IN THE UNITED STATES COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA CIRCUIT .....................................x MICROSOFT CORPORATION, : Defendant.Appellant, : v. : UNITED STATES OF AMERICA, : Plaintiff.Appellee. : : No. 00.5212 MICROSOFT CORPORATION, : No. 00.5213 Defendant.Appellant, : v. : STATE OF NEW YORK, ex rel. : Attorney General Eliot Spitzer, : et al., : Plaintiffs.Appellees. : : .....................................x
Tuesday, February 27, 2001
Washington, D.C. The above.entitled matter came on for oral argument, pursuant to notice, commencing at 9:35 a.m. BEFORE: THE HONORABLE HARRY T. EDWARDS, Chief Judge. THE HONORABLE STEPHEN F. WILLIAMS, Judge. THE HONORABLE DOUGLAS H. GINSBURG, Judge. THE HONORABLE DAVID B. SENTELLE, Judge. THE HONORABLE A. RAYMOND RANDOLPH, Judge. THE HONORABLE JUDITH W. ROGERS, Judge. THE HONORABLE DAVID S. TATEL, Judge. APPEARANCES: Appearing on Behalf of Plaintiff.Appellee United States of America: JEFFREY P. MINEAR, ESQ. DAVID C. FREDERICK, ESQ. United States Department of Justice Office of The Solicitor General 950 Pennsylvania Avenue, N.W. Washington, D.C. 202.514.4063 Appearing on Behalf of Defendant.Appellant Microsoft Corporation: RICHARD J. UROWSKY, ESQ. STEVEN L. HOLLEY, ESQ. Sullivan & Cromwell 125 Broad Street New York, New York 10004 212.558.4000 Appearing on Behalf of the State of New York, et al.: JOHN G. ROBERTS, JR., ESQ. Hogan & Hartson 555 13th Street, N.W. Washington, D.C. 20004.1109 202.637.5600 P-R-O-C-E-E-D-I-N-G-S (9:35 a.m.)
THE CLERK: Case No. 00.5212, et al., United States of America, et al., versus Microsoft Corporation, Appellant. First issue: attempted monopolization. Mr. Urowsky for Appellant; Mr. Frederick for Appellees. Second issue: relief. Mr. Holley for Appellant; Mr. Frederick for Appellees. Third issue: conduct of trial and extra-judicial statements. Mr. Urowsky for Appellant; Mr. Roberts for Appellees.
THE COURT: Good morning. We are ready to proceed. We will go straight through this morning, save for a break at some appropriate point during the arguments, but there will be no lunch break.
MR. UROWSKY: Good morning. The subject for this argument is attempted monopolization. The government essentially asserts two attempted monopolization claims. The first relates to a meeting on June 21, 1995, between representatives of Microsoft and representatives of Netscape.
The second claim relates to Microsoft's conduct subsequent to June 1995, and that conduct is essentially the same conduct that underlies the monopoly maintenance claim.
I'd like to take the claims in reverse order and deal with the conduct first.
That claim fails essentially for three reasons. The first and most obvious is that the District Court did not make the requisite finding of specific intent. What the District Court found was that Microsoft had attempted to secure sufficient browser share to prevent Netscape from becoming the dominant or standard of browsing technology, but it did not find that Microsoft attempted to secure monopoly power through the use of anticompetitive means, which is the requisite intent finding in this circuit under the NCAA case.
Second, for the reasons I argued yesterday, Microsoft did not engage in anticompetitive conduct, which is also a requirement for attempted monopolization.
And third, there was no likelihood that the conduct of the District Court found to be offensive would result in achieving monopoly power.
Microsoft's share of use, if that's a valid measure in this context, was never really above 45 to 50 percent during this period. There is no finding by the District Court that there were barriers to entry. There is no finding that Microsoft's conduct threatened to drive Netscape from the market. Indeed, Netscape is still in the market. And Mr. Barksdale testified on cross.examination, albeit referring to a period somewhat later, that there were approximately 30, 30 browser products in the market.
I'd like to turn now to the June 21st, 1995, meeting. Although it's clear that Netscape rejected whatever proposal Microsoft supposedly made at that meeting, the District Court nevertheless found that the conversation in and of itself would sustain a claim of attempted monopolization, the District Court there relying on the Fifth Circuit's decision in American Airlines, which I think is generally viewed as the case that stretches the potential for attempted monopolization liability about as far as it will go.
The Fifth Circuit in that case clearly founded its reasoning on the uniquely unequivocal and uniquely consequential nature of the discussions .. of the discussion that took place. And I think there were two characteristics that supported those characterizations. First, in American Airlines there was a highly concentrated market with high barriers to entry arising out of FAA regulations. And second, the conversation obviously involved a blatant price.fixing proposal between the only two meaningful competitors in the market.
In contrast, the June 1995 conversation between Netscape and Microsoft was neither uniquely unequivocal nor uniquely consequential. First, the District Court did not find that there were any barriers to entry into the putative browser market in 1995. And I think I said a moment ago that Mr. Barksdale testified that during a period a little bit later, there were indeed 30 browser products in the market.
THE COURT: Suppose that the parties to this conversation had a meeting of the minds and decided, well, we will pull Netscape off the Intel.compatible market and leave Microsoft with that field. Microsoft will not enter OS and Mac and whatever else is out there. Would that have been a Section 2 violation if they had made that agreement?
MR. UROWSKY: No, I don't think, Your Honor, in part because there were no barriers to entry, so that whatever market power you might imagine would be achieved by that would be subject to dissipation by third parties; and also for other reasons that I'd like to say a word about, because I am afraid, without wishing to be critical, the District Court's recitation of this event is quite confused. And the reason it's confused is that there were two separate subjects being discussed at this meeting, but you can't tell that from reading the District Court's decision.
One subject was the reason the Netscape people came to the meeting. They wanted immediate help from Microsoft in developing certain technologies, one of which was referred to loosely as the dialer technology, which was to put in the operating system functionality that would permit an application browser to automate the dialing.up process in the modem. They also wanted a scripting tool for an even more exotic purpose that we don't need to go into. That was their purpose. Those were the APIs, if you will, that they were discussing. And those APIs essentially existed or could be exposed in very short order.
What the Microsoft people were talking about was technology not yet developed, which were the essential Internet APIs for Windows, which were introduced into the market approximately 14 or 15 months after this conversation took place.
So if the Netscape parties had agreed to everything Microsoft proposed, what would have happened immediately was nothing because, A, Windows 95 had not yet been introduced and by definition had zero market share; B, Internet Explorer technologies had not yet been introduced in any form. The relevant technologies were not coming along for at least a year or more. Nobody knew whether they would be successful or not. If presumably they hadn't been successful, the conversation would have amounted to nothing.
And in any event, the District Court did not make a finding upon a proper analysis that Web browsing software is a relevant market for antitrust purposes, which is a requirement under Spectrum Sports.
THE COURT: Was there any evidence at that point that would have supported such a finding, if they had made one, that is to say, that Web browsing software was irrelevant?
MR. UROWSKY: I don't think for two reasons, Judge Sentelle. One is that this whole business was clearly a nascent business at this point and clearly not well formed into products and product offerings.
Secondly, if you look to see what ultimately happened in the development of commerce, browsers have not emerged .. and it's not just browsers; it's viewing software generally. I mean if you look at something like Adobe Acrobat .. and there are other examples of this .. it's typically given away and combined economically with some other product or service that generates revenue. So it's hard to say in this sort of situation that you can define a distinct market for Web-browsing software.
I think I'd like to reserve the balance of my time for rebuttal, unless there are further questions.
THE COURT: Okay. Thank you.
MR. UROWSKY: Thank you.
MR. FREDERICK: Thank you, Chief Judge Edwards, and may it please the Court.
THE COURT: Good morning.
MR. FREDERICK: The District Court properly held Microsoft liable under Section 2 for attempted monopolization under both of the theories Microsoft counsel discussed. And I'd like to start with the June 1995 negotiations because, although there was some lack of clarity in the District Court's discussion on this point, the evidence underlying the findings between .. on this point are quite clear.
Microsoft came to this meeting with the purpose of getting Netscape to, quote, cede the client. The e.mail traffic makes perfectly clear that when the meeting concluded, Netscape wanted to ensure that, quote, the test of this alignment with Netscape will be Netscape's agreement to use Microsoft's client code on Win 95. That's Government Exhibit 536.
Now, what that means is at the time of this meeting, Netscape had approximately 80 percent market share. They were selling this product. They were licensing it as a product. There was a market for this product. And the citations to indicate what that market was are contained in the footnotes of our brief at pages 92 to 94.
There are three fact findings by the District Court I would direct the Court's attention to, with respect to the definition of this market: Fact Finding 16, which explains what a Web browser is; Fact Finding 150, which explains the consensus in the software industry as to the functionalities a Web browser offers; and Fact Finding 201, which explains why consumer demand creates, quote, a market for Web- browsing functionality.
THE COURT: How do you explain Fact Finding 88?
MR. FREDERICK: Well, Fact Finding 88 simply says that Microsoft would have controlled the technology ..
THE COURT: Which technology?
MR. FREDERICK: The technology that underlay the browsing functionality.
THE COURT: Had Netscape accepted Microsoft's proposal, it would have forfeited any prospect of presenting a comprehensive platform for the development of network.centric applications.
The District Court has flipped back and forth on the definition of the relevant market. And counsel on the other side is exactly right. And it's very interesting when you said you were going to go to the findings. You all have embraced the findings comfortably, and you've run from them here.
The findings on this issue are not the ones that you've pointed us to. The findings on this issue are in the 80s. And those findings are absolutely unclear as to what the relevant market is that we are talking about, and there are sleights of hand going on here as to whether we are talking about a browser market or whether we're talking about what we were talking about yesterday; that is, the platform market. Eighty-eight is the platform market.
MR. FREDERICK: Your Honor, I think it's important to distinguish several different points here. The citations on pages 91 to 92 and the accompanying footnotes of our brief explain exactly what the market is. I will concede to you that the District Court did not explain with the clarity that would be desirable what the market for browsing software is.
THE COURT: Does that mean the District Court made no appropriate finding of the relevant market?
MR. FREDERICK: I beg your pardon?
THE COURT: The District Court made no appropriate finding of the relevant market.
MR. FREDERICK: I would concede that, Your Honor.
THE COURT: Okay.
MR. FREDERICK: My point is ..
THE COURT: Which is essential in this area.
MR. FREDERICK: It is essential, although the Court can affirm if it finds evidence in the record to support the conclusion of law which the Court drew that there was a market for this product.
THE COURT: Without a finding as to the relevant market, we could affirm?
MR. FREDERICK: That's correct.
THE COURT: We could affirm the finding of an attempt to monopolize a market by us reviewing the evidence and coming to an independent finding?
MR. FREDERICK: There is support in the law for that proposition. Wright and Miller contained a number of cases on the general proposition that if the record evidence supports a conclusion that the Court of Appeals can affirm, and I believe that ..
THE COURT: Suppose the evidence is controverted. Now, I assume that we could do that if the evidence were stipulated or uncontroverted. But can this court weigh evidence and reach findings?
MR. FREDERICK: No, Your Honor, the Court would not need to do that. The question, though, is what ..
THE COURT: The evidence is not uncontradicted as to what constitutes a market in this case, is it?
MR. FREDERICK: Well, that is not clear. Microsoft has not pointed to contrary evidence. Microsoft has made the argument that the District Court did not properly define the market. That's a different thing. The evidence that we submitted and that I've alluded to ..
THE COURT: For us to disagree with them, however, we would have to weigh the evidence in the record and make our own finding. Yesterday your side was quite adamant that market is a finding of fact. That's a fact question that we review under the clearly erroneous standard. Are you retreating from that proposition, Counsel?
MR. FREDERICK: No, Your Honor.
THE COURT: If it's a fact question, then it requires a finding based on a trier of fact weighing the evidence, does it not?
MR. FREDERICK: Yes.
THE COURT: And if there isn't a proper finding, which you really haven't pointed us to one that covers this particular aspect of the case, then we would have to at least send this back for some trial judge to weigh the facts and the evidence, wouldn't we?
MR. FREDERICK: Judge Sentelle, I don't disagree with any of those propositions. My point is that there are indications in the fact findings that the District Court did believe it was defining a market. I've pointed the Court to those findings that support the District Court's conclusion and to the underlying evidence that supports it.
I would like to ..
THE COURT: Assuming you're right about that .. let's just assume for the purposes of argument that you're right. Don't you have a serious problem with the third requirement, dangerous probability of success? I mean, in the browser market, let's assume there is a separate market. For Microsoft to have succeeded here, assuming they had reached a deal at the June meeting, Navigator would have had to fail the browser; right?
MR. FREDERICK: Yes.
THE COURT: Microsoft's Explorer would have had to take over the market. And you would have to have a barrier to entry.
MR. FREDERICK: Yes.
And the evidence ..
THE COURT: So how do you .. I mean that's awfully speculative. I don't see anything in the record at all that would suggest that there's a dangerous probability of all of those three things happening under those circumstances.
MR. FREDERICK: Let me point you to the relevant evidence, Judge Tatel.
At joint appendix pages 1488 to 90, we spelled out the evidence that we produced at trial on the barriers to entry that go to the high costs for producers of browsers, the network effects of browsers, and the fact that consumers are reluctant to switch once they get in to a browser.
And it's important here for the Court to understand what Netscape's business purpose was. Netscape at the time had approximately 80 percent of the market share, and it was attempting to develop its browser as a cross.platform vehicle.
Now, what Mr. Barksdale testified to at paragraph 25 and 85 of his direct testimony ..
THE COURT: But I only asked you about the browser market.
MR. FREDERICK: Yes.
THE COURT: Let's just stick with the browser market. Don't go into the platform market.
MR. FREDERICK: Yes. And I'm sorry. I've lost your question, sir.
THE COURT: Well, my question is how do you conclude that any dangerous probability of success, even if they had reached a deal, that Microsoft would end up with a monopoly in the browser market?
MR. FREDERICK: Because Microsoft realized that unless they were able to strike an agreement to get what one of the documents says is sucking the functionality of the Navigator browser away from Netscape into Windows, it would not prevail. Netscape's market position ..
THE COURT: Would not prevail in what? In the platform market.
MR. FREDERICK: No, in obtaining dominance in the browser market.
THE COURT: Really?
MR. FREDERICK: Yes. That is what .. that is what the document indicates.
THE COURT: Netscape .. under the arrangement that was being proposed, if I remember correctly, Netscape would continue to exist as a browser, and they would have been the preeminent browser had they accepted the deal.
MR. FREDERICK: Chief Judge Edwards, that's not correct. The deal was to give Netscape a shell user interface in which they basically would have no realistic opportunity to innovate at any ..
THE COURT: Now you are talking about the platform again. I mean that's the confusion on the District Court's findings. I mean that's what you are running from. You are going back and forth between the platform, or what the District Court calls the comprehensive platform for the development of network.centric applications, and the browser market. They are distinct matters. We really have studied this hard, and we understand the distinction. You can't have it both ways.
MR. FREDERICK: Chief Judge Edwards, what ..
THE COURT: Let me tell you what I thought I understood.
MR. FREDERICK: Okay.
THE COURT: You may correct me. I'm happy to be corrected.
I thought Netscape would have remained in existence as a browser, would have been the preeminent browser in the world. As far as Microsoft was concerned, they didn't care. That wasn't Microsoft's concern. Microsoft was concerned, however, about the platform. No doubt about that. They've been very clear about that.
MR. FREDERICK: Your Honor, the point of why Netscape .. their business plan was to encapsulate both concepts. And that's why attempting to segregate them now ..
THE COURT: We went through that yesterday, and it's a hard hill you've got to climb when Barksdale says that's not our interest, and Netscape has done nothing to get there. But in any event, on the attempted monopolization, the theory of your case, I thought, was on the browser.
MR. FREDERICK: Chief Judge Edwards, with respect, you cited things in the record yesterday that were not correct. And I'd like, if I could, the opportunity now that you've raised Barksdale's testimony, to correct the record. Paragraphs 25 and 85 ..
THE COURT: Is this on the attempted monopolization claim?
MR. FREDERICK: Yes. It's what Netscape's business plan was. That's what's so important here, Your Honor, because Dean Schmalensee recognized ..
THE COURT: Tell me again what the attempted monopolization is. With respect to what? What market?
MR. FREDERICK: The browsing cross.platform functionality. That's what Netscape perceived its product to be. That's where the value of the product was. As a shell user interface, it was not .. it was not going to be the kind of exciting, innovative product that was going to lead to real value. That's why the District Court found that if Netscape had accepted the agreement, it likely would not have had sufficiently economically powerful product to stay even in business.
