Microsoft Back in Court

Microsoft Corp. , and the nine states which held out on the settlement brokered by the U.S. Department of Justice
last November, finally faced off in court Monday to begin the remedy phase of the antitrust trial concluded in September 1999.

The two sides got in opening remarks in a process that could run to eight weeks or more. The states, which have argued that the
DOJ’s settlement does not go far enough and even contains some loopholes the mammoth software company could use to its advantage,
called on U.S. District Judge Colleen Kollar-Kotelly to impose tougher penalties.

The states are attempting to get Judge Kollar-Kotelly to tailor the remedies to new areas of Microsoft’s business that have evolved since 1999 — especially markets like Web services and Microsoft’s new Windows XP operating system. Meanwhile, Microsoft is trying to keep the remedies narrowly confined to Internet Explorer and Java — two of the areas which originally kicked off the case.

Represented by lead attorney Brendan Sullivan,
the states said Microsoft should be forced to release a “modular” version of its Windows operating system, which can be stripped of it
browser, media player and instant messenger. Such a version would allow manufacturers to replace Microsoft’s applications with
alternatives from competitors.

Sullivan also argued on behalf of the states that the source code to the Internet Explorer browser should be released, providing
“fertile ground for nascent competitors.”

But Microsoft’s new general counsel, Brad Smith, fired back that creating a modular version of Windows would endanger the proper
functioning of third-party applications and create security holes in Windows when code is moved. Microsoft has argued such a
requirement would force it to remove Windows from the market.

Also, in a surprise development and an apparent attempt to sway the judge into expanding the scope of any remedies, attorney Steven Kuney, also representing the states, introduced a memo that was written in 2000, after the original judge on the case — Judge Thomas Penfield Jackson — made his ruling. The memo was written to Microsoft Chief Executive Officer Steve Ballmer and called into question Dell Computer’s decision to begin selling computers with the Linux operating system.

Kuney also introduced another memo written by former Microsoft OEM head Joachim Kempin to Chairman Bill Gates in summer 2000, in which Kempin outlined his plan to threaten OEMs with restricted source code deliveries if they didn’t change their tune when it came to Linux.

In early 2001, Dell disbanded its Linux business unit.

Microsoft lead litigator Daniel Webb, however, argued that the states and Microsoft were in court for a remedy hearing, not a new trial.

The states have 16 witnesses on their list, while Microsoft has put together 29. Both sides are still waiting for Judge
Kollar-Kotelly to rule on a motion by Microsoft to dismiss the case. The states have vociferously argued against the dismissal, and
25 state attorneys general, including a number of those that signed on to the DOJ’s settlement, also opposed Microsoft’s motion,
citing the need to protect their authority over antitrust matters. Microsoft had argued that the states were usurping the DOJ’s
authority to settle national antitrust policy.

Assuming the case does proceed, both sides will have the right to appeal any ruling reached by Judge Kollar-Kotelly. She also has
the responsibility to approve or reject the DOJ’s settlement.