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| By Brock N. Meeks MSNBC | |||||
| WASHINGTON, June 28 — | |||||
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THE RULING also threw out the charge that Microsoft attempted to monopolize the browser market. But the case is far from over: It now goes to a lower court that will decide how Microsoft should be punished for illegally trying to maintain a monopoly. (MSNBC is a Microsoft-NBC joint venture.) The appeals court ripped into Jackson, who presided over the initial trial, castigating his secret meetings with reporters and his lax handling of the remedy phase of the hearing. “We vacate the judgment on remedies, because the trial judge engaged in impermissible ex parte contacts by holding secret interviews with members of the media and made numerous offensive comments about Microsoft officials in public statements outside of the courtroom, giving rise to an appearance of partiality,” the court said. |
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“Although we find no evidence of actual bias, we hold that the actions of the trial judge seriously tainted the proceedings before the District Court and called into question the integrity of the judicial process,” the court added.Jackson ruled that Microsoft was an illegal monopoly and had used that power to harm competition and the market, in part by tying its Internet Explorer browser to the Windows operating system. In order to restore competition to the market, Jackson ruled that the company should be broken into two parts.
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Microsoft Chairman Bill Gates said the company is still reviewing the ruling, but he was pleased by what he’s seen so far. “It’s clear that [the ruling] reverses and significantly narrows the the district court’s decision,” Gates said. “The ruling lifts the cloud of breakup over the company and reverses the tying claim.” Gates also said the appeals court decision “sets a high bar for any ruling against the inclusion of new features in our software products.” The Department of Justice said: “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.” “I think it’s likely that both sides will now sit down and talk settlement,” Jim Lucier, antitrust analyst for Prudential Securities, told CNBC. “Clearly at this time both sides have an opportunity to declare victory and go home. |
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“Microsoft can probably live with anything short of a structural remedy such as a breakup.” |
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But the Justice Department also has some elbow room, Lucier said, owing to its “moral victory” of having successfully demonstrated that Microsoft is a monopolist and has used that monopoly power illegally. Capitol Hill also weighed in early. House Majority Leader Dick Armey, R-Texas, praised the ruling, saying it “sends the message that innovation in America will be rewarded, not punished.” Armey also took a swipe at the Clinton administration’s decision to file the antitrust suit in the first place, saying, “Our antitrust laws should not be used to hold our most successful companies back to give the competition a chance to catch up. Government needs to get off the back of our innovators so that high-tech America can prosper.” SOUNDING CONTRITE |
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Throughout the trial, Microsoft denied time and again that it held a monopoly. Now that the appeals court has affirmed Jackson’s ruling that Microsoft is indeed a monopoly and used that power illegally, the company is changing its tune. “There are things in this decision that are going to get us to go back and review our various practices,” Gates told CNBC when asked directly if he would now concede that Microsoft is a monopoly. The subtlety of Gates’ answer spoke volumes — the fact that he didn’t condemn the question outright is a change from his position during the trial. “Most of the things that were cited in that part of the decision (monopoly maintenance) are things that are out of date, things that haven’t been in our licenses in the last two years,” Gates said. “But there is a recognition of our position and a need to make a review, which we will.” NO SUFFERING OF FOOLS Although the appeals court ruling sliced and diced Jackson’s handling of the case, the appellate judges refused to overturn him on the basic facts. That leaves the company at risk in subsequent hearings and in potential antitrust actions brought by competitors, legal experts said. |
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Jackson’s exceptionally harsh findings of fact already have become the stuff of legend. Jackson said that Microsoft committed “violence” on the industry, competition and consumers and that the company lost no opportunity in pulling from the “monopolist’s playbook” every dirty competitive trick it could muster.Those findings are now precedent and can be used like a legal sledgehammer by future competitors alleging antitrust violations. “That to me is the most significant thing out of this case and will have implications for Microsoft for years to come,” said Rich Gray, a Silicon Valley antitrust lawyer who has written extensively about the case. “Basically it means that every Microsoft competitor is now going to have a court of appeals decision to back it up when it second-guesses whether there are anti-competitive impacts behind any particular product innovation.” The strength of the appeals court ruling also puts the Bush administration’s antitrust department “in a very uncomfortable position,” Gray said, because it has a ruling involving a company wielding an illegal monopoly “and they’re going to have to do something about that.” Representatives from the 19 states attorneys general who also sued Microsoft for antitrust violations wasted little time proclaiming victory and sounding hawkish about the next steps they’ll take. Despite the breakup order being overturned, “the core of the case,” that Microsoft illegally used its monopoly to harm competition “was unanimously upheld,” said Tom Miller, Iowa state attorney general and head of the states’ task force on the Microsoft case. On the strength of that finding, Miller said, the next round of court proceedings doesn’t rule out another breakup order. “The factual findings argue for fundamental and far-reaching remedies,” said Richard Blumenthal, attorney general for Connecticut. “Whether [future remedies] are characterized as structural or conduct is less important than the key goals of restoring competition and preventing a recurrence of the wrongs.” However, the appeals court ruling seemed to signal to the next judge to hear the case that a breakup order might not be the best approach. “Absent some measure of confidence that there has been an actual loss to competition that needs to be restored, wisdom counsels against adopting radical structural relief,” the appeals ruling says. Such language didn’t seem to deter Miller, who brushed aside any talk of simple business restrictions. |
