Old email, selective memories may undo Microsoft

Law scholars and attorneys who have been following the government's antitrust case against Microsoft expected a federal judge to rule as he did this week that the lawsuit should proceed. But why, they wonder, did top officials at one of the world's best-known technology companies keep old, potentially incriminating email? Why weren't they in the habit of routinely deleting mail and also getting rid of computer hard drives containing such correspondence?

Law scholars and attorneys who have been following the government's antitrust case against Microsoft expected a federal judge to rule as he did this week that the lawsuit should proceed, but one aspect of the legal wrangling has proved a surprise to seasoned observers.

Why, they wonder, did top officials at one of the world's best-known technology companies keep old, potentially incriminating e-mail? Why weren't they in the habit of routinely deleting mail and also getting rid of computer hard drives containing such correspondence?

After all Microsoft has been the target of federal investigations into its business practices since 1991, so it couldn't have been a surprise that government prosecutors would subpoena company e-mail. Why not make it a policy to get rid of such e-mail before it became evidence?

And volumes of internal correspondence among top-ranking company officials, including Chairman and CEO Bill Gates, are now being used by prosecutors to fashion the current antitrust case against Microsoft. The e-mail was cited repeatedly in US District Court Judge Thomas Penfield Jackson's ruling dismissing all but one minor point in Microsoft's motion for summary judgment. Such motions, which seek to have cases thrown out of court before trial, are common in lawsuits, but are seldom granted.

Jackson observed that in some instances Microsoft's internal e-mail and correspondence contradicts its own defense against charges of antitrust violations, including forcing original equipment manufacturers (OEMs) to accept as a contractual condition a Windows operating system "bundled" with its Internet Explorer browser software. The government contends that Microsoft forced that bundled version onto OEMs to gain a competitive advantage in the browser market, among other charges.

"I was shocked at the amount of old e-mail those people haven't thrown away," said Herbert Hovenkamp, a law professor at the University of Iowa and co-author of "Antitrust Law," a voluminous treatise also cited frequently by Jackson.

While it's hard to discern how much weight will be given to the correspondence when the case goes to trial -- now set for Oct. 15 -- such pieces of evidence "tend to be smoking guns," said Carey Heckman, a professor who teaches technology law at Stanford University and co-directs the Law and Technology Policy Center there.

In an attempt to clear some of the smoke, Gates testified in a deposition that he couldn't remember various pieces of e-mail he sent and received and about which government attorneys have questioned him in the case, filed in May by the US Department of Justice (DOJ) and 20 state attorneys general.

"Well, that's just total B.S.," said Chicago attorney Bob Schneider of the selective memory of Gates and other Microsoft executives.

Schneider, who heads the intellectual property department at Chapman & Cutler, said that if he were a Microsoft attorney, he'd be advising his client to think about reaching a settlement rather than going to trial.

Hovenkamp would give the same advice.

"I think the consequences of litigating this out and losing -- they could be breathtaking," said Hovenkamp, who in the past advised the state attorneys general on what he believes is the proper interpretation of a 1995 consent decree between Microsoft and the DOJ. Hovenkamp is not advising any of the parties in the current lawsuit.

Jackson's ruling does tend to bolster the government's case if only because it shows that the judge believes there is a case to be made. From the beginning, it was likely that Jackson would rule in favor of the government.

It's particularly difficult to get a judge to approve a motion for summary judgment in an antitrust case because judges generally like to let the government make its case, Heckman said. Jackson did toss out a claim from the states regarding Microsoft's "leveraging" its monopoly position in the operating system market to gain an advantage in the browser market. But that wasn't a surprise to antitrust authorities.

The "leveraging theory," as Jackson observed in the ruling, is largely viewed as inconsistent with various Supreme court rulings as well as the Sherman Act, the federal antitrust act under which the government case was brought. However, a New York circuit court has ruled favorably regarding that theory and so it was included in the charges from the attorneys general.

