Letter Regarding Antitrust Division Improprieties.
From: Senators Jeff Sessions, Spencer Abraham, and John Kyl.
To: Janet Reno.
Date: July 14, 1998.
Source: Office of Sen. Jeff Sessions. This document was created by scanning a fax copy, and converting it to HTML.

United States Senate
WASHINGTON, DC 20510

July 14, 1998

The Honorable Janet Reno
Attorney General
U.S. Department of Justice
Washington, D.C. 20530

Dear Madam Attorney General:

It has come to our attention that over the last six months - and with increasing frequency in the last eight weeks - officials of the Antitrust Division have effectively been lending support to efforts by foreign governments to use their antitrust laws against Microsoft. We recognize that some cooperation among the numerous antitrust enforcement authorities around the world can be important to accomplishing legitimate U.S. antitrust goals. It does not appear to us, however, that the antitrust division's activities abroad are designed to further any of these. Accordingly, we believe that they may instead be designed to relitigate issues that the antitrust division has either lost or anticipates losing before the U.S. courts regarding whether Microsoft's conduct has been beneficial to U.S. consumers. That does not appear to us to be a legitimate activity for the antitrust division to be pursuing abroad. We also do not think it is acceptable for the Department of Justice to encourage legal actions or even threats of legal actions by foreign countries to pressure an American company to enter into a settlement in a United States legal action. Historically, consultation/coordination between the U.S. Justice Department and Federal Trade Commission and their counterparts in foreign jurisdictions has fallen into four categories:

First, when one country is investigating the citizens/residents of another country (or actions that transpired in another country), consultation tends to reduce frictions and facilitate fact gathering.

Second, when the U.S. obtains evidence of antitrust violations that were perpetrated by foreign companies or that occurred in another county, the U.S. will often alert the appropriate authorities in that country.

Third, at times, the laws of a number of jurisdictions may lead to the investigation of the same conduct. Consultation and coordinating may serve to reduce friction and, in some cases, the burdens on the parties being investigated.

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Lastly, the U.S. enforcement agencies also have discussions with their foreign counterparts concerning general enforcement policies (for example, the analysis of joint ventures, intellectual property licensing, etc,) and techniques. Lawyers and economists from Justice and the FTC continue to expend considerable time training the investigators in such countries.

Therefore, it is impossible to see how the antitrust division's activities abroad with respect to Microsoft advances any of these goals.

Regardless of the conclusions that the Department has reached concerning Microsoft's conduct, as of yet no court has found that Microsoft has violated the antitrust laws; to the contrary, the recent decision by the U.S. Court of Appeals for the District of Columbia Circuit has raised serious questions about the validity of the Department's antitrust suit against Microsoft. Nevertheless, one of the consequences of the filing of the suit has been to impede Microsoft's ability to export its software products abroad. We understand that, since the filing of the suit, fully fifteen percent of the time of Microsoft sales personnel in many overseas markets has been spent answering questions about the Department's lawsuit and attempting to alleviate concerns that the lawsuit might in the future undermine Microsoft's continued reliability as a supplier. In some cases, the uncertainty created by the suit has resulted in potential foreign customers questioning whether they should avoid buying Microsoft's products and instead purchase software from a foreign competitor who is under no threat from its own country's antitrust enforcers.

While such negative collateral effects on U.S. export trade may be inevitable when U.S. antitrust authorities attack a major U.S. exporter, it is hardly inevitable for U.S. authorities explicitly or implicitly to encourage foreign antitrust authorities to begin "me too" investigations of such a U.S. exporter.  Such encouragement is particularly perverse when the resulting foreign investigations may have the effect of protecting local industry against U.S. export competition.

Situation in Japan.  For example, after a visit from Assistant Attorney General Klein, the Japanese Fair Trade Commission ("JFTC") launched an unusual and unfair raid on Microsoft (notwithstanding the company's stated willingness to cooperate with the JFTC) in an investigation which appears designed to protect the dominant Japanese publisher of word processing software from, the competition of Microsoft's Japanese version of Word.

