MS/DOJ - Microsoft trial begins key settlement phase

The Microsoft Corp. antitrust trial begins its most critical phase tomorrow, one that will probe Microsoft Corp.'s power to shape the future of the high-tech industry.

U.S. District Court Judge Colleen Kollar-Kotelly will begin a hearing tomorrow morning on the proposed settlement authored by the U.S. Department of Justice and backed by nine of the 18 states in this case. Federal law requires the judge to decide whether the proposed settlement is in the "public interest."

This settlement hearing, which is expected to last one to two days, will be followed by a remedy hearing that may last as long as two months -- about half the length of the initial trial. This remedy hearing will be on the proposal by the nine states that have refused to accept the settlement, and it seeks such things as a stripped-down operating system.

For that second phase, Kollar-Kotelly is allowing testimony from 16 witnesses for the states and 31 for Microsoft. The judge is giving each side 100 hours to make their respective cases.

"It shows that she is taking the remedy phase very seriously," said Bob Lande, a law professor at the University of Baltimore Law School. "She is erring on the side of being absolutely fair to Microsoft."

The remedy hearings are scheduled to begin March 11, but Microsoft today asked the judge for a two-week delay to give it more time to analyze some recent revisions to state's proposed remedy.

Regardless of when remedy hearings begin, their focus will be on the future of the technology industry and the PC. It will examine, for instance, whether handheld device makers such as Palm Inc. represent a formidable challenge to the PC or are on a course similar to Netscape Communications Corp. -- unable to overcome Microsoft's desktop dominance.

It will be a battle of "hypothetical" analysis and differing world views about the future, said Hillard Sterling, an attorney at Chicago law firm Gordon & Glickson PC. "There is no solid, definitive proof about what really is going to happen in the markets," he said.

Since the original trial ended nearly two years ago, Microsoft's dominance in the PC market has increased, according to market research firm IDC in Framingham, Mass. The vendor went from having 92 percent of all PC operating-system shipments in 2000 to a 94 percent share in 2001.

Nonetheless, new technologies are emerging that are challenging the PC, including intelligent appliances such as a device that's a combination of a cellular telephone, a personal digital assistant (PDA) and a PC. "From that perspective, Microsoft is being challenged," said IDC analyst Dan Kusnetzky.

But Microsoft is also hoping that corporate IT managers seek handheld devices running Windows CE because of their ability to work well with the desktop. "Organizations have a tendency to go along the path that is easiest," said Kusnetzky.

In court papers filed Friday, the states said that a Palm official would testify that PDAs rely on synchronization with Windows PCs to fully perform certain functions and that Microsoft "has attempted to block Palm's development through anticompetitive actions such as blocking access to Microsoft's development tools."

Business users may have other reasons to pay attention to the next phase. For instance, any remedy could open the door to competing browsers -- something that would affect corporate developers, who would have to support and validate their work to run with multiple browsers, said Rob Enderle, an analyst at Giga Information Group Inc. in Cambridge, Mass.

But initially, all eyes in the courtroom tomorrow will be on Kollar-Kotelly to see whether she offers any hint of how she feels about this settlement. The judge may say nothing during tomorrow's proceedings, ask skeptical or friendly questions that hint at her disposition, or say point-blank what she thinks about the settlement.

Most legal experts believe the judge will hold off acting on the settlement until after the remedy phase.

The Tunney Act, a federal sunshine law, gives the public the right to comment on any proposed federal antitrust settlement, and the judge must decide if any settlement is in the public interest.

The government received a record 30,000 responses to its request for comments. Of those writers that expressed an up or down opinion of the settlement, two-thirds opposed it.

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