And Barksdale recognized, in his cross.examination that you adverted to yesterday, Your Honor, simply said in '95 they were not prepared to be a complete platform substitute. But what he says in paragraph 85 of his direct testimony is that they were going in the direction of having certain key platform aspects that would be exciting, that could be developed, that people would want to write to, and that that posed a threat to the Windows monopoly. Dean Schmalensee's testimony, which is at 9466 of the joint appendix, recognizes that that would pose a threat.
THE COURT: And the dean goes on to say, if you can continue reading his testimony, that they never were a serious threat because they never did that which was necessary to accomplish it. Componentizing, for example.
MR. FREDERICK: To the contrary. What he says on page 9466 is:
"Do you agree the Internet browsers offer the potential to become the alternative platforms on which applications and programs could run?
"Question: And do you believe that Netscape and the Java environment were potential platform or actual platform competitors to Microsoft?
"Answer: Yes. I believe that Netscape was a potential platform competitor, and Java was certainly by .. was and is by any definition an actual platform competitor."
THE COURT: Absolutely. And I said to keep reading. You go to the end of the dean's testimony on this, and the dean says, when he was asked very pointedly by counsel, could they pull it off. I don't remember the lead question, but it was were they really a threat. And the dean said no. For example, they never attempted to componentize, which would have been essential.
That was his concluding point. That was what was interesting about what he was saying. There's no .. the early observations are absolutely correct. Microsoft doesn't doubt that Netscape and Java together would have posed a serious threat. But the dean goes on to say that the Netscape portion of it never was happening because Netscape never did anything to make it happen. And that's the part of the testimony you've conveniently ignored.
MR. FREDERICK: Sir, I have not conveniently ignored it. I would point to the contrary evidence from the Netscape people which we have collected in our proposed Findings of Fact.
THE COURT: Doesn't this all underline the lack of a finding of irrelevant market? I mean if we can look in the record and find evidence for all these different views as to what that market was, and now as to what the danger to that market was, aren't you just backing into the position that there isn't an adequate finding .. set of findings of fact to support a conclusion that there was an attempted monopolization of the browser, slash, platform, slash, whatever.else.you.want.to.call.it, market that we are discussing this morning?
MR. FREDERICK: Judge Sentelle, if you would like me to repeat my earlier concession, I am happy to do so. But if I could direct the Court ..
THE COURT: No. I would like you to expand it.
MR. FREDERICK: I'll keep it within the narrow confines of this issue, Your Honor. But if I could direct the Court to pages 772 and 76 in the joint appendix, I think that it does contain the evidence that I was adverting to in my earlier colloquy with Chief Judge Edwards.
THE COURT: Mr. Frederick ..
THE COURT: But it may be the same as the market definition evidence. It's evidence upon which at best a finding could have been made, but you really can't give me one that's strong enough to support what your claim is on this, can you?
MR. FREDERICK: I'm afraid I cannot, Judge Sentelle.
THE COURT: Mr. Frederick, did the government submit a proposed finding on the subject?
MR. FREDERICK: Yes. On the question of market?
THE COURT: Yes.
MR. FREDERICK: Yes, we did. And that is in the proposed Findings of Fact .. I don't have the exact paragraph number, but it's in the high 380s, like 386, 387; 389 is the one that goes into the barriers of entry.
THE COURT: The judge did not adopt it, of course. Did he say why?
MR. FREDERICK: No. What the judge did in the Conclusions of Law was to say that there was a browser market and to go into the attempted monopolization analysis --
THE COURT: Did your proposed findings on this subject cite to evidence in the record, as I know many of your proposed findings did?
MR. FREDERICK: Yes.
THE COURT: Thank you.
MR. FREDERICK: In fact, I would just say, if I could add, the findings .. the proposed Findings of Fact that we submitted are quite voluminous on everything that the District Court found.
THE COURT: Not only did the judge not make that finding. He received proposals from your side of the case and rejected that finding; right?
MR. FREDERICK: Judge Sentelle, I don't think it would be fair to say that he rejected it, if ..
THE COURT: You filed it as a proposal, and he did not find it as a fact; right?
MR. FREDERICK: Well, what the judge did, candidly, was -- and the three findings that I cited earlier explain the point -- in the conclusions of law made the conclusion that an attempted monopolization count had been made. So to say that the judge rejected our proposed findings of fact, I don't agree with that proposition.
THE COURT: All right. Fair enough.
THE COURT: What about the post.meeting conduct? The claim there is that conduct in itself through the period of what, '95, '96, '7, '8, constituted an attempt?
MR. FREDERICK: That's correct.
THE COURT: You know, I'm curious about that. How can that possibly be, after the acquisition of Netscape by AOL? What percent of the browser market, however you define it, does AOL represent?
MR. FREDERICK: Well, that's a confusing question in several ways, and I hope that I can unpack it and be helpful to the Court as to that.
That transaction occurred during trial. So it was in late '98. The Findings of Fact that the Court issued in '99 showed that there was approximately 50 percent apiece, with Internet Explorer shooting up and Navigator shooting down. Now, AOL was tied in by ..
THE COURT: Paragraph 372.
MR. FREDERICK: Yes. What .. the AOL part of this was not meaningful for the attempted monopolization point because AOL was tied in by contract to use Internet Explorer as its browser until January of 2001. And ..
THE COURT: Didn't it have an option of going out at January 1, 1999?
MR. FREDERICK: And that was repeated. And what the Court found based on evidence that it suspended the trial for purpose of .. and there was evidence that was gathered during the trial as to the effect of this transaction. And what the Court found based on that evidence was that AOL had a very strong economic incentive to continue because it wanted to stay on the Windows desktop. Purchasing Navigator in a sense gave it a lever with ..
THE COURT: Well, it wasn't exactly on the desktop. It was under the .. you had to click ..
MR. FREDERICK: On the online services folder.
THE COURT: Online services folder.
MR. FREDERICK: Yes, that's correct. But that was sufficiently valuable to AOL, that it was not prepared to forego that opportunity ..
THE COURT: So this rested on the prediction by the District Court of what would happen when the contract expired? This is what I'm wondering. The District Court's finding of attempted monopolization depended upon a prediction about how AOL would act once the contract expired. And if the District Court was wrong about that, then doesn't that require us to reverse?
MR. FREDERICK: No. And the reason is that what the Court found was that based on Microsoft's internal projections of the market share, that by the time any deal would be undone and AOL would be in an economic position to switch browsers, IE would be the dominant browser. That was the import of its finding that the AOL deal had no practical effect.
THE COURT: Is being the dominant browser a dangerous probability of becoming a monopoly with, say, 30 percent of the market still out there totally under the control of Netscape's parent? How can that be?
MR. FREDERICK: Well, the problem, Judge Randolph, is that because we've got intersecting lines in terms of usage share with Navigator plummeting, and IE going, you know, rocketing up ..
THE COURT: The Navigator line I know went like this. But after January 2001, it could start going like that again.
MR. FREDERICK: It could start going to that to a degree ..
THE COURT: The District Court in 372 made a projection, a prediction.
MR. FREDERICK: Yes, as any dangerous probability finding must do. That's exactly what a District Court is required in an attempt to claim. And that was not clearly erroneous in light of the incentives that AOL had not to alienate Microsoft because of the position AOL wanted to maintain in the online services folder. That was what the District Judge did.
And if I could just, you know, step outside the record to a small degree, Judge Randolph, the judge's findings on this point have been borne out by subsequent events. Remedy Exhibit 23 indicates that those trend lines are exactly in line with Microsoft's internal projections as the Court had found, and that trend by all accounts ..
THE COURT: But that exhibit was never tested. I don't know if that's accurate or not.
MR. FREDERICK: I beg your pardon?
THE COURT: Was that admitted into evidence?
MR. FREDERICK: Remedy Exhibit 23?
THE COURT: Right.
MR. FREDERICK: It was proffered by the government at the remedy phase, and we can talk about that now or we can talk about that in a few minutes.
THE COURT: We can talk about that later. Your time is up, sir.
MR. FREDERICK: Thank you.
THE COURT: Thank you.
You have five minutes.
MR. UROWSKY: Microsoft waives rebuttal.
THE COURT: Okay. You can move to the next issue, please.
MR. HOLLEY: Good morning, Chief Judge Edwards. May it please the Court, my name is Steven Holley, and I will be addressing the issue of relief for Microsoft.
As Mr. Urowsky has explained over the last two days, Microsoft believes that the District Court's liability determinations are not sustainable. As a result, Microsoft believes its not even necessary for this Court to reach the issue of relief.
Having said that, the highly unusual procedures that were utilized by the District Court in formulating relief and the extreme and punitive nature of the relief awarded make the decree unsustainable even if the District Court's liability determinations were affirmed in their entirety.
In an abrupt reversal of position, the District Court elected to enter sweeping relief requested by the government without affording Microsoft any process whatsoever. That was a clear abuse of discretion.
As a result of the District Court's rush to judgment, Microsoft was denied even the opportunity to cross.examine the six government experts whose declarations were offered in support of the decree. Relying on those hearsay declarations, plus more than 50 new exhibits that were never admitted into evidence, the District Court proceeded to enter one of the most complex and comprehensive decrees in the history of the Sherman Act. No account was taken of the grievous harm that this decree would inflict on Microsoft and on a wide range of third parties.
The District Court refused to conduct an evidentiary hearing at which the sharp factual disputes between the parties on essentially every aspect of the relief awarded could be addressed and resolved. Instead, the District Court credited statements in newspaper articles and relied on the many unsupported and factually incorrect assertions of the government's experts and of groups of Microsoft's competitors who were invited to submit amicus briefs.
The District Court made no findings of fact on the issue of relief. There is thus no way for this Court to know what the District Court saw as the need for or the feasibility of either the breakup or the many so.called conduct provisions of the decree which seek to regulate virtually every aspect of Microsoft's business.
Moreover, the absence of findings of fact denies this Court a basis for determining whether the provisions of the decree are in the public interest, which they most decidedly are not.
Furthermore, the District Court did not explain the legal rationale for any of the relief awarded. If you look at the District Court's June 8, 2000 decision, accompanying entry of the decree, you will see that it is devoid of citations to a single case. There is thus no way for this Court to know why the District Court refused to comply with established legal principles, such as the notion that injunctive relief awarded in an antitrust case must be commensurate with the violations found.
In awarding extreme relief against Microsoft, the District Court operated on the mistaken notion that the government, as the prevailing party on liability, was somehow entitled to the remedy of its choice. Such broad deference to the executive branch in a civil case is entirely unjustified. The District Court had no right to presume that the government was acting in the public interest. The impact of this decree on the public was an issue like so many others that should have been tried.
What is plain from the District Court's June 8, 2000, opinion is that the most draconian aspect of this decree, the breakup of Microsoft into two companies, was motivated by an illegitimate desire to punish Microsoft.
The District Court expressly stated, and I quote, that he had reluctantly come to the conclusion that a structural remedy has become imperative because, quote, Microsoft, as it is presently organized and led, is unwilling to accept the notion that it broke the law or to accede to an order amending its conduct, closed quote.
The notion that a civil litigant in this country can be punished for availing itself of its right to appeal an adverse judgment is nothing short of astounding.
I now want to address in further detail, Your Honors, the procedure flaws in the very abbreviated remedy phase of this trial.
THE COURT: When you do that, you might recall that our rules recommend against, really speak against reading your arguments to the Court, Counsel. MR. HOLLEY: Yes, sir. I will bear that in mind, Judge Sentelle.
Most fundamentally, the decree cannot stand because the District Court refused to hold an evidentiary hearing. Instead, the District Court relied on, as I said earlier, uncross.examined hearsay declarations and more than 50 new exhibits which were never received into evidence.
There were sharp factual disputes between the parties as to the need for and the feasibility of every single one of the provisions of the decree. The District Court was not free to resolve those sharp factual disputes based on the government's paper submissions without an evidentiary hearing.
The government argues in its papers that the District Court had a sufficient basis to enter the degree based on the trial record, but that is belied by the government's own actions in the District Court because the government went ahead and submitted all of this new evidence in support of the decree.
And that new evidence relates to a whole series of products, including Microsoft Office for Window; Windows 2000 Professional; Windows CE which stands for Windows Consumer Electronics, which is the operating system for small embedded devices; as well as Windows Millenium, which no one breathed a word about at the trial. Those products were outside the markets defined by the District Court. And there are very complicated issues, Your Honors, questions like how do hand.held devices talk to servers? How do Microsoft desktops talk to UNIX servers?
The government urged the District Court to proceed in this way. Although it argued below that following normal trial procedures would result in intolerable delays, the government has never identified any time urgency that could justify the procedures that were adopted by the District Court.
THE COURT: Were you told at any point during this trial by the District Judge it would be a bifurcated proceeding, that first you would go to the question of liability, and then you would have a separate proceeding on the question of remedy?
MR. HOLLEY: No, Your Honor. In fact, Microsoft assumed that the prayer for relief in the complaint was the relief being sought by the government. There was no bifurcation. The government put on no evidence as to remedy.
THE COURT: The District Judge didn't promise you that if you lost, you would have a separate evidentiary proceeding on what the remedy should be.
MR. HOLLEY: That's correct, Your Honor although ..
THE COURT: There's no written requirement that proceedings have to be bifurcated between liability and remedy, is there?
MR. HOLLEY: That is correct, Your Honor, but ..
THE COURT: You could have a trial, and at the end of the trial the judge could, in one ruling, issue a memorandum opinion indicating that you are liable and then couple that with an injunction; right? MR. HOLLEY: If there was no disputed factual issue as to the entitlement to .. the plaintiff's entitlement to injunction and the form of the injunction, I would agree with Your Honor. That's what the cases cited by the government say. But those cases also say, Your Honor, that if there are disputed issues of fact, that there has to be a trial.
If you look at the Ninth Circuit's decision in the Estate of Charlton, it says that. The Second Circuit has said that in the Fengler.Numismatic case. There are other decisions that say that. The government cites the cases like the Socialist Workers Party case in the Seventh Circuit where the Court said it was purely an issue of law whether the equal protection clause was violated, and the facts were undisputed because the facts were the statutes at issue. They either said .. they said what they said, and there was nothing to be tried.
Here, the District Court in the June 8 opinion acknowledges that there are sharp factual disputes between Microsoft and the government on the question .. on a whole range of questions. What the District Judge said was that he didn't find evidentiary hearings particularly useful in resolving those sorts of factual conflicts and that the District Court retained the power to modify the decree at some future point if it turned out it was having untoward effects. I don't think ..
THE COURT: And besides, the government attorneys were acting in the public interest.
MR. HOLLEY: That is correct, Your Honor. As the District Court judge told Mr. Auletta, he operates on the presumption that government lawyers are acting in the public interest. I don't think that was an appropriate decision on the District Court's part.
The District Court's decision to award ..
THE COURT: I thought he said that -- I wasn't referring to an interview. I thought he said that in his order.
MR. HOLLEY: He's a little more explicit, Your Honor, when he is talking to reporters. But he does say in the June 8, 2000, opinion that the attorneys general of the states and the Department of Justice can be presumed, are expected to and are presumed to be acting in the public interest and that Microsoft is not. So you're correct, Your Honor, he does say that in the June 8 opinion.
The process that the District Court used in reaching the remedy that it reached was a sharp departure from what had been anticipated by the parties based on chambers conferences that occurred on April 4th and April 5th of 2000 right after the conclusions of law were issued.
In those chambers conferences, Microsoft made clear that what needed to happen was for the government to propose what relief it thought was appropriate, for Microsoft to respond summarily to that proposal for relief from the government, and then for the issue of what procedures would be followed in resolving the disputes to be addressed after that.
On several occasions over those two days when Microsoft said it could take no position on the question of relief until after it knew what relief the government was seeking, the District Court referred to that as both reasonable and fair.
And in Scheduling Order No. 8, which was issued after the second of those two chambers conferences, the District Court adopted precisely Microsoft's suggestion, which was: The government would put forward its proposal for relief; Microsoft would come back with a counterproposal; Microsoft would suggest what procedures were appropriate in the circumstances; and then they would proceed from there. A summary response is by definition not a complete response. Microsoft had not yet had an opportunity to develop all of its objections to the government's proposal for relief which it got on April 28, by the time it filed its Summary Response 12 days later on May 10. Microsoft had begun the process, but it was still underway. And it was difficult to do that given the sweep of the government's proposal, which as I said earlier, implicated not only the products that had been addressed during the trial, but also additional products that were outside the markets defined by the District Court.
I now would like to turn to the breakup in particular. The government seeks to portray the breakup as routine, but of course it is unprecedented. The government has yet to identify a single case in the entire history of the Sherman Act in which a unitary company like Microsoft, which is not the product of the acquisition of its competitors, has been broken up other than in a consent decree. And the reason why there's no precedent for this sort of breakup is that courts have understood for a long, long time that breaking up companies that are not the product of acquisitions is a very dangerous process.
