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WASHINGTON -- Microsoft Chairman Bill Gates sparred with an attorney representing the states suing Microsoft over his interpretation of the states' proposed antitrust remedies, in his second day of testimony this week.

While remaining generally agreeable, Gates occasionally showed frustration with the pointed questioning from attorney for the states Steven Kuney in the ongoing antitrust trial. Gates would speak quickly and emphatically as his frustration mounted, peppering his speech with occasional nervous laughter, while Kuney would slow his speech to emphasize his points.

Kuney's cross-examination, continued from Monday, attempted to show Gates is overreacting to the states' proposed remedies. He also tried to show the proposals are needed to keep Microsoft from engaging in future anticompetitive behavior. This hearing before U.S. District Judge Colleen Kollar-Kotelly involves the nine states plus the District of Columbia that did not agree to a settlement last November. The holdout states want stricter and broader remedies on the company's behavior.

Vulnerability Claimed

In his written direct testimony, Gates said that the states' proposal would tie Microsoft's hands from making any changes to Windows, since those changes could adversely affect other software makers' products. When Kuney asked if Microsoft has ever made changes to Windows for the sole purpose of degrading the performance of another company's product, Gates answered no.

Since the states' remedy applies only to changes not made for good reason, Kuney asked, if Microsoft only modified Windows for good cause, the remedy should have no affect. Gates disagreed, saying Microsoft would be victim to different interpretations of good cause. He said Microsoft would fear competitors creating controversy over a change that affected third-party software, which could put Microsoft in contempt of the remedy.

Kuney asked if Gates is concerned about meritless claims by competitors. "They would bring claims on which reasonable men would disagree," Gates responded.

The cross-examination moved to the states' proposal that Microsoft must continue licensing older versions of Windows, which Gates earlier said would contribute to the product's fragmentation. The states also suggest Microsoft should sell an "unbound" version--Windows stripped of a browser and other additional software, which Gates also said would create fragmentation.

Gates confirmed that multiple versions of Windows are in the market now. Under Kuney's questioning, he said Microsoft takes steps to clear confusion about the versions through its marketing efforts.

Again Kuney asked how the states' provision would change the company's current behavior. Gates answered that Microsoft would be forced to continue licensing older versions of Windows it normally takes off the market after releasing service packs with fixes. Kuney pointed out through questioning that the subject heading in the states' remedy on that point refers to an earlier version of the OS, not versions.

"One thing you should never think is that in the states' [proposal] the heading properly describes what's in the paragraph after it," he responded, drawing laughter from the courtroom.

Could Windows Die?

The cost of Windows Me and Windows XP is the same to PC vendors, so Microsoft doesn't profit when vendors choose a more recently released edition, Gates explained. "The consumer is just net better off with the newer version...it's the same price and a better product," he said.

In his written direct testimony, Gates claimed that having to sell an unbound version of Windows would not only fragment the OS, but would force Microsoft to pull the product from the market. This is because it would be impossible for Microsoft to meet a requirement that the unbound version must be functionally equivalent to existing versions of Windows.

Kuney asked if Microsoft would attempt to comply with the remedy before pulling Windows from the market. "Given the way [the provision] is written, I don't see how we could comply," Gates responded. Kuney asked if Microsoft would try. "We'd be in an awful situation where we'd be under court order whereby we couldn't comply except to withdraw Windows from the marketplace," the chairman answered.

If the states' remedies were imposed, Microsoft would "come back to every court that would listen to us. We'd certainly make every effort on the legal front," he said. Kuney asked about the engineering front, to which Gates answered he didn't think it was possible.

Later, Kuney asked if Gates had misinterpreted the obligations imposed by the states' remedy regarding unbound Windows. Gates answered no. The attorney cited Gates' written direct testimony, where the chairman shot down four proposals by states' expert witness Andrew Appel, a Princeton University professor of computer science, who testified earlier in April. Appel offered suggestions for how Microsoft could create a functional unbound version of Windows. But Gates said Appel's suggestions were either unfeasible or would not satisfy the states' requirements.

Preventing Retaliation

Kuney also questioned Gates' resistance to a proposal preventing Microsoft from taking adverse action when a company chooses not to license its software. Gates claimed the restriction would hurt Microsoft's ability to compete.

Gates offered an example as his answer: If Compaq licensed the PocketPC OS for handhelds but Sony licensed competing software from Palm, Microsoft would violate the decree for not giving Sony the same access to information on future product plans and marketing support that it gave Compaq.

Tuesday afternoon, Kuney attempted to show that the states' remedies would be the only safeguard to keep Microsoft from repeating past behavior. He asked Gates what might keep Microsoft from repeating its previous retaliatory behavior.

Gates asked if Kuney was referring to restrictions in the proposed settlement Microsoft reached with the Justice Department and nine other states. Kuney responded that he wasn't referring to anything in particular. "I'm trying to find out if you see any other obstacles," Kuney said. Gates answered he believes the proposed settlement would limit such behavior.

Earlier in the hearing, at least one witness for the states testified in favor of the states' remedies because they protect against Microsoft's retaliation, and the DOJ's proposed settlement does not.

Gates also told the court it would take hundreds of engineers working for years to produce the reference implementations of the Windows' programming interfaces that the states' proposed remedies ask.

The states' cross-examination of Gates will continue Wednesday.

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