Last major filings in Microsoft hearing

WASHINGTON--In a move that brings the 4-year-old antitrust case against Microsoft closer to resolution, the software giant and state trustbusters delivered Monday their last major legal filings in a hearing designed to determine remedies in the case.

Both sides filed proposed "findings of fact" and "conclusions of law" with U.S. District Judge Colleen Kollar-Kotelly, who is charged with crafting a remedy to Microsoft's antitrust violations. Kollar-Kotelly will draft her own version of the same documents for her ruling, which is expected as soon as late summer.

"The non-settling states paraded before the Court 13 self-interested representatives of Microsoft's competitors, many of whom have been working with the non-settling states behind the scenes for several years," Microsoft charged in its 546-page filing. "These competitors seek to use this remedy proceeding to obstruct Microsoft's ability to compete and to secure various competitive advantages for themselves at Microsoft's expense."

The states took an equally harsh stance toward Microsoft's position. "No senior Microsoft executive testified regarding the justification for, or goals sought to be achieved by, Microsoft's remedy," according to the states' 596-page filing. "The key provisions of Microsoft's remedy, which ostensibly address the acts found anti-competitive by the Court of Appeals, are plagued with exceptions or ambiguities...so that they would not in fact stop or prevent" antitrust violations.

Both documents are essential steps toward a remedy and toward any appeal that might follow, said Emmett Stanton, an antitrust attorney with Fenwick & West in Palo Alto, Calif.

"The federal rules require the judge to separately set out the court's actual findings--the ultimate facts that are in issue--and legal conclusions, mainly so the appellate court has a complete record to evaluate what the judge did and why," Stanton said.

The filings come as Microsoft and the plaintiff states prepare to deliver closing arguments, set for June 19. Separately, the Justice Department and nine other states settled with Microsoft in November, but Kollar-Kotelly has yet to approve the deal. Last week, Microsoft released a test version of an important Windows XP update that incorporates changes mandated by the settlement.

Microsoft and the litigating states reached different conclusions about what the facts of the case are and how the remedy should be handled.

Both sides assessed the 33 witnesses in the remedy hearing and gave their opinions on what key witnesses, such as states' economist Carl Shapiro or Microsoft Chairman Bill Gates, contributed.

Microsoft criticized the states' court presentation, charging that the plaintiff's case was full of "fatal flaws." The software giant also attempted to show that the pending settlement addresses the dozen separate antitrust violations found against the company.

"The evidence and our filing today in the remedy phase show that Microsoft policies continue to raise barriers to entry, restrain operation of a free and open market in operating system software and related products, restrict consumer choice, and inhibit innovation," said Tom Miller, Iowa attorney general and one of the state's leaders.

"Microsoft's proposal is so limited and backward-looking that it would not prevent practices similar to those held unlawful by the Court of Appeals--and would have little or no effect in today's marketplace," Miller said.

The judge "can take as much as she wishes from either side's submission or completely craft her own," Stanton said.

U.S. District Judge Thomas Penfield Jackson issued his scathing findings of fact in November 1999 and conclusions of law in April 2000. He concluded that Microsoft is a monopoly that used anti-competitive means to crush rival Netscape Communications, now owned by AOL Time Warner, in the browser market. In June 2000, he ordered Microsoft to be broken into separate operating systems and software applications companies but stayed the order pending appeal.

A year later, a panel of seven appellate judges unanimously upheld the core of Jackson's findings and about a dozen separate antitrust violations against Microsoft. But the appeals court threw out his remedy, in part because Jackson failed to give Microsoft due process.

Kollar-Kotelly is expected to consider both the recent proceedings and last year's appeals court ruling when she crafts her remedy.

Closing arguments ahead
The closing arguments on June 19 are expected to end nearly two months of testimony in a hearing to determine a remedy for Microsoft's antitrust violations. Federal and state trustbusters filed the original lawsuit in May 1998.

The states have asked Kollar-Kotelly for significantly stiffer sanctions than those imposed by the Justice Department settlement, which mostly mandates changes to Microsoft's business practices. The plaintiff states and the District of Columbia want Microsoft to sell a second version of Windows, from which middleware such as browsers and media players can be removed; license through auction its widespread Office software for use on competing operating systems; give away for free the source code, or blueprint, to its Internet Explorer Web browser; and carry in Windows for 10 years Sun Microsystems' version of the Java Virtual Machine; among other remedies.

In some respects, the states attempted to boost their faltering case with Monday's filings, legal experts said. Several procedural gaffes marred the states' case, including one that "="" 2100-1001-912128.html"="" rel="">prevented an important Windows demonstration from taking place and another that allowed Microsoft to hold back key witnesses.

Microsoft has staked out the position that any additional remedy must be put in the context of the June 2001 appeals court ruling. That approach could significantly reduce the scope of the case to areas involving Microsoft's conduct in the browser market. The litigating states, in contrast, want to include instant messaging, media playback and other so-called middleware technologies.

In its Monday filing, Microsoft argued against such a broadening of the case.

"Although the Court of Appeals determined the scope of Microsoft's liability, the non-settling states' witnesses raised a number of new allegations of misconduct by Microsoft," according to the filing. "Those allegations were shown to be without merit during the remedy proceeding."

Some antitrust experts said Microsoft's position is a sleight of hand trick designed to draw attention away from the full breadth of the antitrust ruling.

The states agreed in their filing.

"The remedial objectives mandated by the Court of Appeals cannot be met by merely ordering Microsoft to cease the specific acts directed against Navigator and Java," according to the states' proposed conclusions of law.

Had Microsoft been found guilty of violating only Section 1 of the Sherman Antitrust Act, said legal experts, the company's argument might hold water. But the company was also found to have violated the act's second section.

Section 1 violations tend to deal with areas of specific conduct between more than one party. Exclusive contracts and price-fixing are examples. Section 2 violations, which include abuse of monopoly power, are much broader and are not necessarily defined by specific acts. In the case of Microsoft, which was found to have illegally maintained a monopoly, the courts would have to explore what means might be necessary to remove the power to abuse that monopoly. Issues surrounding the operating system could come into play.

"Microsoft's theory misses the point," said Jeff Shohet an antitrust attorney with Gray Cary in San Diego. "The offense of Section 2 is being a monopolist. Simply going to specific conduct that you used to preserve or defend that market power" doesn't address the whole problem.

The appeals court ruling, Shohet said, requires a more far-reaching remedy.

"You've got to share the code," Shohet said. "You have to make sure the competitors have free and fair access to it and make sure they aren't shut out. You have to do all the things that prevent the abuse of power. You have to forget about the (specific) conduct."