THE COURT: Well, the government did say, didn't it, and incorrectly I think in light of the history of it, that Standard Oil was such a case.
MR. HOLLEY: Your Honor, Standard Oil was a trust. It was a holding company.
THE COURT: I know, but didn't they say that in their brief?
MR. HOLLEY: They did say that. I couldn't understand what they were talking about.
THE COURT: You might want to hand them a copy of Titan.
MR. HOLLEY: Standard Oil was a trust, that is correct. And the AT&T case, as this Court well knows, involved a company that by virtue of all of the regulations to which it was subject, was much more easily divisible. In order to deal with all of the state regulators, AT&T had to maintain separate books, had to maintain separate operations for the various Baby Bells, and had to be able to do complex cost accounting between the Regional Bell Operating Companies and the long-distance companies.
Microsoft bears no resemblance to a holding company. And despite the government's reliance on snippets from books about the company, if Microsoft had been given an opportunity to do so, it would have explained that Microsoft is an extremely tightly.knit organization, in which all of the different groups in the company cooperate with one another, share technology to the maximum extent possible. So there was no basis for the government's assertion that Microsoft is somehow not unitary.
The government argues that Standard Oil and AT&T claim they weren't unitary either, but that strikes me as a logical fallacy. Just because somebody else makes an argument in the past that turns out not to be true doesn't mean that Microsoft's argument is specious.
Furthermore, as Mr. Urowsky explained yesterday, the District Court failed to find a clear causal link between the conduct that it thought was anticompetitive and Microsoft's continuing position in platform software.
The District Court asserted that Microsoft impeded acceptance of certain middleware technologies, but the District Court did not find -- in part because, as the Court noted earlier today, those technologies never had the capability to replace Windows -- the District Court did not find that any of those middleware technologies would be any more of a competitive threat to Intel.compatible PCs if Microsoft hadn't done any of the things that the District Court found that Microsoft did.
As Professor Areeda explains, the mere existence of some anticompetitive act by a monopolist does not call for a full panoply of remedies against the monopolist, even assuming that Microsoft were a monopolist.
In order to have the sort of causal link you need to justify divestitures, you have to have a significant causal connection between what the company did wrong and its existing position in the marketplace. And there's no such showing here, Your Honors.
The government talks in its brief about the need to restore competition, but it has never contended that Microsoft obtained its position in PC operating systems illegally. In fact, the government expressly disclaimed that position before this Court five years ago in the first Tunney Act review from Judge Sporkin where they relied on the testimony of Kenneth Arrow of Stanford that Microsoft acquired its monopoly, what they termed a monopoly, in operating systems by virtue of skill, foresight in the industry, and what Professor Arrow termed luck, but I think that's also legal.
The government says that the breakup would do nothing to affect Microsoft's position in any market. That's actually an astounding concession because you have to wonder what the purpose of the breakup is if it doesn't have any effect on Microsoft's position in any market.
After the breakup, the operating system company would continue to have Windows, and Windows would have all of the features it has, and the applications company would continue to have Microsoft Office, and it would have the position it has. And the government, although it talks about incentives to do different things, never explains why either the APPS Co., which they call it, or OPS Co. would behave any differently than those groups within the company currently behave.
THE COURT: Did the government ever specify whether the four libraries that make up the bulk of IE would go as OPS Co. or APPS Co.?
MR. HOLLEY: No. Your Honor, that is a remarkable feature of the decree. The decree actually prohibits the OPS Co. from making any change to the intellectual property related to the Internet browser software, but it never defines what the Internet browser is.
This is a fight that we've been having with the government since .. well, since 1997. We've served interrogatories. We have chastised them in briefs about never defining Internet Explorer, and they never have. And so you have a decree which refers to Internet Explorer, imposes various obligations on the government .. on Microsoft with respect to Internet Explorer, and nobody knows what it is. So the decree is hopelessly vague and confusing in that respect, Your Honor.
It was irresponsible for the District Court to expose Microsoft and numerous third parties to the harm that would result from the breakup in order to test the government's theories about incentives. And even if the government's conclusions about those incentives were correct, its submissions to the District Court, which were never tested, failed to consider what obstacles there might be to acting on those incentives.
For example, the government says that the applications company would immediately port Office to Linux, but none of their experts had any idea what would be entailed in the process of porting an extremely complex package of applications from one operating system to another.
And it turns out, if you look at the Offer of Proof submitted by Jon DeVaan from Microsoft, that the entire infrastructure that Office relies on to share data between applications .. so that if you cut and paste something from an Excel spreadsheet into a Word document .. none of that infrastructure, the com infrastructure, exists on Linux.
So if you wanted to move Office to Linux, it isn't simply a question of changing a few lines of code. You basically have to write an entire compatibility layer for Linux.
The idea that this could be done with an investment of less than hundreds of millions of dollars is wrong. But we didn't have a trial to explore that question at all. The government was allowed to assert that it was easy. The professor at MIT .. I'm sure she's a very smart lady, but she doesn't know anything about software, and she was aloud to say this would be simple. And no one had any opportunity to test that proposition.
In view of the government's concessions that the breakup would not increase competition with any certainty, it is difficult to conclude that the breakup is anything other than punitive. And this really is buttressed by the District Court's June 8 order which underscores that the breakup was intended to punish Microsoft because it refused to accede to the notion that it had broken the law.
It is well settled from cases like Dupont and others that courts are not authorized in antitrust proceedings to punish violators and that relief must not be punitive.
The government seeks to defend the breakup by arguing that Microsoft violated the 1994 consent decree and it is therefore untrustworthy. But in fact, Microsoft has never violated the 1994 consent decree.
In one case the government brought claiming that that was so, the District Court did not find that Microsoft had violated a decree. And even the entry of the order .. even the order that the District Court entered was reversed by this Court. So there is no basis for this idea that Microsoft is a recidivist who needs to be dealt with differently.
THE COURT: What happened to that case on remand?
MR. HOLLEY: Nothing, Your Honor. The government abandoned it.
Oh, the consent decree case. After .. after this Court reversed the preliminary injunction, it went back, and my recollection is that Judge Jackson finally got the government to dismiss the case, so that that case went away. But this case was already pending by that point.
The breakup is also punitive, Your Honors, because it is entirely out of proportion to the antitrust violations that were found by the District Court.
The government five years ago was encouraging the Court to make sure that the remedy that was awarded in the consent decree be commensurate to the violations found. They were very adamant about that. Microsoft proposed a remedy here, although obviously Microsoft didn't believe that any remedy was appropriate, but proposed one to the District Court which would have addressed all of the antitrust violations that were found. And the District Court had no basis for going beyond that and ordering that Microsoft be broken up and subjected to all sorts of regulations.
Breaking up of Microsoft was particularly inappropriate given the vagueness of the legal standards that the District Court applied.
This sort of harkens back to yesterday when Mr. Minear was unable to answer the Court's questions about the standards governing Microsoft's conduct. If the government cannot now say what Microsoft was and was not allowed to do in promoting its platform software, it's a little difficult to say that it was violating provisions that were clear and therefore it should be punished more strongly than otherwise.
Finally, on the question of legal standards, I think it would come as a surprise to most antitrust lawyers to hear that something that is not an illegal restraint of trade under Section 1, like the IAP contracts because it doesn't substantially foreclose Netscape, is nevertheless a Section 2 violation because it's somehow anticompetitive.
So the Supreme Court's decision in the United States Gypsum case should control here. Conduct that could have been thought permissible at the time it occurred does not call for draconian relief.
I now want to turn to the conduct provisions of the decree. Those provisions regulate essentially every aspect of Microsoft's business from its dealing with people who develop complementary products, to the design of new operating systems, to the pricing of Microsoft's operating systems. The decree contemplates precisely the sort of comprehensive control of Microsoft's business that courts have traditionally rejected.
Every one of the decree's provisions would inhibit Microsoft in its ability to compete with very large and powerful companies like AOL.Time Warner, IBM, Oracle, and Sun Microsystems. And there are two sets of provisions, although we object to all of them, but the two sets of provisions that are most egregious are the ones that we discussed in our brief which are those that would force Microsoft to make its intellectual property available to its competitors, and the provisions that would regulate the design of Microsoft's operating systems. I intend to confine my remarks to those two sets of provisions.
The disclosure provisions of the decree relate largely to products that were not even addressed at trial. For example, there is a lot of discussion in the declarations of the government's experts about the Kerberos Security Protocol and how Windows 2000 Professional Clients, a product that's not mentioned in the complaint and was never discussed at trial, how those operating system desktops connect to UNIX servers.
That is a subject that is currently being litigated in the European Commission in Brussels. It is a very complex subject. Microsoft's response in Brussels was approximately 10,000 pages long, and it's still being processed. So it's not something that can be dealt with easily. And yet that is the justification, this Kerberos issue for the provisions of the decree requiring Microsoft to turn over all of the protocols by which its clients talked to other people's servers.
That is an issue which, if it was going to be part of a decree, should have been the subject of a trial. And there needs to be findings of fact to justify that sort of relief.
The government seeks to downplay these disclosure provisions and say oh, it's not a problem. All we're asking Microsoft to do is release the external interfaces of its operating system. But that is not true, Your Honor.
In the District Court, Microsoft sought to amend this provision of the decree. And we said it should be changed to expressly state that it only applies to external interfaces as opposed to internal interfaces. And the government came back and said no, no, no, that's not what we mean. You need to expose the internal interfaces as well because other people need to know how the kernel of the operating system, the core functionality, talks to what the government refers to broadly as middleware.
Well, those are internal interfaces. And the government made no effort to explain why Microsoft was wrong, that exposing those interfaces to third-party developers also could cause all sorts of problems. Professor Bennett, in his Offer of Proof, explains this quite clearly. And there's been no response by the government at this point.
This provision is particularly remarkable in light of the fact that the government says that the barrier to entry which protects Microsoft's position is 70,000 Windows applications. One wonders how those got written if the information that Microsoft currently distributes to ISPs is not sufficient, and people need to know all about the internals of the operating system in order to make their products work properly.
Microsoft's source code, the human- readable code that describes how its programs work, is extraordinarily valuable property.
And under the decree, the District Court proposes to allow the IBM Corporation, and Sun Microsystems, and Oracle, and Novell, and anybody in the industry, to come to Redmond and to look at that source code, to interrogate it. We are not quite sure what that means, but apparently they get to search through the source code.
And the government says, well, don't worry about that because all they get to do is see how their products effectively interoperate with Windows. Nobody knows what the effective interoperation means. Certainly not the engineers at Microsoft. And having seen Microsoft's source code, which is full of trade secrets, those competitors inevitably are going to use that source code to their advantage.
I'd like to turn now to the provisions of the decree that regulate the design of Microsoft's operating systems. I think they're equally infirm. They are not necessary to remedy the violations that were found by the District Court which relate solely to Microsoft's competition with Netscape and browsing software. They are so complicated and so unclear as to be entirely unworkable. They raise numerous questions as to their practical implementation. And most importantly, they would undermine the value of Windows, both to software developers and users, by fragmenting the platform.
Three of these provisions merit some attention here because they illustrate just how deeply this decree would interfere with the design of Windows. The first provision is in paragraph 3.a., little Roman iii, iv. And that provision would permit any computer manufacturer to substitute what the decree calls non-Microsoft middleware as the default software that's invoked in place of a Microsoft middleware product.
Now, this part, the density of this language is what makes the decree so complicated. But basically the decree adopts the government's view that an operating system is really just the kernel, just that little core of code. Everything else is middleware. And OEMs should be given the option to launch by default other people's middleware in lieu of the functionality in Windows.
This would allow OEMs .. and this isn't limited to Compaq and IBM and Gateway 2,000 and people who are sophisticated. This would give any OEM, including Fred's Software Hut in Portland Oregon, the opportunity to change the operating system so that random third.party components were invoked instead of the things that Microsoft had designed as part of the operating system.
And the remarkable part about this is that the decree continues to give these OEMs the right to claim .. the right to use Microsoft's logos and trademarks. So you tell customers that this beast is still Windows. So when they open up the box expecting to turn on the PC and see Windows, they see something else.
Three.a.iii goes so far as to say that you can launch a separate user interface by default. And the government says, well, don't worry. Computer manufactures won't do anything that will cause their support costs to rise or that will upset consumers. But what the government fails to understand is that AOL will be standing there paying OEMs to displace the user interface of Windows and put an AOL user interface there instead.
That would quickly fragment Windows and one of its principal benefits, which is that consumers know if they go to a Windows machine at home, it will work in the same way as the Windows machine at the office, in the same way as the Windows machine in their brother.in.law Fred's house. And that is quite useful, and it reduces training costs and it makes computers much easier to use.
The second provision is 3.g, which would require Microsoft to design Windows so that computer manufacturers could remove what is called end.user access .. that's a defined term .. to anything in Windows that comes within the definition of a middleware product.
And you might think that end.user access stands for access by end users, but it doesn't. It's defined in the decree to mean automatic invocation of a middleware product by the operating system by virtue of its design.
This would cause a real problem because, for example, the Internet Explorer code, the four libraries that Judge Williams has referred to over the last couple of days, are automatically invoked in a variety of situations by the design of the operating system.
So for example, if you want to rearrange the entries in the Start menu by dragging and dropping them on the screen with your mouse, that's done by that library of code called MSHTML.DLL. And that happens automatically. The operating system automatically invokes that code library.
Under the decree, that sort of automatic invocation of IE, which falls squarely within the definition of a middleware product, would be prohibited.
And the decree says that Microsoft will have six months to rewrite all of its shipping operating systems to get rid of all of those cross.dependencies. And when Microsoft came back and said you have no idea what you are asking us to do; we never got a trial on that question to determine what sort of scope of undertaking that would be; when Microsoft executives, who were knowledgeable about this subject, said even if they took all of the thousands of developers at Microsoft and put them solely on this task, stopping all development on all new products, they still could not rewrite all of the operating systems to eliminate these cross.dependencies in six months.
That's the sort of public harm that would result from the decree, which no one got to explore because the District Court refused to have a hearing on this subject.
The last provision I'd like to discuss under this design regime is 3.f. And this is perhaps the most offensive of them.
This would prohibit Microsoft from adding any new feature to Windows and distributing that feature to the existing install base of Windows customers so they could take advantage of it in.between major operating system releases. You couldn't do that if you then wanted to at any later time say that that component was an integrated part of the operating system.
So, for example, Microsoft releases interim versions of the DirectX multimedia technology in Windows quite frequently because game makers want more and faster and more interesting graphics. And you don't want to wait two or three years to release a new version of DirectX because you'll upset the game makers. They want to keep charging ahead.
When Microsoft creates new versions of DirectX, it not only includes that version in the operating system which is on the design table being built, it also distributes down.level versions of those new components for free to existing customers. It's part of the service that Microsoft provides. It provides updating to existing customers.
The government persuaded the District Court to put a provision in this decree which would forbid that practice. It's very difficult to see how the public would be benefited by that.
The net result of these provisions, just the three I've discussed, 3.a.,iii/iv, 3.g, and 3.f, would undermine the integrity of the Windows platform so that neither software developers nor users could rely on the presence of any given functionality.
Computer manufactures would be allowed to represent to the public that something was Windows even though it didn't have the same user interface and even though it might not run all Windows applications. The criticisms I have just outlined are illustrative of the decree's flaws generally, extreme overbreadth, extreme complexity, unintended or at least presumably unintended consequences, and harm to consumers.
This was not a case about middleware in the abstract. And even the government does not contend that every addition of a new feature to Windows is bad.
This case was about two specific kinds of cross platform middleware, Sun's Java and Netscape Navigator, at a particular point in time when it appeared that they might, and I emphasize might, develop into full.fledged platforms that provided software developers with an alternative to Windows.
What we get as relief in that case is sweeping relief that relates to all middleware, whether or not it is cross.platformed; whether or not it has any potential to evolve into a full.fledged software development platform; and whether or not it satisfies even the District Court's consumer demand test for determining whether the middleware is a separate product.
Your Honors, I'd like to reserve the balance of my time for rebuttal.
THE COURT: Thank you.
THE COURT: You may proceed, Counsel.
MR. FREDERICK: Thank you.
The remedy ordered by the District Court in this case ends Microsoft's unlawful conduct, prevents its recurrence, and restores the competitive process to the software industry harmed by Microsoft's anticompetitive actions.
THE COURT: What was the government's position on the need for a hearing?
MR. FREDERICK: At the April 4th chambers conference, this subject first came up because it was the day after the Conclusions of Law had been entered. And in discussions that proceeded in chambers that day, there was a discussion about what needed to be done on the proceedings. And the government's position was, in setting a schedule for the relief to be ordered, the Court said it wanted to conclude within 60 days.
