IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
UNITED STATES OF AMERICA,
|Civil Action No. 98-1232 (TPJ)|
|STATE OF NEW YORK, ex rel.
Attorney General DENNIS C. VACCO, et al.,
PUBLICLY FILED VERSION
Civil Action No. 98-1233 (TPJ)
PLAINTIFFS' JOINT RESPONSE TO MICROSOFT'S
MOTION FOR SUMMARY JUDGMENT AND REPLY IN
SUPPORT OF MOTIONS FOR PRELIMINARY INJUNCTION
DATED: August 31, 1998
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
UNITED STATES OF AMERICA,
STATE OF NEW YORK ex rel.
Civil Action No. 98-1232 (TPJ)
Civil Action No. 98-1233 (TPJ)
Civil Action No. 98-1233 (TJP)
PLAINTIFFS' JOINT RESPONSE TO MICROSOFT'S
MOTION FOR SUMMARY JUDGMENT AND REPLY IN
SUPPORT OF MOTIONS FOR PRELIMINARY INJUNCTION
Microsoft's motion for summary judgment misstates plaintiffs' claims, the evidence
concerning them, and the applicable law. When there is a claim that Microsoft does not want to
deal with, it simply ignores it. When there is evidence contrary to Microsoft's factual assertions,
it ignores that too, even when it is contained in the same document or deposition on which
Microsoft seeks to rely. When controlling precedent is at odds with Microsoft's arguments, it
either ignores the authority or treats it as having been overruled sub silentio by lower court
For purposes of its summary judgment motion, Microsoft does not, and could not,
dispute that it has monopoly power in the market for PC operating systems. And on summary
judgment, Microsoft does not, and could not, dispute the existence of a pattern of
anticompetitive conduct that has preserved its dominance of the PC operating system market and
which threatens to extend that dominance to other markets. In essence, Microsoft's summary
judgment motion thus invites this Court to rule, as a matter of law, that because of supposedly
unique characteristics of the computer software business, the antitrust laws do not (and cannot)
prohibit an entrenched software monopolist like Microsoft from engaging in the broad series of
anticompetitive acts at the core of this case.
Microsoft enjoys the most important and perhaps the most durable monopoly in the
economy today. Microsoft has been the dominant supplier of personal computer desktop
operating systems for more than 15 years, with market shares (depending on how they are
measured) ranging from 80 percent to 95 percent.
PC manufacturers have, and recognize they have, no realistic alternative to Microsoft's
Windows operating systems. Microsoft prices its Windows operating systems virtually without
regard for the prices of other operating systems. Microsoft's monopoly power is illustrated by
its ability to secure agreements from competitors and potential competitors (including companies
as powerful as Intel) to reduce or eliminate their competition with Microsoft.
Successful entry or expansion of new operating systems competitors has proven
impossible, in significant part because of the applications programming barrier to entry.
Computer users want PCs that will run the widest range, and largest number, of programs.
Because of Microsoft's market share and sustained dominance, many more PC applications have
been developed for its operating systems than for those of any other manufacturer. Windows'
high market share begets more applications, which in turn preserve and increase its high market
share, which in turn begets still more applications, and so on. Unless and until the success of a
particular operating system comes to depend less on the number of applications written
specifically for it and more on the merits of that operating system, Microsoft's power is likely to
In the past few years, two related industry developments have occurred that have the
potential to erode the applications programming barrier to entry, and thereby ultimately to
threaten Microsoft's PC operating system monopoly.
One development was Java, software sponsored by Sun Microsystems that is designed in
part to enable programmers to write applications that can be used "cross platform" (i.e., on
multiple operating systems) without substantial modification.
(As used herein, "SJ Ex" refers to exhibits which accompany this Joint
Another development was the explosion in popularity of the World Wide Web, and of
Internet browser applications (primarily Netscape's Navigator browser) used to access and view
material on the Web. Because of the explosive growth of the Internet, and the ease with which
Netscape's browser enabled computer users to access the Internet, Netscape's browser quickly
came to be widely distributed and used.
The widespread distribution and use of Netscape's browser was significant in two ways.
First, the browser itself was a platform to which applications could be written -- and thereafter
run on any of the many operating systems with which that browser was usable.
