Gateway exec to testify in MS-DOJ trial

Gateway's perspective of having to deal with Microsoft up close and personal, the government hopes, will bolster its claims that the software giant uses its market dominance to thwart competition and harm consumer choice.

No computer makers were willing to testify against Microsoft (Nasdaq:MSFT) during the first phase of the trial, government sources said, because they were too afraid of "biting the hand that feeds them." But as the trial wore on, with the government systematically chipping away at Microsoft's defense, "people that weren't willing to talk at first are reconsidering," a government lawyer said. (Microsoft is a partner in MSNBC.)

Gateway hasn't yet accepted the invitation, sources said. A spokeswoman for Gateway declined any comment on the matter

The move to bring Gateway into the government fold comes as the result of a confidential document that was partially made public just before the recess. That document, a series of answers to questions posed by the Department of Justice in the form of civil subpoena, provided the first sworn statement from a computer maker that it had been pressured by Microsoft to stop using and shipping products made by its chief browser rival, Netscape Communications.

When Microsoft learned that Gateway was shipping Netscape's browser on its computers, Microsoft executives "repeatedly told Gateway representatives that [Microsoft] considers Gateway's offer of the competitive product a 'serious' issue that could 'affect our working relationship,' " Gateway told the Justice Department.

As a result of Gateway's refusal to give in to Microsoft's concerns, the company ended up paying a "significantly higher" price for the right to sell Windows 98 with its computers, said David Boies, the government's lead attorney. The government alleges that Microsoft uses its contracts with computer makers to reward those that go along with its policies and punish those that don't. Microsoft denies those claims.

Having a senior level executive from Gateway on the stand to testify just how it suffers when playing hardball with Microsoft would go a long way in bolstering a weak part of the government's case, says Rich Gray, an antitrust attorney with the firm of Bergeson, Eliopoulos, Grady & Gray.

Gray believes that the government's claim that consumers have been hurt by Microsoft's business practices "is a red herring because the real issue is competitive harm." If the competitive process is injured, "then you can correctly assume that consumers are injured," Gray said.

So, if the government brings in Gateway to talk about "the manner in which choice is limited by the various things that Microsoft did, that can't help but support the government's case both legally and politically, and this is both a legal and political exercise," Gray said.

From here to there
The government also plans to recall two previous witnesses: its economist, Franklin Fisher, and Princeton University computer science expert, Edward Felten.

Microsoft also will recall its economic expert, Richard Schmalensee; however, the company hasn't made any decisions on its other two witnesses.

The witnesses will be relatively constrained in what they can cover, however. "Don't expect anything new to come up," in the rebuttal phase, Boies told MSNBC.

That's because during rebuttal each side is typically limited to addressing the facts and allegations made previously, during the so-called "case in chief."

Pinning down the flaps
One way to view this next phase of the trial is that it's "a sort of a pinning-down-the-flaps operation," said Andrew Gavil, a law professor and antitrust expert at the Howard University school of law.

"To the extent that you felt you got a little beat up on one point or another point it's your opportunity to come back and either resurrect the witness, rehabilitate a witness or maybe rehabilitate an argument or a point," Gavil said.

The rebuttal phase will be important for both sides, Gray said, because "the issues are so complex and there are still a lot of open questions."

Howard's Gavil thinks the rebuttal is more significant for Microsoft. The government's case "went in much more smoothly," Gavil said. However, Microsoft was "clearly running into a variety of credibility problems, they were running into inconsistency problems on cross examination, inconsistencies between the witnesses' testimony and the flow of e-mail," he said.

During rebuttal, the government needs to come up with "a coherent theory for the remedies it wants," Gray said. "I think they need to regroup and with the rebuttal witness more clearly lay out an idea of the evils they need to be addressed, because I don't think they did a very good job of that with their first 12 witnesses," he said.

"Obviously the economists will battle it out and I think the government's going to win on the issue of, does Microsoft have monopoly power under the antitrust laws?" Gray said. "I think the answer is going to be: 'Hell yes.' "

To stress market
Microsoft needs to better make its case that the browser and the operating system truly deliver benefits through integration, Gray said: "That's a big hole they have to plug."

Microsoft might also take another look at the issue of market definition, according to Gray, to better explain to the judge "all the different [computing] platforms there are out there and why those need to be viewed as real competitors... if not today in the very near future."

If Microsoft can convince Judge Thomas Penfield Jackson, who is overseeing the case, that the company is under real competitive threat, "that's about the only way I see them winning the monopoly question," Gray said. "I think that's a stretch, but they could take a shot at it and it's a legitimate argument."

Although Microsoft hasn't flatly rejected the notion of calling its founder and CEO Bill Gates as a witness, the prospect is a long shot, according to Microsoft sources. Gray and Gavil think Gates, for the good of the company's case, should stay at home.

Gavil said he would be surprised if Gates were called. "They have much more to lose than to win [by calling Gates]," Gavil said. "I think they are going to try and avoid the showmanship; they want to come back sober, calm, collected, coherent. If they bring [Gates] out they look desperate."

Don't expect Gates
Gray said Gates is unlikely to be helpful as a witness because "he carries the very heavy baggage of his deposition testimony, which would nearly impossible for him to work his way past."

However, Gray did think Microsoft might be able to score points by bringing in the company's number two man, Steve Ballmer.

Putting Ballmer on the witness stand would "put a face on Microsoft," Gray said, "a real face that is unapologetic and very clear about all the threats that they face." Someone who basically could "convey some of the sense of paranoia that I think [Microsoft] truly has about how they could be unseated just about any day," Gray said.

Neither side has submitted its list of rebuttal witnesses. Indeed, it is unclear just who will be required to submit their list first. Microsoft plans on finalizing its rebuttal witnesses after the senior members of its legal team come back from vacation next week.

Also not yet decided is whether the judge will require written testimony from the rebuttal witnesses, as he did during the first phase of the trial. No written testimony means that neither side gets a chance to hone its cross examination based on written statements.