There is sort of an irony in Microsoft counsel's position now because Microsoft was very eager to get to this Court for a review; and yet both sides acknowledged that, in order to comply with the expediting act, the Court needed to enter a remedy as part of the final judgment.
So in the course of the discussions, the government's position was if we are to propose something that is a radical surprise, we would acknowledge the need for some further proceedings, but we don't think that's going to be the case because the kinds of the proposals that had been bandied about were things well within Microsoft's contemplation, and our position was that the ..
THE COURT: Mr. Holley said that the government's complaint asked for a narrow injunctive relief. Was that ever amended?
MR. FREDERICK: That's not a correct characterization of the complaint. If I could direct the Court's attention to joint appendix page 191, the relief asked for, quote, permanent relief, as is necessary to restore competitive conditions in the markets affected by Microsoft's unlawful conduct. On the very ..
THE COURT: You say that gave notice of an intent to seek divestiture?
MR. FREDERICK: Yes, because under Section 2 of the Sherman Act, it is long.standing. The Supreme Court's cases say a monopolization violation gives rise in the first instance to a need for divestiture. And that's .. the Supreme Court has said that in decisions starting with Standard Oil ..
THE COURT: How come it doesn't seem to happen except in cases where there's been an aggregation of independent firms?
MR. FREDERICK: If I could refer to the Court to the case United States v. Grinnell Corporation, it's actually useful for two points to us with respect to both procedure and substantive remedy. That case, I believe, is in Volume 384 of the U.S. Reports. We have cited it three times in our brief, 51, 58 and I believe 128 of our brief.
In that case, the government proved a Section 2 violation based on three distinct forms of anticompetitive conduct by the defendants there: Predatory pricing, exclusionary agreements that had been entered, and unlawful acquisitions that gave rise to monopolization.
The District Court made very clear findings of liability in that case, but did not enter a divestiture order request by the government and instead entered conduct relief.
The Supreme Court reversed on relief and said the District Court had committed reversible error by not entering a divestiture order.
Now, the Court made clear that it was not to explain in the Supreme Court the nature of the divestiture. It was up to the District Court to do so. But it made that order irrespective of the fact that there had been no hearing on remedy following liability.
What the court I think has made clear in several cases is that if a Section 2 violation is made, the purpose of the remedy is to stop the violations, to prevent their recurrence, and to restore competitive conditions to the markets affected.
And if I could turn, I think there are four very important reasons why the structural relief entered by the District Court in this case satisfies those substantive requirements under Section 2 of the Sherman Act. First ..
THE COURT: Let me just ask you, let me go back to this procedural question now. If a defendant has a right to an evidentiary hearing or a remedy because there are contested issues of fact, what difference does it make if the defendant was aware of the possibility of that form of relief?
MR. FREDERICK: Microsoft has cited no case, Your Honor, for the proposition ..
THE COURT: No, just answer my question.
MR. FREDERICK: This was a permanent injunction proceeding from the beginning.
THE COURT: I understand that, but if there were contested issues of fact in terms that relate to the scope of the remedy and its content and how it operates, what difference does it make, even assuming they affect the breakup?
MR. FREDERICK: Judge Tatel, our position is that Microsoft offered no evidence in the remedial phase of this proceeding. There was no contested issue of fact because they offered no facts.
THE COURT: So everything we just heard from counsel from Microsoft was new, never offered in the District Court?
MR. FREDERICK: It was not offered in any form of evidence. It was their briefs. There were 410 pages of briefs filed.
THE COURT: They proffered a whole list of witnesses, many of whom I'll grant you were expert witnesses, but also Mr. Gates was proffered as a witness on the feasibility of disentangling the company in the manner that the government suggested. Why isn't that a factual proffer?
MR. FREDERICK: Well, what the District Court said ..
THE COURT: There were engineers that were put forward. There was the vice.president of the company. Isn't that right?
MR. FREDERICK: Yes, that's correct, Judge Randolph. The question, though, I think in response to Judge Tatel is when the District Court and the parties were talking about procedure on April the 4th, what the District Court said is I would like to finish this within 60 days. Microsoft never contests that that Scheduling Order was a valid order or an abuse of discretion.
The District Court said, at the least I would expect to have affidavits in support of the remedy. And it's there, Judge Tatel and Judge Randolph, where we take issue with Microsoft's characterization.
Simply making a lawyer.written offer of proof when ..
THE COURT: Wait a minute. I'm confused. On Mr. Warden .. there are several colloquys here including Mr. Boyd's saying he recognized .. one question I think Mr. Warden was asking that I also have an interest in is what they were supposed to submit. And then the Court .. Microsoft goes on to say: Our position is that we cannot take a position on the process to be followed .. on the process to be followed by the Court until we see the government's request for relief, at which point we will promptly advise the Court as to what we believe the procedure should be. The Court said: That's reasonable. I understand that. Then later on Mr. Warden says: But I think the first steps ought to be a demand and a response to demand, and then we can talk about procedure. The Court says: I think that's reasonable. I think you are entitled to know where they're coming from in terms of what they're going to ask me to do. And then the final order says nothing more than Microsoft consistent with those colloquys, and there's more. Microsoft shall file its summary response to plaintiff's proposals.
MR. FREDERICK: Chief Judge Edwards, if I could refer to a little bit later in the colloquy, the judge says that: All right. That's the desideratum to get it resolved within 60 days, after having had that colloquy. Then the following day ..
THE COURT: Which day are we talking about now?
MR. FREDERICK: April 5th.
THE COURT: Are you arguing that they waived their right to an evidentiary hearing?
MR. FREDERICK: No ..
THE COURT: The question Judge Tatel asked you was when there's disputed facts, doesn't the District Judge have to hold an evidentiary hearing? Your response was there were no disputed facts. I then gave you the list that Microsoft proffered, and your answer to that is, what? That they waived it?
MR. FREDERICK: A waiver is too strong a word that I would be prepared to use in this circumstance, Judge Randolph. I think that the point needs to be separated out at several levels.
One is that Judge Jackson made clear that he thought affidavits would be the least support possible. An offer of proof does not meet that standard. Even Microsoft's amicus was able to get sworn declarations from a computer scientist and an economist that would contest the remedy proposed ..
THE COURT: They didn't raise factual issues because they didn't put in affidavits? Is that the argument?
MR. FREDERICK: Microsoft could easily have had sworn statements from the people in their offer of proof had it chosen to do so and it did not choose to do so. So is the question really is what weight to give the offer of proof at this stage of the proceedings when the District Court had made clear what type of evidence supporting and in imposing a remedy it was looking for.
THE COURT: That's an interesting theory. But did Judge Jackson say, indicate in any way the reason he wasn't holding an evidentiary hearing was because Microsoft did not put in affidavits?
MR. FREDERICK: The judge never said that ..
THE COURT: He said it's hard to make .. having a hearing on predicted factual issues is very difficult; right?
MR. FREDERICK: That's correct. That's correct.
THE COURT: He didn't say that the predicted factual issues weren't there.
MR. FREDERICK: That's true, Judge Williams. The question here, though, is whether in the course of the 78.day trial at which 26 witnesses testified and there were 79 depositions taken on a whole range of issues relating to where is this market going, where is the economy going ..
THE COURT: Mr. Holley mentioned CE. Was there a lot of testimony on CE and its severability?
MR. FREDERICK: I don't recall that, but I don't think that's legally relevant here because the important point of the structural remedy is to undo the particular violation found by the District Court, and the violation here was to maintain the barriers to entry. This structural remedy is intended to restore competitive conditions ..
THE COURT: The District Court is very firm in that CE is totally different in that the operating systems and hand.helds are completely out of the picture; right? It did -- it did make that finding; right?
MR. FREDERICK: Yes. The Court ..
THE COURT: Completely out of the picture. MR. FREDERICK: No, and the reason ..
THE COURT: Completely out of the picture in terms of defining the relevant market.
MR. FREDERICK: Judge Williams, the point here is this case is about using two arms to strangle a nascent competitor, using the applications arm to protect the operating system monopoly arm. And the theory of the structural remedy is to ..
THE COURT: That brings up a point, and I may be interrupting .. I am interrupting. If we are to uphold the judge on fewer than all the arms that he found, does it not necessarily follow that we have to send a remedy back for re-litigation? That is to say, if you lose on two of the three substantive grounds or even one of the three substantive grounds, does this therefore become irrelevant because don't we have to say the remedy is vacated for reconsideration based on a record including only one arm or violation?
MR. FREDERICK: Your Honor, I know you like yes or no answers, but the answer that I must give you is it depends. And the reason it depends is because ..
THE COURT: That's all right provided you tell me what it depends on.
MR. FREDERICK: Yes. Let me explain. If the Court, for instance, having had my previous colloquy, on attempt, or to vacate rather than to send that back, it would not need to affect the structural remedy. I'm aware of no case in which a court has upheld a structural divestiture for an attempted monopolization claim.
If the Court were to vacate or to reverse as to tying, either in addition or as well as on attempt, it would not need to vacate the structural remedy. Again, I'm aware of no case in which a court has ordered divestiture because of the tying claim.
THE COURT: I'm following you on the attempt, but it is crystal clear that the divestiture is not in part triggered by the finding as opposed to merely the monopolization.
MR. FREDERICK: I think that that then depends on how the Court treats the tie-in elements of the monopoly maintenance claim. If the Court were to say that under Section 1, the government had not sufficiently proved under the applicable legal standards a tie-in claim under Section 1, our position is that it could still find the conduct anticompetitive under Section 2.
THE COURT: Suppose we find that there's a serious causation question on Section 2, even assuming that you prevail. As you know, Areeda and other such treatise writers say that if your causation is thin, that will certainly have an impact on the nature of the remedy.
MR. FREDERICK: I would concede that, Chief Judge Edwards. I think that how the Court treats the monopoly maintenance claim is the critical driving force behind the structural remedy. If the Court upholds the government on its theory of monopoly maintenance, however, it would not be an abuse of discretion for the District Judge to have entered structural relief. And even if the Court were to ..
THE COURT: No, no, no. You just conceded my point.
MR. FREDERICK: What I'm saying, though, is if you were not prepared to find the causation difficulties as we argued, and we think persuasively so, and if I could direct the Court to one more bit of record evidence on causation ..
THE COURT: Let's stay with the case. We will cross this bridge. We will consider all the arguments.
MR. FREDERICK: Okay. I think candidly it does affect the nature of the remedy. The extent to which the Court were to find that Microsoft had engaged in illegal monopoly maintenance and the effect that that would have on the applicable markets, that would be a basis we would concede for vacating and remanding for a hearing to explore those issues.
THE COURT: But even if the monopoly maintenance claim for judgment were affirmed in toto, but without the tie-in claim, I don't know how this Court could conclude that that is the relief the District Court would have entered based solely on that claim. You said it wouldn't have been an abuse of discretion to do so, and that may well be, but under chancery.like principles, I don't know why we would be able to substitute that or use that standard of review rather than asking the District Court to exercise its discretion under the new circumstances.
MR. FREDERICK: Judge Ginsburg, I don't think the chancery standard would apply here because this Court does have an independent obligation ..
THE COURT: Well, yes. It's chancery-like. But in terms of this is a matter of equitable discretion residing in the first instance in District Court, which is why this is immersed in this record.
MR. FREDERICK: I think that the Court, the Supreme Court through Schine Chain Theaters and Grinnell and other cases, has made clear that when a Section 2 monopolization liability finding has been made, the divestiture is the first .. is the first go.to.
THE COURT: Are you saying there are no Section 2 monopolization cases without divestiture?
MR. FREDERICK: No. What I'm saying ..
THE COURT: Then we don't know which way the District Judge would have gone.
MR. FREDERICK: Well, I think it's fair to infer that the remedy would be designed to cure the violations and to prevent their recurrence.
THE COURT: But the remedy was seemingly relevant to both the monopoly maintenance and the time violations because the separation of the OPS Co. and APPS Co. arguably would address both of those problems.
MR. FREDERICK: Correct. But your hypothetical that you posed to me was if you affirmed the Section 2 claim on all of our theories including the contractual and technological bundling as anticompetitive acts.
THE COURT: Yes, everything but tie-in.
MR. FREDERICK: Yes. Tie-in is a Section 1 violation.
THE COURT: Right. So if that's out, then I don't know how we can be confident what the District Court would have done.
MR. FREDERICK: The question is .. well, I think that the question becomes does the remedy of divestiture cure the Section 2 violation in its many dimensions that have been proved at trial. And the fact that there may be an issue that this Court would find with respect to the test for Section 1 tie-in would not affect the remedy for the anticompetitive contractual and technological bundling ..
THE COURT: But we don't know the extent to which the District Judge, when he formulated this remedy, relied in part on the Section 1 violation. That's what we don't know.
MR. FREDERICK: That's correct, Judge Tatel. My point, though, is that I can't find or cite to this Court a case in which a divestiture is a remedy in a Section 1 case on tie-in, and so it would follow that ..
THE COURT: Maybe the District Judge's thinking was, you know, gee, I'm not sure quite what to do with the Section 2 monopolization claim. It might be a breakup; maybe conduct; remedy would control. But because of Section 1, also it's appropriate to have a breakup.
MR. FREDERICK: Respectfully, I don't think that's a logical process for the District Court because the purpose of this particular structural remedy is to lower the applications barrier for entry and to create incentives so that the OPS Co. and APPS Co. can work with competitors in dealing with a potential middleware threat that might emerge ..
THE COURT: That's exactly the argument you would make in the District Court. If, sticking with the hypothetical that Judge Ginsburg raised, we were to reverse on Section 1, that's what you would argue to him for maintaining the breakup remedy.
MR. FREDERICK: Respectfully, I hope I am not estopped from making that argument today before this Court.
The point is that in a Sherman Act Section 2 case, it's the responsibility of the courts in all instances to determine whether the remedy addresses the violation. And if we are still with Judge Ginsburg's hypothetical that the contractual and technological bundling constitutes anticompetitive behavior under Section 2, the remedy of divestiture helps redress that anticompetitive conduct ..
THE COURT: Now if you add Judge Edwards's caveat to Judge Ginsburg's hypothetical which is in addition, we may have a causation problem.
MR. FREDERICK: Chief Judge Edwards, as with Judge Sentelle, I'm once again forced to concede that point. If I may be permitted, though, to argue in response to Judge Ginsburg's hypothetical, I think that it would be appropriate, and not error, for this Court to say that a divestiture order is sufficient in a Section 2 case even if the facts that we argue with respect to tying were not the add.on tying claim but were sufficient to show Section 2 monopoly maintenance.
THE COURT: Let me ask you a couple of questions about the standard applied by the District Court. The District Court said that the plaintiffs won the case, and for that reason alone have some entitlement to a remedy of their choice. The District Court also said these officials are by reason of office obliged and expected to consider and to act in the public interest. Microsoft is not. Are those appropriate standards for a District Judge to consider in framing a remedy?
MR. FREDERICK: Yes, I do think that they are relevant considerations for this reason. The Supreme Court in at least two cases, Ford and one other case that I can't recall at this time .. Dupont, I believe .. said that if the government proves a violation, the government's proposed remedy is I'll say entitled to respect. I think the Supreme Court in fact used stronger language than that.
And it's important to recall the position of the public officials in this case are not designed to .. we did not bring this case for money damages ..
THE COURT: Which case are you talking about now? Ford?
MR. FREDERICK: Ford, yes.
THE COURT: Ford, the one in which the Supreme Court says we owe no deference? There's no abuse of discretion standard? The appellate court should look very closely at the remedy to be sure that it's tailored and appropriate? That Ford case?
I'm serious. Is that what you are talking about? That's the case where the Supreme Court made it very clear that there's no deference to the District Court under an abuse of discretion standard, that the appellate court was supposed to look very closely at the scope of the decree to see whether it accomplishes its purpose.
MR. FREDERICK: But Chief Judge Edwards, my notes here do not reflect the case. There are two cases cited in our brief for this proposition. Ford may not be the case. I will concede that point.
But it's important also for this court to understand that the reason why the public officials, the States and United States brought this suit was to protect the competitive process.
THE COURT: But I want to go back to my question, if I may. You indicated that you thought waiver was too strong a term to apply to Microsoft's statements in the District Court. I mean I am giving you the option as to how you might respond. But was this a case where it was not a question of the government saying no hearing is needed, but simply being overruled by the District Court?
MR. FREDERICK: Well, I don't think that there was actually a point at which there was a ruling or overruling. The court said we want to wrap this up in 60 days. The government said we think that's possible. We don't think the remedy we are going to propose is going to catch Microsoft by surprise. This is, you know, fair game. We entered our proposal. The District Court had said I would think the least support would be affidavits and other such material. We availed ourself of the opportunity to present that material on April 28th. Microsoft had an opportunity, if it chose to do so, to depose those witnesses. It never asked.