By May 1995 Microsoft's CEO recognized Netscape as a competitive threat
United States' Memorandum in Support of
Motion for Preliminary Injunction, filed May 18, 1998, ("PI Brief"), Exhibit (hereinafter
"PI Ex.") 2.
Second, Netscape's Navigator browser became a primary method by which the Java
components necessary for computer users to utilize and benefit from Java programs were
distributed. Indeed, in July 1997,
SJ Ex. 61, p.1. The more applications that were written to the
"Java Virtual Machine" component shipped with Netscape's browser, the more applications that
could be used on non-Microsoft operating systems -- and the more the applications programming
barrier to entry would erode.
Microsoft immediately set out to eliminate the potential threats posed by Netscape and
Java. At the specific and pointed direction of Microsoft CEO Bill Gates, Microsoft set out to
support of this effort, Microsoft entered into a series of anticompetitive agreements with
customers and competitors to restrict the use of Java and to substitute the use of Microsoft's
version of Java, known as "J/Direct."
PI Ex. 101.
At the same time, Microsoft (again at the specific direction of CEO Bill Gates) set out to
eliminate Netscape as a viable browser supplier -- and thereby to eliminate both Netscape's
distribution of Java and Netscape's evolution into a platform that could erode the applications
programming barrier to entry. Microsoft first attempted to monopolize the browser market by a
patently illegal proposal to Netscape that the two companies divide the market and restrict or
eliminate competition (with Netscape agreeing not to compete in offering its browser for
Windows 95). When Netscape rejected Microsoft's illegal proposal, Microsoft undertook to
eliminate Netscape's ability to compete effectively as a browser supplier, and to preserve and
increase barriers to entry in the PC operating system market by a series of predatory and
anticompetitive acts and agreements. Among other things, Microsoft:
Set out to "cut off Netscape's air supply" by giving Microsoft's browser away for free
(and thereby eliminating Netscape's ability to charge for its browser) and entering into
agreements with Internet Content Providers which required those ICPs to agree not to
Discouraged customers, suppliers, and others from doing business with Netscape by
announcing publicly (and telling customers privately) that Microsoft would make its
browser "forever free" and that Netscape therefore had no viable business;
Entered into agreements with PC manufacturers and Internet Service Providers that
effectively foreclosed Netscape from the most important channels of distribution and
substantially increased Netscape's costs;
Entered into agreements with ISPs, ICPs, and others to eliminate or reduce those firms'
promotion and/or distribution of Netscape's browser;
Used its monopoly power to induce major computer industry firms, including Apple and
Intel, to limit or reduce their use of and support for Netscape's browser;
Tied Microsoft's Internet Explorer browser to its monopoly Windows PC operating
system and prohibited PC makers from removing that browser.
Although Microsoft also set out to improve its browser (which was initially so poor in
quality and function that it would have received virtually no distribution if not for Microsoft's
restrictive agreements and the tie to Windows), Microsoft recognized that
PI Ex. 23. Because
Microsoft believed that it could not win what it repeatedly described as "the browser war"
legitimately and on the merits, it resorted to the predatory and anticompetitive agreements and
conduct described above; and it is those agreements and conduct that unlawfully maintain
Microsoft's operating systems monopoly and threaten to extend that monopoly to the browser
The cumulative effect of Microsoft's anticompetitive and illegal conduct has been, and
continues to be, to increase Microsoft's share of Internet browser usage; to reduce the revenues
and increase the costs of rival browser manufacturers; to deter innovation by other browser
manufacturers and, more generally, by others in the industry that would otherwise seek to
develop new software products in competition with Microsoft; and to further entrench
Microsoft's operating system monopoly.
Microsoft's conduct with respect to Java and browsers is part of a broad pattern of
antitcompetitive conduct designed to eliminate competition, to maintain and strengthen
Microsoft's core monopoly over PC operating sytems, and to monopolize key applications
For example, Microsoft's proposal to Netscape to divide the market and restrict or
eliminate competition is part of a pattern that includes similar discussions with Intel (concerning
Intel not continuing software development), Apple (concerning Apple agreeing to stop
marketing QuickTime for use with Windows), and a small company called Real Networks
(concerning a Real Networks assurance that it would get out of the base streaming media
platform business and not share its technology with Microsoft's competitors). Microsoft's
response to Netscape's rejection of its proposed market division is part of a pattern that includes
Microsoft's response to Apple when Apple refused to withdraw its "QuickTime" software from
competition with Microsoft's "NetShow" software.
