The latest twist in the legal battle between the Department of
Justice and Microsoft seems to have gone the way of Gates and co.
But as Graham Lea reports, the case is far from over.
It was primarily a political decision: the US Court of Appeals for
the Washington DC Circuit was never going to let Microsoft - a
national treasure - be broken up if it could help it. Judge
Jackson's order that Microsoft be split into an operating system
company and an applications company has been overturned.
The current state of play is that the Court of Appeals has endorsed
the district court's decision that Microsoft is an illegal
monopolist, but sentencing has been postponed. The sentence is
unlikely to reflect the damage caused by Microsoft's destruction of
competition, resultant higher prices and lessened innovation.
The saga will drag on for an unspecified further period under a
newly appointed judge, in order to decide matters remanded to the
district court following the dismissal of Judge Thomas Jackson by
the appeals court for an alleged "appearance of partiality".
The judges of the DC Court of Appeals are regarded as conservative
and philosophically are followers of the Chicago school:
pro-monopoly, pro-business and generally opposed to antitrust. The
judges spent some time trying to scrape up reasons to ignore unfair
competition law (which they quaintly call antitrust), but could
only conclude "there is some suggestion that the economic
consequences of network effects and technological dynamism act to
offset one another, thereby making it difficult to formulate
categorical antitrust rules absent a particularised analysis of a
given market".
Conflicts of interest
The court displayed a bloodlust
against the DoJ and Judge Jackson and wanted to review the case, as
it showed from its pleadings to the Supreme Court to let it hear
the case first.
All the judges from the DC circuit wanted to hear the appeal, but
three had to step down, most probably because they held Microsoft
stock. It was known from previous appellate hearings in the case
(when the court had always found for Microsoft) that Judge
Silberman had to recuse himself because he controlled a trust that
held Microsoft shares. Whether he had this conflicting interest
when he signed a previous order for Microsoft in 1995 has not been
made known by the court.
It was certainly a ruling where the appearance of partiality was in
question. Microsoft's appeal essentially argued it was completely
innocent, despite the existence of smoking-gun documents and
evidence from witnesses that gave prima facie evidence of guilt.
Microsoft challenged the district court's legal conclusions
regarding all three alleged antitrust violations; Microsoft wanted
the remedial order that it should be split up to be set aside; and
it asserted that the trial judge committed ethical violations by
engaging in contacts with the media during the trial.
After "carefully considering the voluminous record on appeal -
including the district court's findings of fact and conclusions of
law, the testimony and exhibits submitted at trial, the parties'
briefs and the oral arguments before this court", the appellates
found that some, but not all, of Microsoft's liability challenges
had merit.
Ignorance or prejudice?
The main conclusions were that
the court found that Microsoft had violated section 2 of the
Sherman Antitrust Act by employing anti-competitive means to
maintain a monopoly in the operating system market.
But it was a considerable surprise to everyone that the court found
that Microsoft had not attempted to monopolise the Internet browser
market. To put it at its kindest, this suggests the appellate
judges did not understand the issues or had not read the record
fully: less kindly, they were prejudiced.
As to whether Microsoft had violated section 1 of the Sherman Act
by unlawfully tying its browser to its operating system, the
appeals court was unable or unwilling to decide, so it sent the
matter back to the district court for further examination, without
properly explaining why the original judgement should not
stand.
When it came to Microsoft's criticism of Judge Jackson's order that
Microsoft be split up, the judges were all but frothing at the
mouth. Not for them was Microsoft to be upset just because it had
for many years systematically broken the law (even the court of
appeals had to admit that, on the weight of Judge Jackson's
summarised evidence). Better to hang the judge than Microsoft,
which they did, citing two reasons.
First, they seized on Judge Jackson's decision not to hold a
hearing about the break-up order, but dismissed his reasons.
Microsoft claimed it would not be "socially beneficial" and Goldman
Sachs, financial advisor to Microsoft, claimed break-up "would
inevitably result in a significant loss of shareholder value", a
suggestion that differed from just about all other financial
community expectations. Why the appeals court should care about
these opinions was not explained.
A question of bias
Then the appellate judges claimed
Judge Jackson's "secret interviews" with the media, "numerous
offensive comments about Microsoft officials" and public statements
gave rise "to an appearance of partiality".
This is a matter of judgement. Certainly it would have been wiser
for Judge Jackson to have remained silent, but Microsoft had spent
great sums of money propagandising its case and attacking the
judge. Even the Court of Appeals could find no evidence of actual
bias, as Microsoft had claimed, or that the judge's remarks were
unjustified. Microsoft had systematically departed from the truth
throughout the case, merely shrugging each time it was
caught.
The Court of Appeals decided to send the remedies issue back to a
different trial judge in the district court and disqualified Judge
Jackson from the case.
However, the Federal Rules of Civil Procedure prevented the setting
aside of the district court's findings of fact, since this could
not be done unless they were "clearly erroneous". The appeals court
decided against subjecting "his fact findings to greater scrutiny.
For a number of reasons we have rejected any such approach".
Perhaps they were too factual.
In August 1995, Judge Jackson inherited the case when the same
Court of Appeals dismissed Judge Stanley Sporkin, who had been
required under the terms of the Tunney Act to review the proposed
consent decree against Microsoft (Congress had become concerned
that the DoJ had been " improperly influenced" in connection with
certain antitrust decrees). Judge Sporkin found it inadequate and
refused to sign it. Effectively admitting defeat, the then
antitrust chief Ann Bingaman said: "These guys are big boys. They
do what they want to do."
For an appeals court to dismiss one judge is unfortunate, but to
dismiss a second one on the same case smacks of political
motivation and/or partiality. Few observers are in any doubt there
is only one decision that the Court of Appeals would accept - that
Microsoft should not be seriously harmed by its anti-competitive
actions.
As Microsoft is well aware, the courts are too slow and ineffective
in dealing with anti-competitive actions and most remedies are
meaningless many years after the offence. It has taken nearly 12
years to get this far, with more than three years on the current
case. There is every sign it will continue for another two years,
with the appointment of a new judge, further submissions, hearings,
another district court decision, and probable appeals that might
yet reach the Supreme Court.
Meanwhile, Microsoft will continue to play the same high-handed
games with the industry and users, locking out competition.
It's not over yet
The core of the most recent case,
blatantly dismissed by the appeals court - the tying of IE to
Windows - is no longer an issue. Microsoft's illegal tactics
ensured that Netscape effectively went to the wall and that
Navigator ended its evolution and lost the initiative. By the end
of the case, Microsoft will have put into place a new business
model that benefits from the monopolies that it previously created
and will be renting software for annual fees that will increase
rapidly and quite likely become comparable to hardware costs in
years to come.
The only sanction that Microsoft truly fears is being broken up -
not because such a structural remedy would be a bad thing for
shareholders, but because the ruling elite would not like the loss
of face this would cause.
The most likely consequence is that Microsoft would face some minor
behavioural restrictions in a couple of years' time and that these
would cause no concern at Fort Redmond.
The wild cards are the new attorney general and the extent to which
he will interfere in the conduct of an ongoing case. In addition,
nobody yet has any idea how deferential the new district judge will
be to the Court of Appeals' intervention.
Contrary to popular belief, Microsoft cannot be fined a large sum,
since it would have had to have been offered a jury trial for this
to be possible. A potential outcome is certainly a feeble consent
decree.
Whether the new trial judge will order that Microsoft be broken up
remains to be seen, but we now know this would be the most feared
outcome at Fort Redmond.