Gateway executive says Microsoft contracts hurt consumer choice

<br>WASHINGTON (AP) _ The judge handling the Microsoft antitrust case has offered the federal government a chance to say whether it thinks nine states have the right to ask for strong, nationwide penalties

Tuesday, March 26th 2002, 12:00 am

By: News On 6

WASHINGTON (AP) _ The judge handling the Microsoft antitrust case has offered the federal government a chance to say whether it thinks nine states have the right to ask for strong, nationwide penalties against the software giant.

The judge's offer, made Monday night, has the potential to pit the Justice Department against state governments. The Bush administration, which already settled with Microsoft, is under fire almost every day of the court hearing from the nine states that argue the settlement is toothless.

Microsoft has asked U.S. District Judge Colleen Kollar-Kotelly to dismiss the states' suit entirely, on the grounds that only the federal government can seek nationwide penalties. The nine states, as well as more than 20 states that are not parties to the Microsoft suit, oppose the motion.

``In light of Microsoft's apparent concern for the authority of the United States ... it seems most prudent to ask the United States to enlighten the court with its views on the issues,'' Kollar-Kotelly wrote.

The Justice Department had no immediate comment.

The nine states want Kollar-Kotelly to force Microsoft to create a stripped-down version of its flagship Windows software that could incorporate competitors' features. The states also want Microsoft to divulge the blueprints for its Internet Explorer browser.

The federal government and nine other states settled their antitrust case against Microsoft last year with lesser penalties.

The original judge in the case, Thomas Penfield Jackson, ordered Microsoft broken into two companies after concluding it illegally stifled its competitors. An appeals court reversed the penalty, but not the conviction, and appointed Kollar-Kotelly to determine a new punishment.

Gateway executive Anthony Fama told the judge Monday that Microsoft's ``market development program,'' billed as voluntary, is used to keep computer manufacturers in line.

Fama told Kollar-Kotelly that Microsoft keeps Gateway and others from installing competing software on its computers by offering discounts on Windows royalties.

For example, if a Gateway computer starts within a specified time _ which is not usually possible if Gateway installs non-Microsoft programs _ the computer maker earns the discount.

The discounts are worth millions of dollars, Fama said, and the benchmarks set by Microsoft are subjective and change from year to year.

``It is this level of discretion that gives Microsoft the power to use market development allowances in an arbitrary and discriminatory manner,'' Fama said.

Last week, a former Gateway executive said Microsoft punishes ``bad partners'' _ which the executive defined as companies that don't follow Microsoft's edicts _ by withholding discounts.

Microsoft also took issue with an earlier claim that when Gateway complained about its contract with Microsoft, Microsoft executive Richard Fade said the contract is nonnegotiable and Fade didn't want to see his comments ``showing up at the (Justice Department) or in the courts.''

``Mr. Fade's comments, including that one, I perceived as a threat of retaliation,'' Fama said.

Microsoft lawyer Rick Pepperman referred to Fama's previous work at the Central Intelligence Agency.

``You spent six years at the CIA and you thought that was a threat?'' Pepperman asked.

Fama replied: ``I never had Microsoft looking over my shoulder at the CIA.''

States that rejected the government's settlement with Microsoft and have continued to pursue the antitrust case are Iowa, Utah, Massachusetts, Connecticut, California, Kansas, Florida, Minnesota and West Virginia, along with the District of Columbia.