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Microsoft, U.S. at odds on trial proceedings

Government trustbusters and Microsoft fail to reach a consensus on how the landmark antitrust case should proceed before a new judge.

WASHINGTON--Government trustbusters and Microsoft failed to reach a consensus on how the landmark antitrust case should proceed before a new judge.

The Justice Department, 18 states and Microsoft on Thursday filed a joint status report with U.S. District Judge Colleen Kollar-Kotelly at her request.

In some ways, the legal filing demonstrates just how far apart the two sides remain. While Microsoft and trustbusters agreed on some issues, most related to legal or filing procedures and not to substantive scheduling or discovery. The two sides could not come to an agreement on a proposed schedule.

If the government proposal were to be accepted by the judge, the hearing to determine what to do about Microsoft's antitrust violations would commence Feb. 4, 2002. Until then, both parties would engage in a period of discovery and testimony for the purpose of helping Kollar-Kotelly draft an appropriate remedy.

"Microsoft believes that it is premature to attempt to establish a schedule for discovery and other procedures leading up to a remedy hearing until the (trial) court has determined what types of relief can be considered in light of the Court of Appeals' decision," the brief states.

"It surely isn't surprising for Microsoft to take this approach," said Andy Gavil, an antitrust attorney with Howard University School of Law. "There certainly is no incentive for them to be amenable to anything that's going to happen quick, either in negotiated settlement or court proceedings."

Earlier in the month, the government removed two huge issues hanging over Microsoft: backing off the breakup remedy and pursuing tying--that Microsoft illegally integrated Internet Explorer with Windows 95 and 98. The government also decided not to seek a preliminary injunction delaying the scheduled Oct. 25 launch of Windows XP, the company's new operating system.

"By dropping the breakup and allowing Windows XP to go out the door, all the marbles are in Microsoft's court," Gavil said. "Why would it want anything to happen soon?"

Hammering out a schedule
Under the government's proposed schedule, both parties would submit proposed final judgments to the judge no more than 30 days after Kollar-Kotelly issues a scheduling and discovery order or by Nov. 9, whichever is later.

The government also proposed both sides file pre-hearing statements no later than 10 days before the remedy hearing commences in February. A pre-hearing conference would take place five days before the remedy proceeding.

For the remedy hearing, each side would have 40 hours of testimony, including witnesses and cross-examination of the other side's witnesses, plus two hours each for opening and closing arguments.

The government also would like to limit each side to 10 witnesses; witness lists would be due with the court 32 days ahead of the remedy hearing. Lists of exhibits would have to be filed 20 days ahead of the proceeding.

Although both sides agreed the "remedies-specific evidentiary hearing will include both fact and expert testimony," Microsoft apparently felt constrained by some of the government's witness proposals.

"Microsoft believes that such time limits are not appropriate and that the parties should present the direct testimony of their witnesses live in Court, unless the parties otherwise agree with regard to particular witnesses," the brief states.

Though the Redmond, Wash.-based company did not want Kollar-Kotelly to immediately set a schedule, the company proposed two alternatives to the government's timetable.

Microsoft's problem with the government concerns the scope of the remedy. In the filing, the government said it wanted to use U.S. District Judge Thomas Penfield Jackson's original business restrictions--later thrown out by the appeals court--as the starting point for a new remedy.

But Microsoft contends that Jackson's conduct remedy goes beyond the scope of the case won by the Justice Department and 18 states.

"A remedy is supposed to be forward-looking as well as address violations in the past," said Emmett Stanton, an antitrust attorney with Fenwick & West in Palo Alto, Calif. "There's nothing inherently wrong with the government's approach."

Microsoft's alternatives
In the first alternative schedule, Microsoft asked for time to resolve its dispute with the government and said the remedy hearing should begin no sooner than three months after the resolution. The first schedule assumes both parties would agree to limit hearings "to remedying the types of actions the Court of Appeals found to be anticompetitive," according to Microsoft's filing.

After the resolution's dispute, Microsoft wants the government to file its proposed judgment within 10 days and the software giant to respond five days later. The government would file its pre-hearing statement within 14 days of the remedy proceeding and Microsoft within seven days.

Final lists of exhibits would be due five days before the remedy hearing, where witnesses would be limited to seven for each side. Both sides would present witness lists 45 days before the hearing. Like the government, Microsoft proposed opening and closing arguments of no more than two hours each.

Microsoft's second alternative schedule assumes the government prevails in its contention that the scope of the remedy "extends to all matters addressed by the previously ordered conduct provisions." In that scenario, Microsoft asked that the remedy hearing commence no sooner than six months after the court has resolved the dispute.

Besides lengthening the overall process, Microsoft would want each side to be able to present 20 witnesses, with the witness list offered 90 days before the remedy hearing from the government and 75 days from Microsoft. The two sides would have four hours each for opening and closing arguments.

"It seems to me that Microsoft's long-term strategy continues to be trying to put off the day of reckoning as long into the future as it possibly can," Gavil said. "This just happens to be the rationale du jour."

But Microsoft contends its proposal is speedy enough.

"We are working to resolve this case short of further litigation," said Microsoft spokesman Vivek Varma. "At the same time, we think that an appropriate remedy can be formulated quickly under the Court of Appeals guidance."

Likelihood of settlement rises
Kollar-Kotelly is expected to address the proposed schedules in a hearing set for Sept. 28. The judge has delayed the filing not once, but twice, because of the devastating terrorist attacks in Washington and New York.

But even as Microsoft and the government prepare to return to court, legal experts warn the likelihood of settlement has increased significantly during the last three weeks.

In drafting the order, both sides had to communicate more. The government's discarding breakup and tying claims also removed significant hurdles for Microsoft.

If both sides draft an agreement, given the economy and other factors, "I think the public would largely applaud," Stanton said. "There may be industry participants that would say it was inadequate."

In Thursday's filing, the two sides gave little indication about the prospects for settlement. The parties "will continue to seek settlement of this matter through private discussions, which are ongoing and should continue simultaneously with proceedings addressed to remedy," the brief states.

For Microsoft there may be no better time to push hard for settlement than right now, said Rich Gray, a Silicon Valley antitrust lawyer closely watching the trial.

"Microsoft is never going to have a more favorable administration," he said. "They're never going to have a more favorable antitrust prosecutor...They're never going to have a more favorable economic environment, in the sense they're a leading light of the tech world when the tech world is in a downturn. And they're never going to have a more favorable moment in history, when the attention of the world is distracted by far more serious issues."