Download the WordPerfect version
IN THE UNITED STATES COURT OF APPEALS
FOR THE DISTRICT OF COLUMBIA CIRCUIT
- - - - - - - - - - - - - - - - - - - - - -:
UNITED STATES OF AMERICA, :
v. : No. 95-5037,
: et al.
MICROSOFT CORPORATION, :
- - - - - - - - - - - - - - - - - - - - - -:
Monday, April 24, 1995
The above-entitled matter came on for oral argument,
pursuant to notice, at 9:30 a.m.
CHIEF JUDGE EDWARDS, CIRCUIT JUDGES SILBERMAN and
JOEL I. KLEIN, ESQ., Deputy Assistant Attorney
General, U.S. Department of Justice, 10th and
Pennsylvania Avenue, N.W., Washington, D.C.
20530; on behalf of Plaintiff-Appellant, United
States of America
RICHARD J. UROWSKY, ESQ., Sullivan & Cromwell,
125 Broad Street, New York, New York 10004; on
behalf of Defendant-Appellant, Microsoft
JOHN H. CHAPMAN, ESQ., Gilbert, Segall & Young,
430 Park Avenue, New York, New York 10022-3592;
amicus curiae, on behalf of Computer and
Communications Industry Association
JEFFREY S. JACOBOVITZ, ESQ., The Jacobovitz Law
Firm, 1225 19th Street, N.W., Suite 850,
Washington, D.C. 20036; amicus curiae, on
behalf of I.D.E. Corporation
GARY L. REBACK, ESQ., Wilson, Sonsini, Goodrich &
Rosati, Professional Corporation, 650 Page Mill
Road, Palo Alto, California 94304-1050;
anonymous amici, on behalf of Amici Computer
- - -
C O N T E N T S
ORAL ARGUMENT OF: PAGE
Joel I. Klein, Esq.,
on behalf of Plaintiff-Appellants 3
Richard J. Urowsky, Esq.,
on behalf of Defendant-Appellants 16
John H. Chapman, Esq.,
amicus curiae, on behalf of Computer and
Communications Industry Association 26
Jeffrey S. Jacobovitz, Esq.,
amicus curiae, on behalf of I.D.E. Corporation 36
Gary L. Reback, Esq.,
anonymous amici, on behalf of Amici Computer
Industry Companies 45
Richard J. Urowsky, Esq.,
on behalf of Plaintiff-Appellants -- Rebuttal 62
- - -
P R O C E E D I N G S
THE CLERK: No. 95-5037, et al., United States
of America v. Microsoft Corporation.
Joel I. Klein, Esq., for appellants, Department of
Justice; Richard J. Urowsky, Esq., for appellants,
Microsoft Corporation; John H. Chapman, Esq., amicus curiae,
CCIA; Jeffrey S. Jacobovitz, Esq., amicus curiae, I.D.E.
Corporation; and Gary L. Reback, Esq., anonymous amici.
THE COURT: You may proceed, counsel.
ORAL ARGUMENT OF JOEL I. KLEIN, ESQ.,
ON BEHALF OF PLAINTIFF-APPELLANTS
MR. KLEIN: Chief Judge Edwards, and may it please
The District Court rejected a consent decree
between the United States and Microsoft, largely because of
its concerns over certain Microsoft practices that the
United States in its sole and uncompromised discretion chose
not to challenge in this case.
We think the District Court exceeded its Tunney
Act authority by looking into these other practices and,
instead, it should have focused on the question of whether
the consent decree was a reasonable remedy for the practices
that the United States did challenge. Had it asked that
question, we think it would have come to a simple and
This decree put an immediate end to all of the
practices that we challenged in the complaint and some of
the licensing practices, as well, and the effect of that was
significant, because it meant that if, in fact, in the
personal computer operating system market, a competitor came
forward with a better mousetrap, if you will, then that
competitor would find a distribution market that was open
and accessible and not blockaded by the licensing practices
that we challenged.
Now, the only conceptually plausible objection we
think to this decree is the objection that didn't seek to
un-do prior effects of the challenged practices. The reason
for that is the government's considered judgment based on
careful market analysis and independently supported by
Professor Kenneth Arrow that these practices, while in
effect, had only a very small impact on Microsoft's market
We are entitled under this Court's decisions to
deference with respect to that market judgment, and, indeed,
under the standards for entering a consent degree, we need
only show that it is within the reaches of the public
interest. We think quite clearly this is in those reaches.
QUESTION: Mr. Klein, didn't we assiduously avoid
flatly stating you are entitled to deference in the
Triennial Review? Is that what you were referring to?
MR. KLEIN: I don't think that you did, Your
Honor. I think you said quite clearly in the 1993 Triennial
with respect to market predictions and market analyses we
are entitled to deference. I think the question you left
open was with respect to fact-finding, whether it is de novo
or not. But I think the issue of deference is clear.
Let me then return to --
QUESTION: Wait a minute. As a prosecutor, we did
discuss the -- are you talking about your judgments, or are
you talking about the decree itself? Which are you talking
about to which you believe deference is entitled?
MR. KLEIN: I think we are entitled to deference
with respect to our judgments about the market, Your Honor.
As to the decree, I think the Court has to apply simply
QUESTION: You don't mean deference in the sense
in which we would grant deference to an administrative
agency in an adjudicatory or regulatory rulemaking process,
MR. KLEIN: I think I do mean that, yes. In other
words, the language used in 1993 is unless the court is
quite certain that the market prediction of the department
is wrong, then the court should defer to it, and I think
with respect to this market prediction, there is no evidence
and no reason to think that it is wrong. In any event --
QUESTION: I think in both opinions we came very
close to talking about deference, but recognized we couldn't
give flat deference to a prosecutor.
MR. KLEIN: Again, I think there is a dual role
and I guess I think we don't need flat deference, but we
need the kind of deference that one would give to the United
States when it is charged with implementing the antitrust
laws. Here I think it is somewhat different, as the Court
points out, from traditional agency responsibility.
Nevertheless, I think, as the Court said, we are the ones
who study the market impact, we are the ones who made the
analysis and that is entitled to deference.
In any event, I think it is quite clear that the
standard is that you need to have a flexible approach, and
that even if the District Court thought it could find a
better remedy or a more demanding remedy, that the court
should defer, as long as it is within the reaches of the
public interest. Here we stopped all the offending
practices flat in their tracks, so I think that quite
clearly is adequate.
QUESTION: Can I ask another question concerning
one matter, to make sure I understand it. In the District
judge's decision, it seemed to me he said that the
government was willing to accept certain suggestions the
District judge made with respect to the implementation, and
yet Microsoft was not. What is the present status of that?
MR. KLEIN: I think the status is, as you suggest,
Your Honor, that the government said below that we would
accept certain additional compliance requirements, and
Microsoft rejected those, and the District Court, of course,
rejected the decree on several other grounds, as well, so
that did not become the decisive factor.
QUESTION: But your position is today you are
willing to accept that?
MR. KLEIN: We are prepared to accept on
compliance, yes, sir.
QUESTION: What is your view about Microsoft's
unwillingness or supposed unwillingness to accept. Does
Microsoft have any grounds to appeal on that issue, if you
are willing to accept?
MR. KLEIN: I think if we were willing to accept,
then Microsoft refused to accept, then I think we therefore
did not appeal. If that were the sole basis, of course, of
the hypothetical, then I think you would have to decide the
issue of Microsoft's jurisdiction, which we take no position
on, because we think, of course, our jurisdiction is clear.
QUESTION: Wait a minute. What about that issue?
That is to say my understanding is you are willing to accept
the modifications the judge wished to make, and Microsoft is
not? Even assuming all other issues were decided in your
favor, what do we do about that?
MR. KLEIN: Well, I think you issue an order
entering the decree, and the reason --
QUESTION: You mean without the modifications?
MR. KLEIN: Exactly, and let me explain that, if I
might, Judge Silberman. The reason is the decree need only
be within the public interest. These compliance mechanisms
are clearly traditional standard mechanisms that we have in
all our decrees. We are prepared to take more. We are
often prepared to take more in a case. We negotiated in
good faith with Microsoft and came to this decree. The fact
that we would take more doesn't mean this decree is not in
the public interest.
