January 29, 2001 10:05 AM PST

Microsoft refutes bundling argument in appeal

WASHINGTON--Microsoft struck at the heart of the government's antitrust claim Monday in a brief filed with an appellate court.

Microsoft responded to the government's main appeal document, filed Jan. 12 with the U.S. Court of Appeals for the District of Columbia Circuit.

In the brief, Microsoft played off one of the strongest points of its antitrust appeal, addressing the government's claim that the company illegally tied, or bundled, its Internet Explorer Web browser with the Windows 95 and 98 operating systems.

In an earlier case, the same court hearing the appeal ruled that Microsoft's tying the products together was not an illegal act. In his ruling, U.S. District Judge Thomas Penfield Jackson used a different standard--one laid down by the Supreme Court--to determine that the tying of the products violated antitrust law.

"Plaintiffs continue to retreat from their tying claim," the brief states. "Although they pay lip service to the notion that Windows and IE are 'separate products,' plaintiffs make no effort to satisfy this Court?s test."

"I don't think that the government sees it as a lost cause," said Bill Kovacic, an antitrust professor with George Washington University School of Law. "The argument over tying really does put a premium of the choice of the standard. The government has hedged on that, saying that whatever the standard was they met it."

Many legal experts believe the Court of Appeals will apply its standard to the tying claim, throwing out one of the pillars of the government's case.

"If Microsoft prevails on the integration issue, the foundation for the broad remedy of divestiture falters and the case begins to implode," Kovacic said.

The Court of Appeals is overseeing the case. At issue is U.S. District Judge Thomas Penfield Jackson's June 2000 order that Microsoft be broken into separate operating system and software application companies. In April of last year, Jackson determined that Microsoft had violated two sections of the 1890 Sherman Act.

The Justice Department and 19 states brought the case in May 1998, alleging that Microsoft had illegally maintained a monopoly in operating systems for Intel-based PCs and had attempted to unlawfully extend that monopoly into Web browsers.

"Our reply brief focuses on the significant concessions in the DOJ's brief," said Microsoft spokesman Jim Cullinan. "We especially focus on the concession that IE software should not be removed from Windows because it provides consumer benefits, an admission we believe meets the technological tying standard of the Court of Appeals."

Without the tying claim, the government's case still has some bite, such as the invitation to divide the browser market with Netscape or exclusive contracts with PC makers and Internet service providers. But those claims weaken if tying is thrown out, Kovacic said.

"The bundling argument is integral to the government's issue of harm, and the other issues are secondary," he explained. "The Court of Appeals might still support a finding of liability, but it becomes a much narrower, much less significant case if they lose on the tying issue."

Legal experts also note that losing the tying claim would greatly undermine the government's argument Microsoft's business tactics demonstrate a pattern of monopoly abuse.

"This is a key ingredient of the pattern, and the pattern is much less impressive if this disappears," Kovacic said.

Microsoft once again fiercely attacked comments Jackson made following the case's close, arguing that they show bias on the part of the judge.

"Microsoft certainly does point out that Judge Jackson behaved irresponsibly," said Bob Lande, an antitrust professor with University of Baltimore Law School. "There's no question about that. The only question is what to do about it."

Lande said that Microsoft had done an effective job "questioning the judge's credibility." Legal experts warn Jackson's continuing out-of-court comments about the case undermine its legitimacy and ensure he likely will be removed from any further proceedings.

In its brief, Microsoft used Jackson quotes appearing in a New Yorker book excerpt from reporter Ken Auletta. In a highly unusual move, Jackson early on in the process decided to separate his "findings of fact" from "conclusions of law," documents that are more typically released together. The software company said Jackson's comments cast doubt on his reasons for taking such action.

Microsoft's brief excerpted Jackson's explanation for this maneuver from Auletta's book: "What I want to do is confront the Court of Appeals with an established factual record which is a fait accompli. And part of the inspiration for doing that is that I take mild offense at their reversal of my preliminary injunction in the consent-decree case, where they went ahead and made up about 90 percent of the facts on their own."

"You couldn't say anything more calculated to make the Court of Appeals give you less and less deference," Lande said. Still, the law professor doesn't believe "Jackson's inappropriate behavior is going to compel the Court of Appeals to overturn his ruling."

More legal briefs are expected this week in the case. Microsoft and the government have until 9 a.m. PT Friday to submit briefs regarding the format of oral arguments, which are scheduled for Feb. 26 and 27.

In other Microsoft legal news, the company goes back before Jackson on Tuesday. The judge is presiding over a $5 billion discrimination case, which Microsoft has asked be moved to Washington state. The company has argued the move makes sense because depositions, discovery for another discrimination case is taking place there. Jackson could rule on Microsoft's motion as early as this week.

 

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