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CNN Burden of Proof

Microsoft Antitrust Decision Examined

Aired June 29, 2001 - 12:30   ET

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

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: The ruling lifts the cloud of breakup over the company, reverses the time claim, and says clearly that we did not attempt to monopolize the browser market.

(END VIDEO CLIP)

(BEGIN VIDEO CLIP)

JOHN ASHCROFT, ATTORNEY GENERAL: I'm pleased to say that the court unanimously found that Microsoft engaged illegally engaged in unlawful conduct to maintain its dominant position in the computer operating systems. This is a significant victory.

(END VIDEO CLIP)

ROGER COSSACK, CO-HOST: Both sides claim victory in the Microsoft antitrust decision, but who really won? Today on BURDEN OF PROOF, did the government go wrong, and is Microsoft out of the woods?

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

COSSACK: Hello, and welcome to BURDEN OF PROOF.

After four years of legal battles, Microsoft is still left standing in one piece. A U.S. appellate court agreed that Microsoft abused its monopoly position and violated antitrust laws, but it said U.S. District Court Judge Thomas Penfield Jackson seriously tainted the case by openly discussing it with the press and by calling Microsoft founder Bill Gates Napoleonic, among other things.

The case will be turned over to a new trial judge, who will decide if or how Microsoft might be penalized.

Joining us today here in Washington, Leslie Wexler (ph); former Deputy Assistant Attorney General Jeff Blattner, who represented the government in its case against Microsoft; and Lars Liebeler, an antitrust attorney -- in the back, Ahuva Seiferas (ph), Matt Warren, (ph) and Tron Kohlhagen (ph). Also, in New York, anchor and managing editor of CNN's "MONEYLINE," Lou Dobbs.

Lou, thanks for joining us today. First of all, tell us what kind of an impact the decision yesterday has on the stock market in general.

LOU DOBBS, CNN'S "MONEYLINE": Yesterday, we saw just a somewhat muted reaction, Roger. The fact is, I think, this will have a profound effect going forward in the market. It changes the atmospherics, and it has the capacity and the potential to change it even more.

One of the interesting things is that since the Microsoft judgment came down, about 15 months ago, we've watched this market sell off by about 60 percent, this market being the Nasdaq. And of course, it's not all Microsoft, but it changed the tone of things dramatically last year, and I think we have a potential to see the tone change again in a very positive way now.

COSSACK: Microsoft, if not the most widely held stock in the country, is certainly one of the most widely held stocks. Almost every fund has some of Microsoft, and many private investors have some of Microsoft. So with that in mind, will the impact of what is perceived, generally, as a favorable decision for Microsoft have an impact on that stock, and how will that spill over into the Nasdaq and the New York stock exchange?

DOBBS: Roger, as you and I have talked, markets are very, very difficult to forecast -- well, they're actually easy to forecast; they're difficult to forecast accurately. But the widely held nature of the stock and the fact that it's such an important company -- the preeminent technology company in the world, in point of fact -- it is very important. Investors are looking to a large upside.

Now, there's been a lot of this discounted. There was no surprise to most investors that Microsoft would prevail in the appellate court ruling. So that part of it has already had some significant impact. The way Microsoft conducts itself from this point forward; the way the Justice Department conducts itself from this point forward; and the degree to which investors, both directly in Microsoft stock, and in the market itself -- particularly in technology -- if they watch the Bush administration Justice Department deal with this issue in a less aggressive, less intrusive, if you will, manner, this could bode very, very well for the market.

COSSACK: Lou, what part of the decision do you think that the market and the analysts found most favorable to Microsoft? Was it the notion that now the splitting up of Microsoft seems not to be on the horizon?

DOBBS: Without question. The idea of breaking up Microsoft represents something that, in terms of technology, is just unthinkable, frankly. That kind of intrusion, that kind of regulation, is as anti-innovation, as anti-technology a position as could be taken by both the government and the overall regulators. So that was very important to the marketplace, as well as, obviously, to Microsoft and its investors.

COSSACK: In terms of -- I know you can't prognosticate and tell me what's going to happen with the market -- I wish you could.

DOBBS: Me too.

COSSACK: But generally, will this have a spillover into the technological stocks that we see? Do you think this kind of decision, that in many ways, some people would say Microsoft escaped the ultimate penalty, at least so far, Microsoft will remain pretty much at least predictable, pretty much like we've seen it remain so far -- will that spill over into the other technical areas?