SJ Ex. 60,
p.0104683, is part of a pattern of using its control over the monopoly operating system to make
competing products operate, or appear to operate, less effectively, a pattern that began at least as
early as the Microsoft code designed to disrupt the use of DR-DOS. And Microsoft's tying of its
browser to Windows is part of a pattern of tying applications to the operating system -- a pattern
that will have no limit if Microsoft prevails in its view that it is free to combine any product it
wishes with the operating system.
The extraordinary potential costs to consumers and the economy of Microsoft's conduct
are particularly clear with respect to Java and the browser. First, Microsoft preserves its
operating systems monopoly as both a rich and powerful monopoly in itself and as the engine for
dominating related markets. Second, Microsoft extends its monopoly to browsers -- and thereby
puts itself in a position to wield tremendous influence in directing computer users to particular
products, services, and sites on the Web.
Because Microsoft's unlawful practices are continuing and are imposing ongoing harm to
competition, plaintiffs filed with their Complaints motions for a preliminary injunction.
Microsoft has opposed those motions and has itself moved for summary judgment. Microsoft's
summary judgment motion (and its opposition to plaintiffs' motion for preliminary injunction)
asks this Court to create a virtual exemption from the antitrust laws for Microsoft (and the entire
computer software industry) and to permit a software monopolist such as Microsoft to use
anticompetitive means to entrench and extend its monopoly without fear of judicial intervention.
Microsoft further urges the Court to exempt from Section 1 of the Sherman Act any Microsoft decision to coercively tie together two separate products, so long as Microsoft can merely
suggest a plausible claim of benefit from the tie. Such an exemption would be virtually
complete, since the very nature of computer software makes it easy for software developers to
join together separate products in ways that create some "plausible" benefit and that introduce
some "plausible" technical interdependencies that may appear difficult to disentangle.
Microsoft's extraordinary propositions go far beyond the rules previously adopted by any court,
and are directly contrary to controlling Supreme Court precedent.
In addition to seeking wholesale exclusion from the reach of antitrust scrutiny for its
anticompetitive activities, Microsoft's motion also tries to justify summary judgment by distorting
and mischaracterizing the extensive factual record in this case.
Contrary to Microsoft's representation, MS Memo at 75-80, there is substantial evidence
that Microsoft, with its entrenched monopoly in the market for PC operating system
software, engaged in a series of predatory acts to maintain that monopoly and extend it to
the market for internet browser software.
Contrary to Microsoft's representation, id., there is substantial (indeed, overwhelming)
evidence that its predatory and exclusionary conduct was undertaken for the purpose of
Contrary to Microsoft's representation, MS Memo at 59-74, there is substantial evidence
that Microsoft's exclusionary agreements with PC manufacturers and Internet Service
Providers and Internet Content Providers have raised barriers to competition and
effectively foreclosed competitors from significant distribution channels.
Contrary to Microsoft's representation, id., there is substantial evidence that the
anticompetitive effects of these restrictive agreements far outweigh any purported business
Contrary to Microsoft's representation, MS Memo at 38-49, there is substantial evidence
of separate demand in the marketplace that proves Microsoft's Internet browser is a
separate product from the operating system.
And contrary to Microsoft's representation, MS Memo at 51-59, there is substantial
evidence that the bootup and screen restrictions in Microsoft's contracts with PC
manufacturers are far more onerous than is necessary to protect Microsoft's rights under
federal copyright laws.
As this Court recognized at the August 6 hearing, the presence of even a single material
factual dispute, without more, would require denial of Microsoft's motion. Transcript, Aug. 6,
1998 at 11:9-13. In fact, on every material issue the plaintiffs' evidence, even at this stage while
discovery is still ongoing, is either uncontroverted or directly counters Microsoft's assertions.
Given the strength and breadth of the plaintiffs' proof, Microsoft's claim that there are no genuine
issues of fact is frivolous.1
Much of the evidence that Microsoft ignores comes from its own files. Microsoft's
approach in depositions and in its motion for summary judgment is to deny what its
contemporaneous documents plainly say -- and to claim an astonishing lack of recall.
Executives who are stated to be the author of documents claim not to remember writing them.
Executives who are the stated recipients of documents claim not to remember receiving them.
And both authors and recipients claim not to know what the documents mean.
