As Senate Criticizes DOJ deal, MS Blasts States' Proposed Remedies

At a Senate Judiciary Committee hearing yesterday on Capitol Hill, members of Congress expressed their displeasure with the US Department of Justice (DOJ) and Microsoft settlement, while Microsoft lashed out at "radical and punitive" remedies the nine rogue states suggested. In other words, it was just another wild and wacky day in the history of the Microsoft antitrust saga. But regardless of which side of the fence you're on in this legal drama, you'll probably find something heartwarming in either of these two related events (the Senate meeting and Microsoft's reply to the states' remedy proposal).

For the anti-Microsoft crowd, yesterday's judiciary hearing featured several Microsoft competitors and senators who remain unimpressed with the company's proposed settlement. Senator Patrick J. Leahy, who heads the Senate Judiciary Committee, started things off on a predictable note. "First, I find that many of the terms of the settlement are either confusingly vague, subject to manipulation, or both," he said. "Second, I am concerned that the enforcement mechanism described in the proposed decree lacks the power and the timeliness necessary to inspire confidence in its effectiveness. The serious questions that have been raised about the scope, enforceability, and effectiveness of this proposed settlement leave me concerned that, if approved in its current form, it may simply be an invitation for the next chapter of litigation."

Microsoft lawyer Charles Rule defended the proposed settlement, saying that it went far beyond the scope of the allegations against the company. "[But] it was important to put this matter behind [the company] and to move forward constructively with its customers, its business partners, and the government," Rule said. "At the end of the negotiations, Microsoft concluded that the very real costs that the decree imposes on the company are outweighed by the benefits, not just to Microsoft but to the PC industry and consumers generally."

The company's argument didn't convince the senators. "Microsoft crushed a competitor, illegally tried to maintain its monopoly, and stifled innovation," said Senator Herb Kohl of Wisconsin. "Now, after all these years of litigation, of charges and countercharges, the settlement leaves us wondering: Did we really accomplish anything?" The committee also repeatedly referred to a letter from ex-Netscape CEO James Barksdale, effectively giving Barksdale--whom Microsoft vetoed from attending--more face time than the Microsoft competitors who did show up. "[This settlement] will subject an entire industry to dominance by an unconstrained monopolist," Barksdale wrote in one section of the letter, which Utah Senator Orrin Hatch read aloud at the hearing. "Microsoft is infinitely stronger in each of [its] core businesses than [it was] 4 years ago [when the suit began]." By the end of the hearing, only one committee member had anything positive to say about the settlement. Kentucky's Mitch McConnell said that a public opinion poll showed that 70 percent of Americans believe the case should be settled.

Meanwhile, Microsoft had a chance to reply to the coalition of nine opposing US states and District of Columbia, which submitted a controversial proposed remedy last Friday. Microsoft vehemently blasted the proposal in the company's 36-page filing, especially the remedies that involved opening up Internet Explorer (IE) and Office to competitors, which the company described as the "wholesale confiscation of Microsoft's intellectual property." The company requested that Judge Colleen Kollar-Kotelly simply ignore the states' proposal and instead sign off on the DOJ and Microsoft settlement.

"The [DOJ and Microsoft proposed settlement] provides considerably more relief than is warranted by the Court of Appeals' liability determinations," Microsoft wrote in its response. "Nevertheless, nine other states and the District of Columbia (the 'non-settling states') have rejected [that agreement], choosing to pursue their own radical and punitive injunctive relief that extends far beyond the case that was tried and the liability determinations that were upheld on appeal. Imposing such sweeping 'relief' would result in, among other things, wholesale confiscation of Microsoft's intellectual property and unprecedented governmental regulation of Microsoft's product-design decisions. In so doing, the nonsettling states' proposed judgment would harm not only Microsoft, but also numerous third parties and consumers."

As you might expect, Microsoft's arguments against the states' remedies are often convoluted and technical in nature, but to paraphrase an old friend, "The company makes some good points." Microsoft noted that the states have no legal responsibility to defend US antitrust law, and thus their proposed remedies seek to "substitute their judgment as to what nationwide relief is appropriate here for that of the United States." Microsoft also stepped through the various permutations of its court case, explaining that the states' plan exceeds an earlier Appellate Court decision that somewhat narrowed the case. And Microsoft put an interesting twist on its argument by quoting Judge Richard Posner, who tried, unsuccessfully, to mediate the case more than a year ago. Posner had noted that "[the states] are too subject to influence by interest groups that may represent a potential antitrust defendant's competitors. This is a particular concern when the defendant is located in one state and one of its competitors in another, and the competitor, who is pressing his state's attorney general to bring suit, is a major political force in that state." And sure enough, many of the holdout states are homes for Microsoft competitors.

Conspiracy theories notwithstanding, Microsoft and the DOJ have ignored one basic problem with their proposed settlement: It does nothing to address the illegalities that landed Microsoft in court in the first place and ensure that Microsoft isn't able to reap the rewards of its predatory behavior. The states' remedy proposal might be a bit extreme, but it more realistically takes into account Microsoft's past behavior and the ways in which the company has skirted the law.

Judge Kollar-Kotelly will make her final ruling in March, but several milestones will pass in the meantime. The Senate Judiciary Committee intends to reconvene at an undetermined date to tackle the proposed settlement once again, and the DOJ is soliciting feedback about the case for 60 days, a legal requirement that will show whether the public believes the case is fair.