Non-Settling States Handed a Setback in Court

WASHINGTON -- In a potential blow to the litigating states' case in the Microsoft antitrust case, District Court Judge Colleen Kollar-Kotelly on Wednesday took a hard line with the states' attorneys regarding what testimony she will and will not allow in the remedy hearing that began this week.

Kollar-Kotelly, who is tasked with deciding which remedies Microsoft should endure for anticompetitive behavior in the desktop PC operating system market, struck from the court record over a dozen paragraphs in the direct testimony of a key states' witness, claiming that the text was laden with hearsay.

She also repeated a warning to the states that their witnesses' testimony should be restricted to material regarding remedies only, not to supporting new liabilities beyond the ones that an appeals court found Microsoft in violation of last year.

New Penalties

An appeals court last year upheld a lower court's decision that Microsoft violated antitrust law by using its monopoly in the desktop operating system to stifle competition. The appeals court, however, overturned the remedies imposed by Judge Thomas Penfield Jackson, which included a breakup of Microsoft, and sent the case back down to the district court so that new remedies could be assessed.

However, despite urging from Microsoft lawyers, the judge on Wednesday did not go so far as to rule on whether she will consider states' testimony that could be construed as supporting new liabilities when she makes her final decision on remedies. "The court at some point will have to analyze the scope of the remedies. Microsoft wants that earlier [rather than later], but it's hard to do that," Kollar-Kotelly said.

Lawyers for the states maintain that all of the testimony they are presenting at the hearing relates to remedies, not to proving new liabilities. Microsoft lawyers have argued that if the states do bring up new anticompetitive liabilities in witness testimony, the company will be forced to counter those accusations by proving its actions didn't harm competition.

Media Player Problems

The omitted paragraphs were from the direct testimony of Dave Richards, vice president of RealNetworks' consumer systems, and recounted conversations Richards had with officials from a number of PC manufacturers, including IBM, Sony, and Compaq Computer. According to the testimony, these vendors told Richards they were prevented from preinstalling RealNetworks' software on their PCs because of new restrictions Microsoft placed on its Windows licensing contracts.

When asked by the judge how these paragraphs would serve to show Microsoft's intent, since the conversations were not directly with Microsoft, attorney for the states John Schmidtlein said the testimony would provide context. "Context doesn't work," said an exasperated Kollar-Kotelly. "This is hearsay."

Microsoft attorney Richard Pepperman went on to cross examine Richards regarding how RealNetworks' software makes use of the Windows operating system. RealNetworks' media player middleware competes directly with similar software from Microsoft that is part of Windows, and Richards' direct testimony states that because of this competitive relationship, Microsoft has prevented RealNetworks' products from accessing the full functionality of its operating system.

However, a recent release of the Windows version of RealNetworks' media player software relies on the presence of Microsoft's Internet Explorer in order to display Web pages, Pepperman pointed out, to which Richards agreed.

During the remedy hearing, which is expected to last at least six weeks, Kollar-Kotelly will hear arguments on remedy proposals from nine states and the District of Columbia, which have rejected the antitrust settlement proposed by Microsoft, the U.S. Department of Justice, and nine other states. The hearing began Monday at the U.S. District Court for the District of Columbia.