A FEDERAL APPELLATE COURT’S reversal of the Microsoft breakup is great news for consumers. As Microsoft has argued all along, the court, in effect, agreed that the company had created a competitive product in a competitive market where new innovations were consistently introduced to millions of software users at little to no cost.
A reasonable resolution to this three-year legal wrangle will benefit not only consumers, but our technology sector and the economy as well. So what is standing in the way? Nineteen state attorneys general who glommed onto the case from the very beginning with settlement dollars in their sights and political points on their minds.
Together, these officials were able to repeatedly frustrate settlement negotiations between the company and the government. And now, in the wake of the appellate court’s finding, they are making everything worse by refusing to go away.
The attorneys general will tell you they joined the lawsuit to fight for the little guy.
In reality, their incentives are more likely influenced by their own political interests rather than the public’s, answering to powerful influences such as a plaintiffs bar eager to piggyback on a federal antitrust case with their own class action lawsuits, and in this case in particular Microsoft competitors.
It is no coincidence that the attorneys general from California (home to Oracle and Sun Microsystems), Connecticut (home to Bristol Technologies), and Utah (home to Caldera) have all jumped into the anti-Microsoft fray.
It is also no coincidence that in many states where the attorney generals are taking legal shots at Microsoft, the plaintiffs bars have filed class actions they thought could have a potential payout from Microsoft that would dwarf the one they were able to wring out of Big Tobacco. Judge Richard Posner, who tried unsuccessfully to mediate a settlement among Microsoft, the Justice Department, and the states, calls this the”cluster-bomb effect.” 1 As soon as the federal government files an antitrust suit, the states and then the plaintiffs bar jump on board for one big litigation blowout. The effect, according to the judge, is to draw out the original suit, complicate the settlement, and increase the costs.
This is exactly what has happened in the Microsoft case. Any decision in favor of Microsoft means little to no payout for the states or for class action suits, so it is therefore in the general favor of the attorneys general to frustrate a settlement at any cost.
Not only do the attorneys general lack a clear public incentive in pursuing this case, but they lack the resources as well. States simply cannot afford the expertise, whether technical, scientific, or legal, to litigate antitrust cases of this magnitude. All they can do is hitch a free ride on federal litigation, and on the taxpayers, industries, and consumers, who pay the consequences in higher prices and an uncertain business climate.
Finally, in supposedly acting on behalf of consumers, these state attorneys general are at the same time acting against the millions of retirees and investors nationwide who have lost money on Microsoft stock as litigation proceeded, including those in their own states who invest in their public pension and retirement systems.
In one two-week period earlier this year, when mediation talks in the case collapsed, the value of Microsoft stock in the California Public Employees Retirement fund plunged by more than $ 700 million; New York teachers saw the value of their Microsoft stock drop by nearly a third, and the Ohio Public Employees Retirement System suffered similar losses. In all, public employees in at least eight of the 19 states lost more than $ 3.5 billion from their retirement and pension accounts.
So who, exactly, might benefit from drawing out this case? The plaintiffs bar has thus far filed about 150 class action suits against Microsoft in the wake of the Justice Department’s suit. Many of these cases have been dismissed, but the hit-and-miss nature of our justice system means the more class action suits they file, the better chance they have that one of them will eventually stick. This is why the federal appellate court’s decision in favor of Microsoft is bad news for the plaintiffs 1 bar and good news for consumers. With the average cost of Microsoft Windows at about $ 65, consumers never stood a chance to benefit from any of these class actions suits. At most, they might have walked away with a few pennies.
Plaintiffs lawyers, on the other hand, were hoping to walk away with millions, perhaps billions of dollars, in a case where the Justice Department could produce no evidence that consumers had suffered at the hands of Microsoft.
If these 19 state attorneys general are truly in this case on behalf of consumers, they should drop out now.