Microsoft Appeals Breakup Ruling

Lawyers for Microsoft Corp. and the Justice Department endured a bruising, all-day grilling by appeals court judges today, as they debated whether the software giant is an abusive monopoly that blocked competition.

In afternoon arguments, the seven justices of the U.S. Circuit Court for the District of Columbia took a deeply skeptical view of government lawyer John Roberts' argument that Microsoft Internet Explorer and Windows were two products illegally tied together so Microsoft could leverage its monopoly on desktop operating systems to take over the market for Internet browsers.

Microsoft lawyer Richard Urowsky argued that Explorer was an integral part of Windows, an opinion several of the justices took up in grilling Roberts.

"It's almost like you're saying, 'I'd like to buy a clock radio without a clock,'" Judge A. Raymond Randolph said.

The argument on tying together the two products closed the first half of two days of oral arguments in Microsoft's appeal of U.S. District Court Judge Thomas Penfield Jackson's June 2000 ruling that Microsoft is an abusive monopoly. Jackson later ordered the company be broken in two.

"They were not probing Microsoft's position very hard, less hard than I would have expected them to do," said Donald Falk, an antitrust lawyer with Meyer, Brown & Platt in Washington who was watching the proceedings.

But the judges' attitudes today shouldn't be scrutinized too closely, Falk said. It's written briefs, not oral arguments, that usually win a case in an appeals court, he said.

"Oral argument usually isn't what turns the scale, unless there's some very telling point that comes out," he said.

Microsoft vs. Netscape

Earlier, Urowsky maintained the company didn't stop distribution of competing Web browser Netscape, and that the inclusion of Internet Explorer as part of the Windows operating system didn't stifle competition.

"Netscape had unfettered access to consumers," Urowsky said, adding that Microsoft's No. 1 competitor in the Web browser market had more than 30 million customers by 1998.

The inclusion of Internet Explorer as part of the Windows operating system didn't stifle competition, Urowsky told the justices during his part of the arguments.

"It resulted in improvements to the [operating system] that benefited consumers, and second, it did not prevent distribution of competing Web browser software," he said.

But government lawyer Jeffrey Minear argued that Microsoft conducted a campaign against Netscape ultimately designed to protect its own Windows desktop operating system monopoly.

"Microsoft took extraordinary steps and spent extraordinary revenue to prevent consumers from selecting certain innovative technologies, such as Navigator and Java, that in time could weaken the application's barrier to entry that protected the operating system's monopoly," he said.

Bruising Grilling

All seven judges of the D.C. Circuit Court of Appeals peppered both lawyers with questions. With Urowsky, they took a dim view of his alleged attempt to re-argue the basic facts of the case. With Minear, they focused on whether he could show that Microsoft's business practices really hurt Netscape, especially in cases where computer manufacturers were allowed to put both browsers on their machines. Perhaps Netscape just wasn't equipped to compete, they speculated.

"There's no doubt that Microsoft had a large vision at that point. But there's nothing to indicate that Netscape had the same vision — or if they did, that they intended to adapt on it," Randolph said.

The justices are trying to figure out where aggressive business practices end and illegal monopolization begins, Falk said.

"The biggest difficulty they find is line-drawing between what conduct is permissible and what conduct isn't," he said.

Urowsky may have lost points with the judges by asking them to reconsider many facts in the case from scratch, Falk said. The justices are willing to reconsider Jackson's legal reasoning, but are assuming the facts of the case as Jackson presented them are correct. The burden would be on Urowsky to prove Jackson made a clear error as to the facts, Falk said.

"I had the strong sense you thought we were a jury," Judge David Sintelle said to Urowsky.

This court rarely lets lawyers off easily, Falk said.

"This is a very tough court … this court in particular, like many other courts, makes it very hard to see where they're actually coming from," he said.

Judge on Trial?

Lawyers will argue Tuesday over Microsoft's contention that the trial judge was biased, based on supposed anti-Microsoft statements he made out of court to a journalist.

Jackson made anti-Microsoft comments after the trial to journalist Ken Auletta, who then published them in a book. In its 225-page briefing before the appeals court, Microsoft relies heavily on the argument that Jackson was biased, Falk said.

"Ken Auletta's book is the principal authority in 225 pages of briefing. They cited it 22 times; I don't think they cited any other authority anywhere near that often," Falk said.

The lawyers are scheduled to spend half an hour each debating Jackson's extrajudicial statements. Also Tuesday, the lawyers will discuss whether Microsoft should be broken up if the appeals court upholds parts of Jackson's ruling.

Don't expect a swift resolution to this case, experts said. The appeals court may take until June to decide, lawyers say, and whichever party loses will probably appeal to the U.S. Supreme Court.

This time around, there are a host of new variables that weren't in play before, the most prominent (and most mysterious) probably being the approach the Bush administration will take to the case. Attorney General John Ashcroft has made anti-Microsoft comments in the past, but Charles James, the new head of antitrust in the Justice Department, is described as conservative on prosecuting large firms. And the D.C. Court of Appeals is more sympathetic toward Microsoft than Jackson was, experts say.

One Suit Not Enough?

This isn't the only legal tangle Microsoft is involved in, either.

The Federal Trade Commission is investigating whether Microsoft engaged in false and deceptive advertising, The Associated Press reported today. The FTC alleges that the software giant's advertising campaign against rival Palm Inc. wrongly claimed that handheld computers running Microsoft operating systems had features that were actually unavailable unless customers spent more for wireless Internet capabilities.

The Department of Justice is investigating Microsoft's $135 million investment in Corel, which may or may not have had to do with Corel moving away from distributing its own branded version of competing operating system Linux. (Microsoft has invested in other competitors in the past, most notably pouring money into Apple.)

"We do certainly still compete in terms of our office software," said Catherine Hughes, spokeswoman for Corel. "We continue to compete vigorously."

On Feb. 13, a federal judge approved a settlement in a lawsuit against Microsoft by its temp workers, who argued they worked full-time hours for part-time benefits. The 8,000 plaintiffs got a total of $97 million. The company is also facing four racial-bias lawsuits from black employees relating to job evaluations and promotions.

And on Jan. 12, a federal judge in Baltimore dismissed 38 of 61 private antitrust lawsuits against Microsoft that he was examining because the plaintiffs had bought Windows through an intermediary such as Dell Computer. They have all appealed. Another class-action lawsuit brought by Microsoft customers in California is expected to go to trial in 2002.