The Malign Nine vs. Microsoft

May 8, 2002 • Commentary

From mid‐​March to mid‐​April, nine holdout states and the District of Columbia tried to convince a federal judge to punish Microsoft more severely than the Justice Department thinks is appropriate or necessary.

Now it is Microsoft’s turn to present its case. Meanwhile, the court is considering a motion by Microsoft to dismiss the states’ lawsuit altogether. Judge Colleen Kollar‐​Kotelly, if she grants the motion, will be promoting innovation and competition, eliminating duplicative federal and state antitrust enforcement, and reining in opportunistic behavior by nine attorneys general who believe they are entitled to two bites at the Microsoft apple.

Microsoft argues in its motion that the non‐​settling states, because they did not show injury unique to their residents, do not have legal standing to bring a separate suit. Those nine states — relying on the same trial, the same facts, the same conclusions of law, and the same injuries to the same people — want to override a settlement between Microsoft and the federal government, supported by 41 out of 50 states.

As private plaintiffs in a case where the Justice Department has already spoken, the holdout states must show they are redressing state‐​specific injuries, not just substituting their judgment for the Justice Department’s on how the federal antitrust laws should be enforced. Yet, Microsoft declares, the nine states expressly denied that their residents were injured any differently than residents in other states.

Judge Kollar‐​Kotelly asked the Justice Department to comment on Microsoft’s argument. In its brief, the antitrust division lawyers said they could find no definitive case law that compels the case to be dismissed. Nonetheless, the Justice Department offered four powerful reasons why the states’ claims, as a matter of equity, should be rejected.

First, “the United States is the sole enforcer of the federal antitrust laws on behalf of the American public.” Second, the states’ remedies would affect competition and consumers outside their borders — raising “for the very first time the prospect that a small group of states, with no particularized interests to vindicate, might somehow obtain divergent relief with wide‐​ranging, national economic implications.”

Third, many of those remedies “appear unrelated to the theories of illegality advanced by the United States and the plaintiff states at trial and the findings of liability sustained by the courts.” In fact, the remedies extend to “new products, new services [and] new markets.” Fourth, the proposed settlement will provide all the relief needed to protect consumers against future antitrust injury. Any doubts in that regard, according to the Supreme Court, should be resolved in the federal government’s favor.

Essentially, said the Justice Department, “The public interest is best served when federal and state antitrust activity is complementary, not duplicative or conflicting.” In this case, however, the nine holdout states “have neither the authority nor the responsibility to act in the broader national interest, and the plaintiff with that authority and responsibility [that is, the United States] has taken a different course.”

Still worse, the relief sought by the non‐​settling states “may harm consumers, retard competition, chill innovation, or confound compliance” with the federal settlement.

Echoing the Supreme Court, the Justice Department warned that antitrust redress requires a showing of “harm to competition, not competitors.” Remedies must be crafted for the benefit of the public, not for the private gain of Microsoft’s rivals.

Judge Kollar‐​Kotelly, having solicited the Justice Department’s guidance, would do well to give it great weight. That’s the short‐​term solution. Longer‐​term, a more permanent approach is necessary.

Congress is constitutionally authorized to intervene whenever actual or imminent state practices threaten the free flow of commerce. Congress should use that power and strip the states of their ability to enforce federal antitrust laws. Otherwise, some states will continue to abuse their existing authority — exercising it to impose sovereignty beyond their borders and catering to the parochial interests of politically powerful local constituents.

Would constraints on state antitrust enforcement powers violate time‐​honored principles of federalism? Not at all. Federalism isn’t simply a matter of states’ rights. Nor is it exclusively about devolution of power or promoting efficient government. First and foremost, federalism is about checks and balances based on dual sovereignty.

Most often, the states are a counterweight to excessive power in the hands of the federal government. Yet antitrust — especially the Microsoft case — is an instance where the federal government must curb excessive power in the hands of the states.

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