Microsoft's CEO Bill Gates, who is placed at the center of key events by numerous
documents, displayed a particular failure of recollection at his deposition. Compare, e.g., SJ Ex.
63 with Gates Dep., 89-92; SJ Ex.18 with Gates Dep. 94-95; SJ Ex. 64 with Gates Dep.,
95,100,102,104,107-108; SJ Ex. 65 with Gates Dep., 160-62; SJ Ex. 354, p.6012956 with Gates
Dep., 128-29, 207-08, 215-17; SJ Ex. 67 with Gates Dep., 132-33,135-36,163-64,165-66; SJ Ex.
68 with Gates Dep., 153,155,156-57; and SJ Ex. 69 with Gates Dep., 173-74,177,181-82,189-
As discussed below, Microsoft's attempt to get Netscape to divide markets is well
established by sworn testimony of participants and by contemporaneous notes.
By contrast, contemporaneous documents show that
Mr. Gates further testified that
SJ Ex. 70
Mr. Gates' testimony appears to be part of a pattern of Microsoft attempting to rewrite
history. For example,
Microsoft in its recent
papers (and in the testimony of its deponents -- except when they slip) studiously avoids the term
"browser." Although browser is a term used throughout Microsoft's documents and licenses, the
industry literature, and even in the dictionary Microsoft publishes for software professionals, in
the interest of Microsoft's litigation arguments it becomes a non-word. Witnesses claim they
don't know what a browser is. What used to be browsers are now simply "bits" of "browsing
technologies." Microsoft's refusal to recognize the existence of a browser extends not only to
the "integrated" browser but to the stand-alone products Microsoft offers.
At the trial the trier of fact will undoubtedly give Microsoft's current positions the
weight they deserve. There is, of course, no way that Microsoft can back away from its
contemporaneous documents and statements in a summary judgment motion.
II. MICROSOFT IS NOT ENTITLED TO SUMMARY JUDGMENT
In order to obtain summary judgment, the moving party must demonstrate "that there is
no genuine issue as to any material fact and that the moving party is entitled to judgment as a
matter of law." Fed. R. Civ. P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986);
Beatty v. WMATA, 860 F.2d 1117, 1120-21 (D.C. Cir. 1988). The party seeking summary
judgment carries the initial burden of demonstrating the absence of any genuinely disputed issue
of material fact. SeeBeatty, 860 F.2d at 1122. Only then must the nonmoving party, through
"‘depositions, answers to interrogatories, . . . admissions on file'" and other appropriate
evidence demonstrate that there is a genuine issue for trial. Celotex, 477 U.S. at 324. "The
evidence must be viewed in a light most favorable to the nonmoving party, giving that party the
benefit of all reasonable inferences." Startmore v. Goodbody, 866 F.2d 189, 191 (6th Cir. 1989)
(citing Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 487 (1986)).
"It is axiomatic that Rule 56 must be used carefully so as not improperly to foreclose
trial." Thompson Everett, Inc. v. National Cable Advertising, L.P., 57 F.3d 1317, 1323 (4th Cir.
1995). Courts should be especially cautious before entering summary judgment where, as here,
liability is likely to turn on factual questions about the purpose and effects of conduct whose
existence is not disputed. See, e.g., Eastman Kodak Co. v. Image Tech. Servs., Inc., 504 U.S.
451, 482-86 (1992).2
Microsoft's motion for summary judgment falls far short of meeting these standards.
With respect to plaintiffs' Section 2 claims, Microsoft limits its discussion to its bundling
of Internet Explorer with Windows and certain restrictive agreements with OEMs, ISPs, and
ICPs. Microsoft's motion (which seeks dismissal of plaintiffs' claims in their entirety) is
insufficient on its face because it does not even address either Microsoft'sattempt to induce
Netscape not to compete, which in itself constitutes an unlawful attempt to monopolize, see
United States v. American Airlines, Inc., 743 F.2d 1114,1120-21 (5th Cir. 1984), or the other
elements of Microsoft's predatory maintenance of its monopoly and attempted monopolization
(seeinfra, Section II.A).
