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New Suit Against Microsoft Throws Curveball At Trial
by Drew Clark
At a time when many members of the technology and business world were expecting that the Microsoft antitrust trial was drawing to a close, AOL Time Warner's lawsuit against the software company last week all-but-guarantees that it will continue for years.
Filing the case in the name of its largely-defunct Netscape unit, AOL seeks to have the case brought before federal district Judge Colleen Kollar-Kotelly, who has responsibility for the cleaning and finishing off the government's case. Seeking billions of dollars of damages, the private antitrust lawsuit builds on the D.C. Circuit Court of Appeals' ruling that Microsoft engaged in illegal monopolistic practices and adds several allegations that go beyond the decision.
Most observers doubt that the case will have much direct effect on the outcome of either of Kollar-Kotelly's two legal proceedings this year, one devoted to deciding whether to accept the Justice Department's settlement with Microsoft and nine states and the other to decide whether nine other states are entitled to the broader remedies they seek against Microsoft. But indirectly, AOL officials and the company's critics agree that the suit is timed to give additional legal ammunition to the suing states.
"It forces Microsoft to fight on yet another front," said Stephen Benz, a Washington attorney working with the California firm of Townsend, Townsend and Crew. The attorneys have a class action lawsuit against Microsoft and that successfully scuttled a $1 billion settlement between Microsoft and educators in a separate class-action lawsuit in Baltimore earlier this month.
"They are fighting us in California, fighting the states in the remedy proceeding and the European Union" on still other antitrust claims stemming from Microsoft's domination of the market for server software, said Benz, enumerating Microsoft's mounting legal woes. "I wouldn't be surprised if you saw some other lawsuits -- perhaps one from Sun [Microsystems] -- working off the liability findings" of the appeals court.
Tunney Act Proceedings
The sense that the Justice Department settlement is a merely a fait accompli waiting to be blessed by Kollar-Kotelly is rapidly fading. Although the settlement was widely praised in the political arena when announced in November, at this point critics are speaking louder than supporters in their Tunney Act filings -- a mandatory comment period that expires Monday.
Among the companies and organizations that are planning to file objections on Monday are America Online, Sun Microsystems, the Computer and Communications Industry Association, the Software and Information Industry Association and ProComp, a coalition composed of Microsoft rivals whose members have included all of the above-mentioned groups as well as Oracle, Corel, Sybase and the Sabre Group.
The American Antitrust Institute also filed an objection on Thursday in which it argued that the settlement "is a mockery of judicial power" And one unexpected and potentially embarrassing filing was made last week by former Sen. John Tunney himself, the California Democrat who authored the 1974 act as a means of rectifying what he considered the corrupt settlement of an antitrust investigation of ITT in the Nixon administration. Responding to a Microsoft disclosure that failed to mention the company's extensive lobbying activity on Capitol Hill, Tunney wrote, "The disclosure provisions were designed to help ensure that no defendant can ever achieve through political activities what it cannot obtain through the legal process."
"In my opinion," Tunney continued, Microsoft's filing on such communications "is adequate to satisfy the clear language and intent of the Tunney Act."
Steve Ballmer's Defenders
But Microsoft is not without its corporate defenders. One critical vote of support came from the U.S. Chamber of Commerce, which weighed in on the subject earlier this month by arguing that the settlement "has given the business community significant cause for optimism in the tech sector with positive ripple effects throughout the broader economy." In a two-page letter submitting in the Tunney Act proceeding, Chamber CEO Thomas Donohue noted the bipartisan support for the agreement on Capitol Hill and the need to reassert America's leadership in the high-technology arena.
"The broad-based consensus achieved by the parties in what had been a seemingly intractable dispute is critical to providing the stability and certainty that markets and the economy must have to flourish again," Donohue wrote. "The U.S. Chamber of Commerce, as a representative of the business community, strongly supports this settlement, both on the merits of its proportionate response to the issues remaining in the Microsoft case, and as a precedent that indicates an appropriate role for government in the industry going forward."
Also submitting comments was the Association for Competitive Technology, which defended the settlement in a filing early on Monday asserting that it causes less disruption to third parties than do alternatives remedy proposals such as those submitted by the litigating state attorneys general -- including those of California, Connecticut and Massachusetts.
AOL's 'Low-Hanging Fruit'
Some Microsoft critics have argued that AOL suit offers "low-hanging fruit," or a low-risk and high-return lawsuit because of the district court's sweeping findings of liability, some of which were affirmed by the appeals court. Because the law allows companies harmed by antitrust violations to recoup three times the damages they have suffered, some have argued, AOL stands to recoup $12 billion -- or three times what was set to pay Netscape when it offered to buy it in November 1998. (Because of fluctuations in stock prices, AOL paid $10 billion when the deal closed in March 1999.)
But Microsoft defenders say that the appeals' court's findings are not enough to yield such damages on their own -- putting aside the fact that AOL adds six other crimes, two of which were already rejected by the appeals court and four new claims concerning recent actions by Microsoft. AOL also must prove that Microsoft's illegal maintenance of its operating system monopoly was the reason for Netscape's declining market share -- and that the decline caused actual harm to company. In other words, AOL will have to prove that Netscape's declining share of the browser market from 70 percent in 1995 to less than 20 percent today is due to Microsoft, not Netscape or America Online.
"They [AOL] were willing to spend $4 [billion] to $10 billion on the [Netscape Navigator] asset," said Microsoft spokesman Vivek Varma. "Since that time there has been virtually no innovation, and they have really squandered that asset."
Varma makes the further point that AOL risks getting a bad reputation in the technology industry. "I would say that these guys have shown that they repeatedly rebuff attempts to work with the industry on issues like instant messaging or fair and open access to Time-Warner cable, or technology standards important to new and innovative companies," he said. "I think that the industry has become more and more aware that AOL has chosen confrontation over cooperation, and in the long-term, that is a downside for them."
As to AOL's treatment of Netscape, AOL spokesman John Buckley said, "What we have to say about the Netscape claims will be done in court rather than duking it out in the press." But responding to what he called Varma's "hairball of confused charges," Buckley said that as a condition for its acquisition of Time Warner, AOL already had agreed to a "more far-reaching open-access agreement than any cable operator has made."
He also pointed to AOL's collaboration with the Liberty Alliance's authentication approach, promoted by Sun Microsystems, as an example of industry-wide cooperation "that will not leave [such standards] subject to Microsoft's next attempt at monopoly -- the Passport standard."
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