MARGARET WARNER: The United States versus Microsoft: Today's ruling against the software giant caps two years of litigation on charges filed by the Justice Department and 19 states. Settlement negotiations broke down over the weekend, and Judge Thomas Penfield Jackson issued his 43-page ruling at 5:00 P.M. eastern time today. Joining me now to explain today's decision is Bill Kovacic, an antitrust professor at George Washington University Law School. He has been following the case closely since it began.
MARGARET WARNER: And, professor, welcome. Thanks for joining us.
WILLIAM KOVACIC: Thanks for having me here.
MARGARET WARNER: All right. Take us through in layman's terms. First of all, big picture, what is it exactly that the judge has found Microsoft guilty of doing?
WILLIAM KOVACIC: The government pursued four basic theories on which it claimed Microsoft had violated the law. One theory was that Microsoft, after properly achieving a position of preeminence in the operating system market, proceeded to use improper tactics to increase its control in that market. Judge Jackson found that Microsoft violated the law on that count.
A second count was that Microsoft attempted to obtain a monopoly in the market for Internet browsers. Judge Jackson also found that that constituted a violation.
The third claim was that Microsoft improperly bundled the Internet browser into its operating system as a method for denying consumers a choice. The judge also found that that was a violation.
Finally, the government claimed that Microsoft had improperly engaged computer manufacturers and Internet service providers in contracts that excluded or sought to exclude Netscape from channels to consumers. On that specific issue of illegal agreement, the judge found that Microsoft had the better argument. So of the four basic approaches that the government pursued here, the government prevailed on three of them.
MARGARET WARNER: Now, for people who aren't lawyers, how is this ruling different from the ruling last November when the judge found, (a) that Microsoft did enjoy a monopoly, and (b) that it, in fact, used that monopoly to stifle invasion and harm consumers and its competitors?
WILLIAM KOVACIC: There's some blurring between these two events, but basically the question that the judge answered last November was: What exactly happened? The judge was asked then to choose then between two competing narratives of events, and he provided his own synthesis of what took place. Today the judge answered a second question, which is: Is Microsoft's behavior illegal? And in most respects he answered that question by saying yes, as well. There remains one final step to the process, which is what should the court do about it. That's the question of remedies. That's the issue that will probably occupy us for the next three or four months.
MARGARET WARNER: All right. And before we get to remedies, there were settlement talks, which the judge had urged on the parties. And they broke down this weekend. Again, just to sum up, why did they break down? I know there were secret settlement talks, but there's been a lot leaked out. What can you tell us about what they broke down?
WILLIAM KOVACIC: I think several factors were probably important. Maybe the most important was the differing view that Microsoft and its adversaries had about what the courts of appeals are likely to do with Judge Jackson's conclusions of law today. Microsoft has a confident belief that the appellate judges will view its position more sympathetically, and even if they don't sweep aside all of Judge Jackson's conclusions, in many respects, they'll deal a fatal blow to the government's arguments.
The government, on the other hand, I think believes that most of its basic victories achieved today will endure throughout the appellate process. So there was a fundamental disagreement about what lay ahead.
A second factor was that the negotiations were unusually complex. It's hard enough to achieve a settlement when you only have two parties in the negotiation -- one plaintiff, one defendant. In this case, the plaintiffs are a total of 20 -- the Department of Justice and 19 states. Now, that's not to say that if only the Department of Justice had been controlling the prosecution of the case that there would have been a settlement. But the addition of the states unmistakably complicated that process and probably at least was a minor impediment to achieving a consensus.
MARGARET WARNER: Okay. As you said, we're now moving on to the remedy phase. And, first of all, what will that process be? Will there be further hearings, further briefs?
WILLIAM KOVACIC: All of the above. It's highly likely the judge will invite the parties themselves as well as other outside observers to submit documents, briefs that discuss remedial possibilities.
MARGARET WARNER: All right. And what are, again in broad terms, what are the options for remedies here?
WILLIAM KOVACIC: One category of options consists of controls on behavior, basically to take the shopping list of alleged bad acts and forbid Microsoft to continue any of them, along with other measures that essentially forbid Microsoft from using its position to impose punishments on computer manufacturers and Internet service providers that don't do as it wishes and to give rewards to those who do.
The second basic category of solutions is what antitrust lawyers call structural remedies. The most prominent and long-lived of these is to break Microsoft up, literally to dissolve the company into several pieces. A close relative of that approach would be to force Microsoft to license the right to produce its key software products to other companies.
MARGARET WARNER: Now, the reports were that in the settlement talks, and in an effort to get an agreement, the government had backed off from talk of breaking up the company. But as a legal matter, now that there's been a ruling, a finding of guilt, could that be back on the table?
WILLIAM KOVACIC: It would not be surprising to see in the government's menu of suggested remedies, to find a breakup solution identified as a possibility. My intuition about that is that it's one of the reasons that the states fought so hard to avoid a settlement that merely involved conduct. It would not surprise me at all if we see a breakup included in the list of suggested remedies.
MARGARET WARNER: Now, Bill Gates, the chairman and founder of Microsoft, gave an interview to the Wall Street Journal that ran today, in which he said, "Look, no matter what the ruling is today, we're going to continue to bundle our Internet browser with Windows." There is nothing in this ruling, is there, that has any impact, legally in anyway, on Microsoft's conduct?
WILLIAM KOVACIC: This ruling today does not directly preclude them from continuing their existing practices. The only constraint that the judge would impose would come at the end of the remedy phase, in which he might impose some interim measures that limit their behavior. For a technical, legal analysis the opinion today does not technically constrain them in any way. The real question for the company is how well it can do through the appellate process to avoid any constraints at the end of the litigation.
MARGARET WARNER: How long would you expect that appellate process to take?
WILLIAM KOVACIC: There are really two possibilities: If we assume that the remedy phase extends through the middle of the summer and ends, say, in July or sometime in August, there are two possible approaches. There is a procedural path through which Judge Jackson -- at the request of one of the parties -- could ask the Supreme Court to take the case immediately. The Supreme Court would have complete discretion to decide whether or not to do it. If it chose to, we would probably have a final resolution of the case sometime in the middle of 2001.
A more likely scenario, perhaps, is that the court would decline to do that, and that we would have two stages of appeals: One before the U.S. Court of Appeals for the District of Columbia, the court that sits above Judge Jackson. That would probably last one year -- and then an appeal to the Supreme Court. Once again, the Supreme Court doesn't have to take the case, but a case of this magnitude and significance would probably be irresistible. The court would decide the case, and the time of arrival for its opinion would probably be, I would guess, June of 2002.
MARGARET WARNER: All right. Well, we'll be watching. Thank you, professor, very much for being with us.
WILLIAM KOVACIC: Thank you.