Moreover, even with respect to the aspects of its conduct that it does address, Microsoft
fails to remotely satisfy the summary judgment standard. Microsoft mounts essentially three
attacks on the factual basis for plaintiffs' claims, asserting that: (1) there is no genuine issue that
its agreements with OEMs, ISPs, and ICPs have not had sufficient anticompetitive effects to
unreasonably restrain trade;(2) its bundling of Internet Explorer with Windows is not an
unlawful tying arrangement because the two are not separate products; and (3) its restrictive
agreements with OEMs are immunized from antitrust scrutiny by the copyright laws (and
subsidiary justifications). These arguments are neither supported by substantial evidence, let
alone the uncontested evidence that would be required to justify summary judgment, nor are they
correct as a matter of law.
Microsoft's motion for summary judgment on the Section 1 tying claim fails both as a
matter of law (because it rests on an erroneous intepretation of tying law standards set forth by
the Supreme Court and the lower courts) and as a matter of fact (because it is plainly disputed
whether Microsoft's conduct amounts to "conditioning" of Windows licenses on OEMs'
acceptance of Internet Explorer, whether Windows and Internet Explorer are a single product or
two separate products, and whether Microsoft's conduct has a "not insignificant" effect on
We discuss below the types of anticompetitive conduct in which Microsoft has engaged.
Much of Microsoft's conduct constitutes an independent violation of Section 1 of the Sherman
Act; such conduct also necessarily violates Section 2 of the Sherman Act if Microsoft is found to
possess monopoly power. United States v. Griffith, 334 U.S. 100, 106 (1948); Barry Wright
Corp. v. ITT Grinnell Corp., 724 F.2d. 227, 239 (1st Cir. 1983). In addition, conduct that does
not violate Section 1 violates Section 2 if Microsoft is demonstrated to possess monopoly power
and if the conduct has a significant exclusionary effect and was not reasonably necessary to
achieve a legitmate business objective or "impaired competition in an unnecessarily restrictive
way." Aspen Sking Co. v. Aspen Highlands Sking Corp., 472 U.S. 585, 605 (1985); Lorain
Journal v. United States, 342 U.S. 143, 149 (1951). As Justice Scalia has observed: "Where a
defendant maintains substantial market power, his activities are examined through a special lens:
Behavior that might otherwise not be of concern to the antitrust laws -- or that might even be
viewed as procompetitive -- can take on exclusionary connotations when practiced by a
monopolist." Eastman Kodak, 504 U.S. at 488 (Scalia, J., dissenting).
A. Microsoft's Motion Ignores Its Predatory Conduct
Microsoft's motion virtually ignores the pattern of predatory conduct directed at raising
the costs of Netscape and other Microsoft rivals, raising barriers to entry, depriving Netscape
and other competitors of revenue and resources (even at the cost of Microsoft itself foregoing
revenue), below-cost pricing, and intimidating and inducing both customers and distributors of
Netscape's browser not to consider that browser on the merits.
First, Microsoft decided it would give its Internet browser away for free even though it
was costing Microsoft hundreds of millions of dollars to develop, test, promote, and distribute
Internet Explorer; even though Microsoft would not recoup except through the maintenance and
expansion of monopoly power; and even though Netscape was charging OEMs, ISPs, and others
for its Navigator browser.
as a browser supplier: "We are going to cut off their air supply. Everything they're selling,
we're going to give away for free,"
PI Ex. 4.
Microsoft set out to undercut Netscape's perceived viability -- and thereby discourage
customers, suppliers, distributors, and others from dealing with Netscape -- by publicly warning
Netscape (and those considering dealing with Netscape) in June and July 1996 that: "Our
business model works even if all Internet software is free . . . . We are still selling operating
systems. What does Netscape's business model look like? Not very good." SJ Ex. 69, p.4; see
also SJ Ex. 67, pp.3-4 and Ex. 68, p.2. Microsoft went on to announce that its browser would
be distributed free not only for an introductory period but would be "forever free."3
Second, Microsoft did not stop at giving its browser away for free. Instead, Microsoft set
out to do whatever it took to induce significant market participants to distribute and use its
Internet Explorer browser instead of Netscape's browser -- including paying some customers to
take the already free Internet Explorer and providing others with valuable concessions if they did
Ultimately, Microsoft succeeded in getting Intuit to agree not to support Netscape, but
only after tying Intuit's access to valuable placement on the Windows desktop to Intuit's
agreement to abandon Netscape. In Microsoft's April 1997 agreement with Intuit, Microsoft
required Intuit to agree that it would, among other things:
SJ Ex. 72.
