Microsoft Confident It Will Prevail on Appeal


One day after settlement talks collapsed, Microsoft's chief legal strategist remained confident that the legal system will favor the software giant, even though he expects a harsh ruling this week from the federal judge overseeing the historic antitrust case.

"We anticipate that we're not going to get some good news on the conclusions of law," said Bill Neukom, Microsoft's senior vice president for law and corporate affairs. "But we are comfortable with our prospects on appeal.

"This case is a long-standing play, and we are just in the middle of it."

The failure to reach an out-of-court settlement between Microsoft Corp. and the Justice Department and 19 states sets the stage for U.S. District Judge Thomas Penfield Jackson to issue a verdict in the case, possibly as soon as today. After a nine-month trial, Jackson issued a preliminary finding that largely was in agreement with the government's assertions: that Microsoft created a monopoly with its Windows software, the dominant operating system for personal computers. Many observers, including Neukom, expect his ruling this week to go against Microsoft as well.

Neukom acknowledged the risks of pursuing an appeal that could drag on for years. Company attorneys already are facing the additional complication of defending roughly 115 private antitrust cases that have been filed against the company since Jackson entered his so-called findings of fact.

"We deal with those cases by taking them seriously, but by jealously asserting our defenses, which we think are winning defenses," he said. "We know our business and we know our competition law."

But experts believe that since Jackson's findings have been so heavily against Microsoft, they expect him to find that the company committed numerous antitrust violations--making it harder for Microsoft to win on appeal.

"The very findings of violations of the law will have a sweeping impact," said Ed Black, president of the Computer and Communications Industry Assn. in Washington, D.C. "Here, the monopoly will have been demonstrated and the violation of law will have been shown. That complicates life for Microsoft in ways that it has never faced, including how it proceeds on appeal."

In issuing his ruling, Jackson will likely consider court-ordered remedies, which will include hearings and written recommendations from the plaintiffs that could range from having the company modify its business practices to breaking it up. An appeal could take up to two years to reach the Supreme Court.

"I don't see any of the [government's] case vulnerable to appeal," Don Falk, Washington-based antitrust attorney.

Neukom, however, said Microsoft would ultimately prevail for two reasons: More often than not, federal appeals courts overturn trial-court decisions on matters involving antitrust issues. Second, despite Jackson's findings of fact, the government has never proven that Microsoft tried "to divide the market or collude with others to undertake anti-competitive conduct," he said.

On appeal, Microsoft would argue that there was a lack of admissible evidence to support many of the findings of fact and, Neukom claims, that Jackson ignored key evidence.

"The finder seems to have turned his back on certain pieces of incontroverted evidence," he said.

He cited a key meeting between Microsoft and Netscape Communications, the developer of the first commercially successful Web browser. In the antitrust suit, Netscape executives claimed that Microsoft attempted to intimidate it into stopping plans to develop its Navigator browser for Windows 95.

"We were trying to evangelize to them to get them to create their application in a way it would run on Windows 95," Neukom said. "But the government turned those conversations around to make it look as if Microsoft was trying to compete with them."

Regardless, former Netscape Chief Executive Jim Barksdale testified at the trial that his company distributed 160 million units of its browser in 1998.

Microsoft also will offer scores of procedural violations that it claims hindered its ability to a fair trial, Neukom said.

Microsoft previously has succeeded in overturning on appeal when it has lost at trial. In 1998, a federal appeals court overturned a preliminary injunction issued by Jackson that would have prevented the company from requiring computer makers to ship its Internet Explorer browser with each PC running on Windows 95.

Neukom pointed out that a federal appeals court recently reversed the trial court's decision that found chip maker Intel Corp. had engaged in anti-competitive practices to protect its market.

Neukom declined to specify which issues Microsoft found unacceptable in negotiations, but he said the core issue has been about protecting its Windows platform. "We must preserve our right to design software in a way that responds to customer demand," he said.

According to people close to the negotiations, Microsoft had offered to disclose key portions of the Windows' operating-system source code, separate its Internet Explorer browser from Windows and make Windows pricing uniform.

The company, Neukom said, is prepared to defend its position to the U.S. Supreme Court, but he said settling is still a possibility. "We are reasonable people. We will look at other options."

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