On Appeal, Firm May Be Able to Avoid Breakup
For the past two years, Microsoft’s leaders and lawyers have responded to every trial setback by saying they will win on appeal.
They may be right.
The landmark antitrust battle now moves to appeals courts that are dominated by conservative, free-market judges who are openly skeptical of government regulation of business.
For that reason, most legal experts said Wednesday that the software giant has a strong chance of avoiding a forced breakup and may well win a complete reversal of Judge Thomas Penfield Jackson’s ruling.
Professor Robert H. Lande, an antitrust expert at the University of Baltimore law school, said he is no fan of Microsoft but said the company has reason to be optimistic about an appeal.
“I think Microsoft should be broken into four pieces, but I don’t think it’s going to happen,” Lande said. “I can’t believe the breakup will survive. They [government lawyers] will be lucky to win on the [findings that there were antitrust violations].”
George Washington University law professor William E. Kovacic agreed. “They have a strong chance on appeal. I do not think the government will run the appellate gantlet unscathed. In the end, I think they will knock out enough of the case to avoid a breakup,” Kovacic said.
Microsoft’s appeal is not a slam-dunk. UCLA law professor John Shepard Wiley Jr. said the findings are so detailed and exhaustive that Microsoft will be hard pressed to refute them. “Microsoft is going to have to be battling finding by finding,” he said. “There are 207 pages of finding of fact, and if you think every one of them is wrong, the magnitude [of proving that] presents a real challenge.”
And a partial victory may not be good enough for Microsoft. If the company is ultimately judged to have violated the antitrust laws, that ruling will leave the software maker vulnerable to private lawsuits filed by its competitors and its customers.
That’s why the company’s lawyers will be pressing hard to win a clear reversal during the appeals.
“Whichever higher court looks at this thing, we are confident that we’ll succeed on appeal,” Chairman Bill Gates said at the company’s Redmond, Wash., headquarters.
Grappling With Two Key Issues
Legal experts say appellate judges--and the U.S. Supreme Court--will have to grapple with two key issues:
* How aggressively can Microsoft defend its dominant position? The software maker used a number of strategies to fend off challengers, the most important tactic being its use of exclusive contracts, particularly with America Online. Wiley, who teaches antitrust law to federal judges, said that “not only is the law on exclusive contracts old and vague, but it certainly doesn’t apply or hasn’t been applied to a high-tech context.”
* Was Microsoft’s decision to give away its Internet Explorer browser, and combine it with its Windows operating system, predatory conduct or beneficial to consumers? Jackson ruled that Microsoft’s “gift” was not a fair, competitive tactic and that the only reason Microsoft set the browser’s price at zero was to kill the competition. Wiley calls the question “a difficult one because rapid product improvement and falling product prices is what happened in this marketplace. Microsoft said, ‘See, we helped consumers. They’ve been the beneficiaries.’ The appeals court will have to decide.”
Under the ordinary rules, the next stop in this case would be at the U.S. Court of Appeals for the District of Columbia Circuit. Six of its 10 judges are appointees of President Reagan and President Bush, and it already has sided with Microsoft on two earlier issues.
In 1997, Jackson barred Microsoft from forcing computer makers who use its software to also include its Internet browser.
But the U.S. appeals court took up the company’s appeal and reversed the order on a 2-1 vote. Judge Stephen F. Williams, a Reagan appointee, said the law should not “thwart Microsoft’s legitimate desire to continue to integrate products that had been separate.” Judge A. Raymond Randolph, a Bush appointee, agreed. Dissenting Judge Patricia Wald, a liberal President Carter appointee, has since left the court.
Not surprisingly, both the Justice Department and Jackson would prefer to bypass the conservative appeals court and take the case directly to the U.S. Supreme Court. And a special law governing antitrust appeals allows just that.
It says if the trial judge believes the case has a “general public importance,” he can recommend immediate review by the high court. However, it is up to the justices as to whether they agree to hear the case or send it back to the court of appeals.
Justices to Get the Final Word
Most experts who have followed the case say they think it is more likely than not that the high court will avoid the dispute--for now.
“There’s only a remote possibility the Supreme Court will take it up now,” said Boston University Law School Dean Ronald A. Cass. “There’s a huge factual record, and the remedies will be stayed pending the appeals. So, if you are a Supreme Court justice, why would you want to get involved now?”
Eventually, of course, the Supreme Court will have the final word. And it too has its share of antitrust skeptics. They include Justice Antonin Scalia, a Reagan appointee who taught at the University of Chicago, a bastion of free-market thinking. Justice Stephen G. Breyer, a Clinton appointee, also has written skeptically about antitrust law.
“Breyer is no liberal on antitrust,” professor Lande said.
Some legal experts said the company and its lawyers would be advised to change their demeanor as the case moves forward.
“I hope they’re less arrogant,” said Pamela Samuelson, a UC Berkeley law professor. “They’ve really displayed a kind of impatience, an arrogance with the judicial system that might even anger the appeals court.”
For his part, Gates was not ready to humbly admit wrongdoing, saying, “our higher-priced competitors . . . have been behind this lawsuit.” Consumers, Gates said, are “just anxious that we get this up in front of a higher court and get this behind us so we can continue to do what we have done throughout our history.”
While computer users around the world will follow the outcome for its impact on their PCs, antitrust experts will be watching to see whether the legal rules of the late 19th century Industrial Age will shape the technology of the early 21st century.
“This is the major antitrust case of the new Technology Age,” Samuelson said. “This is the case the U.S. Supreme Court will have something to say about.”
Effects Could Be Far-Reaching
And what the justices say in the end could go far beyond the fate of even the huge software makers.
“The court will have to revisit the [antitrust] legal doctrine that is old and underdeveloped,” professor Wiley said. “This high-tech world is a new playing field. No one is sure what the rules are yet.”
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Microsoft’s Antitrust Battles
When Bill Gates and Paul Allen founded Microsoft in 1975, the company had three employees and revenue of $16,000. In March 1986, the company’s initial public offering raised $61 million. The stock went public at $21 a share (15 cents when adjusted for subsequent splits), rising to $28 by the end of the first trading day. In spite of the company’s legal travails, the stock has risen steadily over the years, but slid recently. Here is a chronology of the antitrust actions involving Microsoft and a look at the companys stock performance (monthy closes and latest): *
Researched by NONA YATES / Los Angeles Times
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WHAT’s AHEAD
For consumers: Not much immediate impact. New computer buyers may see different desktop icons, since Microsoft can no longer control what computer makers put on the desktop. Also, due to elimination of some exclusive Microsoft deals with companies, some Microsoft software, such as Internet Explorer now required as the default Web browser on Macintosh, may now be eliminated from some computers.
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In the courtroom: Microsoft will ask the appellate court to stay the judgement and delay implementing the business practice restrictions during the appeal. On a second front, Microsoft will appeal the decision to the U.S. Appeals Court. The Justice Department will ask the Supreme Court to hear the case in an expedited hearing. The appeals process could take years.
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On the business front: The court has given Microsoft some leeway on what will happen to the stock. One simple method is to give stockholders one or more shares in each of the potential new companies for each share they now own. Chairman Bill Gates, however, cannot own stock in both companies.
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Sources: Associated Press, court records.
Researched by NONA YATES / Los Angeles Times
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Savage reported from Washington and Maharaj from Los Angeles. Times staff writer Greg Miller in Los Angeles also contributed to this story.
