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Burden of Proof

Microsoft Antitrust Case: U.S. Supreme Court Rejects Appeal in Landmark Case

Aired September 27, 2000 - 12:30 p.m. ET

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

ROGER COSSACK, CO-HOST: Today on BURDEN OF PROOF: Microsoft wins -- well, at least for a little while, as the landmark antitrust case brought by the Justice Department is rejected by the U.S. Supreme Court and sent to a lower court.

(BEGIN VIDEO CLIP)

STEVE BALLMER, PRESIDENT AND CEO, MICROSOFT: This is just a procedural step in a process. We're just glad to have the opportunity, now, to start the actual appellate process in either of the two courts.

WILLIAM KOVACIC, GEORGE WASHINGTON UNIVERSITY: I think Microsoft's greatest risk now, by way of remedy, is not a breakup, but some form of controls on conduct.

In short, I think the government's possibilities of achieving a breakup really foundered today.

(BEGIN VIDEOTAPE)

ANNOUNCER: This is BURDEN OF PROOF, with Greta Van Susteren and Roger Cossack.

COSSACK: Hello and welcome to BURDEN OF PROOF.

Yesterday in Washington, Microsoft Corporation was handed a victory by the U.S. Supreme Court. The court ruled to send the appeal of its breakup to the U.S. Court of Appeals for the D.C. circuit.

GRETA VAN SUSTEREN, CO-HOST: The Justice Department wanted the Supreme Court to hear the case immediately and skip the Court of Appeals.

Last April, a federal judge ruled that the software company had violated federal law in its business and marketing practices, pushing out rivals and stifling competition.

Joining us today are Danielle Piccarini (ph); Steve Sunshine, who is a former deputy assistant attorney general in the antitrust division; and Lars Liebeler, an expert in technology law and antitrust litigation. COSSACK: And in the back: Chris Melde (ph), Mike Lanczycki (ph) and Joseph Allen (ph); and joining us from New York is CNN financial news correspondent Bruce Francis.

Well, Bruce, why is it so important that the Supreme Court refuse to hear this case and sends it back to the D.C. Court of Appeals?

Why would Microsoft say, hey, that's a victory for us?

BRUCE FRANCIS, CNN CORRESPONDENT: No. 1, Roger, that's because that appeals court has twice ruled in favor of Microsoft on one part of the current case -- the bundling part of the current case; and both those rulings were reversals of Judge Thomas Penfield Jackson. And that's just the kind of scenario Microsoft wanted to see.

They think they're going to get a more friendly reception in the court of appeals here. Significantly, it was a two out of three-judge panel that heard them before. This time it will be a seven-judge panel that will hear them. That's really a very large one, it's an unusual proceeding, as you folks well know.

But Microsoft is expecting to get a much more friendly hearing than it would have, perhaps, from the Supreme Court. But odds are on, for many of the people that I've been talking to -- they do feel that, eventually, this case will be heard by the Supreme Court.

VAN SUSTEREN: Lars, what Bruce talks about is how you might have an attractive or friendlier forum in the U.S. Court of Appeals and so that, in some ways, it's a victory for Microsoft. But there's another little, sort of, little tale, I think, or secret behind this -- that's the element of delay.

How does delay figure into this, who wins by the fact that it's going to take so long to get to the United States Supreme Court, Microsoft or the government?

LARS LIEBELER, ANTITRUST ATTORNEY: Greta, I think Microsoft wins here.

One of the crucial elements in this case is that the government has asked and the district court ruled that the company had to be broken up. As time elapses and passes, the events that lead to that sort of a decision become so much more remote in time; it really becomes so much different.

The technology marketplace changes all the time. By the time this finally gets to the end of the road, it's going to be so much different that Microsoft will have a strong argument to say: Look, the market is totally different now, all the factors you believed that should have led to a break-up don't exist now, so you shouldn't do it.

VAN SUSTEREN: Steve, what's the argument that Microsoft makes for not doing this leapfrog over the United States Court of Appeals? They can't say, look, we wanted to delay because we think it's better for us, because technology may advance such that it may make this case moot; or they can't say, look, we think it's a friendlier, happier court for us. I mean, they've got to come up with some more convincing, sort of, lawyer-like legal argument.

What was their argument to go to the U.S. Court of Appeals and not just skip to the chase and go the Supremes?

