Microsoft, DOJ disclosure lawsuit filed

The American Antitrust Institute (AAI) filed the suit, which largely relies on newspaper reports to support its nondisclosure allegations. The Tunney Act requires the government and an antitrust violator to disclose all communications related to the settlement process.

But legal experts said the suit would likely have only a negligible impact on whether a federal judge approves the November settlement cut between the Justice Department, Microsoft and nine of 18 states.

"It's a way of throwing a monkey wrench in the process and slowing it down and putting Microsoft through a lot more burden and expense," said Emmett Stanton, an antitrust attorney with Fenwick & West in Palo Alto, Calif.

The Nixon-era Tunney statute set up rules for reviewing federal antitrust settlements to ensure, among other things, that backroom political deals did not influence the process.

Microsoft filed a legal brief outlining communications with the Justice Department on Dec. 10.

"We made the disclosures required by the Tunney Act and are looking forward to court review of the settlement," said Microsoft spokesman Jim Desler.

"Any kind of response we would give would be in court," said Justice Department spokeswoman Gina Talamona.

The organization also wants the Justice Department to explain why it rejected other viable settlement options and to explain ambiguities in the proposed deal the group claims could hurt private lawsuits.

More than 100 consumer lawsuits are pending against Microsoft from its antitrust case with the government. On Tuesday, AOL Time Warner's Netscape subsidiary filed a lawsuit to recover damages from Microsoft for its anti-competitive behavior during the browser wars.

AAI President Albert Foer said that "the court's intervention is needed because Microsoft and the government simply did not live up to their statutory obligations."

Foer's group would essentially like U.S. District Judge Colleen Kollar-Kotelly to put on hold the 60-day period of public comment mandated by the Tunney Act while she reviews the allegations. That period ends Monday.

But Hillard Sterling, an antitrust attorney with Gordon & Glickson in Chicago, does not believe Kollar-Kotelly will be swayed to intervene.

"It doesn't appear there's any ability to slow the process," Sterling said. "At most, this will be an argument that will play out in the Tunney proceedings. This is probably a far-fetched attempt to position an argument that will be the subject of the judicial review of the settlement proposal. But it won't have any effective impact in affecting the proceeding itself."

AAI, based here, describes itself as a 4-year-old independent nonprofit organization aimed at promoting competition through education, research and advocacy. It supports the proposals of nine states calling on Kollar-Kotelly for stiffer sanctions against Microsoft for violating antitrust law in preserving its monopoly in personal computer operating systems.

AAI said 45 organizations contribute to its funding, including software maker Oracle, a Microsoft competitor. Oracle funding constitutes less than 10 percent of the organization's budget, according to an AAI representative.

"They would generally be regarded as a pro-antitrust plaintiffs policy group," Stanton said.

AAI's philosophical stance also differs from the mainstream of antitrust doctrine known as the "Chicago School" and founded by Judge Robert Bork in the late 1970s. The Chicago School measures the sole goal of antitrust protection as consumer welfare, which typically translates into low prices.

"They're sort of the anti-Chicago School of economics," Stanton said. "The Chicago School of antitrust economics has been the predominant model for nearly 20 years. The AAI is largely a group that is contrary to that school of orthodoxy."

Failure to disclose?
Legal experts noted that most of the issues AAI raised are points of clarification Kollar-Kotelly would have sought during the normal Tunney Act proceeding.

"If they had a smoking gun, I'm sure everyone would like to see it. But more of the same-old same-old, so what?" Stanton said.

One area that concerns Foer is the Justice Department's failure to release "determinative documents that led to the proposed settlement," he said. "The Department (of Justice) has taken the position there are no such documents." AAI is asking Kollar-Kotelly to ensure there are in fact no additional documents.

AAI also faulted the Justice Department for not disclosing its reasoning for rejecting one settlement proposal for another.

In an argument some legal experts consider a stretch, AAI also said there are ambiguities in the settlement that could prevent consumers and competitors wronged by Microsoft's antitrust behavior from recovering damages.

Based on a legal doctrine known as collateral estoppel, those people or companies can use the court's findings in pursuit of damages.

Using Netscape as an example, those wronged are "entitled to the findings that are adverse to Microsoft," said Jeff Shohet, a managing partner with Gray Cary's antitrust practice in San Diego.

AAI contends that ambiguities in the settlement might somehow interfere with people taking advantage of the doctrine.

"Our position," said Foer, "is that collateral estoppel is not affected by the settlement, but when you read it, there are parts of the settlement that are at least ambiguous. And we think it is critical that the public should know whether Microsoft and the Justice Department are intending by this settlement to have any impact on collateral estoppel."

Foer also leaned heavily on press reports to conjecture that Microsoft and government employees had conversations neither side disclosed.

"It seems remarkable, given what we've read in the press about Microsoft's political side of this case, that none of this was disclosed," Foer said. "We also ask the court to describe the nature of the reported communication."

But Stanton said the sort of talks Foer was referring to happen all the time and would have little bearing on the settlement.

"Does anybody think they're going to see anything new and surprising coming out of legislative contacts?" Stanton asked. "Does anybody think Netscape hasn't been talking up legislators like crazy? It's no coincidence that a senator from Utah (Orrin Hatch), where Novell is headquartered, is one of the most outspoken critics of Microsoft. Likewise, it's not surprising that a senator from Washington (state) would be a proponent of Microsoft. Is this shocking to anybody?"

Stanton added that, regardless, Capitol Hill has little power to affect what the Justice Department does.

AAI also questioned whether Microsoft had properly designated the counsel of record, which would be a lawyer authorized to negotiate a settlement with the Justice Department.

Charles "Rick" Rule, a Microsoft attorney with Fried Frank Harris Shriver & Jacobson, based here, largely negotiated the settlement with Assistant Attorney General James. Neither party would have to disclose conversations between James and the counsel of record.

But AAI contends that Rule had not yet been officially designated counsel of record when he had his first talks with James, hence those talks should remain accessible.

"This attorney was designated counsel of record after (some of) these conversations occurred," Foer said. "We ask the court to clarify that the counsel of record designation cannot be used retroactively to hide otherwise disclosable information."

According to Microsoft though, Rule has been part of the legal team since 1997 and counsel of record since July 2000.

"He was the counsel of record during the appellate process, and this is reflected in records filed with the Court of Appeals," Desler said. "Everyone involved with this case knows he was part of the team during the District Court and Appellate phases."