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Antitrust cases taken overseas

U.S. companies increasingly are turning to foreign governments to enforce antitrust laws against competitors, attorneys say.

A dispute before the European Commission that ultimately ended with Microsoft abandoning a controversial contract provision illustrates what attorneys say is a growing trend: U.S. companies turning to foreign governments to enforce antitrust laws against competitors.

As reported yesterday, Microsoft will no longer require that its code be included in future versions of Santa Cruz Operation's (SCOC) Unix products. The developer won the concession ten months after taking its case to the Directorate General IV, the agency that enforces competition laws for the EC.

Although a Microsoft spokesman played down the role the commission played in resolving the dispute, an attorney for SCO said the EC was instrumental. What's more, the EC's streamlined procedure for investigating complaints, combined with its more aggressive enforcement of anticompetition laws, stands in sharp contrast to U.S. governmental bureaucracy, said SCO's attorney Jeffrey Kingston, who specializes in antitrust law at Brobeck, Phleger & Harrison.

"Everybody knows, at times, that United States federal court litigation can be a black hole in which you pour endless resources for years and never know what's going to come out on the other end," Kingston said. "I think a company that's aggrieved should be looking at this as a forum for effectively addressing the problem [of anticompetitive practices]. It is very effective, particularly in the David-and-Goliath playing field that you have when you're dealing with Microsoft."

William Kovacic, a professor specializing in antitrust issues at Virginia's George Mason University School of Law, agreed. He said U.S. companies increasingly are turning to foreign governments to curb alleged anticompetitive practices.

"The possibility that you can gain leverage over commercial opponents by going to a foreign competition tribunal is gaining broader awareness in the business world," Kovacic said. He added that, while Canada, Venezuela, and Brazil are all possibilities, the EC remains the most likely forum for enforcing an action against a competitor.

"The European Commission bull's eye of enforcement is significantly larger than the U.S. enforcement bull's eye," Kovacic said, meaning that European laws are more expansive, especially when applied to companies that are dominant in a given industry. "More and more, firms that operate in a truly global environment, like Microsoft and Intel, are going to have to consider the possible consequence of their business choices in a large number of foreign jurisdictions."

Indeed, the European Commission is increasingly scrutinizing mergers by U.S. companies, most recently when WorldCom agreed to acquire CompuServe and sell some of the assets to America Online.

Microsoft spokesman Mark Murray, however, said the EC's involvement had little to do with the SCO settlement.

He explained that the contract, originally drafted in 1987 between Microsoft and AT&T, set the terms for the two companies to make their different versions of Unix compatible. In exchange for Microsoft developing code that would unify the different products, AT&T agreed to use and pay royalties for the code. Microsoft argued that SCO inherited the obligation when it obtained rights to the predecessors of AT&T's products in 1995.

Murray said Microsoft had been willing since the fall of last year to drop requirements that SCO include the compatibility code; the only sticking point was whether Microsoft could impose a royalty on portions of its code that remain in the Unix software. He said the agreement reached this week reflects that initial stance.

"In this case, Microsoft had already indicated its willingness to resolve SCO's concerns," Murray said.

Kingston disagreed with that account, saying that when Microsoft was approached about the contract in September of last year, it had insisted that the requirement had no expiration date, a position it maintained even after SCO filed an action with the European Commission's Directorate General IV in January this year.

He said Microsoft agreed to drop the requirement only after a May EC report, known as a statement of objection, found sufficient evidence against Microsoft to extend the inquiry. Even then, Kingston added, Microsoft insisted that it be paid a royalty for each piece of Unix software SCO sold, whether or not it included the Microsoft code.

"Microsoft made no bones about it," Kingston said. "It was only after the statement of objection was issued that said we were right that Microsoft began to retreat from its position."

Although it has taken the case overseas, SCO has not abandoned the U.S. bureaucracy just yet. The company is reportedly considering a lawsuit to recover royalties paid to Microsoft in recent years.