STEVE SUNSHINE, FORMER DEPUTY ASSISTANT ATTORNEY GENERAL: Well, they did come up with an argument and it wasn't a bad argument, all things considered, although I think Lars hit the nail on the head when he said the real reason was delay.

Their argument was, basically, this is such a voluminous record, there's so many important things going on here that we really need the Court of Appeals to sift through the records...

VAN SUSTEREN: Well can't the -- aren't the justices, the nine justices, just as smart to go through the 13,466 pages and the 2,695 exhibits? Aren't they...

COSSACK: I love that you know that. You know, you're the only one in world I know who would know that.

(LAUGHTER)

VAN SUSTEREN: I mean, don't we pay them to be -- to judge it? I mean, they're going to look at it, are they not, Steve?

SUNSHINE: They are -- you know what, we should write a letter to the Supreme Court and complain.

COSSACK: Don't tell her that. Don't tell her that.

VAN SUSTEREN: They've got that three month vacation, too, starting at the end of June every year.

SUNSHINE: And they have all those high-priced law clerks, as well, out there.

But, no, it was an argument -- but timing was really the key thing. You know, as the market moves on and what happens to the remedy, that has a huge effect and that's why this was just a procedural battle, it was hotly contested between the Justice Department and Microsoft because both sides knew it mattered.

COSSACK: Bruce, is there any thought now -- are you hearing anything that, well, maybe the government or Microsoft should now get a little more serious about discussing settlement in this case.

Remember, that's always been an option, even though there has been a decision. Perhaps the government is going to be a little more willing to talk now.

FRANCIS: Roger, there's no evidence that we have, certainly, that settlement talks are reigniting here. They've been going on periodically throughout this matter.

But, certainly, you would think that the government would have more incentive. For one thing, Joel Klein who was, really, the leader behind this case, the head of antitrust for the attorney general's office, he recently has stepped down.

We're facing the appeal phase of this case getting into a new administration. Whether that's a Gore administration or a Bush administration or some other administration, we don't know. But that, certainly, has potential implications for the Justice Department as well.

COSSACK: I'm sorry. Let me just follow up with you, Steve, as you've been involved in these -- you know, government wakes up and says, we're not where we want to be, we're in a not-so-friendly court where, at least two years down the road, perhaps we got to make a little phone call and say, you guys feel any different?

Or, is there such personal animosity, by now, between these lawyers that they say, let's just go all the way?

SUNSHINE: I don't think personal animosity really comes into it. But what's going to happen is, yes, the government has a greater incentive to pick up and phone Bill Gates, but what is Bill Gates' incentive to answer that phone call?

VAN SUSTEREN: You guys are missing one important element. We talk about the government, we act like this is the Justice Department, that they're the only ones going after it, but you've got 19 states and the District of Columbia.

Bruce, they're in on this as well. I mean, it's not just a question of the Justice Department; don't the states have a dog in this fight, and also the District of Columbia?

FRANCIS: Absolutely. The states have big dogs in this fight. I think they've been the ones -- some of them have been some of the more aggressive ones. I think some of the states were much more aggressive in the settlement talks in times past.

But I want to pick up on something that, I believe, Steve Sunshine just said, that what's Bill Gates' incentive? Microsoft's stock has fallen from about $120 a share at the end of last year to just about half that. That's a tremendous amount of incentive -- that's half of Mr. Gates' personal wealth, just about.

VAN SUSTEREN: I don't think he's going to be, you know -- I don't think he's going to be in the shelter tonight, even with that.

(LAUGHTER)

FRANCIS: No, he won't, Greta. But remember, millions of Americans own Microsoft stock either directly or through mutual funds...

COSSACK: That's important.

FRANCIS: ... and they really enangered (ph) their traditional fund base because of this drop in the stock. That's a huge move for Microsoft. COSSACK: So, Lars, does that mean, then -- and to follow up on what Greta said -- so does that mean, then, that if Gates hears something from the Justice Department, you know, he puts his -- because of pressure from shareholders, that he says, you know, well, let's sit down and talk a little bit, even though, you know what, I think my position is a heck of a lot better than it was yesterday?

LIEBELER: I think he might be willing to do so.

I think that there's a good point, that he wants this case to be over and he wants it over for himself, for the shareholders, for the company so they can get on with the business of what they do, which is building products. But...

VAN SUSTEREN: And a good product.

LIEBELER: And a good product. You know, of course, that's why they ended up with the market share that they did, because it is a good product.

VAN SUSTEREN: They built the better mousetrap.

