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Tea Leaf Time: What's Next in the Antitrust Case?

• By Scott Bekker
• July 03, 2001

"There are certain things that can be predicted and certain things that can’t," acknowledges Steven Newborn, co-head of the antitrust group for Clifford, Chance, Rogers & Wells LLP (Wash., D.C.) and a former antitrust litigator for the Federal Trade Commission. "There will be a remedy that some judge will apply again and both sides have the option to appeal from there."

Almost immediately, Newborn allows, either the Justice Department or Microsoft itself could move to fast track an appeal of Thursday’s ruling directly to the Supreme Court – although he claims that such an action on the part of either litigant is unlikely.

"It’s going to be remanded to a district court and it’s going to go up the chain," he predicts, noting that if the two sides don’t reach a settlement, and if one or the other party appeals the remedy phase this time around, the Supreme Court could eventually get an opportunity to hear the case.

A lawyer with a New York-based law firm is considerably more blunt in his assessment of the case, however. "This case will end up before the Supreme Court," he maintains. "It is too important a case, and Microsoft will always take the appeal if there is no settlement."

Both litigators agree that the case probably won’t immediately reach the Supreme Court, and yet a direct appeal to the Supreme Court could constitute Microsoft’s only opportunity to vacate the single most damaging aspect of Thursday’s ruling – in which the appeals court unanimously upheld Judge Jackson’s finding that the software giant had illegally abused its monopoly power.

In this respect, Thursday’s ruling was particularly damaging to Microsoft because it definitively established the software giant’s liability as an errant monopolist –and left it vulnerable to the dozens of private lawsuits that are expected to be filed by its competitors.

"The most important issue in whether or not a private action is brought is usually the finding of liability," Newborn explains. "If you’re looking for damages, [Thursday’s] finding of liability is a blessing for private litigants."

What this means, observers agree, is that even if the Justice Department and the attorneys general from the states and from the District of Columbia get bogged down in the details of the case, private litigation initiated by Microsoft’s competitors or by others claiming compensatory damages can and will proceed.

"The court of appeals has found liability already, and therefore I think that there’s carte blanche for plaintiffs’ lawyers to file actions," Newborn confirms, noting that – unless Microsoft gets the case fast-tracked to the Supreme Court, and unless the Court itself votes to overturn Judge Jackson’s findings of fact – there’s nothing that the software giant can do to change this.

And what of Microsoft’s chances of getting Judge Jackson’s findings of fact thrown out by the Supreme Court?

"Generally, findings of fact are not overturned on appeal unless there is a gross error. This standard is incredibly high," notes one litigator who spoke under condition of anonymity. "In this respect, even though bias or prejudice was found, Judge Jackson’s findings of fact will be given deference."

As evidence of the uphill struggle that the software giant faces, experts point to the ideological composition of the federal appeals court which last week voted to vacate Jackson’s break up order. The court, populated primarily by conservative Republican jurists, ruled 7-0 to uphold Jackson’s findings of fact. As a result, legal observers speculate, chances are that even the Supreme Court – which amply demonstrated its right-wing credentials in December – will rule against Microsoft on the merits of the case.

"The Supreme Court, which in December did some very strange things referring to the election, could do almost anything, but I think that they’d find it very difficult to reverse this specific finding of illegality," Newborn concludes.

A raft of other factors – ranging from the laissez faire, pro-business policies of the new Bush administration to the hard-line stance of the state attorneys general – could help to determine the final outcome of the case, however.

What Will Justice Do?

Many industry watchers have speculated that a Republican administration would be more sympathetic to Microsoft, and President Bush did much to encourage this impression during the presidential election. On the campaign trail in 2000, for example, Bush affirmed that he preferred "innovation" to "litigation" and also spoke out against Judge Jackson’s decision to break up Microsoft.

On Thursday, White House spokesperson Ari Fleischer told the Washington Post that President Bush wouldn’t comment on the decision until the Justice Department had finished its review. At the same time, however, Fleisher acknowledged that "The president believes people should work hard to enter into agreements and the president believes there's too much litigation in our society, generally speaking."

And for industry watchers who were looking for an indication of whether or not the current administration will pursue the case as vigorously as did its predecessor, the Justice Department on Thursday issued a statement in which it expressed approval of the decision – but which also left its options open: "We are pleased that the Court of Appeals found that Microsoft had engaged in illegal conduct to maintain its operating system monopoly. We are reviewing the court's opinion and considering our options."

For his part, Clifford Chance’s Newborn says that the Justice Department almost assuredly won’t abandon the case, a decision that he charges would be tantamount to political suicide. "I think it’s very, very unlikely that Justice will end their participation in the case. Remember, the state [Attorneys General] are still plaintiffs, and the case cannot be ended until all plaintiffs agree," he notes.

In the same way, Newborn continues, it’s unlikely that Justice will attempt to move the case to the backburner or to otherwise weaken it by diluting the resources that it allocates to it. "It’s too much in the public eye, and that kind of nefarious scheme always has a way of backfiring, so, no I don’t think it’s realistic," he comments.

