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The latest turns in the Microsoft Corp. case have sharply increased the chances that the marathon Microsoft antitrust case will be settled — a result that, as University of Chicago Law School Dean Richard Epstein put it, would allow us to “get on with our lives secure in the knowledge that the high-tech industry will continue to churn out better products at lower prices.” The legal landscape began to change in June when a unanimous U.S. Court of Appeals for the D.C. Circuit “drastically altered the scope of Microsoft’s liability.” Accordingly, it vacated the judge’s harsh remedies, which included a breakup of the big software company. And it removed Judge Thomas Penfield Jackson from the case in response to his “deliberate, repeated, egregious and flagrant” violations of federal judicial canons of ethics and federal law — violations that “called into question the integrity of the judicial process.” Three months later, Charles James, the Bush administration’s new antitrust chief, announced that the government would abandon its claim that Microsoft engaged in unlawful “tying” and would not pursue divestiture as a remedy, leaving conduct remedies for the monopolization claim as the sole issue left to adjudicate. This was in keeping with James’ self-declared “conservative view of economic issues,” which leads him “to have faith in market forces and to be circumspect about the extent to which government interacts with market forces.” In short order, the key players in the Microsoft drama were replaced with new faces. The Justice Department selected Philip S. Beck, a seasoned litigator who was counsel to the Bush campaign in the Bush v. Gore litigation. Meanwhile, Microsoft retained Dan K. Webb, whose resume includes a stint as a U.S. Attorney in the Reagan administration and, later, a stint as a special prosecutor in the Iran-Contra case. Jackson was replaced by Colleen Kollar-Kotelly, a judge with a reputation for fairness to litigants combined with a tough-minded concern for clearing the docket. CHANGED CIRCUMSTANCES At an early hearing, Kollar-Kotelly moved quickly into the theme of changed circumstances that created an urgent priority to dispose of the case. “In light of the recent tragic events affecting our nation,” she reminded, “the court cannot emphasize too strongly the importance of making these efforts to settle.” Noting that she expected counsel “to engage in settlement discussions seven days a week around the clock,” the judge concluded that “if everybody is reasonable … a fair resolution of this case can be reached.” The court then imposed a tight timetable for settlement efforts. While short on specifics, both the Justice Department and Microsoft seemed eager to stake out the conciliatory high ground. Assistant AG James declared that “we hope the talks will be successful.” A Microsoft spokesman responded in kind: “We look forward to resolving the remaining issues in the case.” Indeed, it is fair to conclude that the chief obstacle to a prompt settlement is not the Justice Department or Microsoft, but a handful of the 18 state attorneys general who combined their own suits with the Justice Department’s — and who torpedoed a settlement laboriously mediated a year ago by Judge Richard Posner. Posner did not openly denounce the states’ obstructionist role, but he did declare that the states “do not have the resources to do more than hitch a free ride on federal antitrust litigation” and should thus be “forbidden to bring antitrust suits except under circumstances in which a private firm would be able to sue.” The state attorneys are not unaware of the decline in the nation’s zeal for twisting the corporate tiger’s tail in the wake of the economic downturn. After the Kollar-Kotelly status conference, Connecticut AG Richard Blumenthal, heretofore a hard-liner, declared that the “court of appeals decision three months ago and the exigencies of our economic situation change things.” The trick now is translating these widely felt sentiments into a practical settlement that gives Microsoft room to remain a leader in software innovation, yet saves face for all parties. Many of the conduct remedies decreed by Jackson at the behest of then-triumphant prosecutors are now true nonstarters. After all, those remedies included the sharing of Microsoft’s most closely guarded software secrets with its bitterest rivals, as well as price regulation of government-decreed versions of Windows. What does seem attainable are a variety of remedies designed to end the violations found by the appellate court — a requirement that Microsoft distribute a version of Windows with the browser hidden (or allowing the customer to delete the browser) and an order requiring Microsoft not to enter into exclusive dealing contracts that limit the distribution of rival software. Microsoft will no doubt have to offer a bit more than this to get the case behind it. For their part, the Justice Department — and the states — will have to drop their ambitious efforts to oversee Microsoft’s design and pricing of its software. Putting together a sensible package in the climate of suspicion and anger bred by long years in court will not be easy. But the prize — a reduction in economic uncertainty in these uncertain times — would be well worth the effort. Leonard Orland, a professor of law at the University of Connecticut, has served as a consultant to Microsoft Corp.

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