COSSACK: No one else did -- built one either.

VAN SUSTEREN: That's going to Judge Jackson, I mean, that's what's going to be resolved in the United States Court of Appeals and maybe the Supreme Court.

COSSACK: Yes ma'am, yes ma'am. I just thought I'd throw that in.

VAN SUSTEREN: And we're going to take a break.

Bruce Francis, thank you very much for joining us today.

And up next: the son of Chief Justice William Rehnquist is a lawyer in a firm representing Microsoft, but the elder Rehnquist has no plans to disqualify himself from the case.

A conflict of interest? Stay with us.

(BEGIN LEGAL BRIEF)

A Manhattan school board has passed a resolution that bans its 42 schools from sponsoring Boy Scout troops because the national organization excludes gay members.

(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 onto 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.

VAN SUSTEREN: Yesterday in Washington, the United States Supreme Court handed Microsoft a victory by sending the case back down to a lower court for consideration. And in an unusual move, Chief Justice William Rehnquist attached a statement to the decision defending his decision to participate in the case. Rehnquist's son is a Boston attorney working for a law firm representing the software giant. And, of course, the issue is, is there a conflict of interest when Justice Rehnquist even made the decision to send it back down to the United States Court of Appeals?

And this is what Justice Rehnquist said in a statement as to whether or not there's a conflict of interest: "I have reviewed the relevant legal authorities and consulted with my colleagues. I have decided that I ought not to disqualify myself from these cases. There is no reasonable basis to conclude that the interests of my son or his law firm will be substantially affected by the proceeding currently before the Supreme Court."

Right or wrong, Lars?

LIEBELER: Tough question. I'm not a legal expert on...

COSSACK: Oh, come on, Lars.

VAN SUSTEREN: Oh, come on. We all had to take that ethics course.

LIEBELER: I'll say that's the right decision. It's going to be a fun case, he wants to be a part of it. I think the people...

VAN SUSTEREN: That's not the test of whether it's going to be fun, the test is whether you have an interest in the outcome. The question is, does your son have an interest.

Let me go -- all right, let me see, Steve, right decision or wrong decision?

SUNSHINE: Can I cop out like Lars did or do I have to be more specific? I think it's a tough decision. This one is right on the edge. There certainly is an appearance of impropriety in that his son has an interest.

VAN SUSTEREN: Which is the standard, right?

SUNSHINE: Which is the standard. And if you want to have the courts above reproach, then I think that...

COSSACK: Here's the problem. And, you know, I kind of agree with -- I want to cop out, too.

VAN SUSTEREN: As much as you hate to. What, you kind of agree with the chief justice?

COSSACK: No, I want to cop out a little bit. But let me -- and I understand why. And maybe it's a male thing. You know, let me just tell you what the cop-out thing is.

VAN SUSTEREN: Yes, let's hear this.

COSSACK: The cop-out thing is this, is that, you know, having a son that works for a law firm that represents Microsoft, on its face, is terrible. But the question is, to what effect do they represent Microsoft, and does it have really, really any impact on what this decision is?

VAN SUSTEREN: Yes, but you know what Steve said?

COSSACK: You can argue that, obviously, it helps Microsoft by sending it down.

VAN SUSTEREN: No, no, no, no. You guys are ignoring the standard. And Steve said it's the appearance of impropriety. It's not an actual conflict -- wait a second -- it's not an actual conflict, but when you talk about a case of this magnitude, when it's going to have a profound effect, even though Justice Rehnquist may be the fairest man there ever was, his son may be the fairest man there ever was next to his father. But the problem is it's the appears of impropriety on a profoundly important...

COSSACK: What if his son owns shares in Microsoft -- wasn't the lawyer, but just simply owned -- a member of his family owned shares in Microsoft? I mean, when does it get to be the appearance of impropriety?

VAN SUSTEREN: That's a little -- I mean, we're getting farther away, but what if...

COSSACK: Of course we're getting farther away. If I go to your side, I'll lose.

VAN SUSTEREN: All right, what if his son's on the board of directors of Microsoft?

COSSACK: That get's a little tougher.

VAN SUSTEREN: What if it -- what if most of the billings for his firm's law firm is dependent upon Microsoft?

COSSACK: That gets a little tougher, too.

VAN SUSTEREN: Well, and it all boils down to the appearance of impropriety. It's not a question of whether there is a conflict, it's whether it appears.

SUNSHINE: Or not a question of whether the judge feels that he can render an impartial decision, it's about public confidence in the judicial system.

