State Prosecutors Vow to Press Ahead With Microsoft Case

The stock has risen on hopes of a Bush win, though states say they'll press on with their antitrust action.
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Though little of political import seemed clear and much possible Wednesday, state prosecutors vowed to press their case against

Microsoft

(MSFT) - Get Report

with or without the

Justice Department

.

"We won't stop unless the courts tell us we can't go any farther or Microsoft would agree to something, provided they would change the way they use their market power," said Tom Miller, attorney general of Iowa and a leader of the working group of states in the antitrust case. The states "won't stop, no matter how the results of the election come in, no matter when the results of the election come in."

Even under a new conservative administration led by Republican

George W. Bush

, the notion that the Justice Department would drop the case seems unlikely, even ridiculous, legal scholars and prosecutors said.

But the election results could affect the long-running case in myriad ways, and as the uncertainty only grew after the polls closed, prosecutors briefly considered some less ridiculous possibilities. After all, even though

Al Gore

, the Democratic candidate, has never been personally identified with the lawsuit, his predilection would likely mirror his predecessor's, said Richard Blumenthal, attorney general of Connecticut.

"There's no way they can drop the case," Blumenthal said, referring to his federal partners in the case. "They can modify their view of the remedies. The resolve is very emphatic that the states would continue to pursue the case no matter what happens to the Department of Justice."

On Wednesday, shares of Microsoft closed down $1.06, or 1.51%, at $69.44, below the 52-week high of $119.94, but well off the year's low of $48.88. William Epifanio, an analyst for

J.P. Morgan

, said some institutional investors may have been buying Microsoft stock in anticipation of a Bush victory, contributing to the stock's recent rise.

The long-running antitrust case is currently before the

U.S. Court of Appeals for the District of Columbia Circuit

, which has set oral arguments for Feb. 26 and 27, more than a month after the new president's inauguration on Jan. 20. Written arguments are set to continue until then.

On June 7, District Judge Thomas Penfield Jackson ordered that Microsoft be split in two and placed restrictions on its business practices to remedy antitrust violations. He subsequently stayed both remedies. The breakup ordered by Jackson would place the Windows operating system in one company and create a second business for everything else.

The states have vigorously pursued a more aggressive remedy than federal prosecutors have sought.

"Nothing that I saw for the state part of the elections yesterday suggests that the key states are going to retreat from that position," said Bill Kovacic, a professor at the

George Washington University Law School

, referring in particular to results in Connecticut, New York, California, Wisconsin and Iowa. Kovacic said he has scoured antitrust law back to 1890 and failed to find a case where the federal government won at trial, then abandoned the case.

If Bush won the election and ordered the case dropped, "it would reinforce at a very early point in the administration suspicions that the president and his attorney general are not going to enforce the law," Kovacic said. "Of all the ways to spend political capital, that's not a good one."

Discounting cases where the government won at trial, there is some precedent for a new administration dropping a long-running antitrust case. In 1982, a year after the election of Republican President

Ronald Reagan

, the new antitrust chief, William Baxter, dropped a case against

IBM

that had been filed in 1969 on Democratic President

Lyndon Baines Johnson's

last business day in office.

And the states have reason to believe they can take a major antitrust case to the Supreme Court without federal prosecutors and win: In 1993, the Court ruled in favor of state prosecutors in a case against

Hartford Fire Insurance Company

.

The makeup of the Supreme Court itself could affect the case. Many legal scholars think five current justices would likely be sympathetic, including two, Chief Justice

William Rehnquist

and

Sandra Day O'Connor

, who would likely retire before hearing a case against Microsoft, Kovacic said.

Microsoft, long a wallflower at the Washington fundraising dance, has attempted to influence the political process more this year than ever in its 25-year history.

It led the tech industry in political contributions, giving more than $2.2 million to political parties and candidates so far this election cycle, split almost evenly between Democrats and Republicans. The company donated $417,350 in soft money, including $316,000 to Republicans, during the first three quarters of 1999, according to an analysis of

Federal Election Commission

data by the

Committee for Responsive Politics

.

And with that election nearing a conclusion, some investors are betting on a Bush win. But even if those bets prove accurate, "I don't see how the states, given where they are now, could compromise with a Bush administration," said Robert Litan, a former Justice Department official who is now the director of economic studies at the

Brookings Institution

, an independent Washington policy analysis organization. "There's as many balls up in the air on this as there are on the outcome of the presidential election."

Adrienne Sanders contributed to this report.