If anything, the Justice Department’s most recent actions suggest that Microsoft could be in for a heck of a fight. On Friday, for example, the Los Angeles Times reported that Attorney General John Ashcroft recently "surprised" observers by announcing that he planned to appeal the dismissal of a lawsuit in which the Justice Department had charged airline giant American Airlines with using "predatory tactics" to drive out competition in the Dallas-Fort Worth marketplace.

Like the Microsoft proceedings, the American Airlines case is another holdover from the Clinton administration, which was characterized by an activist approach to antitrust enforcement. As the Washington Post notes, former Attorney General Janet Reno deferred to the discretion of antitrust point-man Joel Klein when it came to policing errant monopolists. And Klein, for his part, vigorously initiated antitrust proceedings against corporate behemoths American Airlines, Microsoft and MCI, among others.

But Klein’s replacement, Charles James, is considered by most observers to be more conservative – and is regarded as one who could possibly be more sympathetic to Microsoft’s position.

And then there’s the issue of Microsoft’s burgeoning political consciousness. When the Justice Department first pressed forward with antitrust proceedings in 1998, Microsoft was effectively caught sleeping: The software giant had no lobbying effort to speak of, and really hadn’t established a presence in Washington. But as the New York Times reported on Saturday, that’s all changed now. Microsoft has recruited a "dream team of lobbyists," the Times says, which includes, among others, former Republican National Committee chairman Haley Barbour and Ralph Reed, an advisor to President Bush and a former executive director of the Christian Coalition.

And, significantly, Microsoft – once a political neophyte – also poured $2.5 million into GOP campaign coffers during the 2000 election.

Chances for Settlement?

The Justice Department’s pivotal role notwithstanding, the outcome of the case is also complicated by questions surrounding the role that the state Attorneys General will play in resolving it.

During the frenetic round of negotiations that preceded Judge Jackson’s ruling and structural remedy last June, Microsoft and the Justice Department were reported to be tantalizingly close to a settlement – brokered by noted jurist Richard Posner – that could have avoided a break up altogether. The talks ultimately collapsed, however, and each side was quick to blame the other.

Microsoft, in particular, cited the problem of negotiating not simply with the Justice Department, but also with 19 states and with the District of Columbia. "Between them, they appeared to be demanding either a breakup of our company or other extreme concessions that go far beyond the issues raised in the lawsuit," Gates told the Washington Post at the time.

To be sure, the state attorneys general – and the solicitor for the District of Columbia – will likely figure prominently in the mix of things if a settlement is to be reached. That’s because the guidelines of the so-called Tunney Act, which was originally drafted to ensure that legal settlements are arrived at in the public interest, function to give the states and the District of Columbia an inordinate degree of power – and could help to inform the strategy by means of which the Justice Department approaches settlement.

Under the provisions of the Tunney Act, any settlement that the Justice Department and Microsoft propose must first be reviewed during a hearing involving all of the plaintiffs, at which time the states and the District of Columbia could ask the presiding federal judge to reject a deal that’s not to their liking.

The potential difficulties notwithstanding, the notion of settlement seems to be very much Microsoft’s cup of tea these days. During an appearance on ABC’s Good Morning America on Friday, for example, Microsoft Chairman Bill Gates claimed that his company was "very open to the idea of settlement."

The problem, some legal observers claim, is that Microsoft has hitherto rejected any and all attempts at "meaningful" settlement.

"I think that the federal government would be looking at a settlement if the settlement was meaningful, and the states would be willing to take a settlement short of break up if the settlement was meaningful," Newborn allows. "The real question is whether Microsoft will be willing to agree to a meaningful settlement, and nothing they’ve ever done shows us that they will."

It was perhaps with this history in mind that the appeals court on Thursday left open the possibility for a "structural" remedy in the case – which means that when all is said and done, Microsoft could still be broken up.

Indeed, of the two types of measures typically applied to companies that have been found to have violated antitrust law – conduct and structural – a conduct remedy, the less serious of the two, was employed during Microsoft’s first run-in with the Justice Department back in 1994-95. This measure resulted in the now notorious – and effectively toothless – "consent decree" that the Justice Department later charged Microsoft with flouting in the course of illegally abusing its monopoly position in the marketplace.

Chances are that in the absence of a court-dictated remedy, both the Justice Department and the state attorneys general will push for a more stringent – and enforceable – settlement this time around. At the same time, Microsoft’s past behavior suggests that it will fight tooth-and-nail any attempt to constrain it or to otherwise govern its behavior.

Indeed, while Microsoft Chairman Gates blamed the ultimate breakdown of last year’s settlement talks on the fractiousness of the state attorneys general, a government attorney quoted in the Washington Post placed the blame with Microsoft: "The states were not a significant factor in the breakdown of the talks," he claimed. "What was decisive was Microsoft's insistence on its own proposal, which contained many loopholes and failed to address the competitive problems detailed in the court's findings." Stephen Swoyer

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