QUESTION: But you have got to tell me what your
position is on this is. Is this issue on which you are
saying now at this point we will not accept it, it is gone,
we made a deal with Microsoft and, therefore, they are not
willing to take the modifications of the District judge, and
Microsoft doesn't have any right to appeal that? Or the
Congress has got to take one side or the other --
MR. KLEIN: Our position is that this decree
without the modification should be entered and that we think
as a matter of law we are entitled to have it entered. We
don't think it needs any modification.
QUESTION: You dropped the concessions made by the
District judge now?
MR. KLEIN: We are not pursuing it on appeal, yes,
sir. We are not pursuing that concession on appeal. We are
QUESTION: You are not pursing the concessions.
You have done enough having made the concessions. I don't
know if --
MR. KLEIN: Well, we are not interested in that
concession. We are simply seeking the entry of this decree
as we negotiated it, that is all, and I think we are
entitled to that.
QUESTION: That is a problem, because it seems to
me that whatever the District judge's scope of authority
under the Tunney Act, it seems to me we are have problems on
the question of the methodology by which the decree was
implemented, since the judge would be sitting there in the
future. So we have a legitimate interest to be concerned
about that, right?
MR. KLEIN: I think that's correct.
QUESTION: So if the District judge was right
about that, it was certainly within his authority and
discretion to do that and you were willing to buy it. How
could we simply accept the decree as negotiated between you
and Microsoft, and say, well, you know the District judge
legitimately raised this point, even though the government
was willing to accept it, nevertheless, we are going to
ignore all of that on appeal?
MR. KLEIN: I think the reason, Judge Silberman,
is the following: Let's look at the consequences of what
you are saying, is Microsoft refuses to accept it. They
negotiated with us in good faith. Obviously, they forewent
their right for a trial in order to get this deal. Now the
District Court says we would like to change the deal. The
United States obviously didn't think we needed additional
compliance, because we accepted less. Microsoft is
unwilling, and we say that, rather than go to trial in this
case, which is the consequence of Microsoft's unwillingness,
then it seems to me entirely appropriate, and that is why we
are appealing, that the decree as we negotiated should be
I think it is quite clear from both the 900 F.2d
and 93 F.2d that all these decrees could possibly be
improved somewhat. Of course, we negotiated with
Microsoft and they gave up their right to go to trial, to
take the package that we insisted upon. We think we are
entitled to that package and we think it is quite clear that
this particular set of compliance -- remember, after all, we
are talking about abandoning licensing practices -- we have
open access to their books --
QUESTION: So you are basically taking the
position that even if the District judge limited himself to
seeking a modification of the decree or the refusing to
enter the decree unless there were modifications with
respect to implementation, the government has a right to
appeal and you would have us reach a conclusion that, under
the Tunney Act, the District judge does not have authority
even to seek to refuse to enter the decree unless there is a
change in implementation?
MR. KLEIN: I would say two things. I would say
we have a right to an immediate appeal if it turns out to be
in the terms of the case a deal-breaker, if in fact our
alternative is to go to trial or pull the case. That I
think we do have a right to immediate appeal, and I think on
that appeal the question is not whether the compliance
mechanism that we would accept is better. The question is
whether the one we negotiated is reasonable, and the answer
to that is yes.
QUESTION: I think you basically preempt the role
of the District judge in the Tunney Act proceeding.
MR. KLEIN: I don't think so at all. I think the
District judge has got to come forward with some good
reason. If he could show that because of the compliance
mechanism we have is just not adequate, if he could show
that and he said, look, we --
QUESTION: Are you making the District judge a
party to this proceeding, making him --
MR. KLEIN: No, he has got to write an opinion,
Your Honor. He has got to say in his opinion there is
something wrong with this particular decree. Now, mind you,
his whole concern with the compliance mechanism goes to his
view that Microsoft has the wrong view of "vaporware" and,
therefore, they are not going to be a good citizen. I think
that is wholly misguided.
QUESTION: What about the part of the compliance
that you agreed to accept, which was I thought a mechanism
whereby Microsoft would have more lawyers?
MR. KLEIN: The United States would always accept
that, Your Honor. I mean we would always --
QUESTION: You are always in favor of lawyers?
MR. KLEIN: We would always be in favor of more
compliance. We are in favor of fewer lawyers, but more
compliance. That is inevitable. It would be inconceivable
that we wouldn't accept -- if I could, Judge Silberman, in
the limited time remaining, I just want to address what I
think is at the core of the District Court's concerns, which
is really a searching inquiry into the government's
investigation and the government's conclusions with respect
to practices that we didn't challenge.
Now, I think with respect to that, that is a very
dangerous and, from our point of view, troubling
proposition. I want to make clear, we have said it numerous
times, there are no side agreements, there are no deals.
What we didn't challenge we didn't challenge in our
independent sole discretion. We made no deals with
Microsoft with respect to "vaporware," monopoly leveraging,
predatory activity or anything like that, or with anyone
QUESTION: Suppose the District judge thought the
government was acting in bad faith. What would its
appropriate role be under the Tunney Act? By bad faith, you
were allowing factors such as political influence to direct
the result in this case. Number one, how much evidence does
a judge have to have before he proceeds, and how could he or
MR. KLEIN: Again, he or she has to have some
reason to think that. Here the court flatly said there was
no political concern it had, and there isn't any. Second of
all, there is no concern about any agreements or deals. We
have said so. There is no contrary evidence.
If it were present, I guess the questions would be
the following: What is the nature of the "political
influence," did that lead to some kind of deal? I don't
know exactly how the facts is. Obviously, if you get to a
situation, let us say, where the Department of Defense says
that because the defense related, not antitrust concerns, I
think the concern can inquire into that. None of that is
here, and I think the court's effort goes so far beyond that
on facts that aren't present. People are trying to
resurrect it to suggest that is what it is about, but there
is absolutely nothing here.
QUESTION: Are you obliged to explain that which
was expired as a matter of law?
MR. KLEIN: I think under the Tunney Act we are,
and indeed we did. That is, it says any other remedies that
we explored with the defendant.
QUESTION: No, any other possible complaints.
MR. KLEIN: I think if you are talking about
complaints that we explored and unilaterally determined not
to pursue, absolutely not.
QUESTION: You need not even reveal them?
MR. KLEIN: I think we need not reveal them,
absolutely not. We never reveal what we are investigating,
Chief Judge Edwards, and I think it would be very unfair to
defendants. Indeed, we might still be in the middle of an
investigation. For all the court knows or anybody else
knows, we may still be looking at those matters, so our
position is firm on that.
QUESTION: I assume your answer to what you
thought was my question, I assume that was as given, you
don't doubt the District Court can inquire as to the
appropriateness of the relief of those matters that are
cited in the complaint?
MR. KLEIN: Absolutely, I agree with that.
If I might reserve the balance of my time, I thank
THE COURT: Mr. Urowsky?
ORAL ARGUMENT OF RICHARD J. UROWSKY, ESQ.,
ON BEHALF OF DEFENDANT-APPELLANTS, MICROSOFT CORPORATION
MR. UROWSKY: May it please the Court: My name
is Richard Urowsky, of Sullivan & Cromwell, and I represent
the defendant Microsoft Corporation.
I would like to say at the outset that I would
like to associate myself with the remarks of Mr. Klein
concerning the standards and scope of review appropriate for
the District Court under the Tunney Act. I don't intend to
repeat his arguments. I would rather address the subject of
the adequacy of relief which I think is central to this
This is an action by the United States under
sections 1 and 2 of the Sherman Act primarily directed at a
discrete set of licensing practices employed by Microsoft
Corporation in making its MS-DOS and Windows operating
system technology available to computer manufacturers who
are customarily referred to as OEM's. These practices are,
one, providing OEM's the option of entering into so-called
per processor licenses --
QUESTION: Counsel, if I may, we have read the
briefs and you need not go over the basic framework. One of
the more interesting and perhaps puzzling issues is why does
the decree -- and this is a question that can easily be
answered -- why the degree does not reach all the product
lines specifically covered within Microsoft's market share
in the operating systems application formula?
