The Microsoft Case Is Hardly Over

The Justice Dept. won just enough in the Appeals Court decision to keep a quick settlement out of the equation

By Dan Carney

Charles A. James, the newly minted antitrust chief at the Justice Dept., is an amiable fellow. Practical, too. In private practice, he earned a reputation for keeping his clients out of court -- and out of trouble. He would love nothing more than to settle the Microsoft case and move on. The same seems to be true of his superiors in the Bush Administration -- including the President himself -- whose comments have belied a skepticism about the case brought by President Clinton's regulators.

But you can forget about a settlement for now. If anything comes through loud and clear from the unanimous ruling by the D.C. Circuit Court of Appeals, it's that the Microsoft case will continue for months, if not years. The appeals panel's 125-page decision is a mixed and complex verdict, with major portions of the case being remanded to a new trial judge. That alone will keep it churning. A new judge will have to get up to speed, since the original one, Thomas Penfield Jackson, was ordered off the case by the angry appellate court. New evidence will have to be considered about Microsoft's behavior since the trial.

Further diminishing the prospects for settlement: The ruling is a bit more of a win for the government than the conventional wisdom predicted. The Justice Dept. prevailed on its core arguments -- and fought to a draw on the key issue of the extent to which Microsoft can build other products into its basic operating system to the exclusion of others, a process known as tying.


  The upshot: Trustbuster James may have little choice but to trudge on. Walking away from this long and complicated case with victory still within view would be seen as a crass political move on the part of the new Administration. Had the ruling been more favorable to Microsoft, it likely would have created a chasm between Justice and the 19 state attorneys general involved in the case. The feds would want to settle and the state AGs would want blood. Instead, the two camps now appear to be stuck with seeing each other in court again. "This opinion is powerful incentive to keep the team intact," says Richard Blumenthal, attorney general of Connecticut.

Truth is, the ruling upheld the government's central case against Microsoft -- that it unlawfully maintained its monopoly through bullying tactics visited upon computer makers, Internet service providers, and others. The government also won a tactical victory on the issue of whether simply offering Internet Explorer for free as part of the Windows operating system constituted unlawful tying. Many legal observers thought Jackson's ruling that such tying is indeed illegal would be reversed. Instead, it was simply remanded to a new judge, which means it's still very much alive.

That's not to say that Microsoft doesn't have plenty to celebrate. A finding that it attempted to monopolize the browser market was reversed. And, most important, the judges threw out the order that the company be split in two.


  Significantly, this remand to a new judge was not merely for procedural reasons -- that Jackson failed to hold hearings on the consequences of a breakup, or that he violated judicial cannons by speaking about the case with reporters. Instead, it was for substantive reasons -- the Appeals Court didn't like what it saw in Jackson's conduct of the trial or in the remedy. The judges reasoned that enough of the findings had been reversed to question whether such a draconian remedy was in order. They did not shut the door entirely on a breakup but suggested that it might be cruel and unusual punishment for Microsoft's crimes.

The one clear winner in the ruling is, as always, the trial lawyers. Dozens of private suits are pending against Microsoft. Each one is built on the foundation that Microsoft has been an abusive monopolist. The judges upheld that core conclusion. "I personally think the private litigants will be quite pleased with the way this one turned out," says Salil Mehra, a former Justice Dept. attorney now at Temple University law school.

The ruling might bring out additional, more serious suits as well. Many analysts have their eye on AOL Time Warner, which purchased Netscape in the mid '90s and felt the wrath of Redmond for it. AOL has kept its powder dry. The affirmation of the maintenance-of-monopoly charge might well be enough to convince it that it could easily win a suit.

None of this is good news for Microsoft. This ruling was supposed to be the beginning of the end of its legal nightmare. The hostile questioning government lawyers endured at the appeal in February brought smiles to the faces of more than one Microsoft attorney. But the ruling Microsoft got is something considerably less than it had wanted. This is a new beginning all right -- the beginning of the next phase.

Carney is legal affairs correspondent for BusinessWeek in Washington

Edited by Douglas Harbrecht