US District Court judge Thomas Penfield Jackson erred when he would
not allow an evidentiary hearing on remedies in the federal
antitrust case against Microsoft and "seriously tainted the
proceedings" in his courtroom by conducting "secret interviews"
with journalists and by publicly making "numerous offensive
comments" about company officials, a federal Appeals Court has
decided.
A 125-page court document rebukes the District Court judge and
orders the case be sent back to a lower court, "remanded" in legal
parlance, so that the issue of how Microsoft should be made to
remedy its anti-competitive behaviour can be reconsidered. A
different judge will be assigned the case, the US Court of Appeals
ruled.
The court upheld Jackson's ruling that Microsoft engaged in illegal
monopoly behaviour, but it set aside his order that the company be
broken into two separate entities, one for operating systems and
the other for applications. Under US antitrust law, it is not
illegal for a company to be a monopoly, but it is illegal for a
monopolist to engage in anticompetitive behaviour. The Appeals
Court upheld Jackson's "finding of monopoly power in its
entirety".
The US Department of Justice and state attorneys general filed the
federal lawsuit three years ago, arguing that Microsoft illegally
used the power it has garnered because its Windows operating system
is used in the vast majority of computers globally in order to make
inroads into other markets, including Internet browsers, and to
squash competitors.
Among other things, Microsoft established restrictive licensing
practices in dealing with original equipment manufacturers,
including preventing them from removing visible means of access to
its Internet Explorer (IE) browser or from pre-installing rival
browser software, the Appeals Court affirmed. It further cut
anti-competitive deals with Internet access providers so they would
offer IE for free and gave them "a bounty for each customer" signed
up for service using IE, the court affirmed.
It further agreed with the district court that Microsoft did
"commingle" IE and Windows code in an anti-competitive way.
However, citing a lack of information, the appeals judges sent the
issue of tying Windows to IE back to the lower court for
reconsideration and offered guidance to the trial judge as to what
should be considered and what each side must prove. The court also
ruled that the government did not prove its claim that Microsoft
attempted to create a monopoly in Web browsers.
In its appeal of issues related to the District Court ruling that
it is an illegal monopoly, Microsoft failed to challenge factual
findings from the District Court and also failed to argue that
Jackson's findings in the case did not support his conclusions, the
appeals decision said. That failure "infects many of the company's
monopoly power claims" in its appeal, the ruling found, covering
examples point by point, paying particular attention to the issue
of middleware.
The company argued that Jackson erred when he excluded Netscape's
Navigator and Java in considering the software market relevant to
the case. The company contends that "because middleware could usurp
the operating system's platform function and might eventually take
over other operating system functions" such as controlling
peripherals, Jackson should have allowed Navigator and Java to be
considered in the operating system market issue. Jackson ruled that
there is no middleware product available that "could now, or would
soon, expose enough application programming interfaces to serve as
a platform for popular applications, much less take over all
operating system functions."
Rather than challenge that finding and present contrary evidence,
Microsoft "simply asserted middleware's 'potential' as a
competitor," the Appeals Court found. Such assertions don't hold
sway in the appellate process.
The Appeals Court affirmed that after properly defining the
relevant software market in the case, the District Court then
established that Windows has a greater than 95% share in operating
systems, and that even if Apple Computer's Mac operating system is
considered, Microsoft still has more than 80% of the market
cornered. "Microsoft challenges neither finding, nor does it argue
that such a market share is not predominant," the Appeals ruling
said.
The court did agree with Microsoft that because new competitors
could emerge, considering only current market share could be
misleading, but concludes that in this case "the District Court was
not misled. Considering the possibility of new rivals, the court
focused not only on Microsoft's present market share, but also on
the structural barrier that protects the company's future
position."
That structural barrier has two aspects noted by the Appeals Court:
most consumers will use operating systems that already have a lot
of applications written for them and most developers prefer to
write for operating systems that already are in widespread use by
consumers.
Microsoft "misses the point" in arguing that developers do write
for other operating systems, the Appeals Court ruled, pointing to
testimony that the success of IBM's OS/2 was impeded because the
company couldn't get more software developers to write for that
platform.
IBM was far from the only competitor hurt by Microsoft, the appeals
court agreed. It cited an exclusive deal with Apple related to IE
and Microsoft's behaviour related to the "potential threat" it
perceived from Java technologies developed by Sun Microsystems, as
well as the threat it made to Intel officials, pressuring them to
not support Java.
