Microsoft, Justice Department Present Positions in Antitrust Case

Baldwin Louie — Thu, 20 Sep 2001 18:00:00 -0400

WASHINGTON -- The remedies sought by the Justice Department in its antitrust case against Microsoft Corp. "are improper because Microsoft believes that they are outside the scope of the issues in the case and the evidence presented at trial," the software giant said in a brief filed Thursday with the U.S. District Court of the District of Columbia.

But the Justice Department said reining in Microsoft's conduct is essential to "unfetter the market from Microsoft's anticompetitive conduct." The remedies will ensure "that there remain no practices likely to result in monopolization in the future."

The comments came in a joint brief filed by the two parties as a prelude to the next phase of the three-year-old Microsoft antitrust case. The U.S. Court of Appeals in June sent the case back to the U.S. District Court after upholding one of three counts against the company: that it used anticompetitive means to illegally maintain its monopoly in the market for operating system software.

The appeals court ordered a new judge to craft a remedy after vacating the break-up order originally issued last year by District Court Judge Thomas Penfield Jackson, who was removed from the case. The two parties will meet with the new judge, Colleen Kollar-Kotelly, next Friday.

The two sides staked out familiar battle lines in the filing, with the Justice Department arguing for an expedited schedule and Microsoft saying that more time may be needed, depending on the extent of the remedy sought by the Justice Department. Their opposing views of the timeline will provide an early test for the new judge, and could provide an indication of her view of the strength of the government's case, and how urgent she believes is the need to resolve the case.

The Justice Department suggested that the parties file their proposed remedies in early December, followed by "an initial, brief period of discovery by both sides." Because the agency didn't seek a breakup, "there is no reason the court cannot now set a comprehensive schedule for discovery and hearing."

But Microsoft (MSFT) suggested that Judge Kollar-Kotelly delay issuing a schedule until she decides whether the Justice Department's initial proposed remedy, which is based on conduct remedies initially ordered by Judge Jackson, goes beyond the scope of the case.

If she agrees with the company, "minimal additional discovery and a relatively abbreviated evidentiary hearing will be required," Microsoft said. But if the court disagrees, "several months of intensive discovery will be required, and possibly more."

Under the Justice Department's proposed schedule, remedy hearings before the judge would begin on Feb. 4, 2002, depending on the court calendar. Each side would have 40 hours to present its case, along with two-hour opening and closing statements. Witnesses would be limited to 10.

Microsoft proposed two alternative schedules.

If Judge Kollar-Kotelly limits the Justice Department's possible remedies, hearings could begin no sooner than three months after her decision. Witnesses would be limited to seven for the government, which includes the Justice Department, 18 states and the District of Columbia, and seven for Microsoft.

But if Judge Kollar-Kotelly sides with the Justice Department regarding the scope of the remedy, hearings should begin no sooner than six months after her decision, Microsoft proposed.

Both sides said they will continue to discuss settling the case outside of court. But structured mediation, such as the failed talks imposed by Judge Jackson before Seventh Circuit Appeals Court Judge Richard Posner last year "would be unproductive at this time," both sides said.

Charles James, the Bush administration's new head of the Justice Department's Antitrust Division, has taken some heat for his recent decision to pursue neither a breakup of the company nor a count that Microsoft illegally "tied" its Internet Explorer browser to the Windows operating system in order to kill competition from Netscape Navigator.

In Thursday's filing, the department explained again why it took that course: to stop quickly monopolistic conduct that two courts have now ruled as illegal.

But Microsoft "proposes a needlessly lengthy and convoluted process" that could extend the proceedings well into 2002 or "substantially later," the government wrote. Microsoft's insistence that Judge Kollar-Kotelly determine the scope of the remedy before evidentiary hearings "has it exactly backwards" and would "simply invite unnecessary delay."

Moreover, there is little need for extensive new evidence in the case, the government said. What need there is can be focused on Microsoft's new Windows XP operating system, on how the market has changed since Judge Jackson's verdict last year, and on additional remedies that may be needed since the department isn't pursuing a breakup.

But Microsoft argued that the Justice Department's starting point for determining a remedy in the case overreaches because it is based on conduct remedies imposed by Judge Jackson. The Appeals Court noted in its opinion that it had "drastically altered the scope of Microsoft's liability" in its review of Judge Jackson's verdict as it ordered a new court to find the appropriate remedy, Microsoft noted.

Judge Jackson's conduct remedies "are every bit as radical as the now-discarded proposal to break up the company," especially if more provisions are added after a review of Windows XP and other matters. Microsoft said the conduct remedies cover products "that were barely mentioned at trial."

Those products include Windows CE, used on hand-held devices and Windows 2000 Server, an operating system for corporate network computers. But the theory of the case, Microsoft said, was built on allegations that Microsoft tried to blunt competition to Windows from Navigator and Sun Microsystems Inc.'s (SUNW) Java software, seen as capable of providing a competing operating platform.

Such a theory would put products for network servers and hand-held devices off-limits. Requirements in Judge Jackson's remedy that Microsoft disclose to computer makers source code for all Microsoft operating systems "would result in the wholesale taking of some of the world's most valuable intellectual property to the detriment of the entire PC industry," the company said.

Judge Kollar-Kotelly has scheduled a conference next Friday at 9:30 a.m. to discuss the issues raised by both sides regarding the schedule and direction of the case. It's not clear whether she will rule from the bench or issue a decision later.

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Microsoft, Justice Department Present Positions in Antitrust Case