The amicus ..
THE COURT: You know, sometimes the government says to the District Court, Your Honor, we think there ought to be a hearing.
MR. FREDERICK: Judge Rogers, I can't speak to government practice generally. I can say that ..
THE COURT: I'm trying to find out what happened in this case.
MR. FREDERICK: In this case there was no such colloquy. The issue that was debated in which this came up was really the question of whether a remedy needed to be ordered in order for the expediting act requirements to be satisfied. And that was clearly established I think by the record.
THE COURT: The remedy the government proposed, to what extent, if at all, does that differ from the remedy that Judge Jackson proposed?
MR. FREDERICK: It's along very similar lines. There are minor tweaks here and there on the basis of revisions. There were 135 pages of post May 24 hearing submissions offered by the parties. I have not done a line.by.line to determine whether or not there were any changes. I can represent to the court that if there were any, they were quite modest. The remedy ordered by the District Court was in substantial part that proposed by the States and the United States.
THE COURT: Is Microsoft correct that in the entire history of the Sherman Act, there's never been a unitary company, not formed by mergers or acquisitions, that has ever been broken up?
MR. FREDERICK: I think the closest case is the Grinnell case which I cited to you, although I concede that ..
THE COURT: Grinnell was the sprinkler alarms, but that was all acquisitions.
MR. FREDERICK: It was not all acquisitions. It was in part also formed by exclusionary acts that allowed monopolization to occur.
THE COURT: They bought stock in those other companies. That's how they acquired them, isn't it?
MR. FREDERICK: Judge Randolph, I don't want to push back too hard ..
THE COURT: Justice Douglas's opinion says you have to divest yourself of the stockholdings. So the answer is .. your brief says Standard Oil, but what you did was answer Microsoft's argument by misstating it. Microsoft was not claiming that any company that claims to be unitary can't be broken up. They were claiming that there's never been a case in the history of the United States where a court has ordered a company broken up when that company was not formed by mergers and acquisitions.
MR. FREDERICK: Judge Randolph, I cannot cite you a case that is on all fours with this one. I have cited you the closest to what I think. And I think that the important point here is whether the way a corporation chooses to organize itself will allow it to be exempt from Sherman Antitrust Act divestiture. That is the question, whether it is precedented or unprecedented.
THE COURT: No, no, no. The question that's being raised is whether a company that has not grown through combinations can be perforated along the lines proposed by the government without a hearing into the problems that might create.
MR. FREDERICK: I can cite you no case, Judge Ginsburg, for that proposition. What I would like to say, though, is that I am not aware of a case in which a company has grown and protected its monopoly through the range of anticompetitive acts that were proved at trial in this case, ranging from contractual and technological bundling, from paying bounties so that competitors' products would not be permitted in the marketplace, to threatening companies with the nonlicensure of products if they did not stop competing with the monopolist's other products.
And so yes, it's true, Judge Ginsburg, I cannot cite you a case in which a monopolist has been broken up by the government, nor can I cite you a case in the history of the Sherman Act in which a company has engaged in the full range of anticompetitive conduct proved at trial.
THE COURT: Stranger still, even after the remedy, Microsoft retains the monopoly. You cited Grinnell, and I think there's a point in the Supreme Court's opinion in Grinnell that says the first order of business when there's been a Section 2 violation is to issue a remedy that will destroy the monopoly power. This remedy doesn't do that.
MR. FREDERICK: Yes, it does. It destroys the ability of Microsoft to maintain illegally the applications barriers to entry. The way Microsoft has done ..
THE COURT: I can understand splitting it into three companies, each one of which get Windows, and they all compete against each other. That I can understand. But this, all it does is give rise to the potential of competition that in the end might in fact weaken the monopoly hold that they have on operating systems.
MR. FREDERICK: I think the Supreme Court has made clear that the remedy should be tailored to the violation. That's the proposition in Dupont and the National Society of Professional Engineers case. That's what the District Court entered in this case.
Chief Judge Edwards, by the way, the case that I was searching for earlier is the Dupont case.
THE COURT: Mr. Frederick, the applications, what would be the principle asset of the applications company?
MR. FREDERICK: Microsoft Office.
THE COURT: Microsoft Office.
MR. FREDERICK: Yes.
THE COURT: Would it not serve the application company's interests to see the Windows platform on which it rides be ubiquitous?
MR. FREDERICK: Not necessarily. It would depend on what direction OPS Co. took the Windows platform.
THE COURT: Well, I can tell you one, when we just have the current OS and the current applications.
MR. FREDERICK: Yes. The difference, though, is that when the OPS Co. goes, for instance, to IBM .. this was proved at the trial .. and says if you don't stop using a competitive product to Microsoft Office, we will cancel your license for Windows, Office has an incentive to go to IBM and said we still .. or sorry, rather, to react to that kind of competitive situation.
The incentive structures of these two companies are altered by the divestiture because they .. Office, for instance, would have an incentive to work with a less expensive operating system vendor if that had the effect of increasing sales of Office. And Office also has an incentive to develop Internet Explorer as the kind of cross.platform middleware threat that Microsoft crushed in '95 in following ..
THE COURT: What happens to the code that has the nonbrowser functionality of IE?
MR. FREDERICK: The decree deals with the question of intellectual property in the first instance. And I would make this point, because this is a general point of importance in dealing with the kinds of harms that Mr. Holley identified. The court entered the decree to allow Microsoft to propose the form of reorganization to comply with the general provisions, and the intellectual ..
THE COURT: I'm just trying to think what the theory of the government was. If you have code that is doing browser and nonbrowser functions, what on the government's idea here should guide the court in deciding such a thing?
MR. FREDERICK: Well, the question is who gets what.
THE COURT: And here's something which belongs in both places apparently. In terms of functionality, it belongs in both places.
MR. FREDERICK: APPS Co. gets the intellectual property of IE with a license for such aspects as would be pertinent here to OPS Co. in perpetuity. The point ..
THE COURT: How is that decided? Why is the code performing both functions thought by the government to belong with the APPS Co. firm?
MR. FREDERICK: The point is to address the violation which was to use the browser as a means of protecting the monopoly. OPS Co. will not have the power to do that if progress and development with the browser going forward is with APPS Co., because APPS Co. does not have an economic incentive to protect the operating system monopoly. So, for instance, APPS Co. could develop IE as a cross.platform middleware threat to OPS Co., and there would be no economic incentive for APPS Co. not to do that, as there is now.
So with respect to ..
THE COURT: You are saying both could enter into the operating system business; right?
MR. FREDERICK: I beg your pardon?
THE COURT: You are saying it could enter into the operating system business and become a competitor.
MR. FREDERICK: Well, that's a different point, Judge Ginsburg. Yes, there is nothing in the decree that constrains that. My point is one addressed to the violation which we proved at trial which is that they use the browser to snuff out cross.platform middleware competition. And what I'm saying is that the decree creates an incentive for APPS Co. to become what Navigator was not allowed to become because of Microsoft's anticompetitive conduct. THE COURT: Which is?
MR. FREDERICK: A cross.platform middleware threat that would allow other operating systems to be used in that vehicle.
THE COURT: Now, there was some doubt expressed about whether Netscape was going to do that. What reason do we have to think that APPS Co., simply because it could, would?
MR. FREDERICK: The point is to restore the competitive conditions that existed in '95 when Microsoft altered them as a result of the browser war, or in the words of Mr. Chase, the jihad launched by Microsoft against Netscape. And that's why the structural ..
THE COURT: If the newly formed APPS Co. would have an incentive to write operating systems programs, then why aren't the incumbents in the market now? Why don't they have that incentive?
MR. FREDERICK: Well, I'm not sure that they do, Judge Randolph. APPS Co. has that incentive. It has a powerful suite of products. As we proved at trial, all of the barriers to entry exist. Judge Ginsburg asked me whether as an additional aspect of APPS Co.'s possible ..
THE COURT: My question is why wouldn't market participants today have the same incentive that you're predicting this newly.formed company will have? MR. FREDERICK: Because of the applications barrier to entry. What I'm saying is that ..
THE COURT: But the applications barrier to entry will still exist with respect to Windows.
MR. FREDERICK: It will be lowered as a result of the changed incentives, Judge Randolph, in several ways. One is that IE becomes the potential to be cross.platform middleware in the hands of the company that has as its business purpose not protecting the monopoly profit stream of the operating system.
THE COURT: So why do you need both the conduct remedies and the structural remedy if you restructure the conduct remedies to reflect the incumbent?
MR. FREDERICK: Judge Sentelle, the conduct remedies in this decree are intended and are written as only interim measures so that the kinds of competitive conditions that would be a result of a divestiture would have a chance. And we recognize that implementing a divestiture decree will require careful thought on Microsoft's part in offering the proposal and on the part of the government and the court in doing that.
THE COURT: Well, maybe you could address Mr. Holley's final point about Office. You said earlier that this decree is designed to correct the violations identified at trial. Right?
MR. FREDERICK: Yes.
THE COURT: Okay. Is there evidence in the record that Microsoft used Office to perpetuate its platform monopoly?
MR. FREDERICK: Yes, Apple. The court found the evidence showed that Microsoft went to Apple and said we will cancel Mac Office if you do not make IE the default browser.
THE COURT: And that's the basis for the part of the remedy that requires the new applications company to write the version of Office for clients?
MR. FREDERICK: Judge Tatel, the point of having Office .. and I would also cite the IBM example where Microsoft went to IBM and said if you don't stop competing with Office, we will not give you a Windows license.
There's leveraging going on here. We are using the application's arm not only in the form of Office but in other application devices. And that's what the browser war really was all about. It was leveraging monopoly power in the operating system by using this other product and that as an application. That's the theory of the government's case and that's the theory of the remedy.
THE COURT: Well, where in the record did the District Court take account of the practical problems of writing an Office version for Linux?
MR. FREDERICK: I .. well, I have several responses to that. I'm not sure that the question is a relevant one for this reason: because it assumes that Linux is the only possible competitor in the operating system market. That was not .. you know, what the market will do tomorrow is completely unknowable. Our point is that we are trying to restore competitive conditions to minimize market power and abuses of market power. This was the way, one of the ways, that Microsoft leveraged its applications arm to protect its operating system monopoly.
So Linux may not be the right example. I would concede that, Your Honor. It may be OS. It may be some other operating system. It may be the Mac. The point is the market ought to decide, and Microsoft should not be able to maintain its monopoly power by using its ability to leverage its applications to protect its operating system. By lowering the applications barrier to entry, the decree also provides incentives for Navigator perhaps to come back as a cross.platform threat. It provides an ability for Sun and Java to have at least a spark of life.
THE COURT: Would the shareholders of the two companies be the same on day one?
MR. FREDERICK: With I believe it's three exceptions, and those would be the shareholders that owned more than five percent of the company. And what the ..
THE COURT: They would not be the same.
MR. FREDERICK: As to those three shareholders, they would have to choose, that's correct.
But, you know, the declaration put in by Mr. Greenhill suggested that shareholders would not be harmed by this divestiture and in fact would likely see an improvement in shareholder value as a result of restoring better competitive conditions and making these companies leaner. I mean I would just point out this is outside the record, but the divestiture leads to a Fortune 84 company becoming essentially two Fortune 200 companies. So it's not as though these are two small companies unable to address ..
THE COURT: Mr. Frederick, in response to Judge Tatel's question you responded, which was indeed responsive, but the bulk of leveraging in the case is leveraging the operating system. And OPS Co. ends up with the operating system. And after divestiture is completed, you boast .. and I'm sure that was aimed at this court .. the no line of business restrictions, which this court is very familiar with from AT&T. So it's a puzzle as to why you think this is effective since it is precisely Windows which is the source of what the government says it's worrying about.
MR. FREDERICK: Well, the answer, Judge Williams, is that after the divestiture, OPS Co. was not able to use the kinds of leverage they used in the sense that ..
THE COURT: I mean you assume that a new, very large company, is unable to move in to other software activities. Why not?
MR. FREDERICK: Well, it doesn't have the same market power when it starts from zero as when it starts from an $8 billion company.
THE COURT: If the operating system is what you say it is, it starts with a huge amount of market power.
MR. FREDERICK: It has market power with respect to operating systems. We concede that. It doesn't have market power to stop cross.platform middleware threats in the way that it did ..
THE COURT: It used the operating system. The theory of your complaint is the use of the operating system enabled it to stifle competition and cross.platform technology.
MR. FREDERICK: Yes, and it used applications to do that.
THE COURT: Could it devise IE 2?
MR. FREDERICK: Well, that's a complicated question, Judge Ginsburg. The way the decree is worded, Microsoft OPS Co. has a license to the existence of IE. The intellectual property rests with APPS Co. The decree further provides ..
THE COURT: Well, I don't mean to say using its intellectual property. Could it device a new browser from scratch?
MR. FREDERICK: Yes.
THE COURT: And then it would have the same combination that you've just broken up?
MR. FREDERICK: Yes. And it's starting from scratch to do so. And that's the important point.
THE COURT: But it's got the leverage of the operating system. It can go from zero to 80 in 20 minutes; right?
MR. FREDERICK: No, but the expectation and the incentives in the market would be fundamentally altered.
THE COURT: Why, when you agree that the platform is nascent at best, and they don't have any of what they need to be able to do what you think is necessary to compete whereas Windows has.
MR. FREDERICK: No. The difference, Chief Judge Edwards, is that APPS Co. has IE which has .. is obviously a Windows platform, has been developed for Macintosh. And APPS Co., which would then have an incentive to develop IE as true cross.platform middleware, has an incentive that Microsoft currently does not have. Moreover, Navigator, which is undisputably used on at least 15 different operating systems, the record shows, has an incentive and an ability to fight back in the market on the merits of cross.platform middleware without being snuffed out.
THE COURT: You answered to Judge Ginsburg that the remaining company holding the operating system could develop its own browser.
MR. FREDERICK: From scratch.
THE COURT: From scratch. And then sell it as a package; right?
MR. FREDERICK: Yes.
THE COURT: Except that it wouldn't be able to sell it separately.
MR. FREDERICK: Well, that depends on what the court holds with respect to ..
THE COURT: No, no. There's a provision in the decree that prohibits it from .. that any product that is sold separately cannot be .. that you cannot require a buyer of Windows to also buy that product. You can't bundle if you sell the product separately. Isn't there a provision in the decree that says that?
MR. FREDERICK: No. I think respectfully, Judge Randolph, the provision defines middleware products, and it says that if you have a middleware product and you bundle it, you have to sell it separately.
THE COURT: I think what he's talking about is an interim provision.
MR. FREDERICK: That's what I'm talking about, the conduct interim provision and which would, of course, expire within three years after the divestiture occurs.
The whole point of the divestiture, and I would say respectfully the elegance of it, is that it is one that addresses the violation that we proved. It allows the market to determine competitive conditions going forward. And it is the one least likely to result in the kind of intrusive oversight process with which this court is well aware.
Unless the court has further questions, thank you.
THE COURT: Thank you.
MR. HOLLEY: Mr. Frederick referred to the April 4th transcript as authority for the proposition that everyone understood that the affidavits were the minimum required in support of proposals. Actually, if you look at joint appendix 2447 to 2448, Mr. Boies asked the following question: "One question that I think Mr. Borden was asking that I also have an interest in is when we submit our preferred proposed form of permanent injunction, would the court contemplate that that be submitted with supporting affidavits, for example, or just a form?"
And the court's response is: "That certainly is a matter that we could talk about, Tim." He is referring to his law clerk Tim Ehrlich. "And I have talked about this morning. Maybe affidavits might perhaps be the least support that we would be looking for. We might also replicate the procedure at trial with testimony in written form subject to cross.examination. The more abbreviated the process, the better I think. But I am open to suggestions." So there's no basis for saying that anyone could take from that colloquy that affidavits were required.
Both the Paramount Pictures cases and the Schine Theaters case, which Mr. Frederick referred to several times, were remanded by the U.S. Supreme Court to the District Court because there were no findings of fact sufficient to support the remedy in those cases. Mr. Frederick did not even attempt to defend the District Court's failure to have any findings on the issue of relief, and I think that's dispositive here.
In particular, there was no finding that Microsoft ever used its development of both Windows and Office in an improper way. If you look at both .. if you look at the government's brief, both times they make that assertion there's no support. There's no reference to the findings of fact. There's reference to the testimony of Mr. Tevanian or reference to documents, but it would have been very simple to write which finding of fact there is that Microsoft ever improperly used its development of both Windows and Office, and there is none.
