Tech Industry

DOJ: Microsoft case not strong enough

The Justice Department concedes that it settled the antitrust case in part because it faced "an uphill battle that would likely have been resolved against us."

WASHINGTON--The U.S. Justice Department on Wednesday conceded that it settled with Microsoft in part because trustbusters failed to prove part of the basic theory of the antitrust case.

In his presentation before U.S. District Judge Colleen Kollar-Kotelly, Justice Department lead attorney Philip Beck said that Microsoft was able to hold on to a monopoly in Intel-based operating systems only through anti-competitive acts. But the government was not in a position to make that argument stick, he said.

"We tried very hard the first time around, and we were not able to do it," he told the court. "The causation issues"--actually proving the point about anti-competitive acts--"would have been an uphill battle that would likely have been resolved against us."

Beck's presentation kicked off a hearing mandated by federal law to determine whether the settlement is in the public interest.

The Justice Department and a number of state attorneys general in November reached a deal to settle their antitrust case against the software titan. Nine other states declined to join the settlement and are pursuing their antitrust efforts along a separate track. Hearings on the continuing litigation are scheduled for later this month.

Both Beck and Microsoft attorney John Warden argued that the proposed settlement is in the public interest, and Warden agreed that the government got as much as it could.

"Without causation, there's nothing to remedy," Warden said. Moving ahead with further litigation to determine a remedy--that is, penalties against Microsoft--would not have gotten the government anything more, he said. "One doesn't get two bites of the apple."

The settling states are scheduled to make presentations later Wednesday. A number of third parties also are scheduled to make 10-minute presentations to the court, among them the American Antitrust Institute, telephone company SBC Communications and the ProComp trade group. AAI receives funds from Microsoft competitor Oracle, while ProComp is backed in part by AOL Time Warner, Oracle and Sun Microsystems.

Beck quoted from comments submitted to the Justice Department by SBC and ProComp questioning the settlement's legitimacy. Like many other critics, they argued that the scope of the settlement is insufficient because it would neither limit Microsoft's monopoly nor put an end to it.

ProComp had argued that Microsoft's "monopoly power would have dissipated" if not for anti-competitive acts committed against Netscape Communications' browser and Sun's Java language.

But Beck said the Justice Department failed to prove this during the original trial and later during an appeal of the original verdict. The Court of Appeals upheld the earlier finding that Microsoft was a monopolist that employed anti-competitive tactics; the court also threw out the original penalties imposed.

see special coverage: Microsoft, DOJ reach settlement Although the ruling by the appeals court upheld a major charge against Microsoft, it left other claims by the wayside, and the government would not have gained more by continuing with trial proceedings than it can get through the settlement, Beck said.

"We are constrained by the case" as it was originally shaped, Beck said.

The middleware question
A key issue in the morning session was that of middleware--applications that interact with the operating system--which was at the heart of the original case. The government originally argued that Microsoft, perceiving that Netscape and Java could replace Windows, used anti-competitive means to preserve its monopoly.

At one point, Kollar-Kotelly questioned whether the settlement adopted a different definition of middleware than the one put forth by the Court of Appeals.

"The short answer is no," said Justice Department attorney Philip Malone. According to the court's definition, he said, "Middleware refers to software products that expose their APIs (application programming interfaces)."

But Malone also said that the settlement does lay out a more specific definition of middleware for the benefit of those offering competitive, non-Microsoft software. "That's what the decree really seeks to protect," he said.

If litigation had continued, Beck said, the Justice Department questioned whether "the government would be able to provide a broad definition of middleware."

During his presentation to the court, Warden, the Microsoft attorney, said that the company considered the settlement's definition of middleware--including its Windows Media Player and Outlook Express--to be a major concession on its part, since Microsoft itself doesn't identify those products that way.

The settlement, he said, "greatly expands the Court of Appeals definition of middleware."

Warden emphasized that Microsoft made many concessions, including a pledge to disclose client/server programming protocols--a move that went "far outside the case as tried," he said.

He addressed the question of why Microsoft settled if it believed it made unnecessary concessions. "The parties (in the case) have been repeatedly urged to settle by the courts...finally by this court, in the firmest of terms, on Sept. 28," he said.

The terms were "the price of settlement," he said. He described the Justice Department and the nine states involved in the deal as "hard bargainers."

"Microsoft wanted to achieve certainty about the road going forward," he said, emphasizing that the company wanted to improve its relationship with antitrust enforcers. "Litigation is not good for an individual or a company," he said.

Full disclosure
The judge questioned Microsoft and the Justice Department at length about whether all the proper disclosures had been made to the court. A federal law known as the Tunney Act mandates that no political, backroom dealmaking can influence an antitrust settlement.

Kollar-Kotelly addressed concerns raised by some settlement critics that Microsoft had not properly disclosed legislative contacts. But Warden, who said that there had been no contacts related to the settlement, argued that legislative disclosure was not a requirement of the Tunney Act.

Beck noted that so far as he could determine, there hadn't been a requirement to reveal such contacts and the Justice Department hadn't advised anyone to make this kind of disclosure. "It is possible that we haven't found an instance," he acknowledged.

The judge also asked about Charles "Rick" Rule, a Microsoft attorney with Fried Frank Harris Shriver & Jacobson, who was the company's lead attorney in the settlement negotiations. Some critics of the deal raised questions about his lobbying affiliations and the date at which he was designated as counsel of record.

"From day one, we've always treated Mr. Rule as Microsoft's lead counsel for settlement discussions," Beck said.

Kollar-Kotelly caught Microsoft unawares regarding the timing of disclosures. During questioning, Microsoft revealed that it considered Sept. 28, when the judge ordered settlement discussions to begin, to be the start of the disclosure period. But she said that the period should stretch back at least to when she was appointed to the case, in August, or to the appeals court ruling in June.

Microsoft said it would investigate whether it would need to make additional disclosures.

The morning session ended with Brad Smith, Microsoft's incoming general counsel, who said that the company was already trying to comply with the terms of the settlement proposal.

Beck said that in looking at the language of the appeals court decision and what the Justice Department was able to obtain through the settlement, the government is satisfied that it cut a deal that is in the public interest and that exceeds the mandate of the court of appeals.

Even in conceding the limits of the government's case, Beck emphasized its successes. "It was a major victory and accomplishment," he said.

Based on the original ruling and that of the Court of Appeals, "We believe we have negotiated an excellent decree," he said.