By Peter Kaplan

WASHINGTON (Reuters) - A Microsoft Corp. MSFT.O executive urged the company to quietly retaliate against supporters of the rival Linux operating system in an August 2000 memo that nine states still suing the software giant want admitted as evidence.

The nine states seeking stiff antitrust sanctions against Microsoft late on Monday asked the judge in the case to reconsider her decision that shielded Microsoft Chairman Bill Gates from the e-mail message during his testimony last month.

In the memo, Microsoft senior vice president Joachim Kempin complained to Gates and other senior executives that computer chip-maker Intel Corp. INTC.O was encouraging computer makers to support Linux and funding development of new devices that would work with Linux.

Kempin said Microsoft should withhold technical information from Intel and "work underground" to promote its competitors in the computer chip industry, according to portions of the memo disclosed in the states' legal filing.

"I would further try to restrict source code deliveries where possible and be less gracious when interpreting agreements -- again without being obvious about it," Kempin wrote.

Microsoft spokesman Jim Desler said Kempin's memo was "irrelevant" because the company never acted on his ideas.

"The e-mail represents some random thoughts of a company executive who no longer has anything to do with our relationship with Intel or (computer makers)," Desler said.

Desler said the company's attorneys would file a response to the states' motion later on Tuesday.

"This is another attempt (by the states) to force evidence in there that's clearly contrary to the rules of evidence," Desler said.

The nine states, who have rejected a proposed settlement of the four-year case, say strong sanctions are needed to prevent Microsoft from continuing to use its Windows operating system monopoly to bully competitors.

Originally developed in Finland and updated by programmers around the world under its open source status, Linux has been touted as a possible alternative to Windows but has never been widely used on personal computers.

"ANTI-LINUX ACTIONS"

Kempin recommended that computer makers who were not "friendly" with Microsoft should be hit "harder than in the past with anti-Linux actions."

U.S. District Judge Colleen Kollar-Kotelly disallowed the Kempin memo -- along with several others -- during Gates' testimony after Microsoft's lawyers objected to it.

The states' attorneys argued in their filing on Monday that Kempin's e-mail shows Microsoft continued to discuss anti-competitive tactics even though the original trial judge had already ruled those tactics in violation of antitrust law.

The states said the strategy suggested by Kempin is similar to the one Microsoft used to force Intel to stop working with Sun Microsystems Inc. SUNW.O several years earlier -- work that would have threatened the Windows monopoly.

In March, an executive from Linux distributor Red Hat Inc. RHAT.O told Kollar-Kotelly that Linux operating system was being blocked as an alternative to Windows because computer makers feared retaliation from Microsoft.

Red Hat chief technology officer Michael Tiemann said computer makers had rebuffed his attempts in recent years to pre-install the Linux operating system on their machines because they feared Microsoft's response.

Microsoft's lawyers countered in court that Red Hat failed to popularize Linux because of its shortcomings, not because of any interference from Microsoft

A federal appeals court last June upheld trial court findings that Microsoft illegally maintained its Windows monopoly, but the appellate judges rejected breaking the company in two and sent the case back to a new judge, Kollar-Kotelly, to consider the most appropriate remedy.

The two sides concluded 32 days of testimony in the case on Friday. There will be arguments in court Wednesday through Friday by lawyers on various motions but final arguments are not expected until mid-June.

Kollar-Kotelly is also weighing whether to endorse the proposed settlement reached between Microsoft, the U.S. Justice Department and nine other states in November.

The nine states still pursuing the case are California, Connecticut, Florida, Iowa, Kansas, Massachusetts, Minnesota, Utah, West Virginia, plus the District of Columbia.