As for Microsoft's appeals argument that its behaviour regarding
licensing restrictions is justified because it is merely exercising
its copyright, the court said those claims are "bold and incorrect"
when it comes to copyright law, which cannot be used to violate
antitrust law.
While the Appeals Court agreed that Microsoft has illegally used
its monopoly power, it tossed out Jackson's break-up order because
"it is a cardinal principle of our system of justice that factual
disputes must be heard in open court and resolved through
trial-like evidentiary proceedings."
"Despite plaintiffs' protestations, there can be no serious doubt
that the parties disputed a number of facts during the remedies
phase. In two separate offers of proof, Microsoft identified 23
witnesses who, had they been permitted to testify, would have
challenged a wide range of plaintiffs' factual representations,
including the feasibility of dividing Microsoft, the likely impact
on consumers, and the effect of divestiture on shareholders," the
court said.
Furthermore, the court ruled that Jackson did not explain how his
remedies decree would fit with the requirements established by the
US Supreme Court that antitrust remedies must end anti-competitive
conduct in the affected market, end the illegal monopoly and ensure
that no practices remain in effect that could lead to future
monopolisation. "Indeed, the court devoted a mere four paragraphs
of its order to explaining its reasons for the remedy," the Appeals
Court said.
The remedies also must be remanded back to the lower court because
the Appeals Court has "drastically altered" the District Court's
conclusions regarding Microsoft's liability, particularly in the
area of tying Windows to IE.
The District Court also must reconsider whether a break-up of
Microsoft is appropriate based on the company's argument that it
operates as a single business. Cases that have been cited by
plaintiffs and the District Court to justify the break-up have
mostly involved companies that were formed through mergers and
acquisitions, the Appeals Court said.
To order a break-up, the lower court must first establish a link
between Microsoft's anti-competitive behaviour and its dominant
position in the operating system market. Judge Jackson "expressly
did not adopt the position that Microsoft would have lost its
position in the operating system market but for its
anti-competitive behaviour," the Appeals Court said. If that causal
connection is not established by the next judge who hears the case
at the district level "it may well conclude that divestiture is not
an appropriate remedy".
Specifically regarding Jackson's behaviour, the Appeals Court
offered the caution that it has only published accounts "and what
the reporters say the Judge said. Those accounts were not admitted
in evidence. They may be hearsay. ... We are of course concerned
about granting a request to disqualify a federal judge when the
material supporting it has not been admitted in evidence.
Disqualification is never taken lightly. In the wrong hands, a
disqualification motion is a procedural weapon to harass opponents
and delay proceedings. If supported only by rumour, speculation, or
innuendo, it is also a means to tarnish the reputation of a federal
judge."
That said, the court went on to note that this case is "most
unusual". Jackson imposed an embargo on the interviews he granted
and that "ensured that the full extent of his actions would not be
revealed until this case was on appeal". The embargo demand makes
the situation worse because "concealment of the interviews suggests
knowledge of their impropriety. Concealment also prevented the
parties from nipping his improprieties in the bud," the Appeals
Court found.
In addition, the court said, the plaintiffs in the case "all but
conceded that the Judge violated ethical restrictions by discussing
the case in public".
All things considered, the appeals court decided to "assume the
truth of the press accounts and not send the case back for an
evidentiary hearing on this subject".
The appeals decision refers to a number of press accounts,
including quotes attributed to Jackson in which he likens Microsoft
chairman and chief software architect Bill Gates to Napoleon,
questions Gates' business acumen and likens the company's writing
of incriminating documents to drug traffickers who "never figure
out they shouldn't be saying certain things on the phone". The drug
trafficker analogy was used in interviews published in both the New
York Times and The New Yorker magazine.
The antitrust case was pending each time Jackson was interviewed,
the appeals judges said. Indeed, the case is pending now "and even
after our decision issues, it will remain pending for some time".
Therefore, Jackson violated his ethical duties established under
the Code of Conduct for United States Judges every time he was
interviewed, the judges found, contending that "although the
reporters interviewed him in private, his comments were public.
Court was not in session and his discussion of the case took place
outside the presence of the parties" to the case. Jackson knew that
his comments would eventually be widely published, the Appeals
Court said.
Jackson's comments did not fall under any of three narrow
exceptions allowed under the code. He was not discussing "purely
procedural matters", but "disclosed his views on the factual and
legal matters at the heart of the case". Jackson's claims in
published reports that he wanted to educate the public and refute
public misperceptions failed to sway the higher court judges.
If that is what he meant to do, he should have addressed those
matters in his court rulings "or he could have held his tongue
until all appeals were concluded".