With a laser pointer in his hand, Gates opened his long-awaited courtroom appearance with a computer-generated slideshow. He demonstrated how the Windows operating system would stop functioning if components such as the Microsoft Explorer Web browser are removed as the states have proposed.
"This shows that if you remove this block of code, other functions are degraded in the most extreme way; they no longer work," Gates said, referring to the removal of the Explorer software.
Dressed in as dark blue suit, Gates took pains to explain the most common technical terms.
In a surprise, the states prosecuting Microsoft chose Steven Kuney, an antitrust expert, rather than their chief lawyer, Brendan Sullivan, to cross-examine Gates.
In written testimony submitted after he was sworn in, Gates argued the penalties the states have proposed would give Microsoft's competitors an unfair advantage. The penalties include requiring Microsoft to divulge blueprints and technical information about how some of company's products work.
Such penalties would cause a "a massive transfer of Microsoft's intellectual property rights" to competitors, Gates said.
Gates, the company chairman and founder and a central figure in America's computer revolution, was to face tough grilling from lawyers for the nine states that have refused to settle the antitrust allegations. A court has already ruled Microsoft operated as an illegal monopoly that stifled competition.
The Justice Department and nine other states have already settled the case and their deal with Microsoft is awaiting court approval. The nine states remaining in the case want tougher penalties than those in the settlement.
Gates said the additional penalties would devalue the Windows operating system, reduce its ability to handle thousands of pieces of computer hardware and software in the marketplace and frustrate Microsoft's incentive to innovate.
The states' proposals "would undermine all three elements of Microsoft's success, causing great damage to Microsoft, other companies that build upon Microsoft's products, and the businesses and consumers that use PC software," Gates testified.
The states say they want Microsoft to disclose some of its blueprints to ensure that software developers can create products that work as well with Windows as Microsoft's own software, reducing the company's advantage over competitors.
"As I understand it, providing Microsoft's technology to its competitors so they can build 'functional equivalents' of our products now, and match all our future innovations for 10 years, is in fact one of the central objectives," Gates said of the states' plan.
The states want U.S. District Judge Colleen Kollar-Kotelly to force Microsoft to create a modular version of Windows that could incorporate competitors' features.
Gates also attacks portions of the proposed penalties as "vague or confusing." He said that because the penalties are likely to result in disagreements, Microsoft and its competitors would likely return to the court repeatedly.
Gates also echoed arguments by Microsoft chief executive Steve Ballmer that a modular Windows requirement is impossible to engineer and would force the company to pull Windows off the market.
"I know that Microsoft could not have developed Windows 95, one of the most successful software programs in history, if [the requirement] had been in effect in the early 1990s," Gates said.
States that rejected the government's settlement with Microsoft and are continuing to pursue the antitrust case are Iowa, Utah, Massachusetts, Connecticut, California, Kansas, Florida, Minnesota and West Virginia, along with the District of Columbia.
Before Gates appeared, lawyers finished questioning David Cole, a senior vice president of Microsoft Network, the company's Internet service. Cole testified against penalties that could affect Microsoft's Passport identity verification service and other Internet ventures.
John Schmidtlein, a lawyer for the states, presented an internal Microsoft document and argued Passport is part of a Microsoft plan to sell pay services.
The document called Passport "a feeder pool" and said its goal was to "create the largest and most leverageable database of every user on the planet," to funnel people into paid services.
Cole dismissed the memo, saying it was the work of the former head of Passport.
"It's hard for me to agree or disagree with that since our business plan has changed," Cole said, without elaboration.
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