Features

WASHINGTON — Microsoft Corp. is using a potentially risky strategy to avoid tough antitrust penalties, legal experts say. The company is portraying states that want the penalties as tools of its competitors. 

San Francisco antitrust lawyer Dana Hayter said Microsoft has to prove more than a close relationship exists between the states and the technology companies that compete with Microsoft, the world’s largest software company. The company also has to show that the penalties the states are seeking won’t benefit consumers. 

“The only reason helping competitors is bad is if it helps competitors but not customers,” Hayter said. “But if it helps customers by helping competitors, that’s the point of antitrust.” 

Over the past two weeks of penalty hearings before a federal judge, Microsoft has argued that its largest rivals are using the nine states that refused to accept the federal settlement with Microsoft to pummel the company for their own marketplace losses. 

For their part, the states say the tough antitrust penalties they’re seeking are the product of listening to both sides in the debate and reaching their own conclusions. 

Only the opinion of U.S. District Judge Colleen Kollar-Kotelly counts, and it remains unclear how she will react to Microsoft’s strategy in deciding the company’s punishment for breaking antitrust law and cutting back on consumer choices. 

The nine states want Kollar-Kotelly to force Microsoft to create a stripped-down version of its flagship Windows software that could incorporate competitors’ features. The states also want Microsoft to divulge the blueprints for its Internet Explorer browser. 

In questioning the states’ witnesses, Microsoft lawyers have tried to show that its rivals hope to get from the court what they couldn’t pry away from Microsoft in the marketplace. Those rivals, the lawyers argued, fed ideas to the states and even shaped their proposed penalties. 

“You do personally harbor an intense dislike for my client, Microsoft,” lawyer Dan Webb asked former Intel executive Steven McGeady last week. 

McGeady acknowledged calling Microsoft an “evil corporation” and referring to its lawyers as “bozos.” McGeady testified during the liability phase of the trial, and said he was angered that Intel shut down his pet program at Microsoft’s insistence. 

Later, Microsoft confronted Novell chief technology officer Carl Ledbetter with an agenda for a meeting between Novell and Microsoft representatives. In it, Novell planned to “discuss how Novell could help Microsoft in its current legal discussions” if Microsoft agreed to make a Novell product work better with Windows. 

A Microsoft attendee wrote that Ledbetter “made clear that if we did this deal with Novell, he would talk with the (Justice Department) and certain senators,” according to Microsoft lawyer Michael Lacovera. 

“I think I said it was clear they could go either way,” Ledbetter said. 

Iowa Attorney General Tom Miller dismissed Microsoft’s strategy as “both silly and a diversion.” He said hearing from the competitors is the only way the states could decide what antitrust penalties to seek, particularly in such a technology-heavy case. 

“The whole idea in our situation is to get both sides of the story,” Miller said. “We’ve told the Microsoft competitors ‘no’ more often than we’ve told them ‘yes.”’ 

Microsoft will get a chance this week to question witnesses from two more rivals, Sun Microsystems and AOL Time Warner. 

Microsoft attacked archrival AOL on the first day of the hearings, producing an AOL document outlining antitrust remedies that later turned up in the states’ proposal. Microsoft released a similar e-mail from handheld computer leader Palm in which it proposed changes that later appeared verbatim in the states’ remedies. 

“If the touchstone of an antitrust remedy is supposed to be consumer welfare and not competitor welfare,” Webb told the court, “then the nonsettling states’ remedy, designed to benefit our competitors without regard to the impact on consumers, is wrong, and it shouldn’t happen.” 

Mitchell Kertzman, head of the interactive television software firm Liberate Technologies, testified Tuesday. Kertzman said strong remedies are needed to protect Liberate and other nascent competitors from Microsoft’s dominance. 

Microsoft’s interactive television program is struggling compared to Liberate, though the firm has made significant investment in cable companies. 

Microsoft lawyer Webb accused Kertzman of trading his public position in the antitrust case in return for a deal that would have had Liberate purchase Microsoft’s interactive television business. The deal did not occur. 

Kertzman said he changed his opinion on whether Microsoft should be broken in two for his own reasons, not to entice Microsoft to make the deal. 

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On the Net: Microsoft: http://www.microsoft.com 

National Association of Attorneys General on Microsoft case: http://www.naag.org/features/microsoft/law/index.cfm