DOBBS: To a degree. As I say, I think we have an opportunity here, the potential, to see the atmospherics, particularly for the technology sector, change. The intrusive nature of what Microsoft has faced now for the past, really, four years, almost five years, is coming to an end, it appears. I will leave it to you and Greta and your counsel of experts to make those judgments. But it f that is what occurs, I think you will see a lot of benefit for the technology sector.

But we shouldn't mistake one thing: Microsoft is a unique company. It adds a $1 billion in cash to its coffers every month. That company will have $40 billion in cash in its account by the end of the year. It has been held to be a monopoly, and that means it's doing a very good job in terms of market penetration. There are very few companies who could come close to Microsoft in terms of its market position, its margins. So while it's beneficial to the technology sector, other companies certainly will not benefit as much or as dramatically.

COSSACK: What you're suggesting, then, I suppose, is with the ability to infuse that kind of capital every month and the margins that Microsoft has always been fairly healthy, and now with this decision, I guess the patient survives?

DOBBS: The patient survives, and in my opinion, a couple points in the appellate opinion: One is that this has been described as a moving target, the situation of antitrust, particularly in technology, going back as far as six years in the process. This is a different company, with different products, frankly -- obviously, extensions. The law, even though it moved quickly here -- and the court pointed that out -- it couldn't keep pace with the rapid changes in technology. And that acknowledgment by the court means much to the entire technology sector.

COSSACK: Lou Dobbs, host of "LOU DOBBS MONEYLINE," thank you very much for joining us on today.

DOBBS: Thank you, Roger.

COSSACK: Let's take a break. Up next: Who won, who lost, or could you call it a draw? Stay with us.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP) GATES: The case is narrowed quite a bit. We feel strongly the cloud of breakup is not over us now because of the reversal that we've got here, and most importantly, we can proceed with the new products that we've been working on.

All we've really cared about deeply here is can we continue to do new software? We tried to avoid this case distracting us, and we've built a lot of neat new things, and now we'll be able to get those into the hands of consumers.

(END VIDEO CLIP)

COSSACK: Bill Gates is glowing, declaring victory and maybe expressing a little vindication at the appellate court's decision. At the same time, Attorney General John Ashcroft congratulated government lawyers for proving their case. So who won?

Jeff, this is the wonderful decisions in which everybody wins. Isn't this terrific? This is one the lawyers are so happy about because government says it won. Bill Gates seems pretty happy. As a representative of the government, a man who actually litigated this case on behalf of the government, how do you feel about the decision?

JEFF BLATTNER, FORMER DEPUTY ASSISTANT ATTORNEY GENERAL: I think you've got to look at what the court actually ruled. If you take a step back, Microsoft was found, by a unanimous Court of Appeals that includes many conservative judges appointed by Presidents Reagan and Bush that Microsoft repeatedly used its monopoly power in a way that broke the law. It commingled browser with the operating system in a way that perpetuated its monopoly. It took actions against computer manufacturers, software developers: Apple, Intel, Netscape, Java -- you name it, Microsoft took anti-competitive actions, and this very well-respected Court of Appeals held that they broke the law.

COSSACK: Lars, would you agree with that characterization?

LARS LIEBELER, ANTITRUST ATTORNEY: I think the overall important point about this case is that the breakup has been lifted. There's not a chance that the company's going to be broken up now.

From a consumer perspective, which is the most important -- let's forget about the esoteric game-playing and legalisms -- the fact of the matter is that consumers will be helped by this decision, and there's been no indication that there's been any tangible consumer harm as a result of Microsoft's practices.

That doesn't make them right, but let's put it in a larger perspective. The antitrust laws are there to protect the consumer. There's no indication that the price of Microsoft's products are higher than they would have been absent the anti-competitive behavior, and there's no indication at all that the marketplace would have looked different, that there would have been a competing operating system that would have taken market share away.

There is no question that there is some illegal conduct that was engaged in. Did it have an effect on the economy and the marketplace and consumers? I don't think that it seriously did.

COSSACK: I'm going to change my question a little now, because Jeff, you had a position in this case -- you represented the government -- and Lars, you've been on our show several times, and you have taken the Microsoft position. Let me now change the question a little bit: Are you satisfied with this decision on behalf of the government. Is the decision you wanted?

