The Washington Hearsay column on Nov. 19 incorrectly stated New York's position on the Microsoft Corp. antitrust case. New York supports the Justice Department's out-of-court settlement. (Published 11/26/01)

In the span of a month, the attorney general has proposed eavesdropping on phone calls between attorneys and their clients and the president has proposed military tribunals instead of trials in U.S. courts for suspects in the Sept. 11 attacks.

So, who was the idiot who thought the Justice Department would never settle the Microsoft Corp. case on terms that were weaker than what was being negotiated before the government won its appeals court case?

Okay, perhaps that idiot was the writer of this column. It wasn't but four months ago when Hearsay was headlined: "If Microsoft Expects the Justice Department to Back Off, Surprise!"

Now, it is the pundits chuckling at Hearsay. What did you expect from a Republican administration that cozied up to Microsoft during the campaign?

So, we pause now to give out the Hearsay Turkey Award. This year, the prize, a big plate of crow, goes to Hearsay. Munch, munch, munch. Gobble, gobble, gobble. We were wrong. The Justice Department appears to have won the trial, and Microsoft appears to have won the remedy.

At least that's what the critics say.

But wait. Perhaps the critics have gone too far. (Here's the argument against giving myself the Turkey Award.) After all, the settlement does address many of the major points of the decision by the U.S. Court of Appeals for the District. It allows computer makers to reconfigure the Windows software, places limits on retaliation and opens the part of the Windows code used to link programs to the operating system.

But consider the views of Lloyd Constantine, the former antitrust chief in New York state. Constantine criticized the settlement for continuing to permit Microsoft to bundle virtually whatever it wants into the operating system, with just a few limitations.

"The lack of an anti-tying provision is a significant retreat from the purposes of the lawsuit and what would best serve the public interest," Constantine said. Constantine's views are of particular interest because he is a friend and sometimes adviser to New York Attorney General Eliot Spitzer, who joined eight other attorneys general in opposing the Justice Department deal.

That also was the point of Steve Salop, the Georgetown University Law Center professor who questioned Assistant Attorney General Charles James on Friday at the American Bar Association antitrust section seminar at Georgetown. Salop's question: What about the appeals court finding that Microsoft illegally commingled code in the monopoly Windows to exclude competitors.

James's answer: The court didn't mean to prevent innovation or including new advances in Windows. "I just read it differently," he said.

In search of a more conservative view, we found Bill Page at the University of Florida, who disliked much of the appeals court ruling that gave the government a substantial victory. Page likes the settlement, saying it addresses the main issues raised at trial. But he notes most of the antitrust punditry has focused on the unwieldy, and frequently unclear language that qualifies, narrows and limits the sanctions on Microsoft.

"What people are saying is that Microsoft will weasel out of it," Page said, "that they'll game the system as they did before. I'm not willing to say that."

Lots of other people are.

"The general aim seems like a fine one," said Stanford law professor Lawrence Lessig, who thought breaking up the software giant was the wrong remedy.

"The fundamental weakness," Lessig added, "is they [antitrust enforcers] haven't learned anything about how hard it is to enforce a consent decree in this context and they could have been much more creative in figuring out ways of resolving the dispute."

James, during the Georgetown speech, repeatedly defended the settlement and addressed many of the criticisms, which he blamed largely on rivals. "We've never had competitors be quite so aggressive," James said. "Some of them had hoped for a broad-scale emasculation of the company."

Some critics, such as Robert Lande of the American Antitrust Institute and the University of Baltimore law school, suggest that James is unconvincing in saying his settlement will jump-start competition for Microsoft's monopoly Windows operating system.

"Charles James will spend the remainder of his career in a futile attempt to show that he did not get taken by Microsoft," Lande said.

The test now is whether James has covered his bases to get through the Tunney Act hearing, the mandated judicial review of the settlement.

