The Microsoft Decision — Part 2 of 2: Prospects for the Company, Implications for Antitrust,

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With the Microsoft antitrust suit back in the lap of the trialcourt, there are hints that both Microsoft and the JusticeDepartment would like to put this case behind them. The trick, ofcourse, is to come up with a formula that will appease the stateattorneys general, who insist they will keep litigating if aproposed settlement does no more than slap Microsoft on the wrist.That threat may be an empty one if the two principal litigantsfavor an end to the protracted courtroom battle. The AGs surelyunderstand that Microsoft has already been, and will continue tobe, punished by this lawsuit in ways quite apart from the remediesthat are ultimately put in place.

The cost of the litigation - in time, money, public image, anddiversion of executive resources - has been enormous. Microsoft'sshareholders, Bill Gates in the lead, suffered an erosion of marketvalue measured in hundreds of billions of dollars. And the companystill faces an onslaught of legal action, both public and private.An increasingly interventionist European Union, raring to establishits independence from the United States, will move forward with itsown antitrust probe. Private lawsuits will probably be filed byconsumer classes and Microsoft's disgruntled competitors, likeAOL-Netscape.

Those private plaintiffs can collect treble damages under U.S.antitrust laws, and they are in a much stronger position as aresult of the Justice Department's partial victory. Because thecourt held that Microsoft has a monopoly in operating systems andbehaved anti-competitively, private litigants - without revisitingthose issues - can proceed straight to proof of injury. Evenconsumers, who do not purchase computers directly from Microsoftand are therefore prevented from recovering damages under federallaw, can sue in some state courts where the direct purchaser ruledoesn't apply.

So whatever conduct remedies might be included in a settlement,Microsoft has a slew of other problems arising from the federallawsuit. And because of amorphous antitrust statutes that delegatetoo much discretion to Justice Department officials and federaljudges, potential defendants like Microsoft still do not know whatrules govern their conduct.

To be fair, the appellate judges on the D.C. Circuit were facedwith a triple dilemma. First, they are judges, not legislators.Accordingly, they interpret the law and do not rule on its wisdomor policy implications. Antitrust, as codified in legislation andconstrued in prior cases, is an amalgam of doctrines that are murkyat best. Nonetheless, the judges seemed to go out of their way toaffirm its vitality in high-tech markets. Down the road, that couldbe the most destructive aspect of the appellate ruling.

Second, the Court of Appeals commented repeatedly that Microsofthad failed to question the connection between Judge Jackson'sfindings of fact and his conclusions of law. The judges weredisinclined to make those arguments on Microsoft's behalf.Significant conclusions of law were thus affirmed, not because theappellate court necessarily agreed, but because they had not beenadequately refuted.

Third, under federal rules of civil procedure, the court had twochoices in reviewing Jackson's fact-finding: All of his facts couldbe rejected on account of apparent bias, or all of his facts wouldhave to be scrutinized deferentially - that is, they would bediscarded only if "clearly erroneous." There was no middle ground.Because Jackson's misbehavior occurred mostly toward the end of thetrial, and related mostly to the remedies phase, the appellatecourt opted not to dismiss categorically his fact-finding. Yetbecause Microsoft failed to challenge key facts - choosing merelyto assert their inaccuracy - they were affirmed, almost by default,and critically affected the outcome of the case.

Microsoft will escape without dismemberment and withoutpermanently disabling conduct remedies. Consumers might not be aslucky. They may have to contend with sterile markets that willevolve if vigorous antitrust enforcement extinguishes theincentives for new and improved products. Long term, the solutionis to repeal the antitrust laws. They rely on a false ideal ofperfect competition, debase property rights, punish success, andencourage government to proceed in the name of correcting marketfailure without considering the possibility of government failure.Too often, antitrust is used as an anti-competitive subsidy to propup less successful firms - politicizing competition to advance theprivate, parochial interests of favored competitors.

Read Part 1