BLATTNER: I'm very satisfied with it.

COSSACK: Is this the decision you'd hoped for?

BLATTNER: Obviously, the court, for largely procedural reasons, sent the case back, vacated the remedy. There's going to be a new judge who's going to take a new look at the case after the government submits its proposals.

But again, this is a company that was found to have repeatedly violated the antitrust laws, and it's a little hard to understand why people think they're celebrating. It's a fairly sober moment for America when one of its largest companies found to have violated antitrust laws in a very serious way.

I agree with Lars: The antitrust laws are there to protect consumers, and I think consumers will be well served by this decision because, as a result, they're going to have choices. They're going to have choices in the products they get with their personal computers, and that's going to be a good thing for consumers, and it's going to be a good thing for the high-technology industry.

COSSACK: It's one thing to say that you violated the law. I'm not going to dispute with you the fact that the Court of Appeals did say in certain instances Microsoft did violate the Truman antitrust act. But let's look at this opinion overall. In fact, what they said was yes, Microsoft did do some bad things. As far as bundling their browser with the Internet, they said, Yes, this isn't a good idea, but we're going to reverse that part of the judge's decision and send it back and say now challenge this and look at it through a different standard, a standard that's more favorable to Microsoft than it is to the government.

And finally, they are out from under -- Microsoft, that is. Thomas Penfield Jackson, a judge who clearly didn't like Microsoft and clearly didn't like Bill Gates -- that is a huge victory. And the part about breaking up Microsoft has been vacated. I think the government got stung yesterday.

BLATTNER: Let me tell you, Judge Jackson was found by the Court of Appeals not to have had a bias against Microsoft. He came to a conclusion about Microsoft and its behavior after hearing 78 days of testimony in court. There was finding of no bias. He didn't come in with any preconceptions. He's the second judge who's heard a Microsoft proceeding who's come to the conclusion that what they were doing was against the law.

The case is going to go back to a third judge, and there's frankly no reason to believe that a third judge is going to see the matter any differently judges one and two.

COSSACK: That may very well be. It may very well be that a third judge comes in there and says, You know what, Microsoft, you didn't do the things you should have done. Meanwhile, the judge who you have described as not having any bias was taken off the case by the court of appeals, who said, We don't want this judge on there anymore. The judge who admittedly acted in a way and, they say, tainted the opinion is gone. Lars, it's got to be a win for Microsoft.

LIEBELER: I think it is. There are four parts of this opinion, and Judge Jackson was reversed on three of them. So the monopoly maintenance stands against Microsoft. But the attempted monopoly in the browser market is a flat reverse, so that's clearly a victory for Microsoft.

What said earlier was that even absent Judge Jackson's misconduct, the fundamental basis for the liability, which is what the remedy stands on, breakup, has been fundamentally altered. So even if Judge Jackson hadn't done anything wrong, this remedy would have been overturned. So it's not just about Judge Jackson; the court specifically reversed the lower court on three out of the four principles in this case, and the observations they make in the time claim about including a browser in with an operating system set a standard that is going to be difficult for the government to meet. They also noted that every other manufacturer of operating systems do exactly the same thing, with the indication that that responds to consumer demand.

Jeff, we've got 30 seconds left in this segment. Go ahead and respond.

BLATTNER: Well, the fact is that the court affirmed Judge Jackson's conclusion that it was wrong to fold the browser into the operating system in a way the computer manufacturers and users can't take it out. The antitrust laws are about protecting choice. And I think going forward -- and I'm sure we'll talk about this -- this opinion has very serious potential implications for how Microsoft can do its business going forward.

COSSACK: That's exactly what we are going to talk about in the next block -- Thank you.

It appears breaking up is hard to do -- it's still hard to do -- but could it still happen to Microsoft? Let's talk about the future, when we come back.

(BEGIN Q&A)

Q: What popular discount store has decided to phase out the sale of handgun ammunition over the next three months?

(COMMERCIAL BREAK)

A: Kmart. The company, which sold handguns until the 1970s, had been under recent pressure from gun-control advocates. (END Q&A)

COSSACK: Welcome back to BURDEN OF PROOF.

Yesterday, the U.S. Court of Appeals decided it will hand over the case to a new judge who will decide if Microsoft should be punished, and if so, what punishment should that be.

