Courts & The Administrative State

WWS 521 Domestic Politics Charles Cameron Professor of Politics and Public Affairs Woodrow Wilson School of Public and International Affairs Princeton University

Many of the slides used here are actual or modified slides created and copyrighted by Professor Daniel Diermeier.

Outline

Introduction to the Administrative State Rule of Law in the Administrative State Pivots & Proposers The Microsoft Case

Rise of the Administrative State

Familiar story hardly needs to be told Late 19th century Federal govts major expenditure: pensions for Civil War widows & orphans State & local govts primary, modest police powers

Transformation

Role of War & Crises

WWI, Depression, WWI Almost unimaginable transformation of the powers of the federal govt Growth of a vast bureaucracy Relative eclipse of state govt Huge increase in the importance of federal courts

Results:

Why?

Rule of Law in the Administrative State

Constitutional Crisis

Role of Bureaucracy in the Constitution

None

Dilemma: How to create democratic accountability (and competence) in a new branch of govt

A Need to improvise a missing portion of fundamental

A Solution (Of Sorts)

Administrative Procedures Act (1946)

Tries to bring order to improvised FDR improvisations

Emphasis upon procedures

Agencies can issue regulations with the force of law IF they follow the correct procedures Oversight of agencies by federal courts (esp. the DC Circuit)

Thus, expansion of federal judicial authority

Analyzing Agencies & Courts

Basic Tool: Pivot Model

1.

2. 3.

Sequence of Play Agency (= President [but see next week]) moves first, issuing regs Court reviews regs Congress may pass law
1.

Important role of committees w/ gate-keeping

4. 5.

President may veto bill Veto pivot over-rides or sustains

How to Analyze This?

Use open & closed rule analysis [like before] Start at end, use backward induction up the game tree [like agendas]

An Example

A Critical Issue: What Will the Court Do?

Must see if agency followed proper procedure Possible check of substance in light of legislation A pronounced tendency for Rep judges to rule conservatively, Dems liberally

What this means depends on who controls the bureaucracy + possible Congressional action But, Principal-Agent analysis within circuits, and from Supreme Court [cant get too far out]

Judge Coffin and the Drug Company

Microsoft Case

Microsofts Antitrust Case

In 1997 the U.S. Department of Justice (DOJ) files a civil antitrust case against Microsoft Initially the case was limited to a violation of the 1994 Consent Agreement between DOJ and Microsoft , but later broadened DOJs case was based on section 1 and 2 of the Sherman Act. Section 1 prohibits tying (usually a per se violation) provided that tying (i.e. Windows) and tied (i.e. browser) products are separate products The party imposing the tie has enough market power in the tying product market to force the purchase of the tied product. A not insubstantial amount of commerce in the tied product is affected. Section 2 prohibits unlawful monopoly. The DOJ must show that: Microsoft has monopoly power, and that Microsoft willfully acquired or maintained power through anticompetitive acts. A complicating issue is the aspect of leveraging (just getting a better competitive position is not sufficient for a violation)

The District Court Judgment

In the Fall of 1999, Judge Jackson issued his Rulings of Fact damaging findings and harsh condemnation of Microsoft among other things Microsoft is found a monopoly - may lead to private anti-trust suits Rulings of Fact are hard to overturn on appeal Microsofts stock-price hardly moved

In June 2000, Judge Jackson approves the submitted remedies by DOJ and state attorney generals Main proposal is to break up Microsoft into two companies (operating system and everything else) plus temporary conduct remedies Microsoft vows to fight on without any admission of guilt. Files appeal

The Nonmarket Strategy of Ms Rivals

Microsofts rivals used the nonmarket environment to erode Microsofts competitive advantage Broad coalition of nonmarket rivals (IBM, AOL, Netscape, Sun,) Use of multiple arenas

DOJ (proposer of lawsuit) Senate committee (hearings; oversight of DOJ) Courts (testimony) Public opinion (public statements, media campaign; Bill Gates in The Simpsons) In the summer of 1996, Netscape sponsors 222-page white paper that forms basis of DOJs suit. Roberta Katz, former Netscapes General Councel: My whole approach was to get to the point where they really understood what was going on. After that, if the government did anything or not was obviously up to them.

Informational lobbying

Using Public Agents in Legal Strategies

President

Attorney General

Congress

Courts

The Nonmarket Strategy of Microsoft

Microsoft underestimated amount of threat

Gates in June 1995: Antitrust Thing will blow over.

No screening of internal memos for antitrust compliance (in contrast to Intel!)

Some of the most damning evidence against Microsoft are its own emails and memos (even after trial began!) E.g. in Jan. 1997 James Allchin (senior exec in charge of Windows) suggests that Microsoft should leverage Windows more.

Microsoft pursues very aggressive strategy without any admission of guilt

Makes settlement unlikely Eliminates all remedies that rely on cooperation Gates testimony, doctored video

Many missteps in court room (credibility!)

No effective counterstrategy in other arenas (hearings, public opinion) No integration of court strategy with other strategy components.

Microsoft Strategic Shift

Integration of political, legal, and media strategy Political Strategy Key objective: change in presidency Campaign contributions

In 2000, Microsoft gives $4.3 million to both parties (making it the second-largest political donor after AT&T) Microsoft political donations increased 20-fold over 1996 Bush Campaign Congress secretly hired Ralph Reeds consulting firm during the Bush presidential campaign (Reed served as a senior advisor to the campaign) as well as other top lobbyists (for about $4 Mill.)

Lobbying

Microsofts Media Strategy

Media Strategy Commissioned polls showing that most Americans oppose the breakup of Microsoft Invested in heavy advertising to show that Microsoft is a good corporate citizen (the Bill and Steve commercials showing how much software they are giving away for free to school, etc.) Donated millions of dollars to think tanks including Americans for Tax Reform and the Cato Institute Funded two new groups: the Association for Competitive Technology and the Freedom to Innovate Network, both of whom release pro-Microsoft research.

Microsofts Legal Strategy

Legal Strategy Microsoft launched every appeal possible even if legal merit is questionable (particularly the appeals to the Supreme Court) All of these appeals and delays gave it valuable time to make the other parts of its strategy work

The Appeals Court Decision

In 2001, U.S. Court of Appeals issued the following findings:

Monopoly finding in operating system market upheld No monopoly finding in the browser market Returned the issue of tying to the District Court changing the legal standard to be applied (no discussion of the merits) From per se to rule of reason Disqualified trial judge for interviews with media and offensive comments about MS; the Court of Appeal held that these comments did not affect the judges finding of fact or conclusions of law.

The Microsoft Case Outcome

On September 6, 2001, the DOJ announced:

The DOJ was no longer seeking a breakup of Microsoft; and The DOJ was no longer pursuing its tying claim against Microsoft (the strongest claim and most concerning to competitors)

On November 1, 2001, the DOJ announced that it had reached a settlement with Microsoft. On November 6, 2001, nine states (including Connecticut, California, and Utah) reject the DOJ-MS agreement On November 1, 2002 the new district court judge Colleen Kollar-Kotelly upholds the settlement (except for minor changes)

Microsoft has already complied with the 2001 settlement Microsoft immediately implements minor changes required by judge

New Challenges

The EU antitrust department has started MSs business practices including the XP system Microsoft is eager to settle Future of private antitrust suits and future challenges is uncertain