Despite Mr. Frederick's statement that the breakup would cure the anticompetitive violations found, as the questions made clear, the operating system company after the divestiture could do exactly what Microsoft does now and would do exactly what Microsoft does now because it would be a platform company, competing with other platform companies, and it would have an incentive to add new features to Windows, which the government now says is all right. You can add new features to Windows. But it would also have the same incentive to vigorously promote those features, both the software developers and end users. And in doing that, it would have the same incentive that Microsoft has not to allow distributors to get in the way of that process of promoting those features.
The notion that divestiture is the presumptive remedy for Section 2 violations of all kinds is flatly wrong. Judge Posner looked at all of the Section 2 cases that resulted in divestiture, all of them, since the passage of the Sherman Act, and came up with four where divestiture was ordered in cases principally involving conduct. They are the Kansas City Star case, the 1952 IBM Consent Decree, the United Shoe case, and the AT&T case. None of those cases bears any resemblance to this case.
THE COURT: You said those are court cases in which there was a divestiture. Did you qualify that?
MR. HOLLEY: What Judge Posner said, Your Honor, was that these were cases in which divestiture was ordered where the conduct at issue was not the acquisition of competitors but unilateral behavior.
THE COURT: Was the 1952 IBM case the Service Bureau case?
MR. HOLLEY: That was the tabulating machine and card case. And IBM agreed that if by 1953 its share of cards had not hit a certain percentage, it could divest itself of certain card.making ability. And it missed the target and so it divested some of its card.making ability.
THE COURT: The public has been safe ever since.
MR. HOLLEY: Yes, Your Honor.
Mr. Frederick said that IE could easily become cross.platform. But this is another example of a fundamental factual mistake that underlies the government's remedy proposal and that never got explored in the trial.
The version of Internet Explorer for the Macintosh operating system and the version of Internet Explorer for UNIX bear no resemblance to Internet Explorer for Windows because they expose no programmatic interfaces to developers. They are monolithic applications, just like Navigator was on Windows.
So the idea that these three very different products, although they happen to share the trade name Internet Explorer, would become cross.platform middleware is wrong. And it would have been easy for Microsoft to demonstrate that.
Finally, I'd like to say, Your Honor, that when Mr. Frederick abandoned Ford as his authority, he picked Dupont. I think it stands for the opposite proposition.
What Dupont says is that we have made .. I am now quoting Justice Brennan. "We have made it clear that a decree formulated by a District Court is not subject only to reversal for gross abuse. Rather, we have felt an obligation to intervene in this most significant phase of the case when we concluded that there were inappropriate provisions in the decree."
That is the standard, Your Honor, not deference to the government's choices.
THE COURT: But with due recognition of the accuracy of the quotation from Dupont made by Mr. Frederick, the court in vacating what the District Court had done did recognize that the District Court had acted contrary to the objections of the government and did use the language suggested by the government to say that the government, having won the case, was entitled to some definite suggestion of remedy, did it not?
MR. HOLLEY: It did, Your Honor, but what the court said, as it also said in International Boxing Glove of New York and in United States against United States Gypsum is that in an antitrust case, given the severe impact that remedies can have on the public, it's necessary for there to be a searching inquiry into the remedy ..
THE COURT: Having read that, they ordered the District Court to reiterate a complete divestiture which the District Court had not done.
MR. HOLLEY: That's right, Your Honor.
THE COURT: The government requested a complete divestiture. The District Court did not do it. From the Supreme Court, ordered the complete divestiture and sent it back for the detail.
MR. HOLLEY: That's correct, Your Honor.
THE COURT: And said the court shouldn't defer to the government's suggested remedy. I think you are making a bigger mistake relying on Dupont than they were relying on Ford.
MR. HOLLEY: With respect, Your Honor, I don't agree. I think the standard from Dupont ..
THE COURT: Your time is up counsel.
MR. HOLLEY: Thank you, Your Honor.
THE COURT: Judge Sentelle makes my job very easy. We will take a recess for ten minutes. We will come back at about 11:45.
(A short recess was taken.)
CONDUCT OF THE TRIAL
THE COURT: You may proceed, Counsel.
MR. UROWSKY: I now wish to address the final subject of argument, which is extrajudicial statements and conduct of the proceeding. I will address them in that order.
It is now apparent that prior to the conclusion of trial, the District Judge gave interviews to numerous reporters, certainly at least half a dozen, about the nature of the case, the parties and the like. Ken Auletta, a reporter for the New Yorker, reports that he has ten hours of taped conversations with the District Judge, and that in the course of those conversations, the District Judge walked him more or less step by step through the journal he maintained during trial.
Following .. these reports did not appear until the entry of judgment, but they did begin almost immediately, I think the next day after entry of judgment. And following the initial reports of which were in leading United States newspapers, the District Judge then began a public speaking tour addressing issues related to the merits of the case, of Microsoft and so on.
This tour included a speech in Amsterdam, a speech at Dartmouth College in New Hampshire, a speech at Saint Mary's College in Maryland, a speech at what I would refer to as a practice development luncheon hosted by the Howry & Simon firm in Washington, D.C., and finally another speech at an event I think that was sponsored by George Mason Law School but was conducted at the Capitol.
These extensive comments about the case while it's pending are a clear violation of Canon 3A(6) of the rules of judicial conduct. The government's only effort to defend the course of conduct is by reference to the legal education exception to Canon 3A(6). I think that claim is plainly without substance. It's speaking to reporters in chambers about an ongoing trial is not I think meant to elevate the ..
THE COURT: You also claim a violation of Canon 3A(4).
MR. UROWSKY: Yes, Your Honor, and indeed I was just coming to that point because although 3A(6) may be violated by, for want of a better word, noninteractive conversations, as for example where a judge might simply give a written statement to the press or make a statement, an oral statement on the record.
It's quite clear from the press reports and particularly clear from the reports in Mr. Auletta's book that these were interactive conversations where the reporters were bringing information to the District Judge and they were having generally a two.way conversation. I think one of the newspaper reports describes it as a fairly relaxed two.way conversation.
And those conversations in which the judge plainly received information extrajudicially constitute a separate violation of Canon 3A(4).
Now, we don't ..
THE COURT: Could I ask you, are we proceeding here de novo in the sense that as my records show, the first publication indicating that the District Court himself had actually given interviews, as opposed to a lot of articles published about the case and the judge's background, came two days after the order was entered as to the remedy. Did you have any opportunity to make any motion in the District Court?
MR. UROWSKY: I think as a practical matter, Your Honor, the answer to that is no. And the reason I say that is that once judgment was entered, that triggered certain time periods during which Microsoft would have been required to take steps that were highly inimical to the company, such as formulating a breakup plan, and as a result of that, which was essentially having a gun pointed to the company's head, Microsoft was bound to proceed as promptly as possible into this court in order to secure a stay. I should point out that although the District Court ultimately on its own granted a stay of the judgment.
If you read the order entered in June at the same time the judgment was entered, you come away with a firm conclusion that the District Court was not going to do that; and therefore, as a practical matter, Microsoft was not able to initiate what could have been a lengthy recusal proceeding in the District Court.
THE COURT: What do we do in light of what you're suggesting? If you take the 3A(4) violation that you are asserting, that is, the initiation of communications concerning a pending proceeding and the recusal statute, et cetera. There are a number of possibilities. It does not automatically result in the voiding of a judgment. A judgment may be voidable, not necessarily void. There is the other remedy that we've also used, if you are right, in the Microsoft case was in the event of a remand to replace the judge or nothing.
What are you suggesting the appropriate remedy if you are correct?
MR. UROWSKY: Yes, Your Honor. Well, clearly, we think that the nature of the violation of the canons is such that it almost necessarily triggers a violation of Section 455.A.
THE COURT: Why is it?
MR. UROWSKY: Because the case ..
THE COURT: Do you mean because of the content of these statements or because any statements that violate the canon trigger 455.A?
MR. UROWSKY: I wouldn't say that any statement that violates the canons ipso facto violates 455.A. But what the cases say is that where statements are made that would cause a reasonable person to believe that the District Court was not impartial.
THE COURT: Right. That's the standard for 455.A, not whether he violated the canon. I mean the violation of the canon may make it worse; right?
MR. UROWSKY: But I don't think that's quite the relationship. As I read the cases, which are not many, they are reasonably clear that where the judge's statements would suggest that the judge is defending his or her conduct of a proceeding, where the statements can be misunderstood by members of the public and place the judge in a position where he or she appears to be no longer above the fray but has entered the lists, and where the statements are, as in this case, reflect an animous toward a litigant that is expressed in an extrajudicial forum.
THE COURT: We don't know .. first of all theoretically .. not theoretically, but the last hour or so we talked about the need for an evidentiary hearing, whether one was required. And all this is hearsay. We have whatever has been reported in the press or in books, and that's not necessarily everything. I mean you talked about ten hours of taped interviews with one reporter. There may be four or five more reporters. So we don't even know the extent of the statements that were made.
How does one hold an evidentiary hearing on this kind of a question to the extent we need one? Is it good enough for the government to say we don't dispute any of these statements? That's not necessarily good enough because there are other statements that are out there that may not have made their way into print yet.
MR. UROWSKY: Well, I think that that is certainly true, and it is in the nature of this kind of situation that there will .. because the statements are made extrajudicially and they're not part of the trial record, that this issue will arise.
I think, however, that the number of statements that have been reported to date, their consistency, and the tenor of them, coupled with the failure of the government to deny that they've been made and indeed the failure of the District Judge to deny they have been made. I myself have seen a tape recording of one of the speeches in which the District Judge actually undertakes to defend making the statements, which I take to be an acknowledgment that ..
THE COURT: There are a couple theories that swirl around 3A(6). One of them is the canon that forbids judges from making public comment about pending or impending cases. The way that canon is phrased, it doesn't depend on what court the case is in. So someone on this court who commented during the O.J. Simpson trial about the handling of that trial would be guilty of a violation of 3A(6).
And the theory underlying that, as I understand it, is that when judges talk about cases in other courts, they may unduly influence the jury or they may unduly influence the judge who is handling the case, all to the detriment of the party.
Now, that theory doesn't apply in this situation. What is the prejudice that you put forward as a reason for vacating the judgment, given that what Judge Jackson was doing was stating what was on his mind?
MR. UROWSKY: Yes. I think the logic of the position is this. Where 3A(6) is violated in the ways it was violated here by the District Judge assaulting essentially a litigant before him in a pending case and also defending his own handling of the case, that gives rise to a violation of 455.A. I would respectfully invite the court's attention to the First Circuit's recent decision in Boston's Children where the comment made by the District Judge pales in comparison to the comments at issue here.
And what the First Circuit determined in that case was that the comments, because they could be seen as the judge defending her handling of the case, required recusal, and that that recusal was available on mandamus, which the First Circuit describes as not available for cases close to the line.
THE COURT: Are you claiming you don't have to show any prejudice? If there's a violation, a gross violation of 3A(6), then there should be retroactive disqualification or recusal of the judge.
MR. UROWSKY: And the only reason there wasn't in this case is that the District Judge kept it secret. If the District Judge hadn't instructed the reporters not to disclose the contacts until after judgment was entered, on the first occasion when such a report appeared in the paper, Microsoft would have moved for recusal. And if the District Judge declined to grant that motion, Microsoft would have sought a writ of mandamus from this court.
THE COURT: At what point .. I don't recall. At what point .. at what stage in the proceedings involved did the interviews as far as we know commence?
MR. UROWSKY: Well, the two articles that initially appeared in the New York Times and the Wall Street Journal indicated that the interviews occurred during trial without specifying a case.
THE COURT: You don't know whether they were toward the remedy stage or earlier or we don't know.
MR. UROWSKY: Mr. Auletta, being a writer for the New Yorker, is more precise. His interviews ..
THE COURT: Not necessarily more accurate. MR. UROWSKY: I don't dissent.
His first interview occurred in mid.September 1999 and was followed by a second interview in early October 1999.
THE COURT: So that's the remedy stage.
MR. UROWSKY: That was after the conclusion of trial testimony and looking toward the remedy stage.
THE COURT: The only comment that I could find .. correct me if this isn't right. The only comment that I could figure out that occurred before the findings of fact was the comment on the judge's views about integration. He wasn't a fan of integration. Is that .. do you know of any other pre.finding of fact statements?
MR. UROWSKY: I do not know of any that I can firmly fix prior to the findings.
THE COURT: The only pre.conclusions of law comment I found, other than obviously the integration one, was the mule comment. Everything else seems to be post conclusions of law. Is that right?
MR. UROWSKY: I'm sorry?
THE COURT: Everything else seems to be post conclusions of law.
MR. UROWSKY: That appears to be correct.
THE COURT: Is there any indication who initiated these interviews? Do we know how this happened? It is very unusual for reporters to be interviewing a judge mid trial, whether it's a remedy or whether it's liability stage. Do we know whether Judge Jackson invited the reporters back or whether they of their initiative went back?
MR. UROWSKY: We know from the articles that some of the interviews occurred in chambers. Now, how that was initiated, I don't think we do know precisely.
THE COURT: We seem to think that was significant in the Haldeman case. In that case, do you recall the judge's birthday party and some reporters?
MR. UROWSKY: Yes, I do recall the facts of Haldeman. But in Haldeman, there was essentially one conversation that could be described with any definiteness. The conversations at the birthday party, as I recall, were disregarded by this court because the reports were too amorphous.
THE COURT: Well, I think we acknowledge that it appeared the judge was expressing an opinion.
MR. UROWSKY: But not the precise nature of the opinion. The other circumstance in Haldeman, as I recall, was a brief television interview, and the suggestion was made in the decision that that had been almost forced upon the judge in connection with a circuit conference. I think those are the facts of Haldeman. But I don't ..
THE COURT: The judge's comment in Haldeman are with respect to the issue before him on the question .. I think the actual issue that was before the court that the judge spoke on is not .. I can't distinguish it from the comment the District Judge made here about he's not a fan of integration. I mean they're both .. they both go to the issue in the case. And in Haldeman we said that wasn't enough. A tinge of prejudgment or something like that was not enough to require recusal.
MR. UROWSKY: I think that the statement in Haldeman dealt with the question which was not then pending in a focused way before the District Court about whether a fair trial could be had in the District of Columbia. And this court construed the District Judge's remarks to be a general statement about the fairness of trials available in this district as opposed to a statement directed at a specific issue in the case, which would distinguish it from the integration comment.
THE COURT: Suppose the integration comment had been made in court. Suppose the judge had said exactly the same thing after he issued .. right before he issued the findings of fact, and he was just saying during court, you know, I'm not a fan of integration. I want you all to know that. 455 recusal?
MR. UROWSKY: I don't think so.
THE COURT: Why not?
MR. UROWSKY: Because judges may say many things in their opinions that they may not say extrajudicially.
THE COURT: We say all kinds of things on the bench, don't we? We don't get paid. We can say what we want on the bench; right?
MR. UROWSKY: The judge in Boston's Children said this case is more complicated than another one, period. I don't think anybody would urge that as a grounds for disqualification if said in court. On the other hand, the First Circuit believed that that was way over the line, which is what they say the standard is for securing mandamus in the First Circuit in these circumstances.
THE COURT: Suppose Judge Tatel is right that it appears that there is a .. the picture is such that most of what was occurring that's questionable was post-trial, more towards the remedy stage, and certainly lots of it was.
MR. UROWSKY: Well, to begin with ..
THE COURT: Especially when you understand nothing is guaranteed. Nothing is automatically void. There are things that are voidable.
MR. UROWSKY: It appears that the comments were certainly made long before we reached the true remedy stage, which was in the spring of 2000. These were back in the fall of 1999, and I believe they precede the conclusions of law.
THE COURT: All right. So that if we decide .. if this court decides to set aside the remedy for other reasons, there's no reason to address this issue with respect to that; right?
MR. UROWSKY: If the court agrees to vacate the remedy in its entirety for other reasons, I agree with you.
THE COURT: So then we go back to statements prior to the conclusion. Are you also asking that we would vacate the conclusions of law and the findings of facts also?
MR. UROWSKY: That's correct.
THE COURT: Is that your theory? Even though there were only these two statements made, one right before the findings and one right before the conclusion? That's enough for a 455.A recusal ..
MR. UROWSKY: I think there were multiple statements before the conclusions of law were entered. THE COURT: If you had made the motion below that Judge Rogers first suggested, I think, a post-trial motion to vacate based on this, might we not then have the kind of record to support the kind of relief you're seeking? Since you did not make such a motion, might we not reasonably deem that you waived any backward.looking vacation of finding of facts and conclusions of law? And the only remedy would be the replacement of the judge.
MR. UROWSKY: I think not in the circumstances here, and I think that there is ..