So let's talk a little bit about the future, Jeff. You mentioned it just before we went to break. What impact is this going have on the way Microsoft does things? I would suggest to you that the idea of breakup is off the table. So now let's just assume that that's not going to happen. Therefore, why will they change?

BLATTNER: Well, let's leave aside what the court's going to do. What's the important of these rules that the Court of Appeals has announced? There are a whole bunch of exciting new technologies going to be part of our Internet world: streaming video, broadband, instant messaging -- a whole bunch of new technologies. The question is is one company going to dominate that. E-commerce, how we do our shopping over the Internet -- and Microsoft has every right to create products that consumers can use if they want to, and that PC manufacturers can sell to consumers as part of their PCs.

But this opinions is going to place serious limits on Microsoft's ability to force people to use its streaming video or its instant messaging instead of somebody else's.

COSSACK: Lars, things have changed, obviously, since Microsoft had the power to do what it did in this case. This was in the '80s. And the PC market has changed. It's now wireless, in which Microsoft isn't the King Kong that it was in the PC market. When it comes down to imposing changes on today's Microsoft, is it as relevant as it might have been five, six years ago?

LIEBELER: It's not. I think the Court of Appeals, in overview section of the opinion, pointed that out. They said that the technology markets are very unique because things move so quickly, and the technologies leapfrog one another. That's an important aspect of it. I think the opinion is very good in giving guidance to what should happen in the marketplace from here on out. We've got a really clear statement of law on whether you include additional products with an operating system. The statement is very clear on that, and it's going to give everybody guidance. There's no per se rule, there's no flat prohibition on including a browser or a media player in an operating system. So I think that's very good.

There's some conduct which Microsoft was found guilty of which I'm sure they're not going to do anymore, so that's clear also.

COSSACK: They'd better not do it anymore.

LIEBELER: I think the opinion is very well written. It's perfect for the parties now. They're perfectly positioned for a settlement, which can even include some discussion about some of the new products. COSSACK: That's a good point. I wanted to bring this up: settlement. Now, you're representing the government, this decision has come down -- I'm representing Microsoft: I look at you, and I say, I think you got trumped on one of your cards -- I'm not too worried about you breaking me up anymore, but I would like to settle this case. Do you take a little step back and say, He may be right; maybe I better back off on some of the things that I've demanded.

BLATTNER: Good lawyers and certainly the government and law enforcement, generally, prefer a settlement to continued litigation. The government has no desire to harass somebody. Their desire is to see that they obey the law. So I certainly expect that my successors in the Justice Department and the state attorneys generals are going to take a look at the opinion, as will Microsoft, and they'll try to decide together whether they can come up with something everybody can live by.

COSSACK: I understand that answer, but let me be a little more specific. It's clear they tried to settle this case before it went into litigation; in fact, it was Judge Posner, who would do nothing but try to settle this case, and the case couldn't settle, for whatever the reasons were. Now a decision has come down in which a real weapon of the government has, in some ways, pretty much been taken off the table. That idea of "you're going to get broken up." If Gates wouldn't come to the table before, when he thought the government might have that weapon, and he now is smart enough to understand that it's improbable that the government has that weapon, doesn't the government have to back off and try to settle this case a little more?

BLATTNER: It takes it takes two to tango. It's clear that Microsoft has violated the law. That was not something that they accepted until yesterday. Microsoft broke the law, so now it knows what the rules are. The government knows what its case is. So the two parties have every opportunity -- they've had their uncertainties about the case resolved, and that usually helps propel a settlement.

COSSACK: Fifteen seconds, Lars: Is this case going to settle?

LIEBELER: I think the case is going to settle, but he said it takes two to tango -- it takes three to tango: The state attorneys general are really the wild card. I think that they need to take a careful look at opinion, really assess their options, and come to the settlement table ready to get in a position where this case can settle. It's up to them, I think.

COSSACK: And the change in the administration -- going to make any difference?

BLATTNER: I think the test of this settlement, if there were ever to be a settlement, is whether it remedies the violations. There's something called the Tonny Act (ph). It would have to be reviewed by a court to see if it's adequate to prevent further violations. I think the Justice Department understands that, and they're going to look for a remedy that is effective to prevent further violations. COSSACK: That's all the time we have today. Thanks to our guests, and thank you for watching.

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