MR. UROWSKY: Your Honor, those situations are
actually quite different one from the other. As to
applications, the government has never contended --
QUESTION: Stick with the operating systems first.
The applications are quite different.
MR. UROWSKY: Yes, Your Honor, of course. There
are a number of operating system products that Microsoft
makes available to computer manufacturers. One such product
is MS-DOS and Windows. Those are currently two separate
QUESTION: Particularly focusing on Windows NT.
MR. UROWSKY: Yes. Windows NT is not a product
that competes for the same typical use as MS-DOS and
Windows. It is a so-called high-end --
QUESTION: Yes, but is it inconceivable that that
market will come together in some way, therefore, Windows NT
will have at some point in the future the same dominance or
migrate into some in-between market and won't be a successor
of Windows, but it would develop into some kind of in-
between market, whereby Microsoft would have the same kind
of dominant market share?
MR. UROWSKY: I suppose anything is conceivable,
but current --
QUESTION: So why shouldn't tbe legal practices be
extended to that product?
MR. UROWSKY: Because currently the two NT
products, one of which is a so-called server product which
relates to connectivity technology, has a tiny, tiny
fraction of sales for that purpose. The other application
QUESTION: Is it not legitimate for persons,
including the District judge, to be concerned that, insofar
as Microsoft is permitted to use the same four techniques it
used with respect to DOS in the Windows NT, it might
ultimately develop a monopoly or dominant share of the
market with respect to --
MR. UROWSKY: I don't believe that is a legitimate
concern, Judge Silberman, for two reasons. One, these
products are outside the scope of the complaint, and I don't
believe that the District Court has a proper concern to make
the government charge offenses that (a) it does not wish to
charge, and (b) would be patently unsustainable.
QUESTION: When you say they are outside the scope
of the complaint, is that because they are outside the
MR. UROWSKY: That's correct, and because the
United States couldn't conceivably allege any kind of
QUESTION: But it, nevertheless, alleges that the
licensing procedures is per se anti-competitive, doesn't it?
MR. UROWSKY: No, it does not allege that they are
per se anti-competitive. If you read the guidelines
published by the Department of Justice, I believe it is
just in the last month for the licensing of intellectual
property, they made quite clear that it is a rule of reason
test that applies here and that these techniques are
accepted ways of introducing new products into a market as
the technology developers attempt to emulate vertical
QUESTION: Is there anything in the record to
suggest that the marketing techniques for Windows NT and
Advance Server are the same as they offered DOS and Windows?
MR. UROWSKY: I don't believe the record addresses
QUESTION: Intuitively, one would think that one
would be pretty foolhardy to try it at this stage, since you
don't have the same market. I don't know how you could
demand it from NT. As you say, your market share is pretty
MR. UROWSKY: Kind of.
QUESTION: I don't know how you could go around
waving at anybody and be threatened at this point.
MR. UROWSKY: Well, I think it is important for
the Court to bear one thing in mind which relates --
sometimes you have to talk about fundamental things, even if
it is unpleasant. What the Court has to bear in mind is
that the entire theory of the government's case here was
that a set of licensing practices were used in a way that
simulated exclusive deal in contracts, even though they
weren't exclusive deal in contracts.
You notice, if Your Honors read carefully the
QUESTION: Would it be more accurate to describe
it as tie-ins?
MR. UROWSKY: Oh, no. Oh, no, the government
never alleges tie-ins.
QUESTION: I know, but wouldn't that be more --
MR. UROWSKY: No. No.
QUESTION: You don't like that.
MR. UROWSKY: No, for the simple reason that there
is no tied product, ergo no tie.
QUESTION: I understand. What about the
relationship between, as Judge Edwards asked before, the
relationship between the application market and the systems
market? Do we have any indication as to what Microsoft's
position is in the application market, or are they so
different it is hard to measure?
MR. UROWSKY: Well, they are quite different
markets in the sense that there are different competitors in
those markets and they exhibit different economic
QUESTION: That really isn't the thrust of the
government's charges. I thought their complaint was, to the
extent there is any validity to it, is that those in the
applications market are limited in the decisions they can
make because of what you allegedly do in the operating
systems market, they are writing for Windows and DOS over
and over again, because others can't break into that market.
But I don't think you have a dominant share or anyone is
alleging you have a dominant share in the software market.
MR. UROWSKY: That has not been alleged. The
QUESTION: You do well, but you are not
QUESTION: You dominate in one share of the
MR. UROWSKY: I don't know what Your Honor means
by a "dominant" share.
QUESTION: I wasn't using the word "monopoly."
Somebody else used the word "monopoly," and I assiduously
avoided it. But I thought you would accept dominant share.
MR. UROWSKY: Microsoft concedes that its products
QUESTION: 70 percent.
MR. UROWSKY: If you think about it, that is
really a service to the public, making good high-quality
products available that people want to buy.
The point I was making before is that the
government never alleges, and if you read the complaint
carefully, you will see it, that Microsoft ever forced any
of these OEM's into per processor contracts. It says we
lured them into it by offering a small discount, and it may
be that introducing products into a market for Server
Software or for WorkSTATION software, which are the segments
of the industry that NT is directed at, that we will offer
discounts of the same kind to try to persuade people to
introduce this product. It is the only way to break into a
market where you haven't had a history of successful sales
in the past, and that is all recognized as being quite
legitimate in the guidelines.
QUESTION: If I understand correctly, the
government has abandoned the concession that it made to the
District judge on appeal, that is to say the concession that
it would be willing to modify the decree to enhance its
implementation. So I gather with respect to the main case,
whether you have a party status, whether you are entitled to
appeal or not is irrelevant, since you are piggybacking on
the government entirely.
With respect to the supplementary or ancillary
order of the District Court, what is the core notion that
you have that you have a right to appeal under Cohen?
MR. UROWSKY: The orders were improper, that they
are clearly interlocutor, they are clearly orders that are
separate from the merits and cannot be effectively reviewed
if this case is required to be tried and goes to final
judgment, and that there are important issues because the
participation of the so-called amici was completely
disruptive of the proceedings in the District Court.
May I say a word, Your Honor, about the notion
that the monitoring or enforcement provisions of the degree
are not adequate. I think Your Honor is mistaken what the
District Court was speaking about when it raised that issue.
And it is not entirely clear from reading the hearing
transcript, but it is tolerably clear.
The District Court was not talking about
enforcement provisions necessary to insure compliance with
this decree. That is easy. These are simple --
QUESTION: But if you read his order, his
memorandum and order, it is couched in those terms, even
though you are quite right that the transcript might be
revealing of a slightly different --
MR. UROWSKY: And the government's concession,
therefore, and Microsoft's refusal, which were based on what
occurred at the hearings, were not for some tinkering of
enforcement mechanisms with respect to this decree. It
concerned the appointment of some kind of ethics czar of
undefined responsibility to roam freely to rehabilitate a
company that we respectfully submit doesn't require
QUESTION: I understood. I wasn't really focusing
so much on the merits of that as I was on the jurisdictional
consequences that the government agrees to it. If the
government agrees to that, it seems to me that your right to
appeal is gone. Don't you agree?
MR. UROWSKY: No.
QUESTION: The government says, okay, judge, you
are right, we should have the decree modified in that
respect and we are prepared to go to trial in order to
achieve it. You have no right to appeal of that.
MR. UROWSKY: I don't agree with that. I think we
QUESTION: You have a right of appeal of that?
MR. UROWSKY: -- independent appeal from the
District Court's refusal to enter the decree under 1292.
QUESTION: On the main decree.
MR. UROWSKY: That's correct.
QUESTION: I think that is rather late claim, if
the government says we want to go to trial.
MR. UROWSKY: The government moved in the District
Court to enter the decree, and that motion was joined by
QUESTION: You are not suggesting, if the
government changes its mind through the Tunney proceedings,
you have made some very good points and we are not ready to
go to trial in order to achieve them, that Microsoft has a
right to appeal nevertheless?
MR. UROWSKY: I don't think that was the
government's position below.