THE COURT: The circumstances here are we are dependent entirely on the hearsay accounts of New Yorker journalists and other journalists as to what was said and when. If there had been a motion to vacate, you might have made the kind of record that would let us answer the kinds of questions we are now asking. Without that kind of record, why shouldn't we simply enter a forward.looking remedy, if any, of the judge's apparent violation of the rules and the statute, and forget about vacation based on that?
MR. UROWSKY: I think for two reasons, Judge Sentelle. One is that what 455.A is addressed to is the appearance of a lack of an impartial adjudicator.
THE COURT: I'm not sure how that speaks to what I just said.
MR. UROWSKY: I think because what the statements suggest is actual bias.
THE COURT: If that suggestion or if the occurrence of a bias occurred after the entry of judgment, there was nothing before, would you agree that you would have no basis for vacating the judgment?
MR. UROWSKY: No.
THE COURT: You would not?
MR. UROWSKY: I would not, because there's no reason to believe that because the judge made the first statement before the entry of findings of fact and another series of statements before the conclusions of law, that the bias or the appearance of it began only with that statement.
THE COURT: Wouldn't you think that would be a logical .. I mean he sat through a whole trial. I mean, I would agree with you if he had said I'm not a fan of integration before the trial started. But what can you point to in this record? I mean we don't have much of a record. There's nothing other than your speculation that his views about integration didn't develop during trial.
MR. UROWSKY: I think we have statements about Microsoft and its executives that would cause a reasonable person ..
THE COURT: No, no, no. Stay with my question about integration. I understand your point about the Newton Street Crew and Napoleon and drug conspiracies. But I'm just asking about the integration point, because that's the only one that's pre.findings of fact. And I just don't see any way, other than your own speculation, for concluding that he had these views before the trial started. And don't we need to at least know that or have some basis for concluding it if we are going to vacate? Particularly since the standard for vacatur is higher, isn't it?
MR. UROWSKY: Well, I don't think in circumstances where there is concealment of the improper statements and contacts, that the standard is different.
THE COURT: What case is that?
MR. UROWSKY: Liljeberg.
THE COURT: Liljeberg, right.
MR. UROWSKY: Where the concealed improper statements were not disclosed until after the decision had been made by the District Court and affirmed on appeal.
THE COURT: I agree with you about Liljeberg, but the court did set a slightly higher standard for basis for that, with a risk of injustice to the parties, both parties.
MR. UROWSKY: That's correct.
THE COURT: That's not a standard we would apply if we were focusing on just what to do with this case on remand should it be remanded. Right?
MR. UROWSKY: That there are other factors considered for a motion that was in that posture when it reached the Supreme Court.
I'd like to save a few minutes for rebuttal, if I might.
THE COURT: Okay. Thank you.
THE COURT: You may proceed, Mr. Roberts.
MR. ROBERTS: Thank you, Your Honor, and may it please the court. On behalf of the governments, I have no brief to defend the District Judge's decision to discuss this case publicly while it was pending on appeal, and I have no brief to defend the judge's decision to discuss the case with reporters while the trial was proceeding, even given the embargo on any reporting concerning those conversations until after the trial.
THE COURT: That makes it even worse, doesn't it, Mr. Roberts?
MR. ROBERTS: I'm sorry, Your Honor?
THE COURT: His embargo makes it worse. It makes his conduct worse. And the reason is exactly what Mr. Urowsky said: that had he not placed that embargo, he would have been off that case in a minute. MR. ROBERTS: I don't disagree with that. Well, not the part about him being off the case. I don't disagree that the embargo makes it .. it certainly doesn't make it ..
THE COURT: Do you really think that a judge engaging in ex parte contacts and that comes to the attention of a mandamus, do you really think the court would hesitate long? A District Court judge is violating the code and the integrity of a decision by bringing in ex parte communication during the process of the case?
MR. ROBERTS: It would be violating certainly the Canon 3A(6), but it certainly wouldn't necessarily be violating the code.
THE COURT: Are there some that might suggest it violates the whole oath of office? It's not what we do. We do not have ex parte communications. And the code certainly says that: We neither initiate nor consider ex parte or other communications concerning a pending case. I don't discuss cases with my best friends. I mean that's the way we operate. We are not supposed to do that.
MR. ROBERTS: We are not defending the judge's decision below to do that.
THE COURT: And certainly telling the person not to say anything, as Judge Randolph says, doesn't make it better. It makes it worse.
MR. ROBERTS: But the question before the court is whether or not that shows bias or lack of impartiality.
THE COURT: Or an appearance.
MR. ROBERTS: The appearance of a reasonable person ..
THE COURT: That's right.
MR. ROBERTS: .. would see a lack of impartiality from that before there's a violation of 455.A.
THE COURT: Is there any doubt under the First Circuit's case that this would qualify?
MR. ROBERTS: Well, the First Circuit case was a little bit different.
THE COURT: The judge said this was more complex than another case.
MR. ROBERTS: Well, but it's more complex in the context in the sense that the judge was preparing to rule on the particular issue where that was directly pertinent. And here you don't have that. THE COURT: What about the Newton Street Crew comment?
MR. ROBERTS: Oh, that they always get caught?
THE COURT: Yes. I mean, let's set aside the preference for not a fan of integration. Set aside all these other things, and just explain, keeping in mind that this is what a reasonable person would think about whether the judge was biased, not whether the judge is biased.
MR. ROBERTS: The question is ..
THE COURT: The Newton Street Crew.
MR. ROBERTS: Yes. And the question is does that reflect something that the judge learned during the proceedings or does it reflect bias? In other words, something that he brought to the proceedings.
THE COURT: No, no, no, no. The question is would a reasonable person hearing the comment think the judge is biased? My assumption is this. Let's assume for purposes of my question that he's not biased, that his Newton Street Crew comment was in his mind simply .. he was simply trying to articulate the point that lots of defendants don't concede their guilt. Okay? Let's just assume that he is totally unbiased. But the public, a reasonable member of the public hearing that comment, you are not suggesting would not wonder whether this judge is biased against the defendant when he analogized the ..
MR. ROBERTS: Perhaps I'm not following, Your Honor. But first of all, it is not an extrajudicial comment under the Supreme Court's decision in Liteky. It is a reflection based on what he learned during the proceedings, as, by the way ..
THE COURT: In Liteky, the comments were made in court. So that's a different question. These comments were made out of court.
MR. ROBERTS: But what the Liteky court said is if the comments reflect what the judge learned during the proceedings, they are not ..
THE COURT: No, I understand that. And if he had said I believe that this defendant is unwilling to acknowledge his wrongdoing, it seems to me you would have a good argument; that that's a conclusion he reached from trial. I'm only asking you to focus on the analogy to the Newton Street Crew and to all of the connotations that conjures up for the public. This is an appearance standard.
MR. ROBERTS: Well, it is an appearance standard. All the judge is saying is that in his experience, criminal defendants .. and he cited a particular example in a case that he was familiar with .. often entrap themselves by continuing with conversations even after they know that they might be recorded.
THE COURT: That's is the drug traffic comment. The Newton Street comment .. well, both of them. It's hard for me to see .. I mean maybe you can help me with it. This is my problem with this issue. You can help me understand it.
I don't understand how you can make the point when we are talking about an appearance standard, not a reality standard, but an appearance standard, that those two comments wouldn't convey bias, maybe not to you or not to me, but to your average member of the public.
MR. ROBERTS: Well, no, because again, it does matter that this reflects what was learned during the trial because that is not bias. That is views formed during the trial.
THE COURT: You are missing my point. My point is if he had said I believe this defendant is unwilling to concede that he has violated the law, that's a conclusion that he reached during trial. I'm only .. he couldn't have reached .. I'm only asking you to focus on what the public would think about the Newton Street comment or the comment that they're like drug traffickers.
MR. ROBERTS: Well, the judge, of course .. and a reasonable member of the public would see this .. was not saying that they're like drug traffickers in the sense of trafficking drugs. What he is saying is what was remarkable about this is their e.mails continued to convey a compelling evidence for the government's case even after they knew that their ..
THE COURT: He chose a particular metaphor. A metaphor is very powerful. The metaphor he chose was the one best devised that you can imagine, other than possibly the Holocaust, to indicate that Microsoft was beneath the payoff, beyond the payoff.
MR. ROBERTS: But that's missing how the analogy worked. The metaphor was ..
THE COURT: I understand logically completely how the analogy worked. He's talking about a specific comment. There's no problem about that.
MR. ROBERTS: A particular case that he had in which the same phenomenon had occurred, and he was referencing it, and that was all ..
THE COURT: What you're missing on the appearance was Judge Tatel's suggestion to you on the appearance. There are a number of things, just like there are a number of things that counsel surmise after argument, not all very good in their minds. It doesn't occur to you to go out and announce all of the things that you feel.
We have even higher standards. There are lots of things that we think and feel about advocates and parties during the course of a proceeding. It doesn't mean that we are entitled to say because those feelings developed during the course of a proceeding, we are going to run off our mouths in a pejorative way because there is an appearance problem. We don't do it for that reason. And the system would be a sham if all judges went around doing this. And Newton Street are killers. These are the worst kinds of drug dealer killers. That's what we are talking about.
MR. ROBERTS: Well, that was the basis of the metaphor. He wasn't analogizing ..
THE COURT: We have to be careful about metaphors that we use.
MR. ROBERTS: Of course. Of course. And that's ..
THE COURT: We can slip some in court because you are there to slap us back, question us or say you respectfully disagree. But when we do it in these other settings, the public has something at stake. It's the integrity of the system.
MR. ROBERTS: And that's why there's the canon of ethics, judicial conduct, 3A(6), that says you shouldn't do this. We agree that it shouldn't be done, but the difference is ..
THE COURT: Under your view, it's hard to see what role 455.A plays. I mean I can see .. let's just assume that these are totally inappropriate statements under the canons. You still have the 455.A.
MR. ROBERTS: Yes. You still have the show of bias or the appearance of ..
THE COURT: No, the appearance.
MR. ROBERTS: Yes, but there's nothing in the abstract about discussing the case publicly that shows bias for one side or the other.
THE COURT: Correct. That's absolutely right. Nothing .. you can have a discussion about it. That would be a neutral discussion. The example that I gave you. You know, these people just don't concede that they're wrong.
MR. ROBERTS: And the only thing that in an extrajudicial setting, and that's what we're dealing .. we are not dealing with the extrajudicial comments here because this reflects what the judge learned during trial. And what the Supreme Court said in Liteky, that those are not a basis for a bias or partial ..
THE COURT: It is extrajudicial in the sense that it's not in the courtroom subject to the opportunity of counsel to respond and to make a record on these subjects. And I have to ask you what possible legitimate reason .. if you are a member of the public and you are forming a impression as to whether the judge is biased or not, what possible legitimate reason could you assign to a judge going to media reporters and making derogatory comments about the parties to a lawsuit that had been tried in front of him unless the judge were biased against him?
He has the courtroom forum to do all of the legitimate things he needs to do to Microsoft or the government or the other litigant. What's the unbiased reason for a judge to go out .. to go in his chambers and hold secret conferences with reporters to say bad things about a litigant?
MR. ROBERTS: What Your Honor is suggesting is that it is improper to engage in that conduct.
THE COURT: In ex parte conduct? Yes, absolutely.
MR. ROBERTS: Of course.
THE COURT: Absolutely.
MR. ROBERTS: I'm not disputing that, Your Honor. And I began by noting that I ..
THE COURT: Isn't it likely that it's going to look to a member of the public as if this judge has some other axe to grind or he wouldn't be doing something that improper?
MR. ROBERTS: It is improper. I think that perhaps the best that can be said about it ..
THE COURT: It's beyond the pale. I mean that's what we are saying to you. It is so extraordinary. The ex parte contacts? It's so high is what Judge Sentelle is saying, how can anyone assume anything other than the worst?
MR. ROBERTS: Well, what is the assumption? The leap in logic that hasn't been filled in is because there was an improper discussion of the case in public, that somehow shows actionable bias ..
THE COURT: Raises an appearance of.
MR. ROBERTS: .. or appearance of lack of impartiality ..
THE COURT: We are not saying actual bias. Appearance.
MR. ROBERTS: .. toward one side or the other. That's different.
THE COURT: The one that he compared to the Newton Street Crew and the one that he accused of not being adept at business ethics would be likely the one he might be biased against.
MR. ROBERTS: When you get to the content .. and that is where if the discussion is going to be under 455, putting aside, no dispute that this is improper under 3A(6), if the discussion is under 455, then you have to show the deep.seated favoritism or antagonism that would make fair judgment impossible. And you don't show that if what the comments reflect are what the judge learned during the proceedings.
THE COURT: Give me an example of something he might have said that you would concede would be a basis for 455.A.
MR. ROBERTS: 455.A recusal would be a comment not drawn from the trial, starting before the trial. You know, I don't like big companies. If I get a chance, I'd like to break up any big company I can get my hands on. That would be bias. That would not be drawn from the experience of the trial. It would be something .. the prejudice the judge brought to the trial, not something he took from it.
THE COURT: Does it have to be after the completion of the trial that he makes the statements so that he's heard everything from both sides?
MR. ROBERTS: No. Of course not.
THE COURT: So if he makes the statement after hearing just from the government and says, well, this defendant seems to be like the drug dealers, and then maybe hears from the defendant later and changes his view, he has not given the appearance of bias?
MR. ROBERTS: No, not under the Supreme Court's decision in Liteky. They draw a sharp line between whether the judge is reflecting what he learned during the proceedings. And the integration example ..
THE COURT: They draw that line in a very explicit way. The fact of the opinion held by Judge Girard in court outside the judicial proceedings is not a necessary, underscored ..
MR. ROBERTS: Of course.
THE COURT: .. to provide for prejudice recusal.
MR. ROBERTS: Of course. You have to show that the content of the statement itself reflects actionable bias. The mere fact ..
THE COURT: What we said in Microsoft 1 was the facts might reasonably cause an objective observer to question the judge's impartiality.
MR. ROBERTS: And Microsoft 1 involved a decision; the judge on the Court of Appeals was basing his decision on a book, an extrajudicial source.
THE COURT: With all due respect to some of the ex parte contacts, we made it very clear in that decision it didn't matter whether the judge considered them. We said it was the fact of the ex parte contact that was so troublesome. That's the point that I'm so distressed about. You're not dealing with .. it was the fact; that's exactly what we said in Microsoft 1.
MR. ROBERTS: Your Honor, I'm not dealing with the fact of an ex parte contact because we don't dispute that the ex parte contacts were wrong. But what we do dispute ..
THE COURT: And gave an appearance, reached the appearance problem that we are concerned about.
MR. ROBERTS: The leap, again, that we don't think has been surmounted, is showing the discussion with the reporters or the public discussion after the trial was over show bias.
THE COURT: It seems to me you are confusing two things, Mr. Roberts, with all respect. We have a statute. It's 28 U.S.C., 144, that requires judges to step down for bias or prejudice. And it can serve as a basis for an action. That's one type of disqualification.
We are not talking about that here. What we are talking about is 455, Section 455, which is directly copied, word for word, except for one thing, from Canon 3. I don't know if you realize that. That Canon 3 came first, and then Congress enacted it in to law. So we are talking about a violation of Canon 3, and necessarily we are also talking about a violation of 455 because if it doesn't violate 455, there's no remedy.
Now, Justice Scalia, I think it was, wrote Liteky, and he said, "Recusal is required whenever there is a genuine question concerning a judge's impartiality." A genuine question. You don't have to show bias. Is there a question whether Judge Jackson was impartial? And these comments to reporters, and my colleagues are suggesting to you, raise a question about his impartiality. And if they do, then recusal was required.
MR. ROBERTS: This court established in the Barry case, and I believe in the Haldeman case as well, that a transgression of the canons does not establish a violation of 455.
THE COURT: Not necessarily.
MR. ROBERTS: Not necessarily establishes. Exactly.
THE COURT: The canons say that. I'm not suggesting otherwise. The canons say that. I'm suggesting to you that 455 is a copy of Canon 3. There is, you admit, a violation of Canon 3. If there is a gross violation of Canon 3, that the authorities also say that that can lead to a violation of the statute. You agree with that, don't you?
MR. ROBERTS: They're separate questions. It is certainly pertinent, I think, in assessing number 455 what the canons provide. But as the Barry case establishes, a violation of the canons does not automatically lead to a violation of 455.
THE COURT: I'm not suggesting it does. What about a gross violation of Canon 3?
MR. ROBERTS: It would depend on the connection. And the difference here is that the gross violation of Canon 3 is the public discussion, the ex parte contacts with the reporters and public discussion that. That by itself does not establish bias or a lack of impartiality. The clearest example ..
THE COURT: Does it raise a question of impartiality? That's the issue.
MR. ROBERTS: Well, you have to look at the content of the statements and determine the source of the statements. I guess the easiest example I can give is let's suppose a judge has an improper ex parte contact and what he says is this was a wonderful case. Both sides did a wonderful job. I have no other views about the merits.
