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The judge isn’t afraid of the appeals process; he wants to bring it on. In the terse opinion filed along with his June 7 final judgment ordering the breakup of Microsoft Corp., U.S. District Judge Thomas Penfield Jackson explained that his swift decision on remedies was meant, in part, to jump-start the appeal that Microsoft has repeatedly vowed it will win. “It is time to test that assertion,” he wrote. If Microsoft prevails, he added, a prompt reversal would allow the court “to abort any remedial measures before they have become irreversible as a practical matter.” Jackson says that he will approve the Justice Department’s bid for direct review of the case to the U.S. Supreme Court. Former solicitor general Walter E. Dellinger III, now a partner in the Washington, D.C., office of O’Melveny & Myers, predicts that the justices will take it. Jackson is bold — bold enough to have granted interviews to the Wall Street Journal, the New York Times and the Washington Post to talk about how he arrived at his decision. Bold enough to say to the Journal’s reporter, “Were the Japanese allowed to propose the terms of their surrender?” in response to Microsoft’s complaints that it wasn’t given enough time to argue against the breakup. He isn’t much more tempered in the final opinion in this historic case. The six-page document at turns labels Microsoft’s assertions as “not credible,” observes that “the company has proved untrustworthy in the past” and declares the breakup necessary because Microsoft’s current leadership “is unwilling to accept the notion that it broke the law.” He cites no cases on the legal standards that apply to remedies and makes no effort to explain why the lengthy list of conduct restrictions will cure the specific violations he found. THE CRUX OF THE APPEAL At the end, the judge has let loose. His June 7 pronouncement — called a “tirade” by George Washington University law professor William E. Kovacic — will be fodder for Microsoft’s appeal. But the appeal is likely to hinge on whether the appellate panel agrees with his April 3 ruling on legal conclusions, when he took on an earlier victory for Microsoft written by U.S. Circuit Judge Stephen Williams, and found it “inconsistent” with Supreme Court antitrust precedents. Williams had written that Microsoft’s decisions to integrate new features into its Windows operating system should be exempt from scrutiny under antitrust laws if Microsoft could demonstrate a plausible claim of consumer benefit. Rejecting this test as too convenient for defendants, Jackson said that Williams would have the court view the market “as the defendant would like to have the market viewed.” Williams’ test for technological tying, and Jackson’s repudiation of it, is the core issue that will determine whether the Microsoft case establishes rules of the road for the New Economy. Jackson found that you could answer this question by looking to a 1984 U.S. Supreme Court decision involving the tying of hospital and anesthesiologists’ services. His decision all but admits that the rule of law articulated in that case on tying, which asked if consumers saw the tied products as separate, may not be the best one to apply to the New Economy, but he feels he’s stuck with it: “To the extent that the Supreme Court has spoken authoritatively on these issues, this Court is bound to follow its guidance and is not at liberty to extrapolate a new rule governing the tying of software products.” Observers who believe the judge made the right call on tying say that he missed an opportunity to attack the cutting-edge issue raised by the case. And critics of his decision predict that his reasoning won’t stand up well on appeal. For now, the government is taking pains to downplay both the tying allegations in its case and Jackson’s war of words with his colleagues on the appeals court. The government’s case, over 78 days of trial, introduced a litany of complaints from Microsoft’s partners and competitors. And the judge found all of that evidence persuasive. He concluded that the company had violated Sec. 2 of the Sherman Act, the mother lode of antitrust violations, with a pattern of illegal conduct to maintain its Windows monopoly. “I think the heart of this case is Sec. 2,” said Joel I. Klein, the Justice Department’s antitrust chief, in a June 8 press briefing. “I think that’s what sustains the remedy in the case, and that’s what the critical legal conclusion is.” Microsoft is just as eager to boil the case down to the tying claims. “All that’s left of this case is a, I think, a very, very suspect, I will say unsustainable, technological tie-in case,” said William H. Neukom, the company’s general counsel, at a June 7 press conference. The government must make strong arguments on technological tying in order to prevail on appeal, say some antitrust lawyers. “The central conduct that was challenged in the Sec. 2 case was the bundling of Internet Explorer,” says Joseph Kattan, of the Washington, D.C., office of Los Angeles’ Gibson, Dunn & Crutcher, who was Intel Corp.’s lawyer when it faced antitrust charges from the Federal Trade Commission. Microsoft’s bullying of other companies, among them IBM Corp., “may appear to be sharp, or indeed anti-competitive, but may not be linked to an identifiable harm to competition,” he said. Jackson’s decision quotes liberally from the 1984 high court case, Jefferson Parish Hospital District No. 2 v. Hyde, 466 U.S. 2. The defendant in that case contended it was offering a single product with a “functionally integrated package of services,” in other words, a single product. But the Supreme Court held that the “character of demand” determined whether there were separate products. Because patients perceived anesthesiology and hospital services as separate products, the court found that packaging them constituted an illegal tie. Jackson, in findings of fact issued last November, found that consumers perceive Web browsers and computer operating systems as separate products. That “commercial reality” remains, despite Microsoft’s assertions that Windows is an “integrated” product that adds functions, often by drawing on the same files of software code. The judge recognized that “mechanically” applying the demand test to software could lead a court to condemn “genuine improvements to software.” In Microsoft’s case, he found no dilemma. Its bundling of the Internet Explorer “was the result of a deliberate and purposeful choice to quell incipient competition,” he wrote. Kattan calls the judge’s decision “a copout” because “every decision” to examine technological design before Jackson’s ruling has “adopted a test that in a very substantial measure deferred to product design decisions.” On appeal, Kattan predicts, a single paragraph in the judge’s fact-findings will come back to haunt him. In it, the judge found that the inclusion of Internet Explorer with Windows at no charge “contributed to improving the quality of Web browsing software, lowering its cost, and increasing its availability, thereby benefiting consumers.” Other observers are less critical. Prof. Andrew L. Gavil, who teaches antitrust law at Howard University School of Law, says that Jackson made the right decision by finding an illegal tie, although he doesn’t think Jefferson Parish’s “separate demand” test works that well regarding the software industry. “Ultimately, he doesn’t address the deeper, more difficult decision,” Gavil says. Conceptually, the test falls short “when you’re talking about software, which literally can be integrated,” he says. Gavil predicts that the Jefferson Parish test will evolve. And what will happen if the tying case fails on appeal? Jackson has already ruled that the government failed to prove Microsoft engaged in yet another antitrust violation — exclusive dealing — but that Microsoft’s exclusive deals were part of a Sec. 2 violation. In a recently published article, Gavil contends that if the tying case fails under Sec. 1, to hold Microsoft liable as a Sec. 2 monopolist would fly in the face of another 1984 Supreme Court case that set a higher standard of liability in Sec. 2 cases. Kovacic, the academic who was a ubiquitous presence at the trial, says that the appeal’s outcome on this issue will draw a line on illegal behavior for big firms in the New Economy. At what point do you have a monopoly “broth” of dominance and conduct, as one Supreme Court case put it? At oral arguments, Jackson did not press the prosecutors to pinpoint just when it was Microsoft crossed the line. And the government has crowed that the evidence against Microsoft is so overwhelming that it must prevail. The judges reviewing the case may demand something more exacting.

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