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States MS trial lawyer – was he pushed or did he jump?

Politics and pressure may have taken their toll on Houck

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MS on Trial The resignation last week of Steven Houck, a tough Microsoft opponent who led the antitrust case for the 19 states, was almost certainly forced upon him, for two reasons: one political, and one as a result of Microsoft's lobbying. Houck was chief of the State of New York's antitrust bureau, and was the leading lawyer for the states. In December, Democrat Eliot Spitzer displaced the Republican Dennis Vacco as NY attorney general, and Harry First replaced Houck, although Houck continued to lead the case. His replacement as the lead lawyer for the states is NY assistant antitrust bureau chief Richard Schwartz, who had been working on possible remedies. The poison pill had however been prepared last November when Lloyd Constantine, who had previously been the NY antitrust chief (and who guided Spitzer's transition), commented adversely on the participation by the State of New York in the case, especially since the states had abandoned their unique claim that Microsoft was leveraging the office suite market with Windows. Microsoft had entered a counterclaim against the states as a result of the claim, which was interpreted as arm twisting, if not blackmail. Constantine gave a talk at a conference arranged by Ralph Nader in which he said then that the government did not have the necessary weapons to attack Microsoft, and marches into the battle virtually unarmed because recent administrations have attacked and destroyed antitrust laws to thwart monopoly leverage cases - by not implementing them. Indeed, in some judicial circuits in the US, monopoly leveraging in not an offence, and a supreme court decision is necessary to clarify the position. Constantine observed that the recent economic theory in the few tying and Sherman Act section 2 cases (monopoly power cases) follow two "Chicago School" dogmata. The "optimum monopoly pricing (or single monopoly profit)" theory suggests that a monopolist can get no greater profit in both markets compared with maximising profit in the first market alone, so that under this theory, leveraging from one market to a second adjacent market (e.g. operating systems to browsers) whether by tying or otherwise, is not anticompetitive. The second dogma concerns the avoidance of "double marginalisation": the suggestion is that monopoly leveraging or tying somehow enhances consumer welfare, by allowing lower pricing for two co-ordinated products, which sounds a rather far-fetched idea. Constantine forecast that the Supreme Court, egged on by Justice Breyer, will demolish monopoly leveraging as a Sherman Act section 2 offence. But in a strange twist, Constantine proposed the restoration of monopoly leveraging to the Sherman Act by Congress enacting a minor revision of the law. It seems possible that Microsoft's lobbying effort in Washington, lubricated by a 50 per cent increase in spending money in 1998 compared with 1997, and no doubt even more this year, has played a role. Houck said earlier this year that although he was stepping down as antitrust chief, he would continue to stay on the Microsoft case until it was done, so one could postulate an element of unwillingness. Houck had some famous moments. Perhaps the best was when he accused Gates of not having the intestinal fortitude to testify in court. He questioned Gates for some hours of the videotaped testimony, and concluded that Gates' contentiousness was part of his personality. It was also Houck who examined IBM's John Soyring, although the result was not particularly enlightening. Houck was a hanger-and-flogger so far as Microsoft was concerned, which probably also contributed to his departure. He advocated a structural remedy - splitting Microsoft into Babysofts à la Standard Oil - as well as forcing Microsoft to surrender its Windows code. During the remedies hearing last month, Houck put he boot in, saying that Microsoft "encountered three problems: their own witnesses; their own exhibits; and their own client, Mr Gates". Houck's favourite "doggoned witness" Dean Schmalensee was teased by Houck to say that the companies offering the most viable competition to Microsoft were Linux and BeOS. The conclusion of Houck's oral argument was chilling: "The overwhelming weight of the evidence in this case thus establishes not just that Microsoft has substantial monopoly power, but that Microsoft has wielded its monopoly power to the detriment of consumers. If the market remains structured as it currently is, Microsoft will retain both the means and the incentive to do what it's done for many years now: to restrict consumer choices, to raise prices and to stifle innovation." It is expected that Houck will return to private practice, but it is still possible he will have a cameo role in an oral hearing on the findings of law, or proposed remedies. ® Complete Register Trial coverage

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