Microsoft's High Court Houdini

It's betting Carter Phillips can work appeals-court magic

To the immense relief of everybody at Microsoft Corp. (MSFT), the company's landmark antitrust case is finally leaving Judge Thomas Penfield Jackson's courtroom. On Sept. 26, the U.S. Supreme Court decided not to hear the case immediately. That means the antitrust battle is scheduled to resume at the District of Columbia Circuit Court of Appeals, which has asked Microsoft to submit a briefing schedule on Oct. 2.

For the second phase of the lawsuit, though, the company has a new weapon. In July, the company quietly hired Carter G. Phillips to help formulate an appellate strategy. A 48-year-old partner at the Washington office of Sidley & Austin, he belongs to one of the legal world's most exclusive clubs: the small community of attorneys who specialize in guiding clients through the upper stratosphere of the federal judiciary. Other members of this elite group are Harvard Law School's Laurence Tribe, Gibson, Dunn & Crutcher's Theodore B. Olson, and John G. Roberts Jr. of Hogan & Hartson. Famous alumni include outgoing Justice antitrust chief Joel I. Klein and former Independent Counsel Kenneth W. Starr.

BLOCKBUSTER. Even among this brainy group, Phillips stands out. His lifetime win-loss record as an oral advocate before the Supreme Court, where many observers expect this battle to ultimately play out, is an impressive 18-13 (.580). And during the high court's last term, he had his most impressive showing yet, going three-for-three as an oral advocate. He won a blockbuster case that upheld the way health-maintenance organizations compensate doctors. He helped oil companies recover $160 million they paid to the government for offshore drilling rights. And he successfully limited the liability of railroad companies for accidents at crossings. He also advised the legal team that persuaded the high court to uphold the Miranda ruling, which requires police to tell crime suspects about their legal rights.

Can he work this kind of magic with Microsoft? So far he's off to a good start. After Justice asked the Supreme Court to hear the case immediately, he helped write the brief that persuaded the high court to allow the D.C. Circuit to review the suit first. He's convinced that Microsoft is on a new winning streak and that Judge Jackson's June 7 breakup order will never stand up. "There's not a court in the country that would uphold these remedies," says Phillips. Judge Jackson "acted with a bizarre deference to Justice. If judges did that in capital murder cases, there'd be a lot more people executed, because prosecutors have a way of saying `kill 'em."'

Phillips is the first to admit he's no antitrust expert. But he has steered dozens of cases through the D.C. Circuit and the Supreme Court. That has given him detailed insight into the personality, philosophy, and intellectual obsessions of all nine members of the top court, as well as the 10 justices on the D.C. Circuit Court of Appeals. This body of knowledge is critical to the art of winning a majority--a task that requires lawyers to craft arguments that have the power to attract a broad coalition of ideologically disparate judges.

Indeed, many leading corporate lawyers believe that at the upper reaches of the legal system, it is better to have someone who knows the personality of the judges than to have a specialist in a particular area of the law. "A good appellate lawyer knows that there are ebbs and flows in [judge's] opinions," says Benjamin Heineman Jr., senior vice-president and general counsel at General Electric Co. and a former colleague of Phillips' at Sidley. "Carter is certainly one of the best, if not the best, of his generation."

"RHETORICAL FIRE." Phillips has acquired his intimate knowledge of the D.C. Circuit and the Supreme Court through plenty of close contact. A native of Canton, Ohio, he graduated magna cum laude from Northwestern University School of Law and clerked for former Supreme Court Justice Warren E. Burger. After teaching for two years at the University of Illinois College of Law, he joined the U.S. Solicitor General's office, where he argued his first case before the High Court at the age of 29.

In 1984, Phillips joined Sidley as an appellate specialist, where he quickly gained clients such as GE and AT&T. A lifelong Republican, the easygoing Midwesterner is a polite and polished advocate. It is not unusual for him to praise his adversaries in court. But his briefs frequently sting. "His written submissions have real rhetorical fire. Then he stands up in oral arguments and puts on a much kinder face," says Thomas C. Goldstein, another beltway Supreme Court specialist who argued the railroad case opposite Phillips last year.

Phillips may be the perfect choice for Microsoft. Of the roughly 20 attorneys in Washington who specialize in appeals, only Olson and Roberts can match his Supreme Court face time on business issues. And because their firms represent Microsoft rivals, they have conflicts preventing them from taking the case.

At the D.C. Circuit, Phillips will be facing a more friendly audience than Judge Jackson. Among the seven members of the D.C. Circuit Court of Appeal who have not recused themselves from hearing the case, Phillips can count two avowed skeptics of antitrust law. Both Douglas H. Ginsberg and Stephen F. Williams are well-known followers of the so-called Chicago School of economics, which holds that government should keep its hands out of the business world. A third judge, A. Raymond Randolf, sided with Microsoft on the issue of whether the company violated its 1994 consent decree with Justice. The remaining members are David B. Sentelle, one of the most conservative judges in the country, and three Democrat-appointed judges.

If the Supreme Court winds up taking the case, it would also have a solidly right-wing core made up of William Rehnquist, Antonin Scalia, and Clarence Thomas. But because it so rarely reviews antitrust cases, the high court is tough to handicap. "We're talking about a wide-open field," says Phillips. "We can influence the justices."

While Phillips is mum on Microsoft's appeals strategy, it's clear the company plans to argue that Jackson badly botched the remedies portion of the trial. After only the most cursory of hearings, the company argues, the judge accepted every word, colon, and comma of the government's breakup plan. What's more, he broke with convention by speaking to the press about his decision while the case was still pending. George Washington University law professor William E. Kovacic notes that the company's brief on the issue of whether the case should be immediately heard by the Supreme Court skillfully argues that the suit was beset by problems from the beginning. "The strategy is to say the entire proceedings were infected with bias and bad judgment," says Kovacic. "I think the odds Microsoft will be split up are less than one in ten."

Was Microsoft's decision to hire Phillips a slap in the face to its trial counsel, Sullivan & Cromwell? The software maker insists the answer to that question is no. Sullivan is still listed on the company's briefs as the counsel of record, and a spokesperson says no decision has been made as to who will be handling appellate arguments. But Washington insiders argue Microsoft never would have hired Phillips if it didn't plan on giving him a more prominent role as the case progresses. "It would be like getting one of the best quarterbacks in the country and not sending him in to throw some passes," says Gibson, Dunn & Crutcher's Olson. In Phillips, Microsoft has retained the legal profession's equivalent of Joe Montana. But at this point in the game, his team is way down. Salvaging a victory could take some long bombs.

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