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Author: sjhurst Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 157043  
Subject: One Lawyer's View: A Break-Up Will Not Happen Date: 5/19/2000 11:31 AM
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I just read through all the legal briefs and, let me tell you, it's not going to happen. Judge Jackson will not break up Microsoft. While well written, the Government's brief does not remotely justify ripping Microsoft apart. Here's what convinced me, as an attorney, that Judge Jackson will not break up Microsoft:

A Break-Up Is Thoroughly Unprecedented In This Kind Of Case

In the 110-year history of antitrust law, no court has ever broken up a company in this kind of case. Never. Not once.

To prove this point, Microsoft cited an analysis by Judge Posner, the renowned antitrust scholar who presided over the settlement negotiations. After studying cases dating back to 1890, Judge Posner found that courts in contested cases have ordered a “substantial divestiture” only in “merger” cases – i.e., where “the defendant is accused of having obtained or maintained monopoly power wholly or partly by mergers with competitors.” Merger cases lend themselves to break-up remedies because the courts can “undo” the merger.

But the Microsoft case obviously is not a “merger” case. Even one of the Government's own experts conceded that Microsoft achieved its dominance not through mergers, but through “good fortune and possibly superior product and business acumen.”

What was the Government's response to this compelling point? Nothing. No kidding. The Government's reply brief does not even mention, must less dispute, Judge Posner's analysis. Sometimes when responding to another party's brief, lawyers chose to ignore minor and evidently unpersuasive arguments. But ignoring an enormously powerful analysis by Judge Posner – who Judge Jackson obviously respects given that he selected him to mediate the settlement talks – only highlights a glaring weakness in the Government's position.

Judges are very reluctant to enter rulings without precedent. It's the surest way to be reversed on appeal. The Government practically admitted that a break-up would be unprecedented by arguing that “the appropriate remedy . . . depends on the particular facts of the case.” This is the legal equivalent of saying, “yes, Microsoft's right, a break up would be unprecedented, but do it anyway because this case is 'special.'” Weak. Judge Jackson will not be the first jurist since 1890 to break up a company in a non-merger case.

The Illegal Conduct Did Not Create The Monopoly

The Government and Microsoft appear to agree that a break-up requires a “significant causal connection” between the existence of the monopoly and the illegal conduct. If the law were otherwise, courts could punitively break up a legal monopoly based on a single, insignificant anti-competitive act, even when the act had nothing to do with the existence of the monopoly in the first place.

Here, as I mentioned, the Government agrees that Microsoft achieved its monopoly legally. And Judge Jackson found that there was not enough “evidence to find that, absent Microsoft's actions, Navigator and Java already would have ignited genuine competition in the market for Intel-compatible PC operating systems.” In other words, Jackson found that there was not a significant causal connection between Microsoft's illegal conduct and Microsoft's monopoly.

In response, the Government points out that the Judge Jackson found that Microsoft squelched “the process by which these two middleware technologies could have facilitated the introduction of competition.” (My italics.) But this is a far cry from finding that Microsoft's actions in any significant or meaningful way preserved Microsoft's monopoly. Without such a finding, a break-up is not justified as a matter of undisputed law.

The Government best point seems to be that because Microsoft used its monopoly power inappropriately once, we should dismantle the company to prevent the possibility of that ever happening again. But that's just punitive, and the law precludes purely punitive remedies. By the Government's own admission, a dismantling requires a finding that the illegal conduct is some meaningful way created or preserved the monopoly. Judge Jackson already found that this did not happen.

Legal Uncertainty Requires Narrow Relief

The Government and Microsoft agree that drastic remedies – like a break-up – generally are inappropriate when the governing law is uncertain. This only makes sense. It would be unduly harsh to impose a drastic remedy when the defendant reasonably believed it was engaging in legal conduct.

Microsoft argued that the governing law was uncertain, pointing out that Judge Jackson himself recognized the uncertainty. In his opinion, Jackson noted that his finding about illegal tying between Explorer and Windows – the heart of the case – “is arguably at variance with a decision of the U.S. Court of Appeals for the D.C. Circuit in a closely related case.”

The Government's response? The Government concedes there was legal uncertainty on tying, but then argues that the tying aspect of the case is not an important part of what justifies a break-up. Huh? The tying issue obviously was a core dispute in the case, and the principle basis of proceeding with the case in the first place. Besides, the Government is being inconsistent. In other parts of its brief, the Government argues that a break-up is justified because Microsoft suppressed potential competition from Netscape, in part, through tying.

The Bottom Line

So why is the Government seeking to break-up Microsoft if the remedy is so clearly inappropriate under the law? I think that the Judge Jackson's harshly worded opinion emboldened the Government. The Government thinks that Judge Jackson is leaning so heavily in its favor that, just maybe, Jackson will agree to a radical and extraordinary remedy – one that will put the case in the history books. The Government is overreaching.

Yes, the Government proved some antitrust violations. But that doesn't create a license to turn the software industry into one big laboratory, where the Government restructures the industry according to its own design in the speculative hope of creating more competition than the natural market forces. An antitrust remedy must be justified by the specific antitrust violations in question. Ripping apart Microsoft – a leader in arguably the most successful and dynamic industry in the world – is not remotely justified by the specific antitrust violations in this case. Take it to the bank: Judge Jackson will not break up Microsoft.
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