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Burden of Proof

Federal Judge Comes Down Decisively Against Microsoft; Computer Giant Remains Defiant, Vows Appeal

Aired April 4, 2000 - 12:30 p.m. ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

(BEGIN VIDEO CLIP)

BILL GATES, CHAIRMAN, MICROSOFT: This ruling turns on its head the reality that consumers know: that our software has helped make PCs more accessible and affordable to millions. When you look at the incredible pace of technological change, it's clear that Microsoft and every other company must compete and innovate in order to survive and prosper.

JANET RENO, ATTORNEY GENERAL: We are pleased that the court agreed with the department that Microsoft abused its monopoly power, that it violated the antitrust laws, and that it harmed consumers. Microsoft has been held accountable for its illegal conduct by a court of law.

(END VIDEO CLIP)

ROGER COSSACK, CO-HOST: Hello and welcome to BURDEN OF PROOF. Greta is off today.

Last week, Greta and I asked you to tune in today and tomorrow for a special two-part interview with the mother of Susan Smith. Linda Russell, whose daughter, Susan Smith, drowned young Michael and Alex in a lake in Union, South Carolina, spoke to us recently. And although we planned to bring you that interview today, we've decided to postpone it a day or two due to the remarkable developments in the government's case against Microsoft.

A federal judge came down decisively against Microsoft yesterday, ruling that the computer giant violated antitrust laws and kept, quote, "an oppressive thumb on the scale of competitive fortune," unquote. And the ruling by U.S. District Judge Thomas Penfield Jackson could mean years of pulverizing legal combat for Microsoft or even a government-sanctioned breakup.

(BEGIN VIDEO CLIP)

JOEL KLEIN, DEPARTMENT OF JUSTICE, ANTITRUST DIVISION: The department is committed to finding a remedy that will protect consumers, innovation and competition by putting an end to Microsoft's widespread and persistent abuse of its monopoly power and to rectifying its unlawful attempt to monopolize the Internet browser market. (END VIDEO CLIP)

COSSACK: Microsoft remains defiant and says it will appeal.

(BEGIN VIDEO CLIP)

GATES: Well, the conclusions of law certainly are subject 100 percent by -- to review by the appeals court. If you look at earlier rulings by this district court relative to Microsoft, those were completely overturned. In fact, that's where the precedent that says that courts are not going to get involved in software design is most clear.

(END VIDEO CLIP)

COSSACK: And joining us today, Lars Liebeler, an antitrust lawyer with Americans for Technology Leadership; Elizabeth Wasserman of "The Industry Standard"; and antitrust lawyer Steven Sunshine, formerly with the Justice Department. And in the back row, Ed Gellman (ph), Victoria Curtis (ph) and Matt Allen (ph).

Elizabeth, let me go straight to you. This decision is being portrayed as a terrible loss for Microsoft, but, in fact, there were parts of it that Microsoft didn't lose?

ELIZABETH WASSERMAN, "THE INDUSTRY STANDARD": Yes, absolutely, and I imagine their attorney are combing over the decision, plotting their appeal right now -- on two points: On one, the judge found that the company's contracts with Internet service providers such as AOL didn't preclude Netscape from distributing its browser, and that there were other ways that the company could do this, such as through the Internet.

And on the other point that Microsoft is likely to pick at, the judge challenged the 1998 Court of Appeals ruling on an earlier case involving Microsoft in which the court found that Microsoft could incorporate some Internet technologies in its Windows operating system.

COSSACK: Lars, isn't it kind of unusual that this judge was able to, in a sense, divide this decision like he did, on one hand, finding that the Netscape -- that there was no problem with Netscape in a sense, but yet finding that Microsoft has acted in violation of the antitrust laws?

LARS LIEBELER, AMERICANS FOR TECHNOLOGY LEADERSHIP ANTITRUST ATTORNEY: Well, I think there's some internal inconsistencies in the opinion, and that's what Microsoft is counting on in the Court of Appeals. One of the major problems which I think they're going to focus on is the way that the judge defined the market. That's always crucial in antitrust cases, to find what are the realistic alternatives and competitive pressures on Microsoft. The judge defined that issue so narrowly so that it's only Intel-based PCs. So that didn't, in my opinion, and I think in Microsoft's opinion -- they're going to hammer this in the Court of Appeals -- that didn't realistically take into account other possible competitors in other fields to Microsoft, and it overstated the market share in that way.

COSSACK: Steven?

STEVEN SUNSHINE, FMR. DEPT. OF JUSTICE ANTITRUST ATTORNEY: No, I disagree. I mean, I think, yesterday, you know, there -- you can nitpick the decision to death, but, basically, we're on the same trajectory we were always on. The judge thinks that Microsoft's a monopolist and did bad thing. Where the action is going to be is not on whether Microsoft did anything wrong. The action is going to be on how much harm there was and then what's the appropriate remedy to fix that harm. All this stuff about exclusive dealing, tiling, you know, that's lawyer stuff that they can worry about. What's really gone on is the judge has found that Microsoft has done something wrong, now what do we do about it?

