Microsoft Seeks to Discredit Gateway Witness

Microsoft's lawyer, Richard Pepperman, spent the morning throwing a barrage of questions at Gateway Group Counsel Anthony Fama in an effort to portray Fama as biased and ill- informed.

Fama, the sixth witness called by nine states seeking tougher sanctions against Microsoft for antitrust violations, said in testimony to U.S. District Judge Colleen Kollar-Kotelly on Monday that Microsoft still has tremendous power over computer makers.

The proposed antitrust settlement with the Justice Department of the nearly four-year-old case has allowed the software giant to impose onerous licensing terms, Fama said.

Under the settlement plan, Microsoft must license its monopoly Windows operating system to computer makers under uniform terms in an effort to limit its ability to influence software choices by the manufacturers.

During his cross-examination Tuesday, Pepperman alleged Fama was biased because Microsoft rival, online services and media giant AOL Time Warner, has bought $600 million worth of Gateway stock since 1999.

Fama said he did not know about AOL's investment.

PRICING COMPLAINTS

Pepperman grilled Fama on whether Gateway had directly gone to Microsoft with complaints about the price Gateway would pay for Windows under the settlement agreement.

"As of today, Gateway still has not provided Microsoft with any additional comments or feedback?" Pepperman asked Fama.

Fama responded that he did not know.

Pepperman challenged Fama's contention that the provisions in Microsoft's new, standard license were unreasonable.

Fama had said new uniform Microsoft discounts, based on sales volume, appeared structured in a way that continued to favor computer makers that have been the most cooperative with Microsoft.

Fama said the volume discounts under the settlement gave the highest advantage to Dell Computer and Compaq Computer. These companies, Fama said, were found "more compliant" with Microsoft in the original trial court's findings of fact.

But Pepperman argued it was not surprising the two largest computer makers -- Dell and Compaq -- got the biggest discounts.

Pepperman also took issue with Fama's contention that Microsoft could more easily terminate the Windows license after two minor breaches under the standard license, down from three breaches under Gateway's previous license agreement.

Pepperman said that, without such a provision, Microsoft would have no way of stopping computer makers from pirating its software.

EX-INTEL WITNESS

After Fama, former Intel Vice President Steven McGeady took the witness stand in support of the states' remedy proposals.

McGeady said the proposed settlement would not have stopped Microsoft from restraining Intel, the leading maker of microprocessor chips for personal computers, from efforts to develop software during the 1990s.

He said Microsoft had reacted to Intel's NSP media playing software by threatening to withhold support for Intel's next generation of chips and pressuring computer makers not to install NSP.

McGeady said only the non-retaliation provisions proposed by the non-settling states contain specific prohibitions against threatened future retaliation and indirect threats via customers.

The settlement reached in November between Microsoft and the Justice Department and agreed to by nine other states, aims to give computer makers greater freedom to feature rival software.

Microsoft adopted the terms of the settlement in December, even though Kollar-Kotelly is still weighing whether the pact meets a required public interest standard under a separate proceeding.

The nine dissenting states -- California, Connecticut, Florida, Iowa, Kansas, Massachusetts, Minnesota, Utah, West Virginia, plus the District of Columbia -- say the settlement is not enough to prevent future wrongdoing.

To promote a competitive market for future software, the states want Microsoft to sell a "modular" version of Windows that would allow computer makers to strip out Microsoft's add- on middleware features like the Internet browser or the media player.

They also want Microsoft to disclose more of the inner workings of its software and license its Internet Explorer browser to other companies royalty-free.

Microsoft has challenged the states' authority to continue to pursue the case when the U.S. government has reached a settlement.

In an order issued late on Monday, Kollar-Kotelly invited the Justice Department to comment on Microsoft's assertion that the states are trampling on the federal government's role in setting national competition policy.

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