Awaiting a Resolution

By Caron Carlson  |  Posted 2002-08-19

Awaiting a Resolution

When the federal government decided to prosecute Microsoft Corp. for antitrust violations in the high-flying boom times of the late 90s, corporate America was a different place. Back then, the economy was still "new," the advice of Wall Street analysts was widely considered untainted and Martha Stewarts greatest alleged crime was being too prissy. But since spring, when a federal court heard nearly three months of testimony on the punishment to impose on Microsoft for illegally sustaining its monopoly, the business climate has changed dramatically.

When U.S. District Court Judge Colleen Kollar-Kotelly heard a series of Microsoft adversaries charge Chairman and Chief Software Architect Bill Gates with strong-arming partners, nobody knew that by summers end, a number of corporate Americas icons would be awash in criminal charges of book-cooking and insider trading.

Early this month, Microsoft held a conference with reporters to herald the steps it is taking to comply with the still-unapproved antitrust settlement it signed with the Department of Justice in November. Given that the court is still reviewing the proposed settlement and simultaneously weighing much tougher remedies proposed by nine states, some users—particularly open-source proponents—view Microsofts compliance proclamations primarily as a public relations measure.

"Basically, Im of the opinion that what Microsoft is doing now is to try and gain favor from the judge by appearing to cooperate," said Glenn Jacobson, president of Unique Systems Inc., in Holland, Ohio. "What they are saying is, We were not really guilty, but in order to end this litigation, we agreed to a set of changes that we will make, given that the court upholds our DOJ agreement. That tells me that they still do not get it and plan on using every trick in the book after the judge makes her decision to circumvent the restrictions."

Judges are supposed to be immune from political influences, but they do not make decisions in a vacuum, insulated from external factors. Kollar-Kotelly illustrated this point last fall when she sternly urged Microsoft and the government to settle the protracted litigation quickly following the terrorist attacks of Sept. 11.

"In light of the recent tragic events affecting our nation, this court regards the benefit which will be derived from a quick resolution of these cases as increasingly significant," Kollar-Kotelly wrote in a Sept. 28 order. "The court cannot emphasize too strongly the importance of making these efforts to settle the cases and resolve the parties differences in this time of rapid national change."

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The degree to which the court might be influenced by Microsofts actions or other external factors, such as the economy or the changing corporate culture, is a subject of some debate. Some industry experts say external factors should not play a role.

"The fact that WorldCom [Inc.] and Enron [Corp.] engaged in other types of corporate crime shouldnt affect the remedies applied to Microsoft," said Ken Wasch, president of the Software & Information Industry Association, in Washington. "Antitrust laws have to be applied in good times and bad times."

Others (including Microsoft officials who took the stand in the spring) said one reason to reject the states tough remedy proposal is that it would have a deleterious effect on Microsoft, the "PC ecosystem" and the economy.

"The judge has to take into account the impact any remedy she orders will have on the economy," said Jim Prendergast, executive director for Americans for Technology Leadership, a pro-Microsoft organization in Washington. "If Microsoft were to pull Windows from the market, it would have a tremendously negative impact not only on this economy but around the world."

Kollar-Kotelly offered no solid clues during the hearing to suggest what factors she considers top priorities in crafting a remedy. While most industry observers agree she will be cognizant of the larger forces surrounding the case, it remains unknown which direction they might push her.

"It could play either way," said Albert Foer, president of the American Antitrust Institute, in Washington. "In general, theres so much less trust in corporate leadership now that theres a greater willingness to punish companies and hold them to the line than when this went to trial."

Although the application of antitrust laws does swing periodically, the swings do not necessarily correlate to economic cycles, according to Foer. Judges are unlikely to be highly sensitive of the impact of their decisions on the stock market because the market is not likely to be highly sensitive to the decisions, he said. "The market is so smart that it has already [accounted] for any court decision," Foer said. "I dont think antitrust historically has paid any attention to stock price."

Although a court may be tempted to factor into a ruling the anticipated effects of a remedy on the economy, in this instance the temptation may be abated because the case is almost certain to be appealed; when the final decision is made, it could be applied in a different economy and corporate climate than we have today.

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