Oral Arguments Close Antitrust Trial

WASHINGTON (02/22/2000) - A federal judge zeroed in on what potential impact a 1998 U.S. Court of Appeals ruling on tying products together will have on the Microsoft Corp. antitrust case this morning during closing arguments in what may be the last legal face-off before a court ruling.

The oral arguments in U.S. District Court, which continue this afternoon, are not expected to dramatically alter the course of the trial, which began in October 1998 and is entering its final phase to determine whether Microsoft violated antitrust laws. Settlement talks are also continuing. But today's arguments were noteworthy because, as he had done during the 76 days of testimony, presiding Judge Thomas Penfield Jackson interrupted the proceedings several times with questions that provided insight into the legal issues he considers relevant.

Jackson repeatedly pressed attorneys for both sides on how they believe he should apply an appeals court ruling that rejected the government's claim that Microsoft illegally tied its Internet Explorer Web browser to the Windows 95 operating system in a related case. The panel ruled for Microsofton technical grounds, but also stated that the union of Windows 95 and Explorer was a "genuine integration" and not illegal tying because it was done for efficiency and had positive consequences.

The issue of "technological tying" is so key to the current case against Microsoft, the cornerstone of which is the company's incorporation of Web browsing into its dominant Windows 98 operating system, that Jackson had asked for the input of Harvard University law school professor Lawrence Lessig.

Lessig, who filed a friend-of-the-court brief last month, urged the judge to eschew the appellate ruling and delve into the issue of when software constitutes one product or two. However, Lessig also said that if the judge determines the 1998 ruling applies to the case, then Microsoft wins the argument hands down.

In his closing argument today, David Boies, lead counsel for the U.S. Justice Department, said he believed that Lessig was mistaken in making that last point. Boies said the government disagreed that the appellate ruling "immunized" Microsoft's tying of the browser to Win98 if there is found to be some good that came out of that tying.

"How about the greater distribution of browsers?" Jackson asked Boies.

Boies argued that the same distribution benefits could have been achieved without changing the product design, either through contractual arrangements or by shipping the two products together.

"The question is, what is the Court of Appeals saying?" Jackson again interrupted.

Boies responded that the government has taken the position that the appellate ruling should be limited to the earlier case involving Win95 and does not apply to the case before the judge now. Boies further said he believed the panel limited the scope of benefits achieved by legal tying of products to those that are made at the design stage, and not products that are combined for the purpose of limiting competition. "We believe these products were commingled for an anti-competitive purpose," Boies said.

The court of appeals ruling is not the only issue of contention between Microsoft and government lawyers on how antitrust laws should be applied to the scathing "findings of fact" that Jackson issued in November. In those findings, Jackson said the evidence at trial showed that the company had amonopoly over PC desktop operating system software and used that power to harm consumers, stifle innovation and thwart competition. The case is now in the next stage of determining whether those findings of fact will translate into laws that were broken by the company.

Microsoft's lead counsel, John Warden of the Wall Street firm Sullivan & Cromwell, was also pressed by Jackson on the company's claim that copyright laws allowed the company to legally make a series of requirements on computer makers who licensed Windows, such as requiring them to take thecompany's browser as well and not remove the icon. "The holder of a valid copyright is entitled to protect it," Warden said.

Then, Jackson jumped in. "I have two problems with your defense," he said.

"What evidence did you give me with respect to what is protected by copyright?"

Warden said they put in the copyright certificates to Win95 and Win98.

"I don't really understand your copyright defense," the judge said. "Nobody disputes that you have a copyright."

"We don't argue that the copyright laws trump the antitrust laws -­ but the antitrust laws don't trump the copyright laws," Warden added.

Said Jackson: "I'm not so sure of that. What you're saying is, 'If you license my operating system, you've also got to license my browser'."

But Jackson also pressed Warden on how he reads the Court of Appeals decision, in particular whether it is binding if the judge finds any design benefits.

"The answer to your question is yes," said Warden, "if there's a plausible benefit."

Jackson is expected to rule this spring on the issues of law. But the parties are still involved in ongoing settlement talks with a court-appointed mediator in Chicago, which have accelerated in recent days.

Microsoft officials said today that the talks now include the personal involvement of Microsoft Chairman Bill Gates and Chief Executive Steve Ballmer.

Neither side would have any public comment on the status of talks. But recently Microsoft officials made public statements that they were willing to make some adjustments in the company's conduct, although they viewed a breakup of the company as too extreme. Gates reportedly said last week he would be willing to open the Windows source code, if that is what was required to settle the case.

But the tough talk continued outside the courtroom. Microsoft's chief counsel William Neukom told reporters that "the government in this trial seems to want to rewrite antitrust laws to slow innovation, raise prices and harm consumers."

He said the company was committed to settlement talks to"find a way to resolve this matter while preserving the high tech industry's right to innovate."

The oral argument comes as the antitrust case winds down. The Justice Department and 19 states filed sweeping antitrust charges against Microsoft in May 1998, alleging the company engaged in a variety of tactics to pressure computer makers, Internet service providers and online contentproviders to distribute the company's browser in order to maintain the dominance of its operating system.

(Elizabeth Wasserman and Keith Perine write for the Industry Standard, an IDG publication.)

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