The Microsoft Settlement

GWEN IFILL:

But today, half of the 18 states who joined the original suit against Microsoft balked at accepting the Justice Department's settlement terms.

Attorney General Tom Reilly of Massachusetts, one of the states opposing the settlement, told reporters: "There is no question in my mind that five minutes after any agreement has been signed with Microsoft they will be looking for ways to violate that agreement. That is their nature. That is what they have been doing throughout. That's why we're in court."

So for now, the case continues on two separate tracks: One leading toward a court-approved settlement, the other toward trial.

Here to discuss the latest developments are two law professors: George Priest, of Yale University, and Andrew Gavil, of Howard University.

Professor Gavil, how does this settlement work and will this settlement work and what does it do?

ANDREW GAVIL:

Well, the settlement settles charges were brought by the federal government in May of 1998 against Microsoft. It is a process. It actually begins a process under a law called the Tunney Act, a Nixon era law that requires court approval of government settlements of Microsoft type antitrust cases.

So there's now a 60-day period in which the court will receive comments from the public, from competitors, rivals, perhaps even from some of the states that have refused to go along with the settlement.

At the end of that period, the court is required to determine whether or not the settlement is in the public interest. While that's going on, the states who have refused to go along with the settlement, they will continue pursuing litigation — in essence, given the Court of Appeal's affirmance of the district court's finding of liability against Microsoft, the question of remedy now has to be decided.

So on these parallel tracks we'll have hearings perhaps on the efficacy of the settlement, but we'll also have a period in which evidence is gathered, and then eventually hearings, which will require the judge to determine what the remedy should be, given the violations.

GWEN IFILL:

Professor Priest, is this a good settlement?

GEORGE PRIEST:

Well, I think it's a good settlement overall. The settlement basically tracks the ruling by the DC Circuit Court of Appeals in June. In fact it goes substantially beyond it.

It requires Microsoft to disclose interfaces. It requires Microsoft to publish communications protocols that will make it easier for Microsoft's competitors, far more than could be possible before.

Furthermore it vastly enhances enforcement by creating a technical committee that will full-time review everything that Microsoft does. I think that since it goes substantially beyond what the Court of Appeals ruled that it's surely in the public interest, I think any complaints about it can't be with the settlement agreement itself and can't be with the Justice Department. It has to be with the Court of Appeals. The Court of Appeals ruled the states and the government won some things. The settlement agreement vindicates those various issues. It didn't win everything. They didn't win everything.

What they're complaining about is what they lost at the court of appeals.

GWEN IFILL:

Professor Gavil, what are the complaints?

ANDREW GAVIL:

The complaints are serious. First of all, the complaints go to the scope of the agreement itself. The settlement agreement is no broader. In fact, it's far more narrow than prior consent decrees with Microsoft.

If you put today's settlement developments in the context of the litigation, that litigation has been going on for over seven years. The government entered into a consent decree with Microsoft in 1994. They then had to litigate that decree because it proved to be ineffective. They then had to bring another lawsuit because the decree that had been entered proved to be unable to control Microsoft's conduct. That decision resulted in an affirmance by the court of appeals in large part that Microsoft had in fact monopolized. It violated federal antitrust laws.

To come full circle at this point to a settlement that is no larger in scope than the original settlement is problematic.

The second problem with it, it is riddled with loopholes, ambiguous terms, unclear terms. In essence it invites further litigation.

Professor Priest refers to the technical committee. The technical committee is a totally non-authoritative body of three software experts who have no ability at all to impose any sanction on Microsoft if it fails to adhere to the agreement. The penultimate authority they have is to inform the government and Microsoft that they think there's been a violation.

Ultimately this will wind up back in court for years to come, which means no real remedy.

GWEN IFILL:

You say there is no remedy at all. Professor Priest….

ANDREW GAVIL:

I wouldn't say there's no remedy at all, no. There are the core aspects of some remedy, but it is unlikely to prove to be very effective in curing the competitive problem that was created by Microsoft's conduct.

GWEN IFILL:

Professor Priest, is this the best that the government could have hoped to get?

GEORGE PRIEST:

But I think it is because the Court of Appeals ruled, again, that the government and the states did not win every argument before the court of appeals. What the court of appeals found Microsoft to be guilty of doing, this settlement agreement propose hints them from them from doing. Microsoft has agreed not to engage in those practices before.

Furthermore I think with all respect that Professor Gavil is underestimating the impact of this technical committee. Basically this technical committee will be three staff people that constantly on alert for the Justice Department watching everything that Microsoft does. That's a far different situation than was true of any consent decree involving Microsoft; indeed it's far more rigorous than any consent decree I've ever heard of in the antitrust field.

