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To: LLCF who wrote (50905)	4/11/2002 4:01:17 PM
From: stockman_scott	Read Replies (1) \| Respond to of 54805

Economist backs tougher Microsoft antitrust remedies Expert doesn't endorse modular Windows proposal By William L. Watts, CBS.MarketWatch.com Last Update: 2:44 PM ET April 11, 2002 WASHINGTON (CBS.MW) -- Tougher Microsoft antitrust remedies would boost innovation by both the software giant and its rivals, an economist testified Thursday on behalf of the nine states still pursuing the case. "An effective remedy will put greater pressure on Microsoft to innovate to fend off those who would end Microsoft's dominance (while clearly prohibiting Microsoft from using anti-competitive means to defend its monopoly)," said Carl Shapiro, an economics professor at the University of California at Berkeley, in written testimony submitted to U.S. District Judge Colleen Kollar-Kotelly. Microsoft (MSFT: news, chart, profile) has protested that the remedies sought by the holdout states go well beyond the antitrust violations found at its original trial and upheld by a federal appeals court. The company and the Justice Department reached an agreement to settle the case last November. That agreement is under separate review by Kollar-Kotelly. The company has also accused the holdout states, which have called witnesses from competitors including AOL Time Warner, SBC Communications and Sun Microsystems, of doing the bidding of jealous rivals. The states contend the proposed remedies in the federal settlement are riddled with loopholes that would allow Microsoft to continue conduct designed to crush nascent technologies that could eventually pose a competitive threat to its Windows operating system monopoly. Windows runs more than 90 percent of all personal computers. "Microsoft's rallying cry in this case has been 'freedom to innovate,'" Shapiro wrote. "An effective remedy will insure that Microsoft's rivals also are free to innovate." Among the tougher remedies sought, the states are asking Kollar-Kotelly to make Microsoft offer a stripped-down, or "modular," version of Windows that would allow computer makers to swap out so-called middleware components of its operating system, such as the Internet Explorer browser, instant messaging software and Windows Media Player. Middleware is software that could potentially be used by software developers as a platform to run other applications, potentially eroding the role of Windows. The states would also require Microsoft to reveal the blueprints for its Internet Explorer browser and would expand the amount of technical information about Windows that the company would have to reveal to outside software developers. In cross examination, Microsoft attorney Michael Lacovara, however, noted that Shapiro offered no direct support for the modular Windows proposal. Shapiro said he had declined to testify about the specific proposal because he lacked an adequate computer science background. In his written testimony, Shapiro called for forward-looking remedies and rejected arguments by Microsoft and the Justice Department against forward-looking remedies. He said tougher remedies would benefit consumers by lowering the "applications barrier to entry" raised by Microsoft's illegal conduct and offering more encouragement for third party software developers to come up with new products that could eventually pose a threat to Windows dominance, which would in turn benefit consumers. "To the extent that the remedy encourages third parties to invest in software development, consumers stand to benefit greatly from similar new products. Consumers also will benefit from a remedy that enables third party software to interoperate more effectively and efficiently with Windows," he testified. What's more, the competitive threats would also spur Microsoft to speed its own innovations. "Looking ahead, there is every reason to believe that greater threats to Microsoft's monopoly will spur Microsoft to innovate more rapidly," Shapiro wrote. Shapiro is the states' final witness. Microsoft is expected to begin presenting its defense next week. Potential witnesses include more than a dozen company executives, including Chairman Bill Gates and CEO Steve Ballmer. Earlier testimony In testimony Wednesday, Princeton University computer science Professor Andrew Appel disputed Microsoft's contention that the states' modular Windows requirement would doom the operating system. He said the process would be similar to the way Microsoft currently tests Windows to see whether bugs emerge under various hardware configurations. While the company compares various configurations, it doesn't test every conceivable hardware combination. Appel said he didn't believe the increased testing for a modular version of Windows would be "exponential or difficult." Microsoft would merely be required to do "somewhat more testing ... than it does to support just the bound version" of Windows, he said. A federal appeals court last summer upheld U.S. District Judge Thomas Penfield Jackson's finding that Microsoft engaged in anticompetitive acts to illegally maintain its Windows monopoly but overturned two other conclusions and tossed out an order to split the company in two. The appeals court removed Jackson from further participation in the case and returned it to the lower court to refashion a remedy. Kollar-Kotelly was then selected to preside. The nine states still pursuing tougher remedies are Iowa, Utah, Massachusetts, Connecticut, California, Kansas, Florida, Minnesota, and West Virginia , as well as the District of Columbia. Microsoft shares were $1.36 lower at $54.94. ____________________ William L. Watts is a reporter for CBS.MarketWatch.com.