COSSACK: Elizabeth, Joel Klein said that perhaps a new standard was set by this decision yesterday -- Joel Klein, the lead lawyer for the government. Was a new standard set?

WASSERMAN: Well, this is the first time that, you know, century- old antitrust laws were applied to the digital age, and there's been some question about whether high-tech companies are somewhat different and should be regarded as somewhat different because the markets change so rapidly, new generations of products are introduced and catch on, achieve critical mass very rapidly. So I think he was right that this is a watershed ruling.

COSSACK: Lars, in that sense of this being a watershed opinion, is this the kind of opinion that will stand for the technology business? Is the kind of opinion that other technology companies are going to look at and say, uh-oh, this is the standard. This is where we can go and this is where we can't go?

LIEBELER: Well, I think it's -- yes, it's a hotly contested opinion, and I think that there are people who come down very strongly on both sides of this opinion. And I think the people who really strongly disagree with the opinion and the way that the judge did things in this case are not going to take it as gospel. There are Supreme Court decisions that arguably are contrary to what Judge Jackson did. I think, until this decision is reviewed by the Court of Appeals, that it won't be the guiding antitrust light.

Nonetheless, the fact that it is there emboldens the Department of Justice and the states to potentially take on other cases like this. So it does have a chilling effect on the marketplace, and i think that people in the technology sector are worried about that.

COSSACK: And that's the key word here: "chilling effect." To lawyers, that means that it prevents other companies from doing other things. Bill Gates would tell you it prevents him from being innovative. Does it have a chilling effect and will it prevent other companies from being innovative?

SUNSHINE: Well, I think the bottom line on that is, probably not. I mean, Bill Gates certainly is talking about innovation, but, you know, you forget on that that every one of Bill Gates' competitors practically lined up to testify in court about how this was necessary. I mean, this is a very particular fact situation where we have a company that's had monopoly power in a market for years and years.

Now, there are few other companies out there that arguably could fall into this role, but for the average developer of software, of Internet access, of any of those other things, they are so far from monopoly power that there's really no affect here. And what you have to decide is, is there some chilling effect? At the same time, what the court would say and what some of the Department of Justice people would say is, what we've actually done is we've encouraged people by saying that, yes, the antitrust laws do apply to this industry, and people who abuse their power are going to get, you know, policed. So I think that, you know, you have to look at it from both sides of the question.

COSSACK: Lars, I can see you want to respond to that.

LIEBELER: Yes, I'd like to talk about something that Steve said because he said that Microsoft's competitors were lining up to testify against Microsoft. And, of course, that's what they do. But the crucial point is, were there any consumers that were there that were injured? The key point in this case and the turning point for me, I think, was when Franklin Fisher (ph), the government's expert, was on the stand. He was asked, what is the consumer injury? He said, there is none; not at the current time. It's all speculative. And that the key issue. That's when...

COSSACK: But, in fact, it's hard to determine what the consumer injury would be because, in fact, what you're saying is there could have been better things but for the activity of Microsoft.

LIEBELER: And the standard in the law is clear: Unless you have a definable injury which you can quantify and calculate, you don't belong in court. If it's speculative, that's what the law says. If your damages are too speculative,, you shouldn't bring the case. And I think that's the problem here, is that the quantification and the description of the damages in this case have always been very speculative and no one can put their finger on it, and no consumers have been hurt. They've been helped. They're wonderful products and the technology sector right now is going great guns. There are new products all the time.

One other point, and that is that this case was filed two years ago, that the landscape in the technology industry has changed so much over that course of time that, really, Microsoft is not quite what it was at the time. The emphasis has shifted to the Web and the PC and the operating system isn't quite as important.

COSSACK: All right, Lars, let me set you off here because we're going to take a break.

Bill Gates promises an appeal and the government says consumers can look forward to the benefits of competition. Up next, a look at the legal strategies behind this case.

(BEGIN LEGAL BRIEF) A federal jury awarded more than $500,000 to a former Stanford University scientist. Colleen Crangle claimed she was fired by the University when she complained about being sexually discriminated against.

Source: The National Law Journal

(END LEGAL BRIEF)

(COMMERCIAL BREAK)

COSSACK: Good news for our Internet-savvy viewers: You can now watch BURDEN OF PROOF live on the World Wide Web. Just log-on to CNN.com/burden. We now provide a live video feed, Monday through Friday, at 12:30 p.m. Eastern time. And if you miss that live show, the program is available on the site at any time via video-on-demand. You can also interact with our show and even join our chat room.

