Who profits if state antitrust litigation is allowed to proceed against Microsoft?

The United States Court of Appeals dealt a devastating blow to the Justice Department’s 4-year-old antitrust crusade against Microsoft when it overturned the proposed breakup of the software giant and sent the case back to a new judge in the lower court. The ground now appears clear for a reasonable settlement that would close out the most important antitrust trial since the breakup of Standard Oil early in the last century.

Yet even if Washington bows out, 19 state attorneys general, including California’s Attorney General Bill Lockyer, have the power to keep this case alive—a move that would generate years of additional litigation, but serve little public purpose.

The rationale behind the participation of these 19 states has always rested on shaky legal grounds. The Justice Department has always had the responsibility for enforcing America’s antitrust laws, since the legal questions involved are clearly federal in nature.

The 19 state attorneys general will argue they are acting on behalf of consumers in their states who were forced to pay inflated prices for software. Unfortunately for the attorneys general, this argument was obliterated by the appeals court. Under tough questioning by the appellate judges, lawyers for the Justice Department could not point to any customers who had been harmed by Microsoft’s actions.

While market competition between Microsoft and Netscape delivered better browsers at lower prices for California consumers, the legal battle between Microsoft and the Justice Department (and the 19 attorneys general) has generated huge losses for Microsoft shareholders. And not just the estimated 350,000 individuals in California who hold Microsoft stock in their portfolios.

During the two week period (March 31, 2000 to April 14, 2000) when the settlement talks between Microsoft and the Justice Department collapsed and Judge Jackson issued his “conclusions of law,” the value of Microsoft stock in the California Public Employees Retirement System fund dropped by over $700 million. California teachers who participate in the state-sponsored teachers’ retirement fund lost over $516 million on their Microsoft holdings.

California consumers have nothing at stake in keeping this case alive; California shareholders and retirees have already suffered.

So on whose behalf would Lockyer be acting by pressing this losing hand? Who stands to gain from keeping the litigation against Microsoft alive? As it turns out, there are only two groups who stand to profit: the plaintiffs’ bar and Microsoft’s competitors.

So far, the plaintiffs’ bar has filed more than 150 class action lawsuits against Microsoft. While judges have already dismissed dozens of these cases, trial lawyers know that just one victory can generate millions or even billions in legal fees.

If both the Justice Department and the states settle, their class actions would evaporate. But the plaintiffs’ bar has the wealth and influence to apply political pressure to further their interests. During Mr. Lockyer’s successful 1998 campaign, for example, trial lawyers funneled more than $1.4 million into his race—providing a full quarter of his total contributions.

The remaining case against Microsoft is being driven by an unseemly alliance between 19 state attorneys general, Microsoft’s competitors, and the plaintiffs’ bar.

But federal antitrust law exists to protect competition, not competitors and certainly not the trial bar. If the Justice Department and Microsoft can now reach a reasonable compromise that would bring this case to a close, the state attorneys general have no business trying to block it.

Sonia Arrison is director of the Center for Freedom and Technology at the California-based Pacific Research Institute. She can be reached via email at sarrison@pacificresearch.org.