Facing a barrage of skeptical questions, Microsoft Chairman Bill Gates finished his first day on the witness stand defending predictions that the tough remedies sought by the nonsettling states would devalue his company, cause the loss of key employees and its intellectual property.
The questions put by states' attorney Steve Kuney during his cross-examination of Gates were weighted with doubt, skepticism and even cynicism over assertions that the remedies would cause the "disintegration" - as Kuney put it at one point - of Microsoft.
Questioning Gates about his assertion that the remedies would lead to cloning of Windows, Kuney asked icily: "Does that somehow not happen when Microsoft is cloning other people's software?" At another point, he asked how competitors could copy millions of lines of Windows source code the remedy would allow them to see. "By memorizing?" he asked.
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Throughout, Gates kept his poise and stuck to his arguments, a sharp contrast from the videotape deposition introduced during the opening days of the trial in the fall of 1998. Those videos showed Gates being argumentative and uncooperative to the point of eliciting laughter from trial Judge Thomas Penfield Jackson and spectators. There was no laughter in the courtroom Monday.
In response to Kuney's claim that rivals could memorize source code, Gates said matter-of-factly it was not something he said in his prepared remarks. In response to the cloning challenges, Gates insisted that language in the state's remedy was such that cloning would occur.
Presented with several pieces of evidence, including one dating back to 1995 where Microsoft officials had used the word cloning, Gates challenged the context in each memo. Indeed, in many cases Gates and Kuney had an ongoing give-and-take over the meaning of words, phrases and definitions, such as "utilize" "full feature and functionality" and "interoperate" in the remedy.
Gates, who will return to the witness stand Tuesday, took the stand shortly after noon on Monday. Before lawyers for the District of Columbia and the nine states that are pursing litigation against Microsoft began cross-examining the high-profile witness, an attorney with Microsoft walked Gates through a number of exhibits included in his 163-page written testimony.
The exhibits, shown to the court as projected slides, were graphical representations of how the states' proposed remedies would harm consumers, the PC industry, and Microsoft itself. During the remedy hearing, which began on March 18, Microsoft and the litigating states are presenting proposed remedies to U.S. District Judge Colleen Kollar-Kotelly, who will make the final decision. The states are seeking remedies to Microsoft's anticompetitive behavior that go beyond the restrictions agreed to by Microsoft, the Department of Justice, and nine other states in a proposed settlement agreed to last November.
The first exhibit shown to the court was intended to show the consequences of the states' remedy that would force Microsoft to sell an "unbound" version of Windows, one free from additional programs such as a browser and media player that are referred to as middleware. The states' proposal says Microsoft must make an unbound version of Windows that is the functional equivalent of the complete Windows available to the market through OEMs and other means.
If Microsoft were forced to, for example, remove elements of its Internet Explorer Web browser from Windows, other functions within Windows that depend on that code as well as external applications from Microsoft and other software makers written to the code would not work properly, Gates said. "If (Microsoft) removed the code from IE, these things that call into (that code) would not function," he said. Therefore, it would be difficult for Microsoft to create an "unbound" version of Windows that guarantees the same functionality of the operating system as sold today.
He also said the states' remedies would lead to fragmented Windows.
"Under the states' remedy Windows would no longer be uniform," Gates said. "Anyone who offers to license 10,000 copies would have the ability to essentially make arbitrary changes to Windows."
If, for example, AOL Time Warner chose to create its own version of Windows, it would want to disable the operating system functions that AOL's software competitors rely on, he said, and any software application written to those functions that were removed would break. There are currently tens of thousands of applications written to Windows, Gates said. Makers of new applications would be faced with deciding which variant of Windows their programs should run on, increasing development costs for those companies, he added.
Yet during cross-examination, Kuney asked if the market for Windows wasn't already fragmented, since there are similar but not identical code bases for Windows 9x versions of the operating system and for Windows NT. Through his questioning Kuney pointed out that Microsoft tries to assist developers who are building applications for the different versions of Windows, and showed the court a Microsoft instructional document for developers designed to help them with modifying their applications to work with various OS upgrades.
Gates answered that the document related to a very specific instance in dealing with changes in the Installer program from the Windows 9X-based OS to Windows NT. Gates said Microsoft provides "some limited assistance" to developers but wouldn't help them, for example, target an out-of-date version of the OS such as Windows 3.1.
In the third exhibit, Gates walked the court through the negative effects on Microsoft of the states' remedy forcing the company to share the Windows source code. Today Microsoft makes available the application programming interfaces and communications protocols for Windows, so that developers can create software that integrates with or interoperates with Windows, he said. The states remedy would force Microsoft to "give away the recipe" to Windows by allowing its source code, which is Microsoft's intellectual property, to be viewed by other companies including its operating system competitors, he said.
Companies could therefore easily clone Windows, leveraging Microsoft's research and development efforts at a very low cost, Gates said. "There would be no reward, no positive economics, for the people doing the original work," he said.