Third, Microsoft set out to further deprive Netscape of revenues by securing agreements
from Internet Content Providers not to pay Netscape for participation in any competing Netscape
"channel" or other browser service. PI Ex. 36-40.
Fourth, Microsoft undertook to raise Netscape's costs by closing off the most effective
and profitable (and least costly) distribution channels for its browsers and thereby forcing
Netscape to resort to less effective and more expensive distribution methods. See infra, Section
Fifth, Microsoft used its power to intimidate both customers and distributors not to adopt
or support Netscape's browser (as well as non-Microsoft Java technology). Microsoft's dealings
with Apple are illustrative of how far Microsoft was willing to go to limit Netscape's
opportunities and to stifle Java.
On August 21, 1997,
On January 22, 1998,
On February 13, 1998
Microsoft's determination to restrict the support and distribution of Netscape's browser
by Apple is particularly telling since Apple represents the main alternative to desktop PCs
running Microsoft's Windows. Whatever the relevance of Microsoft's arguments about why it
wanted Windows users also to use Internet Explorer, those arguments cannot apply to Internet
Explorer use by Apple users.
In addition, there is no legitimate justification for Microsoft and
B. Microsoft's Exclusionary Agreements With ISPs, ICPs and OEMs Are Unlawful
Microsoft's agreements with ISPs,4 OEMs, and ICPs are exclusionary in that they make
it more difficult and costly for Microsoft's rivals to develop and distribute their Internet
browsers and thus tend to exclude those rivals from the market. Exclusionary agreements of this
nature are judged for antitrust purposes under the rule of reason, and they are unlawful if the
exclusionary provisions are on balance anticompetitive -- if, in other words, they injure
Microsoft's rivals by restricting their output more than they further Microsoft's legitimate
objectives, National Society of Prof. Eng'rs v. United States, 435 U.S. 679, 691 (1978);
American Ad Mgmt., Inc. v. GTECorp., 92 F.3d 781, 791 (9th Cir. 1996), or if their harmful
effects on Microsoft's rivals are not necessary in order to achieve Microsoft's legitimate
objectives. Sullivan v. NFL, 34 F.3d1091, 1103 (1st Cir. 1994), cert. denied, 513 U.S. 1190
(1995). There is substantial evidence that Microsoft's ISP, ICP and OEM agreements are
unlawful. See, e.g., Sibley Dec., ¶¶ 61-65; Fisher Dec., ¶ III.D.; Warren-Boulton Dec., ¶¶ 52-
Although Microsoft argues principally that its agreements do not materially harm its
browser rivals, it also suggests that the agreements can be justified on the ground that they were
entered into for "valid business reasons." MS Memo at 59, 61-62. But Microsoft cannot show
substantial, let alone undisputed, evidence, as to either the exclusionary effect of the agreements
or their purported justifications. Microsoft is therefore not entitled to summary judgment on
1. Microsoft's Agreements Have Substantially Excluded Its Browser Rivals
From The Most Important Browser Distribution Channels
The law condemns the impairment of competition on the merits, even if that impairment
does not constitute complete exclusion of a rival or foreclosure of its opportunities. Even under
the most exacting legal standard, the United States need not prove that every possible avenue of
distribution has been effectively foreclosed to a rival. See, e.g., Aspen Skiing Co. v. Aspen
Highlands Skiing Corp., 472 U.S. 585 (1985) (denial of a necessary input merely impeded
competitor's ability to market its product; competitor never contended that the joint marketing
program at issue was essential to its survival). Rather, the exclusionary provisions in
Microsoft's agreements are unlawful under Section 1 of the Sherman Act (and therefore under
Section 2 as well) if on balance they impair competition and thus unreasonably restrain trade.
See, e.g., Tampa Electric Co. v. Nashville Coal Co., 365 U.S. 320, 327-28 (1961).
The rule of reason inquiry under Section 1 is practical and fact-based and focuses
"directly on the challenged restraint's impact on competitive conditions." National Society of
Prof. Eng'rs, 435 U.S. at 688. And, because Microsoft must, for purposes of its summary
judgment motion, be deemed to be a monopolist, its agreements also should be condemned
under Section 2 of the Sherman Act upon proof that they have had some exclusionary effect and
were not reasonably necessary to achieving a legitimate business objective. Aspen Skiing Co.,
472 U.S., at 605; see also 3 P.E. Areeda & H. Hovenkamp, Antitrust Law ¶ 651a, at 78 (conduct
that "reasonably appear[s] capable of making a significant contribution to creating or
maintaining monopoly power" violates Section 2 and raises a presumption of harm).