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“Our experience has been that [behavioral remedies] don’t work,” Miller said. “We believe we have a good argument for a very strong remedy, perhaps a breakup.” The ruling is a “double dose of bad news for Microsoft,” said Kenneth Starr, former U.S. solicitor general and appellate judge who now speaks for Pro-Comp, an anti-Microsoft group. The decision to send the case back to the lower court, before a different judge to determine a new remedy “opens the door for hearings into the company’s new initiatives, such as .Net and HailStorm,” Starr said. “The new trial court will be able to review these initiatives and will see that Microsoft’s actions have become even more anti-competitive than before.” The state attorneys general also have made noise about targeting several of Microsoft’s new initiatives if they were to go back to trial. PLAYING NICE, PLAYING FOR KEEPS Beyond the rush to spin Thursday’s ruling, attention turned to strategies for a settlement. Although President Bush hadn’t commented on the news at press time, White House spokesman Ari Fleisher reminded reporters of what Bush has said in the past concerning litigation matters: “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.” That gives rise to speculation that the Justice Department would be more willing to settle the case than press on with a protracted court case. However, Charles James, new head of the antitrust division, would give no details on settlement possibilities, other than to say the department is “always willing” to talk. James did call Thursday’s ruling “a very significant victory,” given that “the core claim in the Microsoft case, that Microsoft engaged in anti-competitive conduct to preserve its monopoly position in computer operating systems,” was upheld. If the Justice Department backs out of the case via a settlement, most experts believe that the states attorneys general, beyond a small core group of original plaintiffs, will have neither the stomach nor resources to continue the fight. Iowa’s Miller said the Justice Department antitrust division and the attorneys general have a “good working relationship” and that he’s confident they will continue to work as a team. Miller said any talk of settlement was “speculative” but noted “any settlement that doesn’t involve a fundamental change” in Microsoft’s behavior “would be doomed to failure.” A federal mediator that tried for months to broker a settlement last year in the Microsoft case abruptly called off the talks and blamed the states for being too stubborn to accept compromise. Jackson issued his breakup ruling after those talks broke up. For its part, Microsoft still held out the olive branch for a settlement. Such talks are “absolutely worth making the effort,” Gates said. Although he wouldn’t make any predictions about settlement talks, “there’s now an opportunity to do this again,” he said. THE LONG ROAD HOME |
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The appeals court ruling is just the latest battle in Microsoft’s antitrust war. The software giant has won and lost other battles, and the case is far from over. The Justice Department, the 18 states and the District of Columbia brought suit against Microsoft in May of 1998, alleging the company had violated antitrust laws. The suit claimed Microsoft held monopoly power in the Windows desktop market and that the company illegally leveraged that power to force computer makers to accept its nascent and then inferior Internet Explorer Web browser as a part of the Windows Operating system. The move, the suit said, was a deliberate effort to choke off competition from upstart and chief rival Netscape Communications. Microsoft believed that Netscape’s own browser could be adopted by software developers as an alternative platform from which to launch Web-based or so-called “middleware” applications, thus rendering Windows nothing more than a commodity. The Justice Department also claimed that when Microsoft made its Internet Explorer Web browser an inseparable part of Windows, it was illegally “tying” the browser to Windows. This, the Justice Department said, is illegal because it forced consumers and computer makers to install the Microsoft browser even if they didn’t want it. Justice claimed that there was no technological benefit from such “tying” and that it was done simply to drive the cost of browser products to zero, and make it difficult, if not impossible, for others like Netscape to charge for their browser products. |
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According to the Justice Department, Microsoft deliberately set out to crush Netscape and sought to “cut off its air supply” by illegally using strong-arm tactics, from exclusionary contracts with computer makers and Internet service providers to rigging Microsoft software so it wouldn’t work with competing products. From day one Microsoft has vigorously denied all of the charges. Indeed, throughout the trial the company said it had a right to compete in the marketplace. Microsoft said that building the browser into the operating system was simply a matter of software evolution, done to enhance the product and provide consumers with a better Internet experience. Microsoft said then and still maintains that it has no monopoly. The company’s own economic expert steadfastly refused to define any “relevant market” for operating systems, insisting that the company couldn’t monopolize because competitors to Windows were lurking everywhere. "The biggest threat is from the [competitor] you can’t see,” said Microsoft’s economic expert, Richard Schmalensee, dean of the Sloan School of Business at the Massachusetts Institute of Technology. The trial, originally scheduled to take six to eight weeks, consumed nearly 80 days of courtroom testimony over nine contentious and rancorous months. Each side submitted a mountain of internal e-mail and confidential documents to make its case and called 12 witnesses and three rebuttal witnesses each, per limits set by the judge. Though he did not testify in the trial, Gates was represented by some 20 hours of videotaped testimony. In contrast, the government’s antitrust case against IBM stumbled through 13 years of tedium before the Justice Department eventually dropped the case with no resolution. Judge Jackson’s official analysis of the relevant evidence presented during trial, called “findings of fact” blistered Microsoft’s executives and business practices. Jackson’s scorched earth document left even veteran trial watchers breathless in the harshness of its language. Jackson called Microsoft “predatory” and that it had visited “violence” on the marketplace and consumers in a ruthless and reckless leveraging of its Windows monopoly. Jackson then later bought the Justice department’s proposal to split the company in two, a punishment that experts have called “the death penalty” under antitrust laws. But Microsoft quickly appealed, and in fact had been looking past Jackson late in the trial phase when it became apparent that the company would lose in his courtroom.
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Appeals court vacates Microsoft breakup
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