In late October 1997, an official for the JFTC stated that his agency would undertake a review of Microsoft's business activities in Japan. Shortly after reading this account in the press, Microsoft contacted the agency, arranged a meeting, provided information about its business in Japan, and offered its full cooperation to answer any questions and provide any [begin page 3] information the JFTC might wish to address.  In late November, at the company's request, Microsoft met with representatives of the JFTC to provide information and to convey Microsoft's availability to cooperate with the JFTC should it require more information. JFTC officials thanked Microsoft for its offer to cooperate and assured the company that the matter was only in a stage of preliminary review, confined to the agency's international division.

After the JFTC-Microsoft meeting, Assistant Attorney General Joel Klein traveled to Tokyo during the first week in December, where he met with the JFTC's most senior officials. Throughout December and the first half of January, the JFTC refrained from asking Microsoft for any information whatsoever. Then, on January 13, 1998, the JFTC sent over 20 of its inspectors to execute a so-called "dawn raid!' at Microsoft's Tokyo offices, where these officers confiscated thousands of pages of documents from Microsoft. These officers searched for information relating to the company's competition with Netscape in Japan, as well as Microsoft's competition with Japanese software companies. The officers confiscated the originals of Microsoft's documents, even including agenda planners and telephone directories for Microsoft personnel. Only after several weeks of negotiation did the JFTC permit Microsoft to make photocopies of some, but not all, of its own documents that had been confiscated, and even then the JFTC required that the company bring its own photocopiers to the agency's offices. Since the seizure in January, the JFTC has spent over six months interviewing personnel from Microsoft and from Japanese computer manufacturers and Internet service providers regarding the allegations against Microsoft.

Despite the Japanese government's raid, and in contrast to the U.S. government continued attack, a senior Japanese government official recently indicated that Japanese antitrust authorities do not challenge Microsoft's integration of Internet browsing capabilities into Windows 98.  However, the JFTC is continuing its ongoing investigation against Microsoft to assess the company's competition with a Japanese company whose word processing product competes with the Japanese version of Microsoft Word.

The possible link between U.S. government officials and the Japanese government's aggressive investigation of Microsoft is noteworthy, given the broader trade and economic policy issues that U.S. officials are pursuing with the Japanese government. At a time when the overall U.S. trade deficit stands at $181 billion, and the U.S. trade deficit with Japan alone exceeds $55 billion, Microsoft is one of America's most successful companies in the Japanese market.

The JFTC's aggressive investigation of Microsoft stands in stark contrast to its review of other matters, where U.S. companies have complained about their lack of market access in the face of entrenched positions by Japanese enterprises. One such example is the bidding process for public works projects in Japan. Last year, a former executive of Nishimatsu, a [begin page 4] major Japanese general contractor, confessed that general contractors in the Kansai area had committed more than 800 cases of collusion in bidding for public works projects. He even submitted evidence to the JFTC of such collusion. However, it took the JFTC seven months to begin investigation of the matter. Just a few days ago, the JFTC issued a "warning" to the contractors not to engage in collusive behavior, but did not take any formal enforcement action against any of the construction companies because "there was not sufficient evidence to prove the collusion." Notably, the JFTC did not conduct any unannounced "dawn raids" at the general contractors' premises like it had conducted at Microsoft's offices.

Brazil.  Perhaps even more alarming than the situation in Japan are public remarks of Department officials to the antitrust authorities in Brazil, a country that in the past has sought to bar U.S. software companies from exporting there. On May 20th in Brasilia, Russell Pittman, Chief of the Competition Policy Section for DOJ's Antitrust Division, spoke publicly about the Department's action against Microsoft. The audience for these comments included numerous senior governmental officials and staff members responsible for antitrust enforcement in Brazil, including the Ministry of Justice's Secretariat for Economic Law (SDE), which investigates complaints, and the Administrative Council for Economic Defense (CADE), which reviews the SDE's findings.

Dr. Pittman described at length the Department's various actions against Microsoft, including the present case relating to Netscape. After making these comments, Pittman quipped that because Microsoft "behaves like an arrogant monopolist, even acting arrogantly in its relations with the antitrust authorities, it will receive from these agencies what it deserves." It is hard to see how these kinds of comments by a senior U.S. government official, criticizing a prominent U.S. company to foreign regulatory officials, in any way serves the best interests of U.S. consumers or the U.S. economy.