QUESTION: No, no, I am posing a hypothetical.
MR. UROWSKY: Oh, hypothetically.
QUESTION: What is your answer?
MR. UROWSKY: I think I would have to consider
that point further before I had an answer, Your Honor. I
hadn't considered that before.
QUESTION: For our next oral argument?
THE COURT: You are in your rebuttal time, so you
can sit down and consider it.
MR. UROWSKY: May I reserve the remainder of my
THE COURT: Yes.
MR. UROWSKY: Thank you, Your Honor.
THE COURT: Mr. Chapman?
ORAL ARGUMENT OF JOHN H. CHAPMAN, ESQ.,
AMICUS CURIAE, ON BEHALF OF CCIA
MR. CHAPMAN: May it please the Court: John
Chapman on behalf of the Computer and Communications
We are pleased to be here. This Court took notice
of our participate in the Triennial Review and its Triennial
Remand decision, as well as it took note of Professor
Arrow's affidavit in support of the modification in that
This case is a different case. This case is one
in which our presence is challenged. Microsoft makes an
untenable argument that somehow 16(f)(3) is governed by
16(b), and there is no such limitation, that it is a matter
of discretion of the District Court to allow us to
participate as it did, as this Court allows CCIA to
participate in this proceeding.
And Microsoft is clearly wrong in terms of its
right to appeal, because under 1292(a)(1), it had no right
to appeal, it has no right to avoid a trial in this case.
And to the extent to which it intends to piggyback on the
Justice Department, it really has an untenable right there,
as well, since --
QUESTION: That is not particularly important,
because even if it didn't have an independent right to
appeal the main order, it comes in as amicus anyway. But
what about his claim to appeal the ancillary order,
particularly -- well, I won't ask you, I will wait and ask
one of the other amicus, unless you want to direct yourself
to that question -- Microsoft's right to appeal the
MR. CHAPMAN: I don't believe it has the right to
appeal the ancillary order, either, Your Honor, because
Microsoft at the very heart of it has abandoned its earlier
practices, that it cannot suffer any serious irreparable
consequences relative to this appeal. It can, as Your Honor
notes, participate as amicus in this proceeding within the
discretion of the Court.
QUESTION: Doesn't it have a rather strong
argument that if it is illegal and improper for the District
judge to have allowed any one of the amicus to come in as an
anonymous amicus, that it would have a right to appeal that
at least, because it would be irreparably injured by
arguably accusations coming from an anonymous source?
MR. CHAPMAN: Your Honor, may Mr. Reback address
that, because we have identified ourselves? We are fully
before this court --
QUESTION: But they have a right to appeal only
one point and everything else, that Microsoft is entitled to
be here anyway.
MR. CHAPMAN: Another issue in which they are
wrong, Your Honor, was rather amusing relative to this
Court's standards of review, whether it be de novo and abuse
of discretion. Microsoft says we cite cases that say there
had been no abuse of discretion when it doesn't appear in
the case. A careful reading of the case shows in United
States v. Jones & Laughlin that indeed the abuse of
discretion standard was spoken of, and that is the general
rule, although in the Triennial Review this Court did say it
would consider it a de novo review. But that is the choice
of this Court, and CCIA would welcome that review, although
it believes that the standard is abuse of discretion.
In fact, in Jones & Laughlin, the Court said this
is the real issue. The real issue is review of a decree to
assure that it is fair, adequate and reasonable, as well as
consistent with the public interest. CCIA believes that
this proposed decree is not within the reaches of the public
interest, for the same reasons that Judge Sporkin in the
District Court so found, lack of information in order to
make that determination and, secondly, with respect to
relief that the decree on its face on the basis of Judge
Arrow's affidavit and within the competitive impact
statement does not state adequate relief.
QUESTION: Mr. Chapman, didn't that lack of
information part of the order deal with two factors, number
one, whether or not there was a side deal, and, number two,
whether or not there was "vaporware" abuse? Would you agree
that both parties asserted that there was no side deal and,
therefore, there is no evidence in the record to support a
MR. CHAPMAN: Your Honor, I have no problem with
that. I used to be with the Justice Department and I
believe the Justice Department was in good faith, but their
judgment was not reasonable.
QUESTION: We are talking about information about
right now. The other element of information, the lack of
which seemed to bother the judge, had to do with allegations
of misconduct other than the allegations charged. If we
construe the Tunney Act as confining the court's
consideration to the offenses charged, isn't the information
that Judge Sporkin complained about not having irrelevant to
the matter before him?
MR. CHAPMAN: I don't believe so, Your Honor.
Even Mr. Carver --
QUESTION: Which don't you agree with, that the
Tunney Act lifts up the interpretation that Judge Buckley
has suggested, or what? What are you disagreeing with?
MR. CHAPMAN: I am disagreeing with the statement
that the District Court cannot make inquiry relative to
matters, so long as there is a nexus to the violations
charged and the relief sought by the decree. The Justice
Department is --
QUESTION: So then you disagree with the position
taken by the District Court. The District Court is
absolutely clear in its opinion -- to suggest otherwise is
disingenuous -- absolutely clear that the District Court
thinks that he has the authority to go to matters not
charged and to consider matters.
He says the decree does not address a number of
other anti-competitive practices that from time to time
Microsoft has been accused of engaging in by others in the
industry, and that is his concern. Then he completely
rejects at the outset the claim by the government that he is
limited. He states the proposition, the government says I
am limited to the complaint and the relief afforded for the
matters charged. He says that is wrong as a matter of law.
Are you with him or not?
MR. CHAPMAN: Your Honor, so long as there is a
nexus, I am with him. If there is a nexus relative to other
conduct relative to maintaining monopoly power in the
relevant market, he is correct.
QUESTION: Wait a minute, counsel. Counsel, you
are not convincing me of anything until you hear my
question. The District Court judge's opinion which is on
review is not so limited as I read it. Now, are you saying
if I read it the way I think I see it, he is wrong, or are
you saying I am misreading it?
The District Court judge does not say anything
about a nexus. He is saying the government's position that
he is limited to the charges asserted and the relief
therefor is wrong as a matter of law, that he can contest
the complaint and look to see whether the complaint is
adequate and should have been framed differently.
MR. CHAPMAN: Your Honor, as I read the decision
as a whole, I interpreted that statement to mean there must
be a nexus. That is how I read it and that is how I would
argue it on behalf of any client.
QUESTION: So if I read it otherwise, you would
agree that it is wrong as a matter of law?
MR. CHAPMAN: Yes, Your Honor.
QUESTION: Isn't the key dispute in this case
whether or not the government should have charged a
monopolization claim under section 2?
MR. CHAPMAN: Your Honor, I am not going to look
back at what the Justice Department could or should have
charged. The charge what they charged and they sought
relief, Your Honor, in order to redress Microsoft's
advantages attained through its anti-competitive practices.
QUESTION: All the pry-open-the-market language,
which is replete in both in the District judge's opinion and
in the briefs of amicus here, all assume that the government
did or should have filed a monopolization claim under
MR. CHAPMAN: I don't believe so, Your Honor. I
think it comes within the prayer for relief, as is stated
the court can inquire as to relief that is to be accorded,
given the practices charged and given what is addressed in
the proposed consent decree.
QUESTION: Does that mean that any time the
Antitrust Division brings a case alleging certain practices
are illegal under the rule of reason and asks for general
relief in the prayer, a District judge can inquire into the
question, depending on the size of the market, as to whether
the government should have brought a monopolization claim?
MR. CHAPMAN: No, Your Honor. But as counsel
responded to Chief Judge Edwards' question, is it
appropriate to look into relief for matters cited in the
complaint, the answer was yes, and that is CCIA's position,
Your Honor. There is a nexus between the application market
and the operating systems market.
In fact, as we said in our brief, and as covered
by the competitive impact statement and the complaint
itself, there are substantial interrelated barriers to entry
that are not addressed by the decree, not addressed at all,
not even addressed by Judge Arrow in his affidavit, and that
is important to this industry, where Microsoft controls a
critical industry product.
