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On The Antitrust Action Against Microsoft
August 10, 2001


A POTENTIALLY FAVORABLE SETTING
It was a crucial time in history. Clearly, monumental decisions were about to be made that could significantly impact the world's economy for the foreseeable future and arguably, even our social structure -- how we communicate and develop our productivity. Take a minute to look at the circumstances Microsoft's legal team was dealing with when the recent Department of Justice antitrust suit was initiated on October 19, 1998. Judge Thomas Penfield Jackson was President Reagan's first judicial appointment, and for good reason. Judge Jackson had a longstanding reputation for being reticent to coddle government's efforts to meddle in business, in keeping with Reagan's philosophy. Jackson was a registered Republican who had actively worked to promote conservative republican causes and politicians. He had worked for Nixon's committee to re-elect and, as he took the bench that first day, his political heroes were men like John McCain and Barry Goldwater.

Joel Klein was the United States Assistant Attorney General for Antitrust in charge of the government's antitrust suit against Microsoft. However, prior to the antitrust suit, Klein had a reputation for being quite lenient in regard to corporate behavior and was at best reluctant to initiate legal action against monopolists. His reputation in this area was earned when as head of antitrust, he approved Bell Atlantic's acquisition of Nynex, which created a telecommunications monopoly on the eastern seaboard. It was also rumored that Klein had discouraged a previous action against Microsoft while second in command one year earlier.

On the other hand, Judge Jackson participated in a previous action which went against Microsoft. That suit concluded when Microsoft signed a Consent Decree which prohibited them from entering into license agreements that were contingent upon the licensee entering other license agreements with Microsoft. The intent of this action was to curtail Microsoft's practices of leveraging its operating system's dominance to force its way into other markets and stifle competition. Judge Jackson also ordered that Microsoft separate their browser, Microsoft Internet Explorer, from their operating system, a ruling that was later overturned by an appeals court.

THE ACTION BEGINS
In the spring of 1998 the government, along with nineteen states, petitioned the court that Microsoft had violated the conditions of the Consent Decree and that they had violated national antitrust regulations. It is understandable that Jackson was disappointed by the reversal of his ruling calling for Internet Explorer to be separated from the operating system. After all, his contention that Microsoft needed controls placed upon it had, according to the government's complaint, been borne out. Nevertheless, whatever else you may read about Jackson, he had a well earned reputation for handing down fair and wise judgments. It can be contended that had Microsoft invested some confidence in the court's ability to adjudicate matters before it in an impartial manner, had Microsoft taken that mindset rather than the course the finally settled on, they may have fared better.

But Jackson and the world were soon exposed to Microsoft's first major blunder when, early on in the proceedings they claimed that the only way to separate Internet Explorer from the operating system was to ship a defective, non-functioning product. When shortly thereafter, private parties began to do exactly what Microsoft claimed could not be done with Windows 98, it became clear that Microsoft was not prepared to deal truthfully with the court. Their refusal to accept that Jackson and the court were going to rule based on the stipulations set forth in the Sherman Act, a remarkably lucid instrument of law, would eventually get Microsoft in trouble. Microsoft's combative and petulant approach, exemplified glaringly by Gates' abysmal taped deposition, is often overlooked by Microsoft proponents when considering the outcome of the trial.

In light of Microsoft's actions leading up to and during the trial, Judge Jackson's comment that his "past experience with Microsoft, dating from the consent decree, was that I don't think that its proffer of some minimal conduct modification during the appellate proceedings could be trusted" were again confirmed during a demonstration in court, in full view of the press and numerous witnesses, in which Microsoft's lawyers made claims regarding evidence that were proved blatantly and undeniably false. This was a true Perry Mason moment--dramatic proof that any documentation, testimony or evidence provided by Microsoft would require inordinately skeptical review. That Jackson would later be vilified for his decision while Microsoft proponents conveniently overlooked these critical misbehaviors serves as fair notice that most opinion pieces written on this subject aren't as well considered as one would hope.

OVERWHELMING EVIDENCE
The government, on the other hand, presented evidence that withstood scrutiny, often in the form of Microsoft's own E-mails that directly contradicted the testimony of Microsoft's witnesses. In fact, during the course of the trial, the evidence presented was so overwhelming that Jackson sometimes wondered why Microsoft didn't take steps to reach a settlement, thereby minimizing the potential damage judgment might bring. William Neukom, Microsoft's lead attorney, clearly being outclassed by the government's David Boies, could have arranged a bargain with the prosecution, had he so desired.

By mid 1999, perhaps the most significant witness for the prosecution, IBM's Gary Norris testified that Microsoft threatened personal computer makers that planned to offer computers with competing operating systems. Additionally, Norris testified that Microsoft's fees increased from approximately $9.00 per copy of Windows 3.1, then the latest and most advanced operating system available for personal computers according to Microsoft, to almost $46.00 per copy of Windows 95. While certainly a revolutionary consumer operating system, Windows 95 was unquestionably under developed. The relevant factor in this testimony, though, is the timeline. By the time Windows 95 was released, Microsoft had crushed budding competitors (such as IBM's OS/2) by using anti-competitive tactics and practices, the very subject of this trial, in spite of the fact that the Consent Decree signed by Microsoft clearly stated that Microsoft's license agreements were not to restrict or prohibit personal computer manufacturers and resellers from licensing, sale, or distribution of other, non-Microsoft products.

Microsoft's behavior and obstinacy during the trial lead Jackson, as well as many observers to conclude that Microsoft refused to believe that the Sherman Act applied to them. In Jackson's words, Microsoft and Bill Gates are guilty of "an arrogance that derives from power and unalloyed success, with no leavening hard experience, no reverses."


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