Dismissing that aspect of the government case does nothing to weaken the federal lawsuit, according to legal scholars.

The government's case rests on a variety of issues, including whether the software giant has a monopoly in the operating system market, the question of its share of the browser market, and the matter of whether there is a "dangerous probability" that if the alleged anticompetitive business practices continue Microsoft will achieve dominance in other markets.

It's not illegal to be a monopolist -- the judge cites case law to that effect in his ruling. But it is illegal to use monopoly power to corner other markets. The government is compelled to pay special attention to the practices of monopolists.

"[W]here a defendant maintains substantial market power, his activities are examined through a special lens: Behavior that might otherwise not be of concern to the antitrust laws -- or that might even be viewed as procompetitive -- can take on exclusionary connotations when practiced by a monopolist," wrote U.S. Supreme Court Justice Antonin Scalia in a dissenting opinion in a 1992 case involving Eastman Kodak and another company, one of the most oft-cited cases establishing antitrust precedent. Jackson used Scalia's comment in yesterday's ruling.

To prove its case against Microsoft, the government does not have to convince Jackson during the trial that all of its points are correct, but "just has to show a substantial violation," Hovenkamp said. "If it wins on just two or three (points) that would justify a substantial claim and the possibility of private lawsuits."

And for Microsoft that may well be where the real danger lies. Under a legal precept called "offensive collateral estoppel," if the case goes to trial and Microsoft is found guilty of the anticompetitive and predatory business practices alleged by the government, then the same case cannot be litigated again.

The concept is like applying the double jeopardy rule in criminal cases to the civil court, Hovenkamp explained. But it also means that the essential case against Microsoft -- the determination, say, that the company does indeed monopolize the OS market and has used that power to dominate other markets -- will be established if the government wins its lawsuit.

While legally, that case could not be brought against Microsoft again, it will already have been proved and other possible plaintiffs won't have to cover the same territory. Other plaintiffs -- vendors or competitors claiming they were forced out of markets and consumers -- are likely to line up at courthouse doors to file private lawsuits in the event that Microsoft loses its antitrust case with the government, Hovenkamp said.

Those plaintiffs will have to prove that Microsoft harmed them and will seek financial compensation for that harm. The basic case already built, Microsoft may find that the ripple effect is the most damaging part of this entire process.

Microsoft and the government to try to negotiate an agreement on the issues the government raised before the lawsuit was filed last May, but those talks fell apart. Now, it might not be possible to reach an agreement acceptable to both sides, Heckman, of Stanford, said.

"The hard part, and I think this is also a difficult part of the government's case, is what is an acceptable remedy," he said. "I suspect a settlement, if its possible, would require somebody to give in a major way, because (the remedy) is either too weak or it's too strong and there's nothing in between."

A separate, but related, government case filed last year accused Microsoft of violating terms of the 1995 consent decree, reached between the company and the DOJ in an attempt to settle past allegations of antitrust violations. The government alleges that the consent decree didn't stop Microsoft from continuing its predatory practices.

In the related case last year, Microsoft and the DOJ reached a settlement on the question of whether the company was in contempt for violating the decree when Microsoft agreed to offer an unbundled version of Windows 95. However, the company appealed a preliminary injunction in that case and won.

The DOJ was harshly criticised for buckling to Microsoft in that earlier consent decree and also was blasted for not having attorneys on its staff who are well versed in technology issues. Since then, the antitrust division has gotten a new chief and the DOJ has bolstered its staff with attorneys well-known for their technology and intellectual property expertise. The case against Microsoft is widely viewed as an important test of that new strength as well as a warning that the DOJ is serious in pursuing antitrust cases against technology companies.

What's more, the case could be important in shaking out various schools of thought regarding technology companies and antitrust. The economics of the IT industry don't fit the traditional mold and there has been some clamoring for new laws and regulations dealing with antitrust.

As Heckman observed: "A lot of this is about sending a message to the industry."

Join the newsletter!

Error: Please check your email address.
Show Comments
[]