Even though Judge Sporkin didn't rely on the Apple
submission, there it is. There is a case, whether it is
true or not, that presents substantial evidence and
indicates evidence of Microsoft's monopoly power to leverage
into the applications marketplace, where we require -- and
Judge Arrow says in his affidavit we need open markets.
There was the tipping, there was the tipping, but we don't
want to address natural barriers to entry. Those natural
barriers to entry are again artificial.
If we look at the charts in the competitive impact
statement, Tables I and II, Table II, the percent -- if I
may finish this point, Your Honor -- the percent of units
covered by per processor licensing over a period of 6 years
went from 20 to 60 percent. That tips the scales toward
monopoly position and monopoly power. That must be
corrected. That must be corrected.
QUESTION: In the applications market?
MR. CHAPMAN: Yes, but more directly within the
QUESTION: In the applications market?
MR. CHAPMAN: We are saying that the nexus is
there in terms of needing to relieve --
QUESTION: There is monopoly power in the
MR. CHAPMAN: No, I am not saying that. It is
leveraging the power from the operating systems market.
QUESTION: Well, why did you say yes three times?
I kept asking and you kept saying yes, there is a decided a
MR. CHAPMAN: I am sorry, Your Honor. I am saying
it is a leveraging of monopoly power from the operating
systems marketplace. In the same way that Your Honor
directed a question to counsel, that leverage will come from
the NT. In a statement filed with the SEC signed by
Microsoft's Chairman Gates, its Board of Directors, NT has a
migration strategy. It is here in their SEC filing with NT,
and I will simply conclude by reading that. It is the
leverage of monopoly power from the operating systems
QUESTION: Even assuming that may turn out to be
true, there is nothing that stops the government or any of
the private parties from bringing an action, right?
MR. CHAPMAN: That is not the point. The
government has a duty in a public interest to make sure that
this decree is adequate, given the record.
QUESTION: Adequate on its terms.
MR. CHAPMAN: An NT, Windows NT, here it says,
provides for the automatic migration of information from
previously installed versions of Windows. And where is
that? Right here in a signed statement by the Board of
Directors and the Chairman of Microsoft that is capable of
running on Intel 386, 486 and Pendium systems.
That, Your Honors, is the relevant product market
in this case and the decree fails to address that and, in
fact, the decree fails to address any practical reasonable
and adequate relief.
QUESTION: And did the complaint fail to address
MR. CHAPMAN: The complaint prays for relief, as
well, that will redress the wrongs of Microsoft.
QUESTION: Within the confines of the identified
MR. CHAPMAN: That is correct. There must be a
nexus, the identifiable relevant market.
QUESTION: As the government defines it?
MR. CHAPMAN: The has defined it but has no
rational basis for excluding NT from the consent decree. It
fact, it tries to hedge and the --
QUESTION: Well, we do have case law and our case
law does not suggest that a District Court judge has the
authority to second-guess the prosecutor, so to speak, in
deciding how to frame the complaint.
THE COURT: Your time is up, counsel.
MR. CHAPMAN: Thank you, Your Honor.
THE COURT: Mr. Jacobovitz?
ORAL ARGUMENT OF JEFFREY S. JACOBOVITZ, ESQ.,
AMICUS CURIAE, ON BEHALF OF I.D.E. CORPORATION
MR. JACOBOVITZ: May it please the Court: My
name is Jeffrey Jacobovitz, and I represent I.D.E.
Corporation, whose trade name is IDEA Associates. IDEA
Associates is an original equipment manufacturer or an OEM
located in Billerica, Massachusetts.
The issue we would like to address today is
whether the court properly held that the consent decree was
an ineffective remedy and not in the public interest. IDEA
purchases operating systems from Microsoft and incorporates
the systems into computers for sale to consumers.
We presented the following facts to the District
Court: One, IDEA, as an OEM, entered into licensing
agreements with Microsoft that contained minimum commitment
and per processor licensing restrictions. The Department of
Justice determined that these contracts were illegal under
the Sherman Act and banned them prospectively in the consent
Pursuant to the illegal requirements, in the past
IDEA made minimum commitment payments or take-or-pay
payments to Microsoft of over $2.5 million. Only a small
portion were used. Microsoft still has prepaid royalties of
ours of over $2 million and they refuse to return it. The
consent decree did not provide for the refund of any of the
OEM prepaid royalties.
However, there is more significant competitive
issue involved than just the return of money and determining
whether the consent decree was an effective remedy that
cured the ill effects of the illegal behavior. A principal
goal of the consent decree was to insure that OEM's
purchasing decisions in the future would not be distorted by
the existence of anti-competitive license terms.
In their competitive impact statement, the
government notes that unused balances of minimum commitments
extends the effective duration of the OEM contract, impeding
access of PC operating system competitors to the OEM
The consent decree provides a prospective ban on
minimum commitments, but no retroactive relief. The
government has completely overlooked --
QUESTION: Why isn't that within the government's
discretion to determine not to seek relief in a situation
covering your client? Why couldn't the government take the
position that is a private litigation, if IDEA asserts that
the practices that led to its second agreement or its
settlement agreement were illegal, it can defend on those
grounds against the $2 million claim?
MR. JACOBOVITZ: But these licensing restrictions
were the very basis of the complaint that the government
filed and their goal was to insure that operating system
competitors of Microsoft --
QUESTION: Couldn't you have raised this issue in
your own private litigation with Microsoft?
MR. JACOBOVITZ: We certainly could, Your Honor.
QUESTION: And what is your response to the
footnote, I think it is in Microsoft's brief, maybe the
government's also, to the effect that your claim doesn't
raise antitrust injury in the Brunswick and I guess Manfred
MR. JACOBOVITZ: Your Honor, in examining
Brunswick, if you look at the causal connection between
the antitrust violation and the harm, here we are a direct
purchaser. Damages are not speculative and there is no
chance of duplicative recovery, which is a concern in
standing cases. We have direct injury of --
QUESTION: The real key in Brunswick and Manf
it seems to me, is those cases involve an injury, an Article
III injury which is exactly the injury the antitrust laws
wish to produce. Therefore, the court would not consider it
as antitrust injury. It goes to the Article III injury,
which is exactly what the antitrust laws are designed to
encourage, which is competition. That is not your case, and
I thought is what your response would be. In this respect,
the OEM is much more in privity with the software
MR. JACOBOVITZ: The OEM is the most immediate
victim of these licensing restrictions.
QUESTION: Well, it is possible, but you have
discarded their footnotes. Still the question is why do
they have to bring your case in? As a matter of
prosecutorial discretion, why can't they decide, look, we
are not going to get into contract disputes, let IDEA raise
that in their private litigation? Why can't the government
make that decision?
MR. JACOBOVITZ: Your Honor, they could make that
decision. But if you look at Judge Sporkin examining this
consent decree and he is trying to examine whether in fact
it creates an effective remedy to the competitive harms that
are alleged, it does not, because IDEA, just like other
OEM's, suffered from these restrictions and have unused
minimum commitments, are forced to continue to use
Microsoft. We have calculated that it would take
approximately 20 years until we have recouped these
royalties. That means for 20 years we have to use
QUESTION: Aren't you making in effect a jury kind
of argument? You are saying the government should have
included retroactive relief.
MR. JACOBOVITZ: Absolutely.
QUESTION: That is not getting you anywhere?
MR. JACOBOVITZ: Your Honor, they don't have to,
but they should have, because if they wanted to remedy the
competitive harm and create a level playing field, they
should have included retroactive relief.
QUESTION: Well, doesn't that depend on who the
Assistant Attorney General of Antitrust is? Is that a
question for the court?
MR. JACOBOVITZ: That is a question for the court,
if you are evaluating whether in fact Judge Sporkin properly
held that this was an ineffective remedy, that this did not
cure the ill effects of the harms that were alleged by the
government, which we think is your standard. Whether in
fact this antitrust remedy pried the market open to
QUESTION: Pry the market open to competition, as
I said before, seems to me is based on a notion that the
government should have brought a monopolization claim under
MR. JACOBOVITZ: My understanding, Your Honor, is
that they did bring a monopolization claim. There was a
section 2 claim that was alleged and it was --
QUESTION: I read the record that the government
never asserted that Microsoft's monopoly position came from
illegal practices, but, rather, from a natural monopoly.
