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Microsoft ready to make its case

update The showdown between nine litigating states and the software giant moves into its potentially most tumultuous phase, as the company gets ready to present its first witnesses.

update WASHINGTON--The showdown between nine litigating states and Microsoft moves into its second--and potentially most tumultuous--phase this week, as the plaintiff states close their case and the software giant presents its first witnesses.

How interesting things get may depend on which Microsoft witnesses will take the stand, say legal experts. Chairman Bill Gates and CEO Steve Ballmer are both on the list, but the software giant is still deciding which witnesses it will ultimately call, said sources familiar with Microsoft's legal strategy. Neither executive testified in court during the trial's main phase, which concluded in September 1999.

Microsoft on Sunday released its list of the first seven witnesses. On deck are Scott Borduin, Autodesk chief technology officer; David Cole, Microsoft's senior vice president over MSN and Personal Services; Opus-i CEO Heather Davisson; Onyx CEO Brent Frei; Chris Hofstader, software engineering vice president for Freedom Scientific; University of Chicago professor Kevin Murphy; and AMD CEO Jerry Sanders.

Sanders is expected to be the first witness called late Monday or Tuesday, followed by Murphy.

After the states close their portion of the proceeding, Microsoft plans to file a motion asking the judge to dismiss the plantiffs' claims. The company will argue the states did not prove that a broad remedy is needed. Microsoft officials do not expect the judge to immediately rule on the motion, said sources familiar with the company's legal strategy.

"They face the same challenge here as they faced before (U.S. District) Judge Thomas Penfield Jackson," said Rich Gray, a Silicon Valley-based lawyer closely following the trial. "Every witness they put on can be used against them. It's always a lot more fun to take a witness on cross-examination than direct testimony."

The litigating states learned this lesson April 11, when University of California economist Carl Shapiro backpedaled in cross-examination from positions stated in his written direct testimony.

"The shoe's going to switch and Microsoft is going to be the one being cross-examined, and that's where they really, really had problems last time around" in the main trial, said Andy Gavil, an antitrust professor with Howard University School of Law.

The problem with Ballmer and Gates testifying is "they are the classic uncontrollable clients," Gray said. "If you put them on the stand, God knows what they'll say...Their lawyers won't...There are plenty of other people who can make the points Microsoft's lawyers need. I cannot imagine Gates or Ballmer will testify."

Microsoft had hoped to greatly limit the number of witnesses, even though 29 people are on its list, sources said. But U.S. District Judge Colleen Kollar-Kotelly withheld until later in the proceeding a ruling on a Microsoft motion to exclude testimony and evidence related to other markets, such as handhelds and other devices. Had she excluded those areas, which Microsoft argued are outside the scope of the original case, the company would have called fewer witnesses, said sources familiar with the legal strategy. Still, sources emphasized, Microsoft wants to end the proceeding as quickly as possible and will likely reduce the number of witnesses eventually called to testify.

The nine litigating states and the District of Columbia spent about four weeks presenting their case, with testimony largely dominated by Microsoft competitors. Eleven of the 15 witnesses for the states didn't do so well, say legal experts, but four scored major hits: Anthony Fama, Gateway's group counsel; AOL Vice President John Borthwick; Jonathan Schwartz, Sun Microsystems' chief strategy officer; and Princeton University professor Andrew Appel.

"The states did good, but not great," Gavil said. "If you're doing a comparison, certainly the states' case did not go as smoothly as the federal government's case did the first time around."

Gavil also questioned the soundness of a Microsoft strategy to attempt to impeach the credibility of every witness.

"How many times can you shoot the messenger before the judge thinks that there must be a truly frightening message here?" Gavil asked. "They were so intent on shooting every single messenger. But that can backfire if your defense is that every single person that testifies is a self-interested liar."

Microsoft's courtroom strategy
The end of the states' case also would be an appropriate juncture for the two sides to entertain a new round of settlement negotiations, but neither side would comment on the likelihood of such activity.

The Justice Department and nine other states settled the case in November. But Kollar-Kotelly has yet to rule on the settlement, which, as mandated by the Nixon-era Tunney Act, must be in the public interest.

Settlement would appear unlikely, given the distance between the two sides over the extent of a remedy, Gavil said. Microsoft wants nothing more than what it accepted in the Justice Department settlement, while the litigating states are pushing for restrictions that would affect software code. They want Microsoft to distribute a second version of Windows with the so-called middleware removed and to give away for free the source code to the Internet Explorer Web browser, among other sanctions.

The remedy proceeding, which moves into a fifth week as of Monday, is likely to go through May. During the approximately 15 weeks of original testimony, Judge Jackson found that Microsoft violated U.S. antitrust law, and a seven-judge appeals-court panel upheld the core of his ruling: that Microsoft used illegal means to preserve its monopoly in Intel-based operating systems.

Throughout its upcoming defense, as it did during the cross-examination of some witnesses for the states, Microsoft plans to show that the states' remedy is nothing more than a hodgepodge of sanctions endorsed by competitors, sources said. During the states' phase of the proceeding, Microsoft introduced evidence indicating that AOL Time Warner, Novell and Sun Microsystems had helped craft the states' remedy.

"It really was a crazy quilt of the best things competitors could think of that they could do to tie Microsoft's hands, to hobble us so we can't compete," said Microsoft spokesman Jim Desler. "Coming up with that fantasy list and sticking it all together into what the states call a remedy, the states are risking untold harm to the PC ecosystem and the economy."

The software giant also plans to introduce economic data and expert testimony explaining how the states' remedy would damage the health of the overall PC market and hurt consumers. To that end, Murphy is expected to exploit the mistakes made by economist Shapiro during Thursday's cross-examination.

Microsoft also will attempt to show that the states, at the behest of competitors, are trying to expand the case into new markets where Microsoft is attempting to compete but has yet to secure a foothold, sources said. Some witnesses will argue that Microsoft's strategies in these new markets are untested and that competitors working through the states are using the company's past behavior to constrain the software giant in areas where the courts found no violation.

And Microsoft plans to introduce third-party and company witnesses who will attempt to show that several of the states' provisions are technically unfeasible. On Wednesday, Appel testified for the states that Microsoft can in fact technically remove middleware, such as Web-browsing and media-playback software, from the operating system.

He argued that in fact Microsoft has already done so with Windows XP Embedded, a version of the operating system meant to run on non-PC devices. During its portion of the case, Microsoft will challenge this conclusion and attempt to show that removing middleware would in fact break Windows, sources said.