "Yes"
At one point in the Allchin deposition, taken Feb. 13 of this year, Steve Houck, an attorney representing the plaintiff states, asked the executive, "What practices do you understand Microsoft was found guilty of?"

After a round of objections from a Microsoft attorney, Allchin said, "I believe that we were found that we tried to maintain a monopoly in the PC operating system space."

Houck responded, "And is it your understanding that Microsoft did that by engaging in certain practices that the courts have held to be unlawful?"

"Yes," Allchin answered.

As for questions about the company's relationship with competitors, Houck brought up to Allchin issues involving Sun, the open-source Linux operating system and RealNetworks.

At one point, Houck noted that Microsoft used to distribute a version of the Java Virtual Machine in Windows but no longer does so.

Houck then asked if a Microsoft technology called CLR (common language runtime), a Java-like Virtual Machine developed by Microsoft, is included in Windows XP. Allchin said it is not, and the next portion of his testimony is blacked out.

Regarding Linux, Houck asked, "Is it your understanding that consumers are unlikely to buy a PC operating system that is unable to run applications that are widely popular like, for example, Microsoft's Office?" He then pointed out that Microsoft does not have a version of Internet Explorer or Office for Linux.

On the audio and video front, Houck questioned Allchin about whether consumers can obtain the most recent version of Media Player without buying XP and whether PC makers can remove the "software code" for Media Player from the OS.

In both cases, Allchin answered "no."

A line of questions regarding setting the default for playing audio files within Internet Explorer was followed by 20 blank pages.

News.com's Scott Ard contributed to this report.