Indeed, that is what Dr. Arrow previously described in his
affidavit, and he has had more --
Dr. Arrow made very clear, it seems to me, in his
statement that Microsoft's monopoly position was not
achieved through illegal practices even under the rule of
MR. JACOBOVITZ: Your Honor, first of all, we
submit that you can bring a monopoly case, even in fact if
the monopoly was naturally achieved, if in fact there is
predatory or anti-competitive behavior to maintain that
QUESTION: That is possible, true, you are
absolutely right, such a case might be brought by a
different Justice Department at a different time. Do you
think it is up to the District judge to take that over?
MR. JACOBOVITZ: It is up to the District judge to
determine whether in fact the remedy is effective, whether
in fact the government --
QUESTION: Well, that is the tail wagging the dog,
isn't it? But you are grabbing hold of a remedy and then
you are interpreting to bring an entirely different case.
MR. JACOBOVITZ: But that is the judge's
jurisdiction under the Tunney Act.
QUESTION: That would be unconstitutional,
MR. JACOBOVITZ: Absolutely not. It is not a
violation of separation of powers. It is what the Tunney
Act mandates, and it mandates the judge to --
QUESTION: It doesn't necessarily follow.
QUESTION: It doesn't follow at all. That is the
MR. JACOBOVITZ: But we don't concede that in fact
it would be unconstitutional, and the Tunney Act does in
fact mandate that action by the District Court.
QUESTION: How are you foreclosed in the future
from taking competing operating systems as you see fit?
MR. JACOBOVITZ: Because we in fact have to recoup
our royalties. We are a small company. We are out $2
million. If we use a competitor, for example, like IBM OS-
2, we have to pay IBM and we still have to pay Microsoft,
because we are not recouping our royalties, so it creates an
economic penalty or a tax for IDEA. Therefore, we have to
keep using Microsoft.
QUESTION: You don't have to, but you have a
MR. JACOBOVITZ: We have an economic incentive to.
We don't have to. We can go out of business, also. I mean
there are a number of --
QUESTION: You are saying your economic incentive
is to continue to sell as much of the existing software of
Microsoft that you have?
MR. JACOBOVITZ: Actually, the way it works, Your
Honor, is Microsoft is still imposing the minimum commitment
and we cannot recoup royalties until we use up $20,000 per
quarter. In order to reach that goal, in order to reach
that goal and then we could start recouping, if we don't
reach that goal, we don't recoup.
QUESTION: Do you have any idea how many other
people are even remotely in your circumstances?
MR. JACOBOVITZ: Your Honor, we have tried --
QUESTION: The record does not disclose that.
MR. JACOBOVITZ: We have tried to calculate that
from Microsoft's public statements. They have not stated
how much it is. We think it is approximately 25.6 million.
I have had OEM's contact me about that. There are others
out here watching afraid to come forward, but there are
other OEM's who are in fact harmed by this.
QUESTION: Why is IDEA so courageous, in light of
all the fear? Is it $2 million that concentrates the mind?
MR. JACOBOVITZ: My client is a man of principle.
QUESTION: I understand.
MR. JACOBOVITZ: Thank you, Your Honor.
In any event, this will enable Microsoft to
maintain market dominance. The Department of Justice --
QUESTION: It causes you to think about another
way to achieve the remedy you think you are due.
MR. JACOBOVITZ: Your Honor, Judge Sporkin came up
with a perfect remedy to this. He offered for issue a
mechanism whereby we would go to a special master and a
special master or a neutral arbitrator would essentially
help us litigate this issue. Microsoft and the government
said no. We were perfectly willing to do this.
QUESTION: That is what I say, so you have to use
other available remedies and there are other available
MR. JACOBOVITZ: That is correct, and Judge
Sporkin was going to impose it and it was as matter of --
QUESTION: But that is the whole point. That is
to say if the trial judge sniffs out anything that is
troublesome in life can propose a remedy? That is not what
this statute is about. Sure, there are lots of collateral
issues of interest and maybe even of great interest, but
that doesn't mean a trial judge has the authority to wander
in and cure them all. That is not what this statute is
about and that is what our case law makes absolutely clear.
We have case law that control us.
MR. JACOBOVITZ: Your Honor, I would respectfully
disagree, because the case law, at least my interpretation
indicates that in fact that the judge has to look at whether
this is an effective remedy.
I see my time is almost up and I would like to
THE COURT: Your time is up. Thank you, counsel.
MR. JACOBOVITZ: Thank you.
THE COURT: You may proceed, counsel.
ORAL ARGUMENT OF GARY L. REBACK, ESQ.,
AMICUS CURIAE, ANONYMOUS AMICI
MR. REBACK: Thank you. May it please the Court:
My name is Gary Reback, appearing here on behalf of the Doe
We are not asking this Court, nor have we asked
any court to charge Microsoft with anything. We are merely
asking this Court not to require the lower court as a matter
of law to enter a consent decree, when the lower court had
problems and questions and the Justice Department wouldn't
answer those questions. That is what we are here about.
That is how we characterize this case.
QUESTION: There is no limit on the questions that
may be asked?
MR. REBACK: There is virtually no limit on the
questions that may be asked. There are certainly limits
that the types suggested --
QUESTION: There are two questions that must be
MR. REBACK: Yes, there are certainly very strong
limits as to what basis the District Court can reject the
decree. We are not asserting that the District Court can
compel the Justice Department to fix something that
Microsoft didn't break in the first place. So I want to
make that clear from our position.
I understand your point about pries open market to
competition, but it is the fact that all those cases say you
have to cure the ill effects. The relief here is
prospective only. When it came to the Court of Appeals --
QUESTION: Suppose 2 percent of Microsoft's market
share in the operating systems market is attributable to the
practices to which the government directs its complaint
attack, then how would the government go about identifying a
relief that would knock Microsoft down 2 percent?
MR. REBACK: I don't know how to answer that
question, because I don't know --
QUESTION: Nor do I, nor do I think anybody does.
Your answer is you knock them down to 20 percent.
MR. REBACK: No, sir. No, sir. I am not
asserting that we have to have any change in Microsoft's
market share. The gist of the complaint here was that these
practices prevented competitors from getting installed base.
And although the Justice Department has said here, they
said in this Court that the effect of those practices were
immaterial and unmeasurable, that is not what they told the
District Court. They told the District Court exactly the
opposite in their principal brief in the lower --
QUESTION: Counsel --
MR. REBACK: May I just make this point, and I
don't mean to be disrespectful.
QUESTION: Please go ahead.
MR. REBACK: All of you are arguing it or
approaching it from the proposition of what the government
said in its reply brief. I agree, if --
QUESTION: I was focusing particularly on Dr.
MR. REBACK: I'm sorry, sir?
QUESTION: I was particularly focusing on Dr.
MR. REBACK: Let me get to that. But what they
said to the lower court was "to be sure, the challenged
practices had serious anti-competitive effects." That is
what they said to the lower court. Up here they say the
practices are immaterial --
QUESTION: Of course, you have serious anti-
competitive effects, if it prevents somebody else from
getting into the market. They could present a barrier for
entry prospectively without having been responsible for
Microsoft achieving market share in advance.
MR. REBACK: That is conceivable, but that was not
the gist of the case.
QUESTION: That is the gist of Dr. Arrow's
statement, is it not?
MR. REBACK: No, sir. I would like to make clear
that the government files a complaint in the case based on
the theory that these practices prevented other people from
getting an installed base. We show up on the scene and we
say it had that effect and it also had the effect of
creating a large installed base for Microsoft. Professor
Arrow takes exception to that, as do you, and my response is
QUESTION: Well, I am asking questions, counsel.
I haven't taken a position.
MR. REBACK: I'm sorry. My point is that
Professor Arrow does take exception to that. He says this
didn't contribute to Microsoft's installed base materially,
because the tipping event already occurred. But he doesn't
say, nor could he say that these practices didn't inhibit
others from having an installed base and thereby providing
I respectfully disagree, sir, on the notion of
what the District Court was trying to do. What he was
trying to do was put the market back to the way it would
have been --
QUESTION: Counsel, when you respectfully
disagree, I want you to know that I was quoting this court.
