- Attorneys for Microsoft tried to discredit testimony from opposing witnesses and also attempted to show during a court hearing this week that remedies it has proposed in the government's antitrust case against the software maker are more than sufficient.
District Court Judge Colleen Kollar-Kotelly is hearing arguments from both Microsoft and nine states plus the District of Columbia that did not agree to a settlement with the software company regarding proposed remedies in the lawsuit. A US Court of Appeals last year upheld the District Court decision that Microsoft has an operating system monopoly and engaged in anticompetitive behaviour. But the appellate court ordered that a new District Court judge determine different remedies.
Continuing his testimony from Monday, Anthony Fama, group counsel of partner management with Gateway, attempted to deflect questions from Microsoft counsel Richard Pepperman, whose queries were designed to show that Fama is biased and trying to better his company's negotiating position with Microsoft through litigation. Following Pepperman's cross examination, an attorney with the litigating states questioned Fama for examples of Microsoft's unfair treatment of Gateway and loopholes in Microsoft's proposed remedies.
On Tuesday morning lawyers for both sides focused on licensing agreements that Microsoft negotiates with PC makers such as Gateway to install the Windows operating system on PCs they deliver to customers. To address some of the anticompetitive behaviour outlined in the findings of fact from previous District Court Judge Thomas Penfield Jackson, Microsoft in December adopted new, uniform license agreements for PC makers. Such a provision is both part of its settlement agreement with the US Department of Justice and nine other states, as well as part of Microsoft's proposed remedy in the ongoing case with the nonsettling states.
Microsoft's Pepperman set out to prove that these new agreements provide a just remedy, while Laurie Fulton, an attorney for the nonsettling states, tried to show that the new contracts give the software maker even more power over PC manufacturers.
Referring to complaints regarding the new licensing agreements that Fama outlined in written testimony, Pepperman asked why the executive didn't address them directly to Microsoft when company officials solicited feedback from PC makers. Fama, who said he sent Microsoft a list of complaints earlier in the year, said he didn't know if Gateway had responded to that specific feedback request because he had been busy preparing his testimony for this case.
"Have you been sheltered from the Microsoft-Gateway relationship so that the facts don't affect your testimony?" Pepperman questioned. While he wasn't sheltered, Fama said, he also wasn't involved. "Are you providing feedback to Microsoft's OEM group ... through testimony?" added the attorney. Fama answered that wasn't what he meant. Microsoft's OEM (original equipment manufacturer) group handles the company's relationships with PC makers.
Microsoft's new contracts offer Gateway less favorable licensing terms than previous agreements and give Microsoft more power over licensees, Fama testified. For example, under the new contract Gateway signed in December, Microsoft can terminate the agreement after issuing two notices of termination due to breach of contract, regardless of whether those breach claims were proven or whether the licensee's behavior had been modified, Fama said. In contrast, the states' remedies call for Microsoft to prove any breach of contract claim and to give the licensee 60 days to fix the problem.
"Why should Microsoft be able to terminate an agreement if the OEM is able to cure within the set time?" Fama asked.
Microsoft's counsel countered that the states' remedy is too lenient because a PC maker could, for example, sell a pirated version of Windows, receive a termination notice from Microsoft, modify its behaviour, but then start selling illegal copies of software again, continuing the cycle indefinitely. In such a case, Fama answered, Microsoft could take action under intellectual property law.
Microsoft's new licensing agreements reduce to zero Gateway's volume discount potential for sales of Windows, Fama also said in written testimony. Under new Microsoft guidelines in its agreements, only Dell and Compaq will qualify for volume discounts because they are the only two vendors to meet the high shipment numbers Microsoft's contract requires.
While he didn't refute Pepperman's questioning whether PC makers who sell the most units should get the steepest discounts, Fama still took issue with the new guidelines. "There's no reason Microsoft had to set the ... volume discounts at a level" so high, he said during testimony in court. "The only OEMs who get any discount are the ones who have been previously favored, as per the (District Court) findings of fact."
Fulton then questioned Fama on specifics of the new licensing contract it signed with Microsoft, asking why Gateway was forced to sign over half a dozen new agreements with Microsoft when only one was up for renewal. Gateway was told all related agreements had to be renewed, Fama answered, even though only Gateway's Windows license was expiring. The witness said his initial understanding was that all PC makers would enter into uniform licensing agreements at the same time, but to date he knows of no other company that has signed a new agreement.
When asked if Gateway believed it had been treated differently by Microsoft than other PC makers, Fama said that the findings of fact showed the company paid "significantly higher royalties than other OEMs, even those with lower volume."
The attorney for the states then showed notes from a 1999 meeting between Gateway officials, including Fama, and Richard Fade, Microsoft's vice president for OEM sales and marketing. In the meeting, Fama referred to the findings of fact and asked for the same discounts as other PC makers with the same volume of shipments. Fade rejected the request. Referring to the findings of fact as "alleged," Fade became agitated and told Gateway officials that the company's discount was based on volume, but that he wouldn't give them any warranties on what may happen in the future, Fama said.
Fade added that he didn't want to see any of his comments "showing up at the DOJ or in the courts," according to Fama's written testimony. Those statements led Fama to believe that Microsoft might retaliate against Gateway.
The same conversation with Fade was referred to earlier in the morning during Pepperman's questioning what Fama had characterised Fade's statements as threats. "You spent six years at the CIA (Central Intelligence Agency) and you thought that was a threat?" Pepperman asked. "I never had ... Microsoft looking over my shoulder at the CIA," Fama answered.
"It's important to us that Microsoft not be allowed (to retaliate) since we've been participating in this litigation," Fama later told Fulton, adding that the states' remedies regarding retaliation forbid Microsoft specifically from taking action against witnesses for the states. Microsoft's remedy does not, he said.
Another Microsoft attorney, Dan Webb, attempted to show the bias of the next witness, Steven McGeady. A former Intel vice president, McGeady is testifying as a states' witness based on his experience at the chip company, but is representing his own views.
Webb immediately tried to set the stage for bias by asking "Do you harbour an intense dislike for Microsoft?" to which McGeady answered no. The attorney went on to cite an article published in Wired magazine in 2000 that said McGeady called Microsoft evil and likened its employees to cannibals. McGeady maintained that he has a distaste for some of Microsoft's business practices.