From tomorrow's WSJ:
March 10, 1999
Its Trial on Hold, Microsoft
Starts Working on an Appeal
By JOHN R. WILKE
Staff Reporter of THE WALL STREET JOURNAL
WASHINGTON--Even as it prepares for the last round of its landmark
antitrust trial, Microsoft Corp. is quietly mapping out an appeals strategy
and hasn't ruled out even seeking a settlement with the government.
Microsoft lawyers say they still believe Judge
Thomas Penfield Jackson will conclude the
law is on their side. But after a string of
courtroom setbacks, they have asked Richard
Urowsky, the Sullivan & Cromwell lawyer who won a crucial appellate
round on their behalf last June, to begin building a possible appeal. They
also are expected to use the current six-week trial break to weigh other
options, people close to the case said. The trial will resume in mid-April
with rebuttal and closing arguments.
Greg Shaw, a Microsoft spokesman, wouldn't comment on prospects for
a settlement. "We've always said we're open to a settlement. But there's an
important principle at stake in this trial. It's our freedom to innovate, a
principle at risk not just for Microsoft but for the entire technology
industry, and that's just not negotiable."
Copyright law would be a key element of any appeal, according to
Charles F. Rule, a former Justice Department official who is now a legal
adviser to Microsoft. The company would argue that copyright law gives
them the right to keep their product from being altered by their distributors
-- a strategy that would ask the appeals court to take a hard look at where
intellectual-property rights end and antitrust law begins.
"The PC makers ultimately are our distributors, and we have a right to
prevent them from degrading the product before it reaches the customer,"
Mr. Rule says. The antitrust case was triggered in part by Microsoft's
demand that PC makers not interfere with the Windows start-up sequence
when new computers are turned on. It ensured that Windows always
looks the same to new users, but also gave Microsoft control over the PC
desktop, an important online showcase for its products and those of its
partners.
The copyright argument might come into play if the lower court imposes
restrictions on Windows and its start-up sequence in new computers, as
the government seeks. "An inherent right of a copyright holder is to
preserve the integrity of the product," Mr. Rule says. The computer
makers "aren't free to just rip out parts they don't like."
At issue is whether copyright law can trump antitrust law, given a
copyright's intended effect of granting exclusivity over a piece of intellectual
property, such as a book, to the holder. Indeed, on the stand one
Microsoft witness compared Windows to "Moby-Dick" and said
distributors can't rewrite the last chapter if they don't like the ending.
Some legal experts doubt the approach would work in an appeal. "They're
unlikely to prevail on a copyright argument," says William Kovacic, of
George Washington University, citing instances when antitrust laws have
superseded copyright claims wielded by dominant firms.
Microsoft's legal team also would cite higher-court rulings that might be
persuasive in the District of Columbia Circuit Court of Appeals, three
floors above Judge Jackson's courtroom. First among them is that same
court's ruling in an earlier government case against Microsoft last June
warning courts away from meddling in technology-design decisions. The
ruling seemed to give Microsoft freedom to add new features to Windows
even if it hurts other companies.
Another decision they are likely to cite is one written by Justice Stephen
Breyer when he was on the federal bench in Boston in 1984. The
Microsoft lawyers say it supports their claim that the company helped
consumers by pushing down prices. "The Congress that enacted the
Sherman Antitrust Act saw it as a way of protecting consumers against
prices that were too high, not too low," Justice Breyer wrote. "Courts
should be cautious -- reluctant to condemn too speedily -- an arrangement
that on its face appears to bring low-price benefits to consumers."
A third appeals-court ruling, in 1997, set tough standards for judging
exclusionary contracts, saying that they also must have foreclosed a rival's
ability to get to market with its product in some other way. A key to
Microsoft's defense, both in the trial court and if it is forced to appeal, is its
claim that its upstart rival Netscape Communications Corp. wasn't
foreclosed from the market by Microsoft's exclusive contracts with
Internet partners.
One finding that can't be overturned on appeal is one of credibility; a part
of the government's trial strategy has been to hammer away at Microsoft's
credibility at every turn. It has repeatedly brandished e-mail that
contradicts what company executives said on the stand. Justice
Department officials say a copyright argument won't help Microsoft explain
away its exclusive contracts, which the government says are illegal.
David Boies, the government's lead trial counsel, says Microsoft will have
a hard time arguing past the facts brought out at trial these past five
months. "We've made our case from their own documents and the
admissions of their own witnesses," he says. And copyright laws can't
provide cover for any illegal use of exclusive contracts, he says.
Other officials close to the case say that Microsoft has made no settlement
offer and that no talks have taken place. Microsoft's share price rose
$2.8125 to close at $161.8125 on the Nasdaq Stock Market Tuesday,
following a report in the Seattle Times that speculated about settlement
talks.
Any move by Microsoft to reassess a possible settlement offer may have
been spurred by an admonition Judge Jackson made to the lawyers just
before trial recessed last month, according to a person working with the
group of states that joined the Justice Department in the suit. "Use your six
weeks wisely," he is quoted as saying.
Any settlement with the Justice Department that didn't also satisfy each of
the 19 states involved wouldn't end the trial, the state official added. The
states, which have taken a hard line on what remedy should be imposed on
Microsoft if the government wins, also could thwart a settlement if they
thought it didn't go far enough, he said.
Microsoft still faces exposure from private lawsuits if it settles. That is
because under antitrust law, a consent decree reached after evidence is
taken can be cited as an admission of charges in the case. For Microsoft,
then, the costs of settling could still be great beyond whatever restrictions
on its business practices that it might have to accept.
And given the broad case that has emerged, whatever terms the
government might have agreed to before the suit, these days they are likely
to be far stricter.
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