VAN SUSTEREN: But that's his decision. I mean, like, he may think it's fair, but the rest of us are sitting here thinking, gee, you know, his son -- let's say -- I don't know, hypothetically, how much billing his son's law firm does, but it has the appearance. COSSACK: All right, let's make it a little different. Lars, let's say now that the D.C. Circuit makes a decision and says -- and whatever that decision is, it's now appealed to the Supreme Court. By now, his son is president or the chief partner of that law firm three years down the road. Probably doesn't hurt having the last name Rehnquist in that law firm. And now what does the chief justice do?

LIEBELER: But here's the issue. There are two different cases, and that is that Chief Justice Rehnquist's son will not be arguing this case in front of the Supreme Court or the court of appeals. He's representing Microsoft in the private cases that are brought by all the class-action lawyers who are trying to sue Microsoft on a private civil basis. So it's a different...

VAN SUSTEREN: But those are larger -- but wait a second, Lars, those are largely dependent -- if the federal government wins big against Microsoft, if the states win big against Microsoft, I can tell you the plaintiffs' lawyers out there are going to win big against Microsoft. And if his son is sitting there -- he doesn't even have to work directly on the case, but he gets the partnership share at the end of the year and all his partners are really making a fortune on this, bingo.

LIEBELER: But I think Rehnquist dealt with that when he said his son's firm is being paid on an hourly basis whether they win or lose.

VAN SUSTEREN: That's worse.

LIEBELER: If it was a contingent fee...

VAN SUSTEREN: That's worse.

LIEBELER: ... then he'd be getting millions and millions of dollars depending on the outcome.

VAN SUSTEREN: That's worse.

(CROSSTALK)

COSSACK: Don't give away lawyers' secrets.

VAN SUSTEREN: That's worse. The more litigation there is, the more money there's going to be.

COSSACK: Don't tell everybody that.

All right, Steve, so what about it? Does the appearance get a little worse if this case now gets appealed to the United States Supreme Court? And we're assuming that his son does not, obviously, come into court and argue in front of him. And we're also assuming in this case that he's not, perhaps, directly involved. But, look, what happens in the Supreme Court is going to have a direct involvement in what happens in all these other cases.

SUNSHINE: Well, let's take the hypothetical a little bit further. Suppose it's a 5-4 vote in the Supreme Court and Rehnquist casts the deciding vote.

VAN SUSTEREN: That is worse.

SUNSHINE: We'll always have that asterisk out there, you know, he had this interest in the case. It's the kind of thing where, in other circumstances, you look for the court to put itself in a position where it's beyond reproach.

VAN SUSTEREN: And let me take it one more twist. Let's say that -- now it's going back to the U.S. Court of Appeals, it's not going to skip the U.S. Court of Appeals, but let's say that Microsoft wins in the U.S. Court of Appeals and Rehnquist decides to take my route and disqualify himself, it goes up to the United States Supreme Court, we now have eight justices on it, it's 4-4. By virtue of the fact that it went back down to the U.S. Court of Appeals and he won there, Microsoft wins in the United States Supreme Court.

COSSACK: You know something, with that I'm going to take a break because I'm not even...

VAN SUSTEREN: Right?

COSSACK: ... sure I understood what you said.

Up next: A new administration takes over in January. Will the November election shape the future of the Microsoft case? Stay with us.

(BEGIN Q&A)

Q: A New Jersey man was arrested last night after throwing a beer bottle at Atlanta Braves pitcher John Rocker.

Who was the man's friend, also arrested in the incident at Shea Stadium?

A: Brian Peterson, 22, who spent time in prison for the 1996 death of his newborn son.

(END Q&A)

(COMMERCIAL BREAK)

COSSACK: Since the Supreme Court rejected the Microsoft appeal, the company has brought -- bought some time before a breakup plan could go into effect. One of the questions, of course, is that there will be a new administration soon and whether or not the effect -- will a new administration have any effect whatsoever, Lars, on this -- on this lawsuit?

LIEBELER: Well, it could be, and one of the things that I think that a new administration would look at is...

VAN SUSTEREN: You mean new by Gore or Bush.

LIEBELER: I think it doesn't matter. I think it doesn't matter. It'll probably be more likely under a Bush administration that the case will be reviewed more carefully and a decision made, whether or not to settle, and get rid of the case.

