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MS, DoJ, States, Jackson: the arguments in full

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MS on Trial With tape recorders being forbidden, and shorthand-writing becoming as rare as Algol coding, it's not easy to analyse the significance of what happened in Judge Jackson's courtroom on Wednesday without the transcript.

With more than the usual number of errors in some wire service and newspaper reports circulating Thursday, it's a pleasure to acknowledge prompt assistance from Microsoft's UK PR company August One and Microsoft UK and US in getting the transcript put up - especially as it took a couple of months before the previous hearing appeared.

The hearing was of particular interest because it gave the best insight so far as to Judge Jackson's views on the case, and how it is likely to proceed.

The morning was devoted to argument by Kevin O'Connor for the States plus David Boies for the DoJ, and John Warden for Microsoft: each side had an hour for argument about remedies. In the afternoon, there was about half an hour each for rebuttal argument, with Steve Holley taking over from Warden at one point. Now for the hard stuff.

States' case

Wisconsin assistant attorney general O'Connor did a straight-from-the-textbook introduction as to what the standards were for relief in antitrust cases: end the violation, prevent a recurrence of the violation and others like it, and restore competition.

His main points were that Microsoft's proposed remedy didn't do any of these things and didn't deal with contractual tying; technical tying; Microsoft's illegal efforts to carve up markets or come to non-competition agreements; and predatory behaviour moves against OEMs. Bill Gates' statements and emails figured quite a bit throughout the day, with O'Connor pointing to Gates' noting to Intel executives that Microsoft's business practices would not change "at all" (underlined) - except that email retention policies may change.

"In short, because Microsoft's remedy is so full of trap doors and escape hatches, it cannot be considered a serious proposal here," O'Connor said, while the conduct and structural remedies proposed by the government were "narrowly tailored to meet - as the Supreme Court said... 'the special needs of the individual case'".

Judge Jackson then intervened, causing O'Connor to stumble a bit, and mentioned that an amicus had suggested that "the effect of a bisection of this enterprise will, in effect, simply create two separate monopolies who may have no incentive to interfere with each other's profitability", and that both Windows and Office were "dominant and eminently profitable". The judge wanted to know why the two monopolies "would effectively inspire competition". O'Connor said it would create an incentive to be competitive, and wisely deferred further comment to Boies.

There was an interesting sidelight about the collaboration between the States and the DoJ: in the interest of focussing on pro-competitive relief, Connor said the States had not pressed "in this (nota bene - could there be subsequent ones?) proceeding their right under their respective state laws to obtain monetary civil penalties, substantial penalties, for Microsoft's egregious conduct". O'Connor confirmed that "the proposal has the unanimous support of all of the plaintiffs on the conduct side and near unanimous support (17 out of 19) for the reorganization component" - for which Judge Jackson said he was grateful.

DoJ case

Boies had a bad start when he lost his list of things that Microsoft's proposal would allow it to continue doing, but he recovered so well that it almost seemed that it was staged to get attention.

It was a familiar litany: threats to competitors to stop competing; contractual tying; technological tying; predatory expenditure to maintain its monopoly; retaliation against OEMs that used competitive products; access-to-information restrictions against OEMs and access providers; actions against content producers; conditioning applications availability and distribution on non-competition agreements; and redesigning Windows tomake life difficult for interoperation with competing software.

Judge Jackson intervened again to ask why he wasn't suggesting three vertically integrated companies that would compete with each other immediately, rather than the proposed horizontally separated companies.

Boies replied that competition would immediately be restored with less disruption and inefficiency, and that the proposal was the best way to deal with restoring competition. The two companies could share technology in a non-discriminatory way - shared information would have to be available to all. The judge prodded Boies about the boundary between Microsoft's technology and its products, which gave Boies a perfect opportunity to introduce two memos from Bill Gates about this (see Gate rails against 'proprietary Symbian', looks for the insanity defence) that will almost certainly seal Microsoft's fate. There could hardly be any more damning evidence than this as to Gates' absolute personal intention to compete in any way he wished, and that he was calling the shots in the matter.

The judge asked Boies if the DoJ had considered the Computer and Communications Industry Association and Software and Information Industry Association amicus brief. He had his own opinion of it: "It's an excellent brief... I have never met the lawyers who wrote it, but it's an excellent brief... the proposal [was] that there be a third internet browser company created". Boies said it had been very seriously considered, but that the two-part divestiture was simpler to implement.

