Antitrust Battle of the Digital Age

The appellate argument in United States v. Microsoft, which will take place at the U.S. Court of Appeals for the D.C. Circuit today and Tuesday, promises to be one of the most dramatic and most closely watched circuit court hearings ever. The worldwide fame of the Microsoft Corp. and founder Bill Gates, the ubiquity of personal computers as a symbol of the digital revolution, the sweeping nature of U.S. District Judge Thomas Penfield Jackson’s order, the charisma of government trial counsel David Boies — these and dozens of other aspects of the case have brought it widespread attention. Microsoft and its opponents have already squared off at trial, in the halls of the Justice Department, in congressional hearing rooms, in public debates, and in hundreds of newspaper opinion columns. Now they will do so in a new venue, before a court that is often viewed as the most prestigious in America next to the Supreme Court. The questions are expected to come fast and furious from the judges considering Jackson’s June 2000 ruling. Jackson held Microsoft to be a monopolist and ordered the software company broken up into two pieces: an operating-system firm and another outfit to sell applications like Microsoft Word and Internet Explorer. This will be an intense challenge for all five of the lawyers set to argue from the podium — two for Microsoft, two for the U.S. Department of Justice, and one for the 19 states that have sued the company. A decision is expected sometime in the spring. The arguments will have an unusual format. The court, owing to the importance of the case and the need to speed the appeal along, has decided to skip the usual step of initial consideration by a three-judge panel and go straight to an en banc hearing. Because Judges Karen LeCraft Henderson and Merrick Garland are recused from the case, seven judges will take the bench at 9:30 a.m. today for a total of seven hours of argument over the two days. The issues set forth by the appeals judges are quite diverse. They include Microsoft’s monopolization of the market for operating systems; its attempt to monopolize the market for Web browsing software; its alleged illegal tying arrangements; the propriety of Judge Jackson’s divestiture order; and the judge’s conduct of the trial and the significance of his press interviews and speeches about the case. But the case has broader implications for technology, for the law, and for the Bush administration. Here are some of the critical questions that will emerge as the D.C. Circuit considers the case: What business does a U.S. district judge have ordering a company to break itself in two? Even some antitrust thinkers who endorse the conclusion that Microsoft is a monopolist have trouble with Jackson’s breakup order, and the appeals court will devote a good deal of time to these issues. First, Microsoft and others argue, Jackson did not hold a separate hearing on the remedy issue. He imposed the divestiture without making any findings on why it was superior to other choices like “conduct remedies” that require or prohibit actions by the company. Second, a breakup is a Draconian example of government overregulation, critics say. What does a single district judge, without a particular background in business or technology, know about how to promote competition? Isn’t he just intent on punishing Microsoft? Third, even if a divestiture was once appropriate, by the time the case goes through all the appeals, the software industry will inevitably have undergone major change since the trial began in 1998. Advocates of the breakup say that it is a last resort to handle a company that they see as an antitrust recidivist. Microsoft, they believe, will not abide by the spirit of any conduct restrictions a judge might impose. Second, they suggest that divestiture is less intrusive than a conduct order, which would require a judge to keep tabs on the industry for decades and to rule on Microsoft’s every major decision. Divestiture would represent a clean break. Third, many point to the court-mandated breakup of AT&T in the 1980s that settled a government antitrust case. AT&T resisted it mightily, but it has led to lower prices and more competition in the telephone industry. What is the Bush administration likely to do? The argument comes as a new team is taking power in the Justice Department. Although career lawyers are arguing the case for the government, political appointees will soon play a role in it. Neither Attorney General John Ashcroft nor Charles James, President George W. Bush’s pick for assistant AG and antitrust chief, has said much about the Microsoft case. But both seem inclined to adopt a cautious approach. What the administration does depends in large part on what the seven-judge appeals panel decides. If the appeals court entirely affirms Judge Jackson, an outcome that is viewed as unlikely, the government will have no practical choice but to defend the ruling against Microsoft’s certain Supreme Court appeal. If the circuit rejects Jackson’s finding that Microsoft monopolized software markets and hands the company an outright victory, an outcome that’s also seen as unlikely, the government will probably appeal to the Supreme Court, if only to try to get rid of an adverse antitrust precedent. If the court sends the case back to the District Court, either to hold a remedy hearing or to conduct a new trial before a judge other than Jackson, the Bush Justice Department will have a tough decision. The best guess is that Ashcroft and James would then open settlement talks with Microsoft and end the case quietly by agreeing on some remedy short of divestiture. What about Jackson’s very frank press interviews after the trial, where he questioned Microsoft executives’ ethics and termed them intransigent? Earlier this month, the appeals court signaled loudly that it was more than casually interested in this issue. Microsoft, which has argued that Jackson should be disqualified because he is not impartial, agreed with the states and the Justice Department in a prehearing filing that they would deal with Jackson’s statements only in their briefs and would not use any argument time. But the court, on its own, scheduled a full hour of argument on Jackson’s “courtroom procedures and post-trial comments.” Many antitrust thinkers had already feared that a possible victory for the government on the merits might be lost if the appeals court concluded that the trial judge was biased against Microsoft. The court’s questions appear to raise the likelihood of that outcome. On the existing law, it’s a long shot to disqualify a judge on the grounds of bias. But there is an interesting case in point. In 1991, lawyers for then-Washington, D.C., Mayor Marion Barry Jr. tried to get the D.C. Circuit to disqualify a trial judge from further involvement in Barry’s criminal trial because he had made a public speech discussing the merits of the case. That trial judge was none other than Thomas Penfield Jackson. Although the court rejected the motion, it was a 2-1 ruling, and the dissenter was the current chief judge, Harry Edwards. Edwards has had a very hands-on role in the prehearing aspects of the Microsoft case. So it’s quite possible that he put in the extra hour of argument just to give his colleagues a chance to consider what he wrote in dissent in 1991: “The integrity of the judicial process would be seriously doubted if judges were free to air their views on pending cases outside of the appropriate judicial forum.” Does antitrust law, which goes back to the Sherman Act of 1890, have a significant role to play in the technology-driven new economy? Although few experts are arguing that the antitrust laws, which generally prohibit price-fixing and monopolization, should be repealed, many say they should be applied much more loosely in the fast-moving information economy. Microsoft is their primary case in point. Technology is always improving and is limited only by the ingenuity of the human mind, it is claimed. Look back at the one-time software and hardware giants that had their day, then lost ground to newer and better products. Antitrust enforcement is almost always unnecessary and can stifle truly innovative companies such as Microsoft, the argument goes. Even today, Microsoft’s monopoly based on Windows may dissolve soon of its own accord, overtaken by Internet appliances, personal digital assistants, and other devices that can do what computers have done in the past. Microsoft’s opponents reply that in technology as in most industries, competitive forces are usually enough to handle any problems that can arise. Antitrust is needed, they say, when competition fails. “Antitrust does have a critical role to play in technology markets,” said Thomas Lenard of the conservative-leaning Progress and Freedom Foundation in a panel discussion on Feb. 21. “The trial showed, for example, that Microsoft’s monopoly in operating systems is stable and durable and is unlikely to erode.” In fact, many antitrust advocates say, technology markets are especially in need of antitrust scrutiny. As the government argued successfully before Judge Jackson, “applications barriers to entry” can preserve monopolies. In other words, since Windows is an accepted standard, programmers will tend to write software that is compatible with Windows. The result can be that new “platforms” for computers will never overtake the first one to gain popular acceptance.