Analysts: Jackson damaged the case against Microsoft

WASHINGTON -- When U.S. District Court Judge Thomas Penfield Jackson began publicly expressing his opinion about the antitrust case against Microsoft Corp., legal analysts said, he did more damage to the federal government's position than the software vendor managed to inflict during the course of the 78-day trial that was presided over by Jackson.

That view of the situation became clear this week after the U.S. Court of Appeals heard two days of oral arguments on Microsoft's appeal of Jackson's breakup order against the company. The appellate judges were aghast at Jackson for making comments such as one that allegedly compared Microsoft's executives to gang members convicted of murder (see story).

Appeals Court Judge David Tatel said during Tuesday's session that the public may well "wonder whether [Jackson] is biased against the defendant." In the aftermath of the oral arguments, analysts said the criticism of Jackson by Tatel and other members of the appeals court puts the order to split Microsoft in two in serious jeopardy.

"Jackson's conduct has so clouded this whole proceeding that the [appeals court] judges are just doubtful about the whole works," said Herb Hovenkamp, an antitrust expert and law professor at the University of Iowa in Iowa City.

Hillard Sterling, an antitrust attorney at Chicago-based Gordon & Glickson LLC, said the deference that the appeals court might have typically given to Jackson's findings of facts in the antitrust case is now gone. "Judge Jackson's breakup order is doomed," Sterling said. "There's no chance that the breakup order will survive this appeal."

Despite this week's events, some supporters of the government's case maintain that it will be impossible for the appeals court to reject all of Jackson's work. His findings supported nearly every claim made by the U.S. Department of Justice (DOJ) and the 19 states that joined in the case, and proponents said the government could still prevail if a key charge -- that Microsoft used anticompetitive tactics to maintain its monopoly in desktop operating systems -- is upheld.

"What is safe to say is [that] a finding of monopoly maintenance would support a very significant, substantial remedy, which could include breakup or conduct remedies," said Stephen D. Houck, former lead trial counsel for the 19 states and now an attorney at Reboul, MacMurray, Hewitt, Maynard & Kristol in New York.

But Houck and others said the Bush administration may move to settle the case once the appeals court acts. The new nominee to head the DOJ's antitrust division, antitrust attorney Charles James, has spoken out publicly against breaking up Microsoft, said Hovenkamp, who served with him on a recent panel that discussed the topic.

That wouldn't be without precedent. In 1982, the government ended its 13-year antitrust case against IBM after the Reagan administration concluded the case was "without merit." IBM's market position was eroding by that time, so there wasn't the backlash against the decision that there might otherwise have been.

The risk for the Bush administration with Microsoft is that the company could well be just as dominant when re-election time rolls around as it is now, Hovenkamp said. If that's the case, "and there is a lot of blood on the floor from [Microsoft's] competitors, then [a] settlement is going to come back and bite the Bush administration," he added.

In the wake of this week's oral arguments, some end users said they're worried that a Microsoft freed from a real threat of being broken up or hit with major restrictions on its business practices could become harder to deal with than it has been since Jackson issued his ruling last spring.

"I'm not sure they will go back to all their arrogant ways, but I think they may be a little tougher in negotiating and interacting with users," said Ashok Bakhshi, an IT manager at Schindler Elevator Corp. in Morristown, N.J. "I think they were bending [over] backwards in some situations to keep their customers happy."

On the other hand, Bakhshi said, Microsoft's push to become a bigger presence in the server market could help bring the price of Unix servers down. And while Bakhshi worries about Microsoft's effect on competition, he said he also thinks that technical innovation will ultimately prevail.

Companies can briefly "put themselves in monopolistic positions, but over time, they abuse their position and open the door for someone else," said Bill Homa, CIO at Hannaford Brothers Co., a Portland, Maine-based grocery store chain. "It happened to IBM, and I think it's going to happen to Microsoft, regardless of the outcome of this case."

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