Responding to rather questions, Pittman, endorsed a suggestion by the Chairman of CADE that there should be broader international cooperation among antitrust agencies in the investigation of important cases. Pittman cited the working relationship between European and U.S. antitrust agencies, adding that "while Microsoft had initially endorsed the collaboration, the results of the collaboration were not as beneficial to Microsoft as it had initially expected."

Not surprisingly after this "pep talk", on May 29th Paulo Cremonesi, the SDE general inspector for Brazilian antitrust enforcement in Sao Paulo, disclosed that SDE was starting to explore a way to initiate legal action against Microsoft regarding the integration of Internet Explorer into Windows. He added that a Microsoft competitor - obviously Netscape - had invested a significant amount of money to produce a browser, but that it could not compete with a free browser.

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Israel.  Reflecting a similar issue, Microsoft has been in discussions with the Israeli government for a number of months, to provide Israeli authorities with information and assurances related to the company's business activities.   Nevertheless, on May 24th, Dan Rubinfeld, chief economist for the DOJ's Antitrust Division, gave a public speech in metropolitan Tel Aviv, seeking to argue the merits of the Department's new lawsuit against Microsoft. The audience included a number of officials from the government, including those responsible for antitrust enforcement. According to those present, Rubinfeld told the audience that "Microsoft used its monopoly to create a noose around the Internet browser market,'' and said that "Microsoft limited the choice of software offered to consumers in the U.S. and the world."

Rubinfeld provided the audience with a detailed account of the DOJ's case against Microsoft. Among other claims, he argued that Microsoft imposed on PC manufacturers a first screen promoting Microsoft products, attempted to persuade Netscape to divide the browser market between Microsoft and Netscape, and signed exclusive agreements with Internet Service Providers and Internet content providers. Rubinfeld argued that Microsoft's goal was to "stifle competition" and force computer manufacturers to install Internet Explorer. He further contended that Internet Explorer is a separate product of Windows, and that the two should not be bundled together.

In addition, DOJ and ETC officials met in Israel an May 24th with a number of officials from the Israeli government including the Commissioner of Restrictive Trade Practices. DOJ officials apparently outlined their complaint against Microsoft as a part of these private meetings with Israeli officials. Israeli officials and Microsoft are presently in discussions regarding assurances that Israel's Commission for Restrictive Trade Practices is seeking from the company.

OECD Meetings in Paris.  Finally, during the week of June 8th Deputy Assistant Attorney General Douglas Melamed briefed the Organization for Economic Cooperation and Development's Competition Law and Policy Committee in Paris on antitrust developments in the United States. The Committee includes senior officials from the antitrust enforcement agencies in Europe, Japan, Canada, Brazil, and other countries around the world, and meets to discuss important antitrust issues and developments. During the week's meetings, Melamed and other DOJ officials provided a substantial review of the DOJ's lawsuits against Microsoft in which he outlined what he regarded as the strengths of the Department's position against the company.

While this summary discloses a disturbing campaign by the Department, it probably does not provide a complete catalogue of the Department's contacts. In order to understand the nature and extent of these contacts, we would appreciate your cooperation in promptly [begin page 6] providing us with the following information: 1) a complete list of all contacts between any employee of the Department and any official of a foreign government concerning the Departments investigations of, or suits against, Microsoft since July 1, 1996; 2) a description of any information exchanged during the course of those contacts; 3) any documents provided to or received from foreign governments concerning Microsoft; 4) the text of (and any notes that may have been taken by Department officials relating to) any speeches or remarks delivered to foreign government officials concerning Microsoft; 5) an explanation of, and justification, if any, for, each contact; and 6) the total time and expenditures that the Department has devoted to contacts with foreign governments concerning Microsoft.

Whatever the merits of the Department's various attacks on Microsoft, we hope that you will agree that it is an inappropriate use of U.S. taxpayer dollars to encourage - either purposefully or inadvertently - foreign governments to use their laws in a way that unfairly impairs the export opportunities of U.S. exporters. This is particularly so because antitrust law leaves much room for discretion. Thus, traveling the world criticizing American companies could encourage foreign legal actions that could harm that company to the benefit of foreign competitors. Indeed, antitrust powers in the hands of any nation, but particularly a nation unsophisticated in free markets, could lead to harassing and distracting litigation that could adversely impact our ability to compete in the global marketplace.

We look forward to working with you to ensure that this does not happen in the future to Microsoft or to any other U.S. exporter.

Very truly yours,