Perhaps even more important, the exclusionary effect of each of Microsoft's restrictions
must be determined in the context of all of Microsoft's other restrictions and pertinent market
factors. First, the cumulative effect of all of Microsoft's restrictive agreements combined, rather
than of any one individually, must be evaluated. Second, whatever the exclusionary impact on
Microsoft's browser rivals of any one of Microsoft's agreements viewed in isolation, each such
agreement is also plainly unlawful when, in light of all the other exclusionary factors and
agreements affecting the market, its exclusionary impact is significant. See, e.g., Continental
Ore. Co. v. Union Carbide & Carbon Corp., 370 U.S. 690, 699 (1962). Thus, as the Supreme
Court has made clear, instead of examining individual pieces of evidence in a vacuum as
Microsoft would have this Court do, "plaintiffs should be given the full benefit of their proof,
without tightly compartmentalizing the various factual components and wiping the slate clean
after scrutiny of each." Id. at 699; see alsoCity of Anaheim v. Southern California Co., 955
F.2d 1373, 1376 (9th Cir. 1992) (inquiring into the overall combined effect of specific
individual acts); Litton Sys. Inc. v. American Tel. & Tel. Co., 700 F.2d 785, 816 (2d Cir. 1983);
City of Mishawaka, Ind. v. American Elec. Power Co. Inc., 616 F.2d 976, 986 (7th Cir. 1980).
Microsoft's motion fails to address either the substantial evidence of foreclosure in the
context of the other restrictions or the cumulative foreclosure as a whole. Instead, Microsoft
seeks to obscure the issue by "tightly compartmentalizing" its few facts in exactly the way
rejected by the Supreme Court. Plaintiffs' ample (often uncontroverted) evidence of substantial
anticompetitive effects both in each of the most important browser distribution channels and as a
cumulative whole requires denial of Microsoft's motion.
a. Microsoft's Browser Rivals Have Been Substantially Foreclosed
From The ISP and OEM Channels
Plaintiffs' evidence, including unequivocal statements in Microsoft's business
documents, leave no doubt that the two leading ways in which PC users obtain their browsers are
from the Internet Service Providers ("ISPs") that connect them to the Internet, and from OEMs,
installed on new PCs. Microsoft's restrictive agreements with ISPs and OEMs effectively
foreclose Microsoft's browser competitors from these most-important distribution channels.
(1) The ISP Agreements Foreclose Microsoft's Rivals
By their express terms, Microsoft's agreements with ISPs and OLSs significantly restrict
Netscape and other competitors from access to this critical channel. Among the restrictions
(detailed at PI Brief at 30-36) are the following:
ISPs must market, promote, and distribute Internet Explorer as the
"exclusive" or "primary" browser, and cannot distribute a non-Microsoft
browser unless it is specifically requested by the customer;
ISPs may not "express or imply" to a customer that another browser is
Even if a customer specifically requests a competing browser, Microsoft
requires that ISPs ship Internet Explorer as the only browser a large
majority of the time, usually for at least 75 to 85 percent of all browser
shipments. The providers whose names appear in the Windows Online
Services folder must ship Internet Explorer, and no other browser, at least
85% of the time; and
ISPs, with minor exceptions, cannot advertise or promote any non-
There is concrete evidence of the market effects of these agreements. Microsoft's own
documents track the degree of foreclosure they cause in the ISP channel. For example, in June
Microsoft had entered into
restrictive referral server agreements with all of the largest ISPs and OLSs.
Major ISPs and OLSs would have preferred to have maintained flexibility in the
browsers they distribute and promote.
Because of Microsoft's agreements, however, many no longer distribute or promote Netscape
Navigator at all.
