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Microsoft appears to have gained the upper hand in the appeals court hearings on the antitrust case, says Peter Spiegel
Published: March 2 2001 20:12GMT | Last Updated: March 2 2001 20:17GMT
David Sentelle, one of the seven appeals court judges who heard arguments in the Microsoft antitrust case this week, is a courtly Southerner with a lilting North Carolina drawl who likes to use the occasional light-hearted quip to defuse a tension-filled courtroom.
But at one point during the two-day hearings on the Microsoft break-up, Judge Sentelle found himself getting so worked up that his voice rose to a shout as he scolded one of the government's lawyers for defending the actions of trial judge Thomas Penfield Jackson. Since the trial ended, Judge Jackson has made a practice of deriding the software company and its executives in public.
"It's so improper," the judge bellowed. "Isn't it likely that it's going to look to a member of the public as if this judge has some other axe to grind, or he wouldn't be doing something that improper?"
It was that kind of week for the Justice Department. At almost every turn, prosecutors found their case being picked apart - and sometimes openly ridiculed - by the appeals court, which will decide in the next few weeks whether the landmark break-up decision will stand.
To most observers of the proceedings, that question has already been answered: the chances of Judge Jackson's order to split the company in two surviving appellate review are slim.
The judges now appear to be focusing on a more narrow list of antitrust violations that could still find the company facing significant behavioural remedies. Yet even that sliver of hope for the government is just that: a sliver. Most troubling for the antitrust division could be the matter that made Judge Sentelle so angry: Judge Jackson's "extrajudicial statements".
In media interviews since the end of the case - and in a handful of instances even before it - the trial judge has compared Bill Gates, Microsoft's chairman, to Napoleon and charged him with lacking business ethics. He has questioned the intelligence of Microsoft's top lawyer and compared the company's executives to a gang of drug dealers and murderers who constantly deny their guilt.
Going into this week, it was thought that the discussion of Judge Jackson's behaviour would merely be an entertaining distraction with little real impact on the outcome, other than possibly ending the exuberant judge's involvement in the case, which now seems likely. Instead, the appeals court appeared to be considering a much more damaging stance for the government: giving short shrift to Judge Jackson's findings of fact.
Any such move would be devastating to the Justice Department. In US law, findings of fact -abook-length recitation of Microsoft's bad deeds, drawn up by Judge Jackson - can be overturned by an appeals court only if they find them "clearly erroneous", an extremely basic standard that is rarely breached.
It is the crutch the government has leant on even as the legal theory behind their arguments has been assailed. But if the appeals court feels Judge Jackson's extracurricular activities show him to be unfairly biased, they can change the standard of review. "If the judge is not an unbiased trier of fact, doesn't the underpinning for us applying the 'clearly erroneous' standard to the findings of fact evaporate?" asked Judge Sentelle.
Even if the appeals court does not breach Judge Jackson's fact findings, the Justice Department's three-legged case may still find itself short of two legs and severely weakened in its third.
The leg that the judges appeared to find most wanting was the accusation that Microsoft tried to monopolise the market for internet browsers. The charge centres on a June 1995 meeting with Netscape, when Microsoft executives tried to persuade its competitor to abandon some of its more ambitious plans for its Navigator software in return for an agreement not to compete with Netscape in non-Windows operating systems.
But the judges were so sceptical of the conviction on the charge that they even questioned whether there was a distinct market for browsers that could be monopolised. "It's a fairly absurd position . . . for anyone now to suggest that there is a separate market for a browserless operating system," said Chief Judge Harry Edwards.
In a sign of how confident Microsoft lawyers were on the point, Richard Urowsky, a New York attorney who handled most of the arguments for the company, decided to forgo an extra five minutes the judges offered him to rebut the government's case: "Microsoft waives rebuttal," he almost whispered, without entirely standing up from the defence table.
The appeals panel was almost equally sceptical of leg two: the charge that Microsoft illegally "tied" Internet Explorer, its web browser, into its Windows operating system. Tying is a legal term that relates to a company forcing a customer to buy one product in order to get another.
But because Internet Explorer was offered as part of Windows, the judges found it difficult to substantiate the claim. "Pricing concerns that have historically driven tie-in law end the case," noted Judge Stephen Williams.
The leg on which the government appears to have been able to sustain at least part of its argument is the accusation that Microsoft illegally tried to maintain its monopoly position in operating systems by threatening competitors and customers with retaliation if they used Netscape's Navigator. Microsoft's great fear was that Navigator could be developed into "middleware", a platform where users could use Netscape software and the internet as a substitute for an operating system such as Windows.
If the court upheld the Justice Department's case on those limited grounds, the company's punishment would likely be much less severe than Judge Jackson's sweeping order. "It would be a very modest subset of the original charges," says William Kovacic, a George Washington University antitrust scholar who sat through both days of the hearings. "What kind of remedy will that platform support? A commensurately modest remedy."
Even that limited win for the government could prove illusory, however. Several of the judges, in particular Judge Edwards, questioned whether Microsoft's bad acts had prevented Netscape from developing middleware since Netscape president James Barksdale testified that he had never really contemplated it in the first place.
"[On] some of the issues that Edwards was insistent on, if they catch fire, the monopoly maintenance case collapses and the whole case implodes," says Mr Kovacic.
But a limited win for the government would turn the spotlight on George W. Bush's administration, which is generally thought to be a reluctant warrior in the case. During the presidential campaign, Mr Bush told an audience near Microsoft's headquarters in Redmond, Washington, that he was uncomfortable with the suit. "What I am worried about is if this company were to be broken up," he said of Microsoft. "I worry about the effect of lawsuits on job creation."
In addition, Charles James, the man Mr Bush has appointed to head the Justice Department's antitrust division, criticised the Clinton administration's policies in monopoly cases just before he took the post.
But even if Mr James moves to cut a deal with Microsoft, the 18 states - plus the District of Columbia - that have joined in the suit appear unlikely to be so quick to settle. During last year's trial, former antitrust chief Joel Klein was close to settlement terms with Microsoft, only to be vetoed by the states' attorneys-general.
There still remains a myriad potential outcomes but they look significantly more friendly to Microsoft than they did just a week ago. Even if the company has to return to the courtroom, it will be under much more favourable conditions. It will also be without Judge Jackson presiding.
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