As soon as Gates was done presenting his evidence, Steven Kuney, one of the nonsettling states' attorneys, asked Gates if he doesn't want Microsoft to "continue doing the things" that the U.S. Court of Appeals found wrong.
Gates said, "That's right."
The appeals court cited 12 specific violations of Microsoft in illegally maintaining its monopoly.
Kuney asked Gates if any of those violations are continuing at Microsoft.
"I do not believe that they are," Gates said, but added that if he found otherwise, "I would stop that."
Later in the afternoon, Kuney asked Gates to explain the criticisms in his written direct testimony that claim the states' remedies are "vague and ambiguous, providing Microsoft with no clear statement of its obligations." For example, the proposed settlement with the DOJ and nine other states provides a strict definition of which APIs would have to be detached from the Windows operating system in order to satisfy the settlement. The nonsettling states, on the other hand, leave it up to Microsoft to make those determinations.
Gates also took issue with the states' use of the term "middleware," saying that it refers to just about any application with an API. Middleware is "a term of such ambiguity you won't find me using it outside of lawsuit-related discussions," he told the court.
Regarding the states' proposed remedy that Microsoft disclose in a timely manner new APIs for Windows that it develops, Kuney asked Gates about a comment made during his pretrial deposition that this would mean as soon as a Microsoft developer has a good idea in his head, "he's in criminal contempt."
Gates explained that as per the remedy, Microsoft engineers would be forced to disclose a new Windows API as soon as they began preliminary design work. Kuney showed the court a copy of the states' remedies, which said that Microsoft must disclose in a timely manner APIs that it employs. Kuney asked if that meant a bright idea that was not employed didn't require disclosure, to which Gates answered that design work would constitute deploying the API. "You may think of it as an extreme example, but I think it's covered here," Gates said.
In his 163-page written testimony, Gates lashed out at every remedy proposed by the nonsettling states, warning of damage to consumers, the industry, but especially to Microsoft.
The remedies would, in effect, transfer large chunks of Microsoft's intellectual property to competitors, devalue its major revenue generator, Office, and remove any incentive for the company to upgrade Internet Explorer, Gates said.
In short, it would leave Microsoft "greatly devalued as a company," Gates warned.
The U.S. Court of Appeals for the District of Columbia last June found Microsoft had violated antitrust law by illegally maintaining its Windows desktop monopoly.
The Bush administration reached a settlement with Microsoft last June. But nine of the 18 states in this case said the settlement didn't go far enough to restore competition and protect other threats to desktop monopoly, such as handhelds, set-top boxes and server operating systems.
The nonsettling states are California, Connecticut, Florida, Iowa, Kansas, Massachusetts, Minnesota, West Virginia, Utah and the District of Columbia
Judge Colleen Kollar-Kotelly held a hearing on the settlement last month, and is deciding whether to accept it or not. The phase considering the remedy hearing has been going on for 6 weeks and is expected to continue for more than two months.
Gates said the remedies sought by the nine states would allow PC makers "to remove blocks of software code" from Windows, fragmenting the system, and leaving independent software developers without a "well-defined" set of interfaces for developments.
Customers, said Gates, could be faced with applications developed for specific Windows configurations, such as a Corel WordPerfect for Compaq Windows, Dell Windows and Gateway Windows, among others.
Developing applications for idiosyncratic version of Windows would raise software development costs slow the pace of innovation, and give consumers less incentive to buy new PCs.
"In short, if the Windows platform were to fragment, the primary value it provides - the ability to provide compatibility across a wide range of software and hardware - would be lost," Gates said.
By forcing Microsoft to remove features, the state settlement "would turn back the clock on Windows development by about ten years and effectively freeze it there," according to Gates.
Another state remedy would require Microsoft to grant third-party developers access to its source code to ensure interoperability with the Windows operating system.
But Gates said these provisions would give competitors "free rein" to take Microsoft's Windows technology and implement it any way they like. These remedies "would reduce the quality and utility of Windows."
It would also "transfer Microsoft's intellectual property to our competitors."
The remedy sought by the nonsettling states would serve as "as a sword to extract business advantage from Microsoft or as a shield against vigorous competition from Microsoft."
Making Internet Explorer open source, another provision in the state remedy, would give Microsoft "little reason" to continue to invest in its browser. "Any new innovation we developed would go straight to our competitors," Gates said.
Why, Gates asked, would AOL continue development of its own Web browsing software if Microsoft's technology were available free of charge?
The state remedy that would require Microsoft to auction off Office licenses to three vendors, who could then develop versions for other operating systems such as Linux, is a "severe penalty" that would have a "grave impact" on the company's Office business, said Gates.
Office generates as much as three times more than Windows in revenue, Gates said. Microsoft gets about $70 per Windows unit, but anywhere from $150 to $275 for each Office user, he said.
The IDG News Service is a Network World affiliate.
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