Yesterday's federal court ruling against Microsoft comes after years of legal gymnastics including million-dollar-a-day fines, failed 11th-hour settlement bids, and hours of testimony, and reams of evidence.

OK, Steven, let me ask you: It seems to me that, as a lawyer, I would want to settle this case. If I was on Microsoft's side, I would want to settle this case, why no settlement?

SUNSHINE: I think it's going to be very hard. I mean, part of the problem stems from the fact of just how successful the government was in convincing the trial court that there were egregious problem. The trial court goes and writes a very damning set of findings of fact and it emboldens the DOJ and, more particularly, all those state's attorney generals hanging around saying we have to go for the big remedy, we have to go for the breakup.

And, of course, Microsoft will do anything but a breakup practically. And so, what we have are here people painted into corners, and settlement I think here is going to be very difficult.

COSSACK: Elizabeth, is this a little bit of a personal battle between Bill Gates and the Justice Department? Is this a little bit of I am, you know, drawing the line in the sand, said Bill Gates, and I'm not going to be pushed back?

WASSERMAN: I think there has been a history of brinkmanship in this case since the start. And certainly the case that David Boies, the attorney for the Justice Department, put on a trial was very targeted at Bill Gates. He, you know, played hours and hours of Gates' videotaped deposition that just made the Microsoft founder look foolish, which is hard to believe for a man who's reportedly so bright.

COSSACK: Lars, if anything, you have to agree that one of the things that Bill Gates was not was an impressive witness at that trial. It is clear that -- at least it seems to me pretty clear, that the judge did not accept most of his testimony? LIEBELER: Well, he testified by videotape and he didn't come off as well as I think that he wanted to. But nonetheless, it's -- his testimony, in many senses, is irrelevant because what the most important thing in this case is is whether there is consumer injury and there are very technical requirements in an antitrust case, whether people are writing e-mails back and forth about how we are going to get the competition and that and the other thing, that doesn't really carry that much weight in the end about whether you have got an antitrust violation.

So David Boies is a flamboyant guy, and so he used that to try to influence the judge, much like he does with juries. And I think that Judge Jackson really let him go on a little too much with that stuff and should have kept him to the technical requirements of an antitrust violation. And on those grounds, Bill Gates's testimony, for the most part, is irrelevant.

COSSACK: Well, what about that, Steven, what about the intent issues that could come from Bill Gates' testimony, those e-mails, if you believe them, about we're going to get them, and we are going to do this, and you know we're going to dominate. I mean, that has to have some effect?

SUNSHINE: Of course it's relevant. But what the whole case is about is conduct that had an impact on the market. But once you take a look at what the conduct was and the impact was, you have to decide: What was the purpose of it? Because if there is pro-competitive reasons for doing it, then it doesn't violate the antitrust laws. If it was done exclusively for the purpose of excluding competitors, and it made no business sense otherwise, then that is predation under the antitrust laws, and so intent is at the heart of it.

And of course, what Microsoft's intent was, and Bill Gates' intents were, you know, really goes right to that issue. There are, of course, other issues in the case and harm to consumers is one of them. But that doesn't mean at all that the intent and what Microsoft was trying to do is not one of the central issues.

COSSACK: Lars, why is Microsoft so confident on appeal? Of course, you know, every litigant says: Don't worry, we're going to win on appeal. But this one is -- seems fairly clear that they really believe they are going to win on appeal.

LIEBELER: Well, the track record show, at the first time around, when this case was brought a couple of years ago, it raised the whole question of putting the Internet Explorer in with the Windows was a violation of the antitrust laws. Microsoft lost before Judge Jackson, they took it to the court of appeals and they won. So I suppose their track record in the court of appeals is much better than Justice. So they are confident about that.

But you never know which judges you are going to get on a court of appeals. And so it is certainly not a sure bet, but the composition of the D.C. Circuit Court of Appeals is one where Microsoft has got a good chance to get judges who are more receptive to the arguments about real economic effect than Judge Jackson. So that is why they are confident.

COSSACK: Steven, doesn't Microsoft have a long history of sort of losing in the district court and then winning on appeal?

SUNSHINE: They do, and I think that that's likely to happen here again, although in a different way than we're talk about. With what happened in the findings of fact, I don't think there is any doubt that the court of appeals is going to find that Microsoft violated the law, in some way or the other.

What is going to happen is really what is going to happen going forward, and what's the right remedy? Because what will happen is that the court of appeals will likely say: OK, in 1995, yes, Microsoft, you did some things that violated the law, but the markets changed. All these other things have happened; so right now, hold out your wrists and we're going to slap them.

COSSACK: Elizabeth, go ahead?

WASSERMAN: Yeah, I think that the ultimate question is: What will the Supreme Court be likely to do? Because I think that's where the case is going to wind up. And it's my sense that that is much more unclear than what is likely to happen at the court of appeals level. That the Supreme Court hasn't really considered a case like this in 10 years, and then there were different members.

