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March 6, 2001
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APPEALS JUDGES HAMMER MICROSOFT, U.S. LAWYERS


Washington Bureau
February 27, 2001

WASHINGTON -- Arguing that Microsoft Corp. did not engage in anti-competitive behavior in the computer industry, a lawyer for the software giant began making the case Monday that a trial judge was wrong when he ruled that the company violated the nation's antitrust laws and should be broken apart.

During four hours of intense oral arguments before a Washington, D.C.-based federal appeals court, Microsoft lawyer Richard Urowsky aggressively maintained that the company did not stifle competition or harm competitors. Instead, he argued, much of Microsoft's conduct actually benefited consumers.

But Urowsky ran into tough questions by members of the U.S. Court of Appeals for the D.C. Circuit, which took the unusual step of scheduling seven hours of arguments in the case. Throughout Monday's session, the judges strenuously questioned Urowsky and lawyers for the government, expressing skepticism about arguments made on both sides.

On Tuesday, the seven-member court will return to the bench to focus on matters that most observers agree are more favorable to Microsoft. The court will hear arguments on whether to reverse U.S. District Judge Thomas Penfield Jackson's drastic order that the company be split in two, as well as whether Jackson was wrong not to hold hearings on that remedy. It also will examine Jackson's widely reported out-of-court remarks about Microsoft and its executives.

"They got off the mark today, and some predictable questions were asked," said Fred McChesney, a professor who teaches antitrust law at Northwestern University Law School. "But tomorrow is more important. This remedy question is vital."

The court is reviewing Jackson's ruling last June, when he accepted virtually all of the recommendations of the Justice Department and the states, which had joined forces in suing Microsoft for violating the nation's antitrust laws. He ordered the company broken apart, and imposed significant restrictions on its business conduct.

At issue in Monday's arguments was whether Microsoft engaged in illegal behavior to protect its monopoly power over computer operating-system software, as Jackson found, and whether it illegally tied its Internet Explorer browser to its Windows operating system.

The first issue is widely considered the strongest aspect of the government's case against Microsoft, and the judges hit Urowsky with his toughest questions of the day as he defended the company's behavior.

"That is the key issue, as far as the government is concerned," said Jonathan Baker, a law professor at American University. "This is where the government has to win in order to justify the broad relief that was awarded in the district court."

Chief Judge Harry Edwards, considered one of the court's most aggressive questioners, lived up to his reputation Monday.

"Does antitrust law not contemplate the possibility that we will protect nascent seedlings of competition?" asked Edwards.

It protects them from conduct excluding them from the marketplace, Urowsky said, but not from competition.

"Even nascent seedlings of competition can be highly dangerous," Urowsky later added.

But the judges didn't let government lawyer Jeffrey Minear off easily, either. When Minear proclaimed that the case is "about allowing the competitive process to determine who will be the winner in the market," Edwards jumped in.

How could Microsoft be said to destroy competition from a company like Netscape if Netscape didn't reasonably threaten its alleged monopoly in the PC operating systems market, Edwards asked.

On the tying issue, most observers have suggested that the appeals court is likely to see the law differently than Jackson did. The law in the area is in flux, and even Jackson suggested in his opinion last summer that the appeals court may not share his view.

Indeed, although predicting how the court will rule based on its questions is all but impossible, most of the judges seemed skeptical of that aspect of Jackson's ruling and hammered government lawyer John G. Roberts Jr.

On the first issue, the judges did not tip their hands, peppering Urowsky and Minear with equally rigorous questions. Microsoft, however, has a steep hill to climb.

That's partly because Jackson, in ruling that Microsoft violated the Sherman Antitrust Act, made specific factual findings. On appeal, a reviewing court generally will not disturb a trial judge's findings on factual issues unless they clearly were wrong--a very high standard to meet. Instead, they generally are looking at the legal issues and whether the trial judge properly interpreted and applied the law.

Some of the morning's argument, in fact, centered on precisely that point. Several judges seemed exasperated that Urowsky was arguing about factual issues.

"You've made a very powerful argument about your view of the facts, but we're not a district court," said Judge David Tatel.

Added Judge David Sentelle: "I had a strong sense you thought we were a jury when I was reading your brief."

But by the afternoon session, other judges seemed more willing to jump in and look at the evidence.

"I hear my colleagues say we're suppose to defer to factual findings," said Chief Judge Harry Edwards. But when factual findings contain no citation to the record, "I don't think my duty as an appellate court is to defer to them."

Nicholas Economides, a professor at NYU's business school, said Edwards' remarks were significant, particularly if they indicated that the court may be willing to revisit Jackson's factual findings, which were overwhelmingly for the government. "It shows the appellate court judges may be willing to restate the findings of fact in a way that may be more favorable to Microsoft," he said.

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