Testifying for the second day in his company's antitrust case, Microsoft Corp. Chairman Bill Gates warned that remedies sought by the nonsettling states could delay release of critical security patches, allow vendors selling versions of the Linux operating system to nonetheless display the Microsoft logo, and create numerous legal risks for the company.
Attacking Gates' dark vision of this remedy plan in U.S. District Court was the states' attorney, Steven Kuney, who attempted to show that Gates' interpretation of the remedies was over the top.
Gates is testifying against remedies sought by nine states that have refused to sign the Bush administration's proposed settlement in this case. They believe the deal isn't tough enough.
One section of the dissenting state's proposed remedy would require Microsoft to provide notification when it knowingly interferes with the performance of non-Microsoft products.
Gates, in court, argued that when Microsoft makes changes to Windows, it is often making a trade-off between new features and compatibility. But under the state remedy, a third party could challenge that change, he said.
Is it your concern, Kuney asked Gates, that third parties will bring "meritless claims?" "They would bring claims on which reasonable men could disagree," Gates answered.
But Kuney argued through his questions that Microsoft could justify a change for good cause. Gates, however, insisted that the states' provision would subject the company to "endless second guessing" over whether a software modification "was good cause or not."
Gates also said that subsequent internal company e-mails may well show that the company made a mistake.
Kuney asked Gates if he would then be in violation of the states' remedy.
"No, we're allowed to make mistakes," said Gates.
Gates, in particular, said the notification requirements could delay release of security patches. Again, Kuney asked whether the company would nonetheless have good cause to take action, but Gates insisted that wouldn't be the case under that provision.
By delaying the release of timely security patches, Gates said, "It would have the effect of diminishing the quality of and usage of Windows."
Questioned about provisions that would require Microsoft to make an older version of Windows available for sale when new ones are released, Kuney asked about the consumer benefit of allowing end users to purchase an older version at a lesser price. "That's not a choice that you want consumers to be able to make," said Kuney.
But Gates worked through an economic analysis of the cost of producing software and said it makes "perfect economic sense" for consumers to purchase the new product, and better product at the same price.
Regarding a section concerning antiretaliation provisions, Gates was questioned about his assertion in his 163-page written testimony that the states' remedy would allow a PC maker "shipping PCs with the Linux operating system and Sun's Star Office, and using no Microsoft software at all, could nonetheless demand the right to display the Windows and Office trademarks on its PCs."
Gates insisted that the provision requires PC makers to be treated equally. Including those "who are not even selling your products?" said Kuney. But Gates maintained his analysis was correct.
Testimony will continue throughout the day.
The Bush administration reached an antitrust 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 against other threats of 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 months and is deciding whether to accept it or not. The phase considering the remedy has been going on for six weeks and is expected to continue for more than two months.