• by April 3, 2002

Televisions don't currently compete with computers, but there's nothing stopping that in the future, Microsoft Corp. attorney Dan Webb argued Wednesday.

In the 10th day of a trial weighing tough antitrust remedies against Microsoft sought by nine state attorneys general, Webb fought off suggestions that the nascent market for interactive television services needs protection from the software giant's monopoly powers.

Webb was questioning Mitchell Kertzman, chief executive of Liberate Technologies. Kertzman on Tuesday told the court that the software his company produces powering interactive television services could someday become an alternative to personal computers powered by Microsoft Windows. Microsoft is currently bundling the software in its Windows XP operating system.

Kertzman spoke in favor of a number of the states' antitrust remedies meant to stop Microsoft from using its monopoly power to stop Liberate from becoming a competitive threat. Liberate makes software that drives cable and satellite company servers and consumer "set-top boxes" that turn a television into a vehicle for surfing the Web, ordering products, or participating in a game show.

But Webb said interactive television is in an entirely different market from computers. He based that on the bible for the trial: an opinion last summer by the U.S. Court of Appeals, which ordered the trial after upholding findings that Microsoft illegally sought to maintain its monopoly in the market for personal computer operating systems.

"Does Liberate deploy its software on the computer desktop today?" Webb asked. Kertzman said it doesn't do so for consumers, but may in the future.

Webb then sought to blunt Kertzman's arguments that interactive television could shake the Windows monopoly by supporting non-Microsoft software. He did so by recalling that interactive television has long been promised, but has never really been delivered broadly.

"In the last 10 years, has there been prediction after prediction that interactive television would take off, and it hasn't yet happened," Webb asked.

Answered Kertzman, "We believe we are on the brink of that, but time will tell."

Liberate's software is currently deployed in 300,000 homes in the U.S.

One remedy would prevent Microsoft from undermining open standards for interactive television software, which would allow multiple companies to compete. The remedy was based on court findings that Microsoft changed Sun Microsystems Inc.'s (SUNW) Java programming computer language, and then misled developers about the fact.

But Webb got Kertzman to admit that Microsoft and Liberate have worked together to craft open standards for the software. Kertzman added that Microsoft didn't always cooperate.

Another remedy would bar Microsoft from negotiating exclusive contracts with cable and satellite television providers requiring use of Microsoft interactive television software. But Kertzman was unable to provide examples of any such contracts. He added that Microsoft has tried to negotiate such deals but failed.

Another remedy would require Microsoft to disclose any investments it makes in the information industry that have the potential to undermine competition. But Webb noted that Liberate's customers include six out of 10 companies in which Microsoft has made significant investments.

Those companies include AT&T Corp., the nation's largest cable company, in which Microsoft invested $5 billion in 1999, and Comcast, in which Microsoft invested $1 billion in 1997.

"Even though Microsoft has invested in these companies, Liberate has been very, very successful in developing relationships with a majority" of them, Webb said.

Kertzman said that Liberate only won their business after Microsoft was repeatedly unable to deliver workable interactive television software.

Later in the day, AOL Time Warner Inc. (TWX - news) executive (AOL) John Borthwick is expected to support elements of the remedy that would force Microsoft to let computer makers and third parties modify Windows more extensively. He'll also support a remedy meant to ensure that Microsoft won't be able to use its .NET initiative to undermine competition from others in the Web services market, such as AOL.

The remedies are being pursued by nine states that rejected a November settlement reached by the Justice Department and nine other states in the 1998 antitrust case.