GWEN IFILL:

Some of the complaints that you alluded to before come from at least three states who feel very strongly that this is not a satisfactory arrangement.

What is left for people who believe this has not gone far enough? What is left for them? What is the option?

GEORGE PRIEST:

Well, I don't think there's much left for them to be frank about it. I think ultimately these states are going to see that they don't really have a legal basis to proceed. And so they will have to join the agreement.

Basically, as Professor Gavil pointed out, they're going to engage in discovery with regard to remedies. When they talk about litigating they're not going to retry the case. None of the claims they lost are going to be relitigated. It's simply a question of what the appropriate remedies are.

Since the remedies in this settlement agreement track so closely what the court of appeals ruled to be illegal, I don't see how they can go any farther with that litigation or with that hearing than what has been achieved in the settlement agreement.

In fact, I think they would get less by proceeding simply under a strict reading of the Court of Appeals' opinion than what this settlement agreement provides.

GWEN IFILL:

Professor Gavil, the top antitrust lawyer at the Justice Department had indicated some time ago that he was interested in reaching a settlement. Do you think that because of that direction that this Justice Department was heading in that this kind of outcome was inevitable?

ANDREW GAVIL:

In a sense it probably was inevitable. I think that the change of administration clearly affected the course of the case. It seems very unlikely that this kind of settlement would have been agreed to by the prior Justice Department, given how they viewed the case.

That's not to question the good faith however of the new administration. I think there really are differences of opinion and very strong differences of opinion about the scope of the antitrust laws and the scope of remedies and the degree to which government should be involved in regulating private conduct.

And I think what Microsoft has found in the new administration is common ground in viewing how extensive that degree of regulation should be. They didn't have that degree of common ground with the prior administration.

GWEN IFILL:

And you say that they found loopholes as well? Did Microsoft outmaneuver the government on this?

ANDREW GAVIL:

I wouldn't say that the government was outmaneuvered. I really think they knew exactly what they were entering into. And in part that's what makes it even a greater source of concern. It doesn't appear to be an agreement that… behind which there was a serious intention of seeing a change in competitive conditions.

GWEN IFILL:

Professor Priest, now what are the choices for the judge in this case? She can decide to pursue some sort of remedy with the trial phase, with the continuing… The still unhappy states, and she can also continue to decide whether she will accept a settlement, is that correct?

GEORGE PRIEST:

Well it's not clear how the timing is going to work here. From what the original outline is, it appears that the judge will have the hearing… What is called the Tunney Act hearing on the settlement maybe even before she has the hearing or holds the hearing on the complaints by the states, assuming the states don't eventually sign on as I think they will.

So her first judgment will be, is this settlement agreement in the public interest? Again because it so closely tracks the Court of Appeals I think that's an easy case. It certainly is. Then the question is, is there something more that goes beyond… Vindicates further public interest that the states can show?

I don't think they really have much of a shot of showing that there's much more here. I disagree with Professor Gavil. I don't think this had anything to do with the administration. It had to do with the Court of Appeals. The Court of Appeals' opinion is extraordinarily clear, crystal clear, as to what Microsoft's actions were illegal and which were not and which claims could go forward and which could not.

This settlement agreement simply vindicates exactly what the Court of Appeals said but as I mentioned earlier adds a lot more to it that is going to make it a lot harder on Microsoft.

GWEN IFILL:

This settlement agreement will change the behavior of Microsoft?

GEORGE PRIEST:

It will change the behavior in the way the court found the behavior to be illegal.

The Court of Appeals found exclusive dealing contracts, retaliation, not allowing manufacturers to reconfigure the first screen, not allowing consumers to delete applications if they wanted to. Those were basically the actions of Microsoft or the practices of Microsoft that the Court of Appeals found to be illegal. This settlement agreement prohibits all of those. It goes beyond as I say. That's what the Court of Appeals found, nothing else.

GWEN IFILL:

Professor Gavil, quickly, will this affect the rest of the industry as well?

ANDREW GAVIL:

It clearly will affect the industry but it's unclear how much it will affect the industry.

It's as if there was a company that engaged in activity that excluded other products from the shelves of a grocery store, is found to have done that unlawfully, violated the antitrust laws. At the end of the day what they're told to do is not repeat the same conduct. That's not the same as facilitating the reentry of other products on to the shelves.

GWEN IFILL:

All right. Thank you very much for joining us, both of you.