Senate begins picking apart Microsoft pact

During the second session of hearings Wednesday, Sen. Patrick Leahy, D-Vt., once again raised concerns the settlement was inadequate and might not be enforceable because of loopholes. The hearing has no real legal standing and is not expected to affect the case's outcome, legal experts said.

Leahy also referred to a letter submitted by Netscape founder James Barksdale, which contended that if the proposed settlement "had been in existence in 1994, Netscape would have never been able to obtain the necessary venture capital financing. In fact, the company would not have come into being in the first place."

In his opening statement, James vigorously defended the settlement.

"When thinking about the Microsoft case, from my perspective, it's always important to distinguish between Microsoft the public spectacle and Microsoft the legal dispute," he told the committee. In drafting the settlement the Justice Department compared what it "alleged in its complaint and how the court ruled on those allegations."

James argued that in its unanimous decision upholding eight separate antitrust claims against Microsoft, a federal appeals court significantly narrowed the case from about 20 violations.

"Only the monopoly maintenance claim survived unscathed," he said.

During the opening session, Sens. Orrin Hatch, R-Utah, and Herb Kohl, D-Wisc., also had raised concerns about the middleware provisions of the settlement and Microsoft's anti-competitive destruction of Netscape, now owned by AOL Time Warner. Middleware is software such as Web browsers that runs atop an operating system to perform specific tasks.

As James testified on Wednesday, Netscape's browser and Sun Microsystems' Java "came to be known as middleware and were thought to pose a threat to the operating system monopoly...The court noted that the middleware threat was nascent--that is to say, no one could predict when, if ever, enough applications would be written for middleware to displace the operating system monopoly."

James said the settlement "fully and demonstrably would remedy the middleware issues that were at the heart of the monopoly maintenance claim."

Leahy charged the settlement might be inadequate, homing in on one area of the appeals court's rulings that he said the settlement failed to address with respect to middleware. In its ruling, the Court of Appeals found that Microsoft's commingling of Internet Explorer code with that of Windows 95 and 98 was an anti-competitive act that hindered Netscape's ability to compete on the products' merits.

"The proposed settlement contains no prohibition on commingling code," Leahy said.

James agreed that the appellate court did in fact make such a ruling, but he deferred to the Justice Department's long-standing position "that it did not want Microsoft to remove code from the operating system. What the Justice Department wanted was an appropriate add/remove functionality that would give consumers a choice of middleware between functionalities. That's exactly the remedy we have here."

Leahy questioned whether the settlement was really enforceable.

"The terms of the decree are certainly enforceable," James responded. He described "three levels" of enforcement as an "unparalleled level of enforcement power."

The response didn't satisfy Leahy, who contended that the language of the settlement left open the possibility of renewed litigation.

"Usually these kinds of decrees, if it's not specifically laid out, the courts tend to decide the vagaries against the government," he told James.

Leahy also faulted the settlement for not appropriately preventing Microsoft from retaliating against companies that don't do its bidding.

He asked James if he thought maybe that Judge Bork and others sending letters to the committee "justified that there are a few too many loopholes here."

James' rebuffing kicked off a day of testimony that ended abruptly, less than two hours after it convened.

Leahy emphasized that because of the importance of this settlement the Judiciary Committee would reconvene the hearing, but he did not say when.

Microsoft faces some potentially powerful adversaries on the committee, including Chairman Leahy, whose state, Vermont, is home to IBM facilities, among others; Hatch, whose constituents include Novell; Diane Feinstein, D-Calif., whose state contains many Microsoft rivals, including Oracle and Sun Microsystems; Edward Kennedy, D-Mass.; and Charles Schumer, D-N.Y., whose constituents include AOL Time Warner, IBM and Kodak.

Among the others scheduled to appear who did not: Jay Himes, chief of New York's antitrust bureau; Charles Rule with Washington-based Fried, Frank, Harris, Shriver & Jacobson, counsel representing Microsoft; Stanford law professor Lawrence Lessig; and Red Hat CEO Matthew Szulik.

Testimony ended hours before Microsoft is expected to file a legal brief outlining its remedy proposal in the case. California, Connecticut, Florida, Iowa, Kansas, Massachusetts, Minnesota, Utah and West Virginia, along with the District of Columbia, decided to continue with litigation. This group filed a hard-hitting remedy proposal Friday.