"I don't see any obvious defect in the settlement that would jeopardize it in the Tunney Act proceeding," said Tad Lipsky, senior competition counsel of Coca-Cola who announced last week he is moving back to Washington to join the antitrust practice of Latham & Watkins.

There is more likelihood of some action brewing with the remaining eight states and the District of Columbia, who have become sort of the Bad News Bears of the epic antitrust case. The coach of their team is Brendan Sullivan Jr., the former Oliver North attorney who is leading a crew of Williams & Connolly lawyers. Will Sullivan pull out the 9mm guns and come out firing with a fusillade of discovery and deposition requests? Wouldn't that be fun? Another Bill Gates deposition?

And for those of you who prefer not to debate the settlement on the merits, there are the conspiracy theories.

In a letter to Attorney General John D. Ashcroft, Rep. John Conyers Jr. (D-Mich.), the top Democrat on the House Judiciary Committee, has asked for a detailed account of all of the contacts between David Israelite, Ashcroft's deputy chief of staff, and outside lobbyists.

Conyers is looking into "inappropriate political influence" involving Israelite communicating "with outside lobbyists in an effort to convince them to alter their clients' views regarding the role of the states in the case," Conyers wrote. "This inappropriate and possibly illegal contact is reported to have occurred after Mr. Israelite had recused himself from the case because of conflict of interest concerns."

Israelite, through a spokeswoman, denies that any improper contacts occurred.

But if that doesn't get you going, then let's turn to the little e-mail mailing list for antitrust nerds managed by the American Bar Association. Here you find various lawyers and gadflies discussing the exciting vagaries of antitrust jurisprudence. Last week someone asked about military tribunals.

That prompted Leighton Anderson, a Santa Fe Springs, Calif., lawyer to reply: "I believe that the state AGs are investigating whether they can re-file the Microsoft case before a military tribunal. ;^)"

Now, that's a trial Hearsay would like to cover. Maybe U.S. District Judge Thomas Penfield Jackson could preside.

FDIC Layoffs

There are more lawyer layoffs coming. But this time it isn't law firms taking the rare step of announcing layoffs, or firms secretly asking partners and associates to find new work (and then publicly saying that no one is being asked to leave).

Now government lawyers are getting sacked.

The Federal Deposit Insurance Corp. has notified the National Treasury Employees Union that between one-fourth and one-fifth of the FDIC's 350-lawyer legal division are scheduled to lose their jobs in May. Support staff were not mentioned in the announced workforce cuts.

"This action is being taken due to reduced workload," said Peggy Stokes, FDIC's assistant director for labor and employee relations, in a letter this month to the union.

No kidding. A big part of the legal department's job is managing the fallout from bank failures. In 1989, there were 524 bank failures. So far this year there have been four. Last year, there were seven.

The cuts come, however, at a somewhat precarious time in an agency that has seen steep staff cutbacks in the past decade. Because banks fail more often in recessions as more borrowers default on loans, could these lawyers be needed as the economy slides?

The FDIC said that 50 to 70 of the 220 lawyers in Washington and from 20 to 25 of the 75 lawyers in Dallas are slated to be laid off. The agency said in the notice to the union that it had not notified the staff, and a spokesman for the union said Friday he couldn't provide details.

"We followed the statutes and the reduction-in-force procedures we've negotiated with the union," FDIC spokesman Phil Battey said. "This isn't a done deal in terms of numbers."

Quack, Quack

Wilmer, Cutler & Pickering is merging with the Berlin firm Quack Rechtsanwalte in January. Wilmer has 16 lawyers in Berlin who will be joined by 22 from Quack. That's right, the firm is called Quack, for short. Not The Quack Law Firm; just Quack.

In Germany, the firm will be known as Wilmer, Cutler & Pickering-Quack.

We don't make this stuff up, kids.

Hey, it could be worse. As far as we know, there is no place where the firm will known as Wilmer, Cutler & Pickering-Gobble.

Hearsay convenes military tribunals every other week in Washington Business. Send your transcripts of attorney-client phone calls to