Now, is that a violation of the canons? Yes, because he's not supposed to have any.
THE COURT: All you are doing is highlighting the gravity of the situation here because your hypothetical is not close to what happened.
MR. ROBERTS: No. Your Honor, with respect ..
THE COURT: We don't have to worry about it. He went on for hours and hours and hours in an ex parte contact with employers who were given access to chambers to hear his views and apparently to take some of their views on an ongoing case. It is nowhere near your hypothetical. We all agree it's only a voidable standard. We agree with that. But your hypothetical highlights the problem here. He's so far from anything that seems benign, that that's what we are concerned about.
MR. ROBERTS: No. The question, he did not go on for hours and hours and hours ..
THE COURT: The interviews went on for hours and hours.
MR. ROBERTS: They may have gone on for hours but the point is ..
THE COURT: You don't think that the public at large watching the system doesn't look at that and say good heavens, is that what judges do? They take preferred reporters in, and they will discuss with them what's going on in a case and listen to their views and take their views and reactions from the public and then show them all their notes? You don't think parties should be distressed about that?
MR. ROBERTS: And if that's all they know, will their conclusion be, well, he's therefore biased against defendant?
THE COURT: Appearance.
MR. ROBERTS: But the appearance is still .. the question is the appearance of partiality.
THE COURT: See, Mr. Roberts, I actually completely agree with you, and we may not totally agree up here, because I completely agree with you that repeated violations of the canons are not in and of itself a basis for 455-A recusal. I agree with you about that. He could have said what you said a hundred times, and it wouldn't have been a basis for recusal.
To me, the problem here .. and I also agree with you in your reading of Liteky, that is, that views acquired by a trial judge or any judge during the course of the proceedings can't be a basis for recusal unless they reveal deep seated in antagonism. I agree with that.
The problem I see here is the way in which he characterized his views about the defendants. When we are applying an appearance of impropriety standard, that's where I'm stuck. And that brings me back to phrases like the analogy to the Newton Street Crew and to the drug traffickers and to Bill Gate's ethics.
They may all have been ways of expressing .. his way of expressing his views gained at trial. And had they been stated in other terms, they might have been fine. But the words he chose, I just don't see how you get around the fact that the words he chose convey to the average member of the public bias. That's the problem.
MR. ROBERTS: My main point is again, Your Honor, it's the Liteky point, and a reasonable observer would have it take this into account, would be that this was not gained during the trial. The other part about it .. again, these handful of statements, and of course, one is too many, but the point is we are dealing with a discrete number, are not a basis for vacating findings of fact that are fully supported by the record. At each turn, the findings of fact ..
THE COURT: You say a discrete number of statements. Do you recall any case ever in which a trial judge made as many statements about ongoing litigation to reporters as Judge Jackson made?
MR. ROBERTS: No, Your Honor, I don't, but the ..
THE COURT: It may be a discrete number, but it's the biggest number that has ever occurred. We need to draw a line to exclude anything.
MR. ROBERTS: As I said, any one of them, of course, would have been too many. But the findings of fact are fully supported in the record.
THE COURT: Let me ask you .. excuse me. Go ahead. Finish your sentence.
MR. ROBERTS: I was just going to say there are two separate questions: whether the judge's conduct was proper and whether or not the judgment should be vacated. Those require separate analyses. We believe the findings of fact are exhaustively supported by the record. The fact that the judge may have ..
THE COURT: The standards we reviewed for the findings of fact that we discussed some yesterday involves affording a presumption of regularity to the judge's findings. If the judge is not an unbiased trier of fact, those would be the underpinning for us applying clearly erroneous standards to the findings of fact evaporate.
MR. ROBERTS: And this is where the Liteky point becomes critical because if the bias is something the judge brought to the proceedings, yes, then you would wonder whether the findings of fact were entitled to the differential standard of review. But if under Liteky what the comments reflect are what the judge learned during the trial, then there is no basis for doing anything other than affording them the traditional, clearly erroneous standard.
THE COURT: Mr. Roberts, what about the remark made to Auletta, "What I want to do is to confront the Court of Appeals with an established factual record which is a fait accompli, and any part of the inspiration for doing that is that I take mild offense at their reversal of my preliminary injunction in the consent decree case." So he shares with us part of his purpose in writing the findings of fact which you say are well supported, and maybe they are.
MR. ROBERTS: Well, what I understand that to be is an explanation for the separation of the findings of fact from the conclusions of law, which to me is no pertinence whatsoever. It doesn't make the findings any more supported or any less supported. We encourage ..
THE COURT: I would have thought your answer would have been of course he's upset at getting reversed. No one likes to get upset .. get reversed, and that doesn't show bias.
MR. ROBERTS: No. Well, that's also a good answer.
THE COURT: I don't like getting reversed either.
MR. ROBERTS: What this court said in the Southern Pacific case when it was confronted with the situation where the allegation of bias was made, and the argument was therefore do something other than apply Rule 52.A, the clearly erroneous standard, is the court said no, the standard is the same. We will apply it with painstaking care.
Now, we encourage the court to apply the clearly ..
THE COURT: What did you just say I said in Southern Pacific? I'm sorry.
MR. ROBERTS: You rejected the argument that you should alter the standard of review, but you said you would examine the findings of fact with painstaking care.
THE COURT: I think I said prospectively. This case is not like one I'll see in what, five years?
THE COURT: They're not close.
MR. ROBERTS: What we would encourage the court to do is to examine the findings of fact with painstaking care because we are confident when the court does that, it will find that the record fully supports each of the District Court's findings.
THE COURT: If we are affording the presumption that an unbiased trier of fact has made these findings, and it is a rational to say if there is evidence to support that finding, then we must uphold it. If we do not indulge in a presumption of impartiality on the basis .. on the part of the finder of fact, then it's no longer rational to subject it to that painstaking review. If there are disputed questions of fact, why is the one chosen by the trier of fact entitled to deference anymore he's not an unbiased finder of fact?
MR. ROBERTS: Your Honor, again, the question is whether the statements show views gleaned from the trial, in which case you would expect them to be consistent with the findings of fact, or ..
THE COURT: Would it be your position then or am I misstating it to say that in order to change the standard of review on findings of fact, there must be evidence of actual as opposed to an appearance of bias?
MR. ROBERTS: I don't think changing the standard of review for factual findings is in the cards. I think Southern Pacific answers that.
THE COURT: Setting it aside might be. Setting aside the judgment might be right.
MR. ROBERTS: If bias is found, and if bias from before the proceedings, not from the proceedings, is found, that is an option for the court, but ..
THE COURT: Mr. Roberts, you are constantly saying that you have to find bias. And I don't think that's the law.
Let me give you an example. Let's suppose that I were sitting on a case, and it just so happens that my best, closest, personal friend was you. Now, that creates an appearance of impropriety. I should recuse myself if we have a very close social relationship. And there are rulings by the Codes of Conduct Committee so stating.
But I don't have a bias about the case. I just created an appearance of impropriety. I've created an appearance of lack of being the neutral judge, in Burke's word, the cold neutrality of an impartial judge. It's the appearance that I have created. I don't have an actual bias.
The question here is what kind of an appearance for the public did Judge Jackson create? Not whether he was actually biased or not. In fact, I almost agree with you that if everything he said to Mr. Auletta and the other people he said in open court, that I don't think a motion under 144 to disqualify him would stand.
That's the point you keep making. I think you're probably right about that. But the point you keep avoiding is what kind of an appearance did he create.
MR. ROBERTS: I think you do have to separate the questions. What is objectionable about the appearance? Is it ex parte contacts, public statements while the matter is proceeding, or is it that those statements show bias and impartiality? I think those are two different questions.
No one is disputing the transgression with respect to the canon of ethics against the public comment, but that's very different from saying that creates an appearance of partiality as opposed to an appearance of violating the canons for lack of discretion.
THE COURT: Let me cover Judge Randolph's question a different way. I've been thinking for the last 15 minutes about your answer to my question about an example of a violation of 455.A. And the one you gave was a judge who says I'm against breakups; right? MR. ROBERTS: I think the judge in this case said I am in favor of breakups.
THE COURT: Well, either way. That's an example of a judge being biased. The question we have to apply here is the appearance of bias. That's where we're disagreeing. You gave an example of an actual bias.
MR. ROBERTS: Well, an appearance .. I suppose it's difficult to imagine ..
THE COURT: Well, of course. I mean if somebody is absolutely biased, they're going to appear biased. The Newton Street Crew is a different kind. Your theory of 455.A doesn't seem to account .. at least, I haven't understood how you account from your theory of 455.A for the difference between a case of an actual bias and a case where the judge is not at all biased, as I'm willing to assume here, but may appear to be biased. You just haven't gotten me there yet.
MR. ROBERTS: Well, again, with the Newton Street Crew, I don't think a reasonable observer is going to say the judge thinks these people are drug dealers. They're going to say the judge gave a very specific ..
THE COURT: Give me an example then of a case .. let me ask you my earlier question. Give me an example of a 455 .. of a judicial statement that is not an actual bias but that you would concede gives the appearance of bias.
MR. ROBERTS: I mean, the judge complaining that he can't get his computer to work and suggesting that the fault is with the company. That wouldn't show that he's unable to evaluate the merits of the case, but to an observer, it might suggest that it would. It's hard to imagine, other than the personal relationship type of thing that Judge Randolph was talking about, where there would be an appearance. But again, the overriding point is there's a different question between the propriety of the judge's conduct and the validity of the judgment based on the findings of facts. That distinction needs to be kept in mind.
THE COURT: Do you have a position on the court's suggestion in Liteky that there's a laxer standard under 2106 for removal of the judge going forward?
MR. ROBERTS: Well, certainly there is a laxer standard. This court has in the past applied a .. remanded a case to a different judge, even in a situation where it has rejected a finding of bias. And that is a matter of institutional control rather than the judicial code.
THE COURT: Would the government take a position on whether we should put a different judge in charge if we remand this case?
MR. ROBERTS: Our position is that you should not remand it to a different judge for the reasons we have said. We don't think that the ..
THE COURT: Even forward looking, you would still go with this judge having these comments.
MR. ROBERTS: Because we don't think the comments show bias, and there are serious institutional costs ..
THE COURT: I understand that you were not the attorney at the trial stage here. But suppose the judge had said, you know, after watching Mr. Roberts' conduct during this trial, I think he is technically a very good lawyer but not real adept at legal ethics. Would you feel that you could get a fair trial going back before that judge?
MR. ROBERTS: As the lawyer appearing before the judge, I think it would be different than a discussion about the clients.
THE COURT: But you do think it would raise at least an appearance of bias towards you, do you not?
MR. ROBERTS: The judge commenting on the lawyers's ethics in that manner? Yes.
THE COURT: Here it is the parties' ethics. Should the party be less sensitive to bias than an attorney so that the parties should think I can get a very fair trial? There's no appearance of partiality or bias against me by a judge who questioned my ethics?
MR. ROBERTS: The comment reflects exactly the findings of fact of a violation of the Sherman Act by the judge based on the evidence that he saw.
THE COURT: I think you are back to wanting us to require reality as opposed to an appearance of bias when you make that response to me.
MR. ROBERTS: Well ..
THE COURT: Well, I'm not sure that I see how you can with a straight face ask us if we remand, to send it to the same judge after these comments.
MR. ROBERTS: We don't think that the comments show bias, and we don't think .. although they show transgression of the canons, they don't show bias or lack of impartiality. And that is an important distinction.
THE COURT: All right. Thank you.
MR. ROBERTS: Thank you, Your Honor.
MR. UROWSKY: I have just a couple of points, Your Honor. In response to what Mr. Roberts said, I guess I have two points. One, I don't take Liteky to mean that a judge who receives information in the course of a proceeding is then free to speak about impressions he's drawn about litigants in an extrajudicial context. So it really doesn't make any difference if the judge's views derived from presiding over the case.
Second, in regard to the notion that the comments made by the judge don't reflect bias, they certainly could be misinterpreted by a reasonable person, and that was central to the First Circuit's holding in Boston's Children.
THE COURT: Let me ask you just one question about Liljeberg, which you used as a prototype for regressive or backward.looking relief. Had not the parties in that case made the motion to the judge below to set aside that you didn't make in this case?
MR. UROWSKY: Not initially. It's a bit complicated. What happened was the judge did not disclose ..
THE COURT: The word didn't get out until after judgment.
MR. UROWSKY: Until after this judgment had been affirmed on appeal.
THE COURT: Right, right, right. That's correct. But there was a motion in the District Court before the question of setting aside came from the Court of Appeals. That motion had been made in the District Court, had it not?
MR. UROWSKY: That is the only place that motion could have been made, I think, because the case was back in the District Court.
THE COURT: Nonetheless, you haven't made any attempt at any point to get any relief from the District Court based on your present belief.
MR. UROWSKY: Well, I don't think that at this point we can go to the district ..
THE COURT: So the force of Liljeberg as a precedent is a bit .. I'm not saying isn't on your side, but it isn't compelling even if it were a controlling case.
MR. UROWSKY: Well, I think it's compelling in this respect. It holds, among other things, that a judge has under 455.A, has an independent obligation to disclose to the parties disqualifying circumstances.
THE COURT: I'm simply wondering about the breadth of the relief. I'm not asking you to give any ground on the propriety of some relief.
MR. UROWSKY: I'd like to address that as well, because I think I may have been a little bit of a failed advocate in trying to respond to some of Judge Tatel's questions.
Having had a moment to think about the questions Judge Tatel raised about the timing of the statements, I come to the conclusion that that is not really .. ought not to be the crux of the issue.
The question is whenever the statements were made, do they create the appearance that the District Court was not impartial and the making of the statements even subsequent to judgment while this case was pending in this court would create the impression .. have created the impression on the part of the public that the judge was not impartial. And that is the rule of law, I think, that has to be applied here. THE COURT: Thank you.
THE COURT: When was the .. when was the date of the final judgment?
MR. UROWSKY: It's June .. it's the first week of June 2000.
THE COURT: How soon thereafter did you file a notice of appeal?
MR. UROWSKY: Five or six days.
THE COURT: Once you file a notice of appeal, Judge Jackson loses jurisdiction, does he not? MR. UROWSKY: That's correct.
THE COURT: And so unless you had enough information from reports .. and when was the New Yorker article?
MR. UROWSKY: That's considerably later, and the Auletta book is considerably after that.
THE COURT: So that once you filed the notice of appeal, the District Court loses jurisdiction, and the District Court therefore lost jurisdiction within five days of the judgment.
MR. UROWSKY: That's correct, Your Honor.
THE COURT: When were the first extrajudicial statements recorded?
MR. UROWSKY: As far as we know, the first statement was the one that Judge Tatel adverted to earlier about I'm not a great fan of integration, and that was made prior to the ..
THE COURT: When was it reported?
THE COURT: We know the interview was right before the findings of fact; right? Shortly before it.
MR. UROWSKY: I'm sorry, I didn't remember in the moment myself. My colleagues tell me the fall of 2000.
THE COURT: Fall of 2000.
THE COURT: What I think your response to my questions doesn't account for, and maybe you can explain it, is the Liteky principle that a judge .. that the views formed by a judge during trial cannot form a basis for recusal unless they reveal deep.seated antagonism. And so we have to be careful to make sure that the views we are considering as a basis for 455.A are views that were not appropriately obtained during the trial, don't we?
MR. UROWSKY: No, I don't think so.
THE COURT: Otherwise, you are eliminating that immunity.
MR. UROWSKY: No, I don't think so. One of the bases, as I understand it, for the First Circuit's decision in Boston's Children is the ease with which public statements of the nature made by the judge in that case and by the District Judge in this case can be avoided. And the problem is whether the views are derived from experiences presiding over the case or not. Once resort is had to the public media ..
THE COURT: See, now you are suggesting an automatic rule: Any public statement is a basis for recusal. And that's certainly not right.
MR. UROWSKY: Well, any public statement of a derogatory nature of this degree I think is unquestionably a violation of 455.
THE COURT: Your time is up, Mr. Urowsky.
MR. UROWSKY: Yes. I would like to thank the court for permitting me the honor to address it yesterday and today.
THE COURT: Before we adjourn, I'd like to thank the parties for the fine efforts in presentation, for your cooperation in submitting the CD.Roms which were immensely useful to us in trying to analyze the case. I think you understand that the court has worked very, very hard to try and get a grasp of the case and deal with the issue seriously. It is a matter of great import. We take it very seriously and will do so as we consider it.
I would like to thank all sides for their efforts to assist us in our job. The case is submitted. Thank you.
(At 1 p.m. the proceedings in the
above.entitled matter were concluded.)
Official Transcript 249