COSSACK: All right, it would seem to me that if we get to the Supreme Court, then automatically, by that time, even if Gates loses, he wins.

But let's take a break. How do you punish the world's biggest computer company owned by the country's richest man? The remedies, when we come back.

(BEGIN Q&A)

Q: Why did the United States Information Agency have to pay $508 million to 1,100 women?

A: Discrimination. The USIA had to pay the record-breaking settlement to 1,100 women victimized between 1974 and 1984 by discriminatory hiring practices.

(END Q&A)

(COMMERCIAL BREAK)

COSSACK: One hundred years ago, when Standard Oil came under government attack and was ruled a monopoly, owner John D. Rockefeller fought back, but ended up losing as his company was split into more than 30 smaller entities.

All right, I'm going to make you all judges for the next couple of minutes.

Elizabeth, what kind of a remedy should we put on Microsoft? And I want you to take into consideration that Bill Gates and Microsoft is a very popular company that's owned by quite a few people in this country.

WASSERMAN: They are. And there doesn't seem to be the public sentiment advocating for a breakup. Despite the year-long trial at which Microsoft took quite a PR hit, people don't seem clamoring to break it into "Baby Bills."

And one of the reasons might be that so many average consumers these days are investors. And whether they are 401(k) plans or mutual funds, they invest in Microsoft indirectly or directly.

I think with the remedies, we're more likely to see a -- the judge go for some conclusion along the lines of the settlement offers that were discussed up until this weekend, where there were a set number of conditions, such as a common pricing for computer makers, wider access to Windows source code, and also the ability to remove the Internet Explorer browser from the Windows operating system.

But I think the governments are going to look for teeth in these enforcement.

COSSACK: Lars, if those are the remedies that are enforced, the ones that Elizabeth suggest, doesn't that sort of dictate or argue why, in fact, Gates didn't want to settle this case. If he say, you know, why -- I'm in no worse shape than I would be if I let them make the decision, and I have an appeal besides?

LIEBELER: All right, I'm not sure why the parties didn't settle the case. There is a great risk, particularly for the state attorney generals and from the DOJ to go forward with a case like this, when they had some substantial concessions from Microsoft during the settlement talks. So, it's a little tricky to understand why they didn't go forward.

Keeping in mind, I think proportionality is a key word when you have to think about the remedy stage. And that is, anybody who talks about a breakup, like the state AGs are, need to balance that against the fact that the consumer -- I will even accept what Steve is saying for a moment -- say, there has been potentially some consumer harm by lack of products, that is a minimal consumer injury compared to the draconian remedy of a breakup. And so, on the theory of proportionality, I don't think a breakup is the right remedy at all.

COSSACK: What is the right remedy?

LIEBELER: You are asking me a tough question because...

COSSACK: I hope so.

LIEBELER: ... yes, because I'm in the no-liability camp. So I think that maybe some things, along the lines that, as Ellen was saying, that Microsoft is willing to give up during the settlement talks. I can tell you what I -- another thing, which shouldn't be a part of a remedy, and that is that I don't think that consumers or tech companies or anybody wants to have the government designing software; they don't want to have a government oversight saying what can and cannot or should or should not be in Windows.

COSSACK: Judge, should the government be in the designing software business?

SUNSHINE: Well, when you phrase the question that way, it's an awful lot like, you know, when did you stop beating your wife? But...

COSSACK: I didn't ask you that one.

SUNSHINE: ... yesterday. But -- no, of course, the government should not be in the business of designing software. But what the government will likely seek to do, and the court will likely seek to do, is: Are there certain kinds of behavior when Microsoft has used its monopoly power in the operating system to reach out into other areas? And if you can stop Microsoft from reaching out into those other areas, you are then preventing sort of an unfair advantage coming out of the fact that they have a monopoly.

And so, what the government and the court will likely try to do is break that linkage between the operating system monopoly and other markets, so that there can be fair competition in the other markets.

COSSACK: Lars, is it possible?

LIEBELER: I don't think it is. It's one of those things; it's a structural remedy that requires so much hands-on effort by the government to try to do that. And again, it also presumes that government regulators, or even anybody, can figure out exactly where the marketplace is going to go next. Over the last two years, we've already seen it's moved from a PC-based...

COSSACK: How do you do that?

LIEBELER: You can't do it.

COSSACK: OK.

That's all the time we have for today. Thanks to our guests, and thank you for watching.

Later today on "TALKBACK LIVE," on the anniversary of the assassination of Dr. Martin Luther King: Is the United States a country divided by black and white? Call, fax, or e-mail your thoughts. That's "TALKBACK LIVE" at 3:00 p.m. Eastern, noon Pacific.

And we'll be back tomorrow with another edition of BURDEN OF PROOF. We'll see you then.

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