MR. REBACK: Yes, sir.
QUESTION: You respectfully disagree with the
quote or this holding or what?
MR. REBACK: I may have misunderstood.
I may have misunderstood Your Honor's point. But
my point is that the court was trying to put the market back
to the way it would have been but for these anti-competitive
practices, not solely in terms of Microsoft's installed
base. I concede that Professor Arrow --
QUESTION: As Judge Silberman asked you, how can
you possibly measure that?
MR. REBACK: How could you measure what they would
QUESTION: When you had the original event of the
installed base developing, without regards to the practices
that are now in issue, so how do we know what percentage
those later developed practices had on the market? The base
occurred because early on DOS -- later Windows, but DOS
principally -- was accepted as the operating system.
Microsoft had it and people were willing to accept it.
There were no competitors running around screaming anti-
competitive effects at that time, is that right?
MR. REBACK: I'm sorry, sir?
QUESTION: Isn't that right? At the very
beginning, DOS was accepted?
MR. REBACK: That is not alleged in the complaint,
that there were anti-competitive practices.
QUESTION: That is why I say I don't know how you
assert that these licensing practices and other practices
that came later, how you can't comfortably tell us how much
of an impact they had on the market dominance. Dominance
clearly occurred in the first instance because DOS was the
accepted system and Microsoft had that system.
MR. REBACK: There are two parts to the question,
and I would like to address them both. There is the
difference between DOS and Windows which i want to hold for
just a second. That is an important difference and you
alluded to it before.
Let me address the other part of the question,
which is the tip. The tip occurred prior to the anti-
competitive effects. It did occur and Microsoft thereby
might have achieved market dominance. That is what
Professor Arrow says. I am not quibbling with that. But
the whole gist --
QUESTION: Wait a minute. Wait a minute. Let's
finish it up. Indeed, with some of these practices, the
reason they were able to leverage the way they did was
because they had the dominance which came at a time when
they didn't do anything that was unlawful. They got the
market. The market was given to them. DOS was accepted,
they had it and they got it. Later on, because they had it,
they did use these leveraging techniques. They couldn't
have used these leveraging techniques but for the fact that
they had the market which they got lawfully, right?
MR. REBACK: I don't necessarily agree with that.
Take the NT situation, for example.
QUESTION: Let's start with the beginning first
and then come to Windows and NT.
MR. REBACK: Could they have engaged in these
practices without DOS having 70 percent of the market?
QUESTION: Would anyone in their right mind have
done it if they had 2 percent? Would you have gone in and
said I want you to sign this contract?
MR. REBACK: It depends on what the rest of the
market looked like. If the rest of the market was highly
fragmented -- but let me assume that you are correct --
QUESTION: Well, let's assume they had 2 percent
and OS-2 has 78 percent. Would they have gone to anyone
with these licensing techniques?
MR. REBACK: I doubt people would have accepted
it under those conditions.
QUESTION: Of course.
MR. REBACK: But there is an enormous difference
between having 70 percent of a market of 20 million when
most people haven't bought computers yet and having 79
percent of a market after most people have bought computers.
There is a big difference between market share and real
market power, as this Court has perceived in many cases. I
don't think we should confuse the two things here.
QUESTION: Do we have any evidence establishing
that Microsoft exercises market power besides the Dr. Arrow
MR. REBACK: I don't understand the question.
QUESTION: Do we have any evidence in this case?
No, of course not.
MR. REBACK: There is a lot of information in our
submission, but not --
QUESTION: No evidence, no court can make a
judgment with confidence even that Microsoft exercises
MR. REBACK: None beyond the charges in the
complaint in the Arrow declaration.
QUESTION: That is not evidence. Let me get to
that. It is your argument I think -- you are having a lot
of difficulty in this Court, because we are terribly
concerned about the District Court going beyond the
allegations in the complaint.
MR. REBACK: I would like to address that.
QUESTION: I know, but I want to go to an even
more perplexing question for me, which is it seems to me all
the amicus take the position at minimum that the District
judge must assume that the allegations of the complaint are
MR. REBACK: No, sir.
QUESTION: You don't take that position? All of
you argue at minimum, and the government doesn't even follow
that in this case, that you measure the adequacy of the
remedy based on the allegations in the complaint.
MR. REBACK: Yes.
QUESTION: So you naturally assume that the
allegations are made out.
MR. REBACK: There is case law for the proposition
that we should assume the government would win, if the case
QUESTION: There is one case on that. I am very
troubled about that, counsel, and I will tell you why I am
troubled. Suppose you were the Assistant Attorney General
for Antitrust, a not inconceivable proposition, and your
staff comes to you with a case against an emerging dominant
company in a dominated industry somewhat analogous to this
or perhaps an IBM case, any one of those kinds of cases, and
the staff says we think we have the following case:
We have five different allegations we think we can
make, and the economists and lawyers all get together and
you ask them what are our chances of winning, and your best
lawyers and economists altogether say, well, we think we
have a 55 percent chance of winning in fact in the trial,
the Court of Appeals and perhaps the Supreme Court of the
United States, maybe close to 50/50.
And you ask the next question: How much would it
cost to litigate this? Well, it will probably take 7, 8 or
9 years, maybe $25 million. Well, how many other antitrust
cases will we be bringing in that period of time, if we take
this case? Well, we are going to lose about half the cases
we could otherwise bring.
Now, have you engaged in any preliminary
discussions? And your staff says yes, I think we can settle
this case for half of the -- they will agree to discontinue
half the practices we are alleging. Now, if you are
Assistant Attorney General, do you buy that deal?
MR. REBACK: If the deal cures the ill effects
under the Gypsum case, the harm that occurred before I buy
the deal. If it doesn't cure the harm --
QUESTION: Are you arguing with my hypothetical?
MR. REBACK: No, I am trying to address your
QUESTION: What is the answer to the hypothetical?
MR. REBACK: You have got to give me one more
QUESTION: What is the other fact?
MR. REBACK: The other fact is does half the
relief that I ask for un-do the harm that they did before?
If it does, I take it.
QUESTION: Not totally?
MR. REBACK: Then I don't take it.
QUESTION: Then you don't take it.
MR. REBACK: The standard is as far as is
practical. If it doesn't un-do the harm, it won't meet the
minimum test. May I just explain: The way we read the
Triennial cases, in response to Your Honor's question, is we
are almost irrelevant. All the government has to do is make
a substantial factual record based on recent analysis. They
then make predictive judgments based on that and meet the
minimum threshold of curing the harm, and if they do those
things, the judge could only reject with exceptional
confidence, and there is no record here.
QUESTION: You are saying in the hypothetical I
gave you had to go through all six allegations and go for
broke, because you can't settle this case, in which you had
50 percent chance of prevailing, because economic theories
change, legal theories change, you only have a 50 percent
chance at prevailing, you can't settle this case for 50
MR. REBACK: I don't want to mince words here,
but if the remedy doesn't get over the hurdle of Gypsum --
QUESTION: There is no special hurdle. It is 50
percent of the relief.
MR. REBACK: No, I can't agree with that, Your
Honor, even though it cures what was done so far as
practical or it doesn't. And if it doesn't, I can't take it
if it is 50 or 80 or 97. It has got to make it over that
minimum hurdle. That is my point. There is a minimum.
That is what those Supreme Court cases say, there is a
QUESTION: The Supreme Court cases say if there is
a different Assistant Attorney General who goes the other
way, that you or someone else has the right to say I want to
know what else was going on, I want the investigatory file,
I want to see whether a different complaint could be made
out and I want to see whether this was 50 percent as opposed
to 100 percent, and if it is only 50, the rest has to be put
in, that is the public interest test. Is that it?
MR. REBACK: No. I understand Your Honor's
concern and I want to address that, and I appreciate the
opportunity to do so. We are not alleging that anybody can
make the government bring charges beyond what they wanted to
bring. Our whole case is tied to the point I was just
making to Your Honor, the effectiveness of the remedy.
