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The election of George W. Bush is viewed in many quarters as great news for the Microsoft Corp. The line of thinking is that a business-oriented Republican administration will settle the antitrust case against Microsoft on favorable terms — and that the chance of a judge-ordered breakup of the company, never high to begin with, has become vanishingly small. That analysis may ultimately prove correct. But seven weeks before an epochal two-day argument at the U.S. Court of Appeals for the D.C. Circuit, the software company remains a long way from being rid of its antitrust headaches. First, it’s not clear that John Ashcroft, Bush’s choice for attorney general, will toe the pro-business line in the case. And it’s too early to scope out who Ashcroft’s key antitrust advisers will be and who will have Ashcroft’s ear concerning the high-profile monopolization case. Beyond that, Microsoft faces another set of tenacious foes: the top legal officers of 19 states and the District of Columbia that are also party to the suit. The state attorneys general, who brought a case against Microsoft in 1998 paralleling the one brought by the Justice Department, have vowed to stay the course no matter what Justice does. “The states’ presence is going to restrict what the Bush administration can do with the case. Even if they wanted to make the case go away, they couldn’t,” says Jonathan Baker, a professor of antitrust law at the American University’s Washington College of Law and a former adviser at the Federal Trade Commission. Bob Brammer, a spokesman for Iowa Attorney General Tom Miller, takes a hard line against the software giant. He favors upholding U.S. District Judge Thomas Penfield Jackson’s ruling last June ordering the breakup of the company. “The states are full parties and have full authority to proceed on their own,” says Brammer. “If there’s a settlement offer that the federal government would entertain, the states would look at it and insist that any settlement include fundamental change by Microsoft in how it uses its enormous market power.” ‘A SMALL WIN’ The prospect of the federal government making a deal opens up some interesting scenarios. One possibility, says Robert Lande, an antitrust professor at the University of Baltimore Law School, is “a small win” for the government at the circuit after the Feb. 26-27 oral argument. For example, the appeals court could find that Microsoft violated antitrust laws, but still toss out Jackson’s breakup order as unworkable, unjustified by the facts, or likely to wreak havoc in the computer industry. It could then send the case back to Jackson, or to another trial judge, to come up with a different remedy. At that point, Lande says, there would be a good chance that Microsoft and the Justice Department would settle the case out of court. Such a deal, however, would automatically result in what’s known as a Tunney Act hearing, under a Watergate-era law that requires the government to prove to a district judge’s satisfaction that an antitrust settlement is in the public interest. The united front between the Justice Department and the states might then come undone. “The states would participate in the Tunney Act proceeding,” says Lande. “They might well argue against the settlement. If it’s approved anyway, the states would have a problem: Do they proceed with their lawsuit or not? Do they go to the Supreme Court to get a ruling?” In such a scenario, Lande and others note, the states could proceed unhindered by a problem that only a couple of years ago would have prohibited them from moving forward on their own: cost. It’s very expensive to try a large, document-intensive antitrust case, and the states were largely piggybacking on Justice’s budget at trial. Now that the trial is over, so are most of the costs, and the states are capable of going it alone if they want. “It’s just a question of writing a brief,” says James Tierney, a former attorney general of Maine who has consulted with the state AGs in the case. “There’s not an issue any more that they’ll be outgunned from the legal perspective. They’ll be fully able to carry the case through.” NOT READY TO SETTLE Microsoft spokesman Jim Cullinan discounts talk of a settlement. “We’re focused on our appeal, and we feel we have a very strong case,” he says. “That’s where the case will be decided.” At least for now, however, the government will be arguing that appeal vigorously. And despite President-elect Bush’s expressed distaste for government meddling in the technology industry, Ashcroft’s views are not known. At a Senate Judiciary Committee hearing on competition in the software industry in March 1998, Ashcroft posed questions to Microsoft Chairman Bill Gates that showed concern about Microsoft’s power to leverage its control over computer operating systems into other markets. “When the screen comes up, it takes you to Microsoft’s travel agency,” said Ashcroft, “and that apparently has some very substantial value in not only reinforcing its position with its software, but also in introducing it and giving it a very substantial advantage in other business endeavors … . It’s like if you pick up the telephone and somehow your telephone knows that you want dry cleaning, it sends you to a particular store automatically.” Another unknown for Microsoft at this juncture is the role of Sen. Orrin Hatch, R-Utah, as chairman of the Senate Judiciary Committee. Novell Inc., a major Microsoft competitor, is based in Hatch’s home state, and Hatch is an outspoken opponent of many of Microsoft’s practices. Any settlement of the case that appeared to be a cave-in to Microsoft, and perhaps any nomination of a Microsoft supporter for the Antitrust Division of Justice, could draw serious flak from Hatch, probably joined by many Democrats in an evenly divided Senate. For now, the next step in United States v. Microsoft Corp. and State of New York v. Microsoft Corp. is the filing by the Justice Department and the state attorneys general of a joint appeal brief by this Friday, Jan. 12. On Jan. 5, two of the parties filed with the appeals court their designations of who would likely argue the case. Microsoft tapped Sullivan & Cromwell partner Richard Urowsky. The DOJ named Jeffrey Minear, senior litigation counsel and assistant to the solicitor general, and David Frederick, assistant to the solicitor general. A spokesman for Wisconsin AG James Doyle said the states would finalize their choices this week. Two well-known litigators who have had major roles in the case were not among those listed as arguing. Carter Phillips of the Washington, D.C., office of Sidley & Austin, an appellate expert who was added to the Microsoft team last year, will be at the Supreme Court on Feb. 27, arguing a tax case on behalf of baseball’s Cleveland Indians. He says he will attend the Microsoft argument the day before, but won’t argue. David Boies of Armonk, N.Y.’s Boies, Schiller & Flexner, who led the Justice Department at trial, will not be part of the team now. A Boies spokesman says Boies wasn’t invited to argue, but that he was asked who he might recommend for the job. The government did ask the court to reserve Boies a seat in the courtroom. Between Jackson’s ruling and the appeal, after all, was the small matter of Bush v. Gore, in which the renowned trial lawyer went all the way to the Supreme Court to try to prevent George W. Bush from winning the presidential election.

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