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By now, everyone knows that the U.S. Circuit Court of Appeals for the D.C. Circuit castigated Judge Thomas Penfield Jackson for his bizarre behavior in the Microsoft Corp. antitrust trial and reversed his order to break up the world’s largest software company. What they cannot know without reading the decision is that it represents a victory for common sense, at once reaffirming the rule of law, trimming the legal issues at stake to manageable proportions and setting the stage for a settlement that all parties ought to be able to accept. Unfortunately, though, “ought” is the operative word. While there’s good reason to believe that both a weary Microsoft and the Bush administration trustbusters who inherited the case are ready to settle, the 19 state attorneys general who joined the suit have never been inclined toward compromise. Indeed, this case explains why Judge Richard Posner, the mediator in the settlement attempt last year, is now urging reforms that would block state AG participation in federal antitrust lawsuits that affect the national economy. The circuit court’s denunciation of Jackson deservedly made headlines. Not only did he show contempt for Microsoft, but he also trashed fundamental notions of due process. This, after all, was the judge who decided to throw the book at Microsoft because its executives refused to acknowledge culpability before exhausting appeals and who ordered the breakup of a half-trillion dollar company without an evidentiary hearing. Hence the clearest victor in the decision was the law itself: In removing Jackson from the case, the court made clear that it would not tolerate the denial of due process. But the parties to the suit had reasons to cheer as well. The government could declare victory because the ruling affirmed that Microsoft had violated the Sherman Act in maintaining its monopoly over operating system software. On the other hand, the court narrowed the grounds for the monopolization judgment and overturned the trial court’s conclusion that Microsoft had attempted to monopolize the market for Web browser software. What’s more, the panel remanded the trial court’s per se finding that Microsoft had illegally tied its Internet browser to Windows, with instructions to apply a rule of reason that makes it very unlikely the company will be found liable. In the end, just one of the four major charges against Microsoft stuck. And while the appeals court did not formally rule out a breakup, its instructions all but demanded a conduct-based remedy. A settlement seems within reach. Microsoft has already eliminated most of the contract provisions the appeals court affirmed as anti-competitive — for example, contract provisions with Internet access providers that limit the installation of competing browsing software. By the same token, the Bush administration is hardly likely to share the zeal with which the Clinton Justice Department pursued the defendant, and is not inclined to hold out for a breakup or even conduct remedy that gives government regulators the last word on software design. The same cannot be said, though, for the 19 state attorneys general — and in particular, the ambitious AGs from Connecticut, California, Iowa and New York. To understand why, a little history is in order. AG ACTIVISM The election of President Reagan abruptly ended a period of activist federal antitrust policy. And state AGs, who at the time were generally little more than low-profile consumer advocates, rushed to fill the vacuum by pursuing national antitrust cases under state antitrust laws. The AGs’ appetite for visibility on the national stage was further whetted by their success in pursuing Big Tobacco. So it is understandable that when the Clinton Justice Department went after Microsoft, almost half the state AGs were happy to pile on and start what Posner calls “the cluster bomb effect,” creating “multiple lawsuits out of a single dispute.” The state AGs contributed little to the prosecution, but they did push the government toward the hardest possible line. And their influence was decisive in the last months of the trial, when they torpedoed a settlement mediated by Posner. Posner had little to say in public at the time about the states’ unwillingness to compromise. But he confirmed journalist Ken Auletta’s scathing account of the negotiations in which a few hard-line AGs vetoed a settlement that would have been far tougher on Microsoft than any that could be contemplated today. And last fall, Posner called for an end to state AG participation in national antitrust cases. “I would like to see the states forbidden to bring antitrust suits except under circumstances in which a private firm would be able to sue,” Posner wrote. “States do not have the resources to do more than free ride on federal antitrust litigation,” he added. “They are too subject to influence by interest groups that may represent a potential antitrust defendant’s competitors.” But such reforms are not in the cards — at least not any time soon. And the early indications suggest that the AGs aren’t about to defer to sweet reason. “The court of appeals didn’t reject the possibility of a structural remedy,” Richard Blumenthal, the Connecticut AG, ominously explained to a reporter after the court’s decision. “Neither have we.” The best hope is that the AGs’ intransigence will tarnish their image as lonely defenders of the public interest. Federalist checks on the discretion of Washington prosecutors may have a place. But it is hard to make the case for letting Blumenthal and his colleagues decide what Windows software will consist of, or who will make it. It is too late to bar the state AGs from the Microsoft settlement negotiations, but it is not too late to hope that wisdom and discretion will prevail over shrill rhetoric. Leonard Orland is a professor at the University of Connecticut School of Law, where he has taught antitrust law for 25 years.

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