Curiously, how a third company with a no-revenue product could be viable didn't enter the discussion, but the judge did express concern as to whether Microsoft would cooperate: "You talk of simplicity of implementation, and it would appear to me that this is anything but simple to implement. You entrust a great deal of the planning and the execution to Microsoft itself. And I do notthink that they will be a willing participant in that endeavour."

Boies replied that Microsoft would get the first crack, but if they were "secreting people, or moving people around, or crippling products just before the divestiture" or if Microsoft came back with "a proposal that is similar to their remedy proposal that simply doesn't meet what the requirements are, then the government will have to draft the proposal. And the government is prepared to do that, and the government has experience in doing that."

Judge Jackson seemed to have something of a soft spot for Microsoft co-founder and board-member Paul Allen, who had written to ask if, as a four per cent shareholder, his status could be changed so that he would be outside the restricted three per cent holding limit the DoJ had requested for shareholders unable to have shares in both companies.

The judge said he didn't want any more briefs, but Boies agreed that the DoJ would give it "some thought", but it looks as though Allen may have to resign from the board and to lose direct voting control as a minimum requirement.

On a point of detail, but again indicative of his thinking, the judge suggested that "Microsoft" should be defined to include "all officers, directors, agents, servants, employees and attorneys and those in active concert and participation with them".

The nearest the proceedings came to a joke was when the judge asked if Boies wanted a special master to be appointed (to supervise the technical minutiae), adding "if I can find a way to write an order appointing a special master that will get through the Court of Appeals", in a reference to the fate of Lawrence Lessig in an earlier phase of the case.

An important legal point was clarified: Judge Jackson did not have the option to defer a structural remedy pending appeal. Boies made it clear that the Expediting Act (which could enable the case to proceed directly to the Supreme Court) required that there be a Final Judgement first, so that the "appellate tribunal" could look at the remedy in its entirety.

Microsoft's argument

Judge Jackson had made a pre-emptive strike by announcing (and repeating) at the start of the morning that "I intend to proceed to the merits of the remedy today", brushing aside Warden's statement ("for the record") that he was there for two matters, one of which was not the entry of the plaintiff's decree, but Microsoft's motion to strike the demand for a breakup, and to work out a hearing schedule.

Before Warden had his say however, the judge clarified his statement, saying: "I did not mean to preclude your trying to convince me that you need more time to be able to respond... I thought it was somewhat ironic that, since your client is convinced that its travail will end once it gets into the Court of Appeals, you're nevertheless, asking to spend more time in this court."

Warden turned out to be better at his mitigation attempt than he had been at defence, and observed that "we cannot... acquiesce in our own commercial demise, even as a dim potentiality in order to expedite our trip upstairs (to the Court of Appeals)".

Warden said that so far Microsoft had presented only summary objections. The gist of his argument was that he proposed remedy was too severe, and that it would need considerable time to argue its case. There was some discussion of precedents, where Warden was not well-prepared, but it was soon clear that although the legal principles were clear enough, there had been no exactly similar previous case.

It did not help Microsoft's cause when the judge accused Warden of misrepresenting his finding about "a significant causal connection between the conduct and creation or maintenance of the market power" with respect to Netscape or Java.

The judge said shirtily that "there certainly was an intent to find that the incipient competition that they represented was extinguished by Microsoft's anticompetitive conduct."

Warden also suggested it was a "the chain of speculation" that Navigator was a platform for desktop applications. There was some rattiness when Warden called the supporters of Reback's amici brief "commercial pygmies" and named AOL, Netscape, IBM, Oracle, Novell and Sun.

Microsoft has allowed at least Compaq, Bristol, CompuServe, AOL and IBM (and probably HP) to have some access to Windows code, so it appeared that Warden went over the top in criticising the provision calling for disclosure in certain conditions of Microsoft's source code, which he perhaps unwisely described as being "confiscatory".

The judge later asked if Warden considered the forfeiture of intellectual property rights to be "a traditional equitable remedy". Warden replied that forfeiture "typically extends to the proceeds of some crime or contraband. There's no evidence of anything like that here." The exchange became more heated, with the judge asking if he was talking about a civil remedy and noting that it was Warden who had talked about confiscation.

It is also hard to argue that Windows is both "standard" and "proprietary".

Nor were arguments about the proprietariness of Sun or Apple's products useful, since these companies were not on trial. The genuflection when Warden claimed that "the genius that Bill Gates brought to this industry was an operating system that wasn't closed" passed without comment.

