An AOL Time Warner (AOLTW) executive took the stand during the Microsoft remedy hearing Wednesday afternoon to support the litigating states' proposed remedy that Microsoft be forced to sell an "unbound" version of Windows, one free from software such as its browser and media player.
States' witness John Borthwick, vice president of America Online Inc. (AOL) advanced services at AOLTW, stated in his written direct testimony that consumers would benefit if Microsoft were to license a stripped-down version of Windows to third parties, who could then customize the operating system for specific functions. Such licensing would also give makers of browsers, media players, and other "middleware" products increased opportunity to compete with Microsoft on the merits of their products, instead of on the deals PC vendors make to include such software with their computers, he said.
This proposed remedy by the litigating states "will invigorate competition for middleware and customized PCs and have a substantially beneficial impact as a whole on the industry," Borthwick wrote in his testimony. PC makers as well as other third parties could license this unbound Windows and customize it as they saw fit, giving them more brand awareness among consumers, he said.
In cross-examination, Microsoft attorney Rick Pepperman questioned Borthwick about an AOL project called "open desktop," which has been under development by Borthwick's team at AOL since last May. Pepperman was attempting to establish that the litigating states took input from AOL in crafting their proposed remedies.
Open desktop is a collection of prototype PCs designed to illustrate the benefits of computers running a customized version of Windows. For example, one of AOL's prototypes is called the Lego Station, designed for kids who enjoy playing with the toy building blocks. "It's intended to illustrate what a customized version of Windows looks like -- it's not that hard (to do) and it has consumer benefits," Borthwick told the court.
Without this ability to customize Windows, Microsoft maintains "a unique ability to promote its products and services in a manner that (PC makers) and third parties cannot," Borthwick wrote in his testimony. For example, Compaq Computer Corp. approached AOL last year for permission to design a "Harry Potter PC" that would include content, e-commerce offers, and services related to the movie character, which is owned by AOLTW. Although it was interested at first, AOL eventually rejected the deal because Compaq could do little to change the Windows user interface, Borthwick said.
Pepperman attempted to show the similarities between open desktop and the states' proposed remedy, referred to as "third-party licensing," by displaying an e-mail message from Borthwick to his AOL team telling them to start using the phrase "third-party licensing" instead of "open desktop." Pepperman asked Borthwick whether there was a need to distinguish AOL's work from the states' remedies, to which Borthwick answered that there was not.
Microsoft's attorney asked if the third-party licensing remedy wouldn't help AOL -- which Borthwick said is both a competitor to and a partner with Microsoft -- as well as consumers, PC makers, and middleware makers. "AOL as an (independent software vendor) has a large portion of its assets carried on the Windows platform . . . access to (more) customers on the Windows platform is a good thing for AOL," Borthwick answered.
During its opening statements at the start of the remedy hearing on March 18, Microsoft's attorneys said that it would show how the company's competitors had a hand in crafting the states' remedies in order to put them in better competitive positions with Microsoft. Nine states and the District of Columbia refused to agree to a proposed settlement struck between Microsoft, the Department of Justice and nine other states in November, and are seeking stricter restrictions than the agreement contains.
Last year the U.S. Court of Appeals for the District of Columbia Circuit found Microsoft in violation of antitrust law by attempting to maintain its monopoly in the desktop operating system market through anticompetitive behavior. During this remedy hearing, U.S. District Judge Colleen Kollar-Kotelly is hearing testimony in support of each side's proposed remedies, and ultimately will decide which restrictions will be placed on Microsoft.
Microsoft's attorney will continue questioning Borthwick on Thursday.