THE BELTWAY AND BEYOND

Microsoft ruling will have little effect on feds

Stephen M. Ryan

What impact will U.S. District Judge Thomas Penfield Jackson's powerful and detailed findings of fact in the Microsoft Corp. antitrust case have on federal and state government buying practices?

At this writing'absent a change in policies and practices in the government market'I am willing to speculate that the answer is: not much.

Sen. Orrin Hatch (R-Utah) is more responsible than any other person for the Justice Department taking up the antitrust charge against Microsoft. His hearings created a climate in which assistant attorney general Joel Klein and his Justice colleagues gained bipartisan congressional support for their attack on Microsoft.

Ed Black, executive director of the Computer and Communications Industry Association, also helped the Justice cause. He carved out an anti-Microsoft coalition and made his trade association an ally of the department.

But the government is like most other consumers. It has little practical choice but to continue to buy large volumes of Windows and other Microsoft products. After all, what is the alternative? The government might have more Unix boxes than anyone else, but buying Microsoft Windows, Office 2000 and, soon, Windows 2000 is likely to continue unabated. Microsoft has built a capable marketing juggernaut and will continue to be successful at what it does best.

If anything, public policy will force more change on Microsoft than the market will. The Redmond, Wash., company will likely need to worry about proposed changes to Federal Acquisition Regulation rules covering contractor responsibility, labor relations and the cost of legal and other proceedings.

Known informally as the blacklisting regulations, the draft rules, published in the July 9 Federal Register, were proposed by NASA, the Defense Department and the General Services Administration.

In reality, the proposed changes arose from a union-inspired initiative that Vice President Al Gore has been pushing. The changes would give contracting officers broader powers to determine whether a contractor is responsible.

This determination is the legal prerequisite for obtaining a government contract. The premise of the regulations states that the federal government should not enter into contracts with contractors who do not comply with the law.

Fine print

Sounds innocuous, but the devil is in the details. Look carefully at the proposed rules, and you will see that an antitrust law violation is one of the grounds a contracting officer could use to deny a contract.

Let's assume for a minute that these blacklisting regulations come into effect'still an unlikely assumption given the array of institutions opposed to them. The regulations merely require a contracting officer to ferret out substantial noncompliance with antitrust laws.

Legally that's a somewhat squishy standard. But Jackson's findings of fact would seem to make Microsoft meet the standard quite nicely.

So, does the possibility exist that a contracting officer would impose his or her own remedy and deny Microsoft a contract?

I don't think so, and I would be surprised if any contracting officer were willing to stick his neck out that far. Even if the blacklisting regulations become official policies, I doubt they would be applied to Microsoft. The company certainly doesn't want to take a chance and find out, so it will probably join the myriad corporate players fighting the proposed FAR changes.

But Microsoft will have to be careful. Its lobbying activities have raised eyebrows on more than one previous occasion'for example, when the company reportedly made a run at getting Congress to cut Justice's Antitrust Division budget. That prompted a serious backlash.

The New York Times on Nov. 7 published a comment by an unidentified prosecutor that even the Mob doesn't try and whack a prosecutor during a trial. Perhaps some buyers would construe the lobbying as rendering Microsoft irresponsible.

Stephen M. Ryan is a partner in the Washington law firm of Manatt, Phelps and Phillips. E-mail him at Sryan@Manatt.com.

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