Warden's claims that the "integrity of the Windows platform" would be destroyed, or that there would be "unintended consequences", or that Microsoft had "fully complied with [the 1994] consent decree" did not gain sympathy, and he closed by "taking the first" - saying Microsoft would use its first amendment rights, and proceed through "the full appellate process".

DoJ rebuttal

In rebuttal, Boies pointed out that Warden had only questioned two of ten or more points that he had made, and proceeded to demolish Warden's arguments, noting that Microsoft could still with its proposal discriminate against software vendors who did not agree to be non-competitive, as well as retaliate against OEMs in various ways.

Boies was hard on Microsoft's claim that not with all Microsoft's Windows' programmers could end-user access to IE be removed [where it was welded to Windows], noted Felten's work, and the fact that Microsoft had made provision for adding or removing more than 80 features in Windows: "Anything that doesn't threaten their monopoly they're happy to put in an add/remove feature for. And it's not a question of technological difficulty. It is a question of marketing strategy."

Microsoft was trying "to reargue the merits of the case" Boies suggested. He also didn't want Microsoft "to put a thumb on the scales" to predetermine the result of competition, and concluded: "All that is restricted here is Microsoft's ability to act in an anticompetitive way and to use its market power to preclude competition on the merits from others."

Microsoft's rebuttal

Judge Jackson asked Warden to comment on a statement attributed to Microsoft president Steve Ballmer that "indeed, 40 per cent of the functionality of the desktop version of Windows 2000 is useless without a Windows 2000 server."

Steve Holley was given the job or responding to this, and immediately made matters worse by describing the CCIA as "an organisation comprised of Unix vendors", all of whom compete with Microsoft".

Attacking the messenger was not a good idea, unless the principle was to kill the messenger because he knew too much. It was equally strange that Holly then volunteered, for no evident reason, that "the client code in Windows currently has a market share of zero effectively".

He then inferred that there were some serious problems, saying: "The relationship between Windows 2000 clients - the things that sit on desktops - and Windows 2000 servers is very, very complicated; and there's no evidence in the record on that point. You could have an entire trial about this matter. And, in fact, thanks to Sun Microsystems and Novell, two of Microsoft's largest competitors, Microsoft is engaged in a proceeding right now in front of the director general for competition in Europe to address exactly the questions that the CCIA brief raises here."

Holley continued and discussed how the assertion that Windows 2000 Professional supported only Windows 2000 Server was wrong (it does NetWare, AIX, Solaris and "a whole range of other operating systems" ). Finally Holly attacked the Declaration by Rebecca Henderson, and her comment about Windows 2000 PCs not being able to log in to a Unix kerberos server.

Boies chided him for taking Henderson's comment out-of-context, noted that it had nothing to do with the remedies proposed, and that it was simply a red herring.

All that was missing was an answer to Judge Jackson's question: Holley said he didn't know.

With the arguments wearing rather thin, Warden put Holley up again to hand in a document strangely entitled Microsoft's "Offer of proof". It didn't actually have anything beyond some CVs of yet more pro- Microsoft consultants, and an outline of what they proposed to do over the ensuing months, which was to make claims about the "severe adverse effects" that would result if Microsoft were broken up.

Numbered amongst them were six economists, a management consultant, a computer scientist, investment bankers Goldman Sachs and Morgan Stanley Dean Witter; the CEOs of two IT companies; and a Microsoft contingent to consist of Bill Gates, Steve Ballmer, Jon DeVaan, Rick Rashid and Jeff Raikes. It was clearly intended as a marker for the appeal process. Holley rather foolishly referred to "the brief time available" to put it together, to which Judge Jackson replied sharply that "this case has been pending for two years".

Future

The DoJ was given 48 hours to dust off their proposal, in the light of the Wednesday's hearings. We do not believe that the DoJ will request a three-way split product split, or a vertical split.

Microsoft will then be given a further 48 hours to comment, and that may well mean their working over the weekend. The good judge then pronounced that the "matter is submitted" and they all went home.

The media this week had suggestions that the Final Judgement would be delivered anywhere from next week to in two months' time. We reckon from Wednesday's hearing that the judge has still some homework to do, and that it will be a few weeks before the result is out. So we plump for 23 June, after the market closes. Why not place your bet on The Register's Bulletin Board? ®

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