One of the things that would be an indication that it would be right to settle would be -- if you read the complaint, it all talks about Netscape and Netscape this and how they've been crushed. In reality, since the time that complaint was filed, so many things have happened, which have changed it. Netscape was purchased by AOL for $6 billion, not exactly a fire sale. They retooled the product, and, starting in the first quarter of the year 2001, Netscape, the Navigator, is going to be the default browser on AOL for 23 million consumers. So, this whole concept that Microsoft won the browser war is really incorrect because technology worked the way it does in the marketplace and changed that. So, that didn't really happen.

VAN SUSTEREN: Steve, we get a new attorney general, regardless of who becomes president in January, technically, in January. and the election November. But the assistant attorney general -- the lawyers in the antitrust division, for the most part, don't change.

Does that still mean there could be dramatic shift in what happens in this case from a political standpoint?

SUNSHINE: Very definitely, the head of the antitrust division, Joel Klein's position, assistant attorney general, is a presidential appointee confirmed by the Senate, very much politically influenced and there will be a new appointee, whether it is a Democratic administration or a Republican administration.

VAN SUSTEREN: But don't you find a little bit weird, at least, a little bit hard to explain to the American people that this has been in the courts, this has been legal issue, the government and the states say it's such and such, and if a new administration came along, they'd go: Never mind, we really didn't mean that. I mean, how do you, sort of, I mean.

SUNSHINE: Happens all the time. In 1982 Bill Baxter, the Republican appointee dismissed the monopolization case against IBM. A new attorney general will come and make a decision -- assistant attorney general -- as to whether and how to pursue the case. And even if it is a Democratic appointee, you know, there's still, I think, a significant chance that somebody could look at it and say: This remedy goes too far. And, right now, this case is all about remedy.

COSSACK: You know, Steve, I find interesting, what Lars talked about -- about this Netscape issue and how, initially, Netscape was the one that was so affected and it turns out they get sold for several billion -- yes, $6 billion to AOL.

VAN SUSTEREN: Who now will own you soon, maybe.

COSSACK: For a lot cheaper they can get me. But I just, you know, the point is, is as Lars points out, doesn't that just undercut the kind of penalty that can be imposed. I mean, the notion of breaking up Microsoft, when the main offender is no longer being offended, I mean, how do you make that argument?

SUNSHINE: I think it is tough. And I think that's why getting the time delay that Microsoft got is a huge victory for them. I think the government had a difficult task ahead of it, sustaining the remedy before. Now, as the market has changed, they will continue to have even more problems. But what they have to argue, the government has got to argue, is, yes, the world has moved, but for Microsoft's conduct, the world might have been a better place, more importantly the free market would have decided, not Microsoft.

COSSACK: Look into the crystal ball. Who wins in the D.C. circuit?

SUNSHINE: Microsoft.

COSSACK: Who wins in the D.C. circuit?

LIEBELER: Microsoft, I think -- particularly in the remedy. I think the remedy is way too harsh and so, they will most likely win in that remedy.

VAN SUSTEREN: And speaking of the -- let's just ask -- wanted to go back to something we talked about a moment ago, speaking of the D.C. circuit, we've already had a couple of judges in the D.C. circuit already disqualify themselves, unlike Justice Rehnquist, they thought they did have the appearance of conflict, and so they did themselves disqualify them.

So, who wins in the U.S. court of appeals, I think is almost irrelevant. I think time is such an important element. And I think, strategically, I think that the Microsoft lawyers are very shrewd, very smart.

COSSACK: Once again, you point out -- I should have said: Who wins in the United States Supreme Court, right?

VAN SUSTEREN: Who wins in the United States Supreme court? I don't know if it really matters. I think the whole issue of who wins in November may be a far more important -- and that's why Microsoft, if I were the Microsoft lawyers, I would say: I hope you are being friendly to these two candidates who are running for president.

COSSACK: Well, you know what? You get the last word, because that's all the time we have for today. Thanks to our guests; thank you for watching.

Today on "TALKBACK LIVE": Former Los Alamos scientist Wen Ho Lee: is he a victim? or a calculating criminal? Tune in and weigh in at 3:00 p.m. Eastern time.

VAN SUSTEREN: Especially since my colleague Roger will be a guest on that show. But also watch "NEWSSTAND" tonight. Tonight: Has the media already chosen the next president? Send in your e-mail, and phone in with your questions about election coverage. Is it biased? That's tonight at 10:00 p.m. Eastern.

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

TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.fdch.com

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