These other practices like "vaporware," the reason he was
concerned about them is that Microsoft was engaged in them
and they had anti-competitive effects. They would
eviscerate the remedy here.
In other words, that they would contribute to
Microsoft's ability to maintain the monopoly in the market
charges in the complaint with respect to the products
charged in the complaints at the same time charged in the
complaint. He can't go off and assert that he is going to
deny the complaint because it didn't charge them with X or
Y, unless it has a remedial effect on this market. That is
the scope. Courts deal with remedies, not with charges, and
I concede that point.
QUESTION: Mr. Reback, to get back to Judge
Silberman's hypothetical, do I understand that if the
settlement does not result in undoing past effects, then
there is only two choices before the prosecutor, either to
go forward to trial or to drop the case?
MR. REBACK: Yes, so far as practicable. In other
words, I acknowledge the point that there are going to be
these 2 percent factors and we are not here quibbling about
QUESTION: No, no, no, wait a minute. Judge
Buckley is getting to the point I was trying, and that is my
next question. You are creating, are you not, by your
answer to my question? If we adopted your view of what the
law is, we would create an enormous disincentive to the
Assistant Attorney General in that case, because she then is
faced with this enormous prospect or this enormous burden of
resources and a 50 percent chance of victory, has one of two
choices, as Judge Buckley says, one of which is, okay, let's
drop this entire case, let's not dare raise a complaint
because we will get ourselves in the hands of a District
Court who will then say, well, you haven't reached your
tipping point, as Mr. Reback described it, and the Court of
Appeals put it in their opinion, and so we can't dare bring
this action, so let's drop it and the government loses the
50 percent relief that it could otherwise have.
MR. REBACK: Yes, if the relief is ineffective --
QUESTION: Isn't that exactly what I said, the
government could not bring that action combined with a
consent decree that favored 50 percent of the relief that it
thought initially it might want, because it either had to go
for all or nothing?
MR. REBACK: The reason I am --
QUESTION: What you are missing is the
uncertainties of litigation. People settle cases, but the
government no less than non-government settles cases often
based on uncertainties of litigation. And can they not
abandon the case based on the uncertainties of litigation?
And if one looks at, let us say, the IBM case, one has to
conclude that there are great uncertainties in litigation in
antitrust cases, aren't there?
MR. REBACK: Indeed, so there are. Congress
factored in the consideration of the Tunney Act the cost
that Your Honor is speaking of, but the court cannot and
should not put its imprimatur on an ineffective settlement,
and the cases say prospective only, that doesn't un-do the
damage is ineffective.
What is confusing here is that we have come along
below and said there are these installed base problems with
respect to Microsoft. The government has argued about that
and the court has responded to that. They are now
retreating back to the complaint that they brought which
says there are problems that inhibited others' ability to
acquire and install base, and what the lower court
respectfully said was you have got to make at least some
QUESTION: There is one other question I have to
ask, counsel, in this case. I am very troubled at the
notion of an anonymous amicus coming in as an accuser. It
seems to me if Microsoft has a claim to appeal, it has a
rather good claim for an appeal of the ancillary order
allowing an anonymous amicus to come in.
Now, how can this be justified in this kind of
case? For instance, isn't it quite possible that you
represent people without standing under the antitrust laws?
MR. REBACK: It is possible.
QUESTION: Right, and wouldn't that be very
troubling to allow somebody to cause this enormous bit of
litigation who didn't even have standing?
MR. REBACK: No.
MR. REBACK: Because the Tunney Act specifically
says that the normal rules of evidence that you are talking
about don't apply.
QUESTION: That isn't standing. It is not
MR. REBACK: I believe that standing is not
evidence, but my point is the Tunney Act specifically says
that the judge could go to anyone and get information --
QUESTION: Suppose you represented somebody who
wanted to blackmail Microsoft and didn't have any interest
in the antitrust laws whatsoever in terms of economic
MR. REBACK: Yes, sir.
MR. REBACK: The judge can get information from
whatever source he chooses. And whether we have some
ulterior motive --
QUESTION: And it is equally good.
MR. REBACK: I beg your pardon?
QUESTION: It has to be equal credence, equally
MR. REBACK: No, no, no. Oh, he considers it --
QUESTION: I mean by definition, once you say I am
from an anonymous source, to come at Judge Silberman's
question another way, if we weigh that, it should always be
valued at zero or less.
MR. REBACK: Well, if it were --
MR. REBACK: That may be Your Honor's --
QUESTION: That or less part is about equal in
terms of difficulty in tackling the 2 percent.
MR. REBACK: Your Honor, that was not Judge
Sporkin's view, because the parties wouldn't give him the
information that he asked for. I again say we are relevant
to this procedure, if the government supplies a record.
Then you could give us less than zero and who cares what we
THE COURT: Your time is way over.
MR. REBACK: I beg your pardon, Your Honor. Thank
you very much.
THE COURT: That is all right. You have been
aggressive in getting more, so I can't complain.
Thank you, counsel.
Mr. Klein, you want rebuttal?
MR. KLEIN: We have nothing further, unless the
Court has questions.
THE COURT: Mr. Urowsky, rebuttal?
ORAL ARGUMENT OF RICHARD J. UROWSKY, ESQ.,
ON BEHALF OF APPELLANTS, MICROSOFT CORPORATION -- REBUTTAL
MR. UROWSKY: Thank you, Your Honor.
QUESTION: Do you want to make an argument to
support that footnote in your case?
MR. UROWSKY: If I may do that just in a moment,
Your Honor, please.
I want to address just a very small number of
points. On the issue of installed base, Dr. Arrow's
affidavit I think makes quite plain that the installed base
could not be a result of the licensing practices, because
even in --
QUESTION: Is that your point?
MR. UROWSKY: I will move on to another point.
Second, it should be clear to the Court at all times that
per processor licenses were not imposed on OEM's by
Microsoft. There were other license alternatives that many,
many, many manufacturers elected to take, and the form --
QUESTION: Do we need to decide that?
MR. UROWSKY: No, Your Honor, but I make the point
because the word "leverage" was used in connection with
QUESTION: Lots of hypotheticals were raised.
MR. UROWSKY: My final point on Brunswick, Your
Honor, I don't believe that the Brunswick analysis of
antitrust injury has been limited to the specific
circumstances of the Brunswick case where Your Honor was
precisely correct --
QUESTION: Manfred, which is the second case or
the latest case on antitrust also involving claimed that in
a merger, the Court made clear that the reason why it is not
antitrust injury is the Article III injury is precisely what
the antitrust laws were to encourage. That is not this
case. It seems to me that IDEA would have a damn good
argument in court that the injury it suffered, if it was
attributable to a practice which was a violation of the rule
of reason, vis-a-vis the applications manufacturer, it would
have privy or at least a certain same claim. I don't want
to make the private litigation argument IDEA may raise
against Microsoft, but it seemed to me you invited it when
you put your foot up.
MR. UROWSKY: I beg respectfully to disagree with
the Court's analysis. The Court is entirely correct that
both in Brunswick and Manfred, the plaintiff was essentially
claiming as injury the fact that it wasn't given some
competitive advantage by using --
QUESTION: The injury it was claiming came from
the merger and it would be under fiercer competition.
MR. UROWSKY: Precisely.
QUESTION: Unless there was predation, that would
be exactly what the antitrust laws wished to encourage.
MR. UROWSKY: Precisely, but there are other
cases. For example, when employees of a company that goes
out of business allegedly for antitrust reasons sue, they
are found not to have sustained antitrust injury --
QUESTION: Yes, but they are in privy with the
employer and he obviously has no ground.
MR. UROWSKY: I don't think it's a question of
QUESTION: Well, they are in the same injury
MR. UROWSKY: Their injury --
QUESTION: I think the OEM here is much closer to
the application software manufacturer. Anyway, that is a
good version, but you didn't cite in the other cases. You
MR. UROWSKY: The leading case.
THE COURT: Your time is up, counsel. I thank all
The case is submitted.
[Whereupon, at 11:00 o'clock a.m., the case in the
above-entitled matter was submitted.]
- - -