Conspicuously omitting the huge OLSs, Microsoft argues that it has referral server
agreements with only eleven out of thousands of U.S. ISPs. But, even putting OLSs aside, those
eleven ISPs account for a substantial amount of the total U.S. Internet access provider subscriber
base, see, e.g., SJ Ex. 26,
5 Once the OLSs, including AOL,
CompuServe, and Prodigy -- all of which had and continue to have restrictive agreements with
Microsoft -- are added to the picture, the significance of Microsoft's agreements becomes far
more dramatic. In 1997, AOL alone accounted for
Plainly, the restrictive ISP agreements interfere with the
distribution of non-Microsoft browsers.6
Microsoft (again neglecting the huge and therefore critical OLSs) cites statistics
suggesting that usage of Internet Explorer by customers of the ISPs that had entered into its
exclusionary agreements is roughly equal to usage of Internet Explorer by customers of other
ISPs. MS Memo at 12. These statistics are misleading and immaterial because they do not say
anything about the impact of the restrictive agreements on the rate of browser acquisition over
time. Microsoft appears to have aggregated Internet Explorer usage across all ISPs currently in
the Windows Internet referral server -- even those such as Sprint, Concentric, and GTE, that
entered into referral server agreements as late as September 1997 and were distributing large
numbers of Navigator to their customers before that date -- without controlling for the date on
which subscribers of these services acquired their browser. Indeed, Microsoft's own documents
show that Internet Explorer's share of browser usage is
The available evidence establishes that Microsoft's ISP restrictions have
been quite effective at foreclosing competitors' browser distribution.
(2) The OEM Agreements Foreclose Microsoft's Rivals
Microsoft's agreements with OEMs have the practical effect of significantly restricting
Netscape and other competitors from access to, by Microsoft's own admissions, one of the two
most important channels of browser distribution. Microsoft's Windows 95 and 98 license
agreements with OEMs require that the OEMs license and install Internet Explorer in order to
receive a license to Windows. PI Brief at23-24. Microsoft's OEM agreements also prohibit the
OEMs from removing the Internet Explorer icon, other means of access, or any of its code from
Microsoft does not even attempt to refute the evidence that major OEMs, contractually
prohibited from removing Internet Explorer from, or otherwise modifying the initial bootup
sequence or Windows desktop screen of, the PCs they sell, are less likely to preinstall another
browser, see PI Brief at 24-25; or even to consider other browser
products on the merits. 7 This effect is explained by practical OEM
concerns -- including the likelihood of customer confusion, costly product testing, and increased
support costs -- about preinstalling multiple browsers. See PI Brief at 24-25. In fact,
Microsoft's own Senior Vice President of OEM Sales has testified that,
8 More recently,
Netscape's former Vice President of Sales and Marketing testified that
Microsoft's only rejoinder to this evidence is that, under the letter of their Windows
license agreements, OEMs are permitted to add icons and other browsers, MS Memo at 11-12.
The marketplace realities OEMs confront render such formalistic freedom meaningless because
Microsoft's bootup and desktop screen restrictions deprive them of the ability to take the steps --
even modest steps to minimize confusion, testing, and support costs -- necessary to make adding
other browsers commercially palatable.
Microsoft seeks to belittle the evidence of foreclosure in the OEM channel by
contradicting its own internal documents and arguing that the OEM channel is insignificant as a
channel for consumer browser distribution. Microsoft's only support for this assertion is
What Microsoft does not mention, however, is that it failed to
Given Microsoft's conduct in the OEM channel, it is dramatic
evidence of competitive harm that Netscape has determined that it receives only
* * * * *
In the aggregate, the restrictive terms of Microsoft's agreements with ISPs and OEMs have
left Microsoft's browser rivals with significantly reduced access to distribution, and
with a Hobson's choice: suffer reductions in market share or increase reliance on far less efficient
and more costly distribution channels.
In addition to the above points, Microsoft makes one other argument about both the ISP
and OEM channels. As a general matter, Microsoft suggests there is no evidence of foreclosure
because Netscape Navigator currently has an installed MS Memo at
9.10 To be sure, there is little doubt that Netscape was the first to recognize and respond to the
tremendous commercial opportunity for Internet browsers and that it built up a large installed
base in the mid-'90s. But the relevant question is not whether the user base includes many who
got their browsers before Microsoft began its exclusionary practices, but whether Microsoft's
agreements have since impaired the ability of Netscape and other rivals to continue to distribute
Thus, Microsoft fails to
establish the absence of a genuine dispute that there has been a substantial foreclosure of browser
competition in the ISP and OEM channels.
b. Microsoft's ICP Agreements Materially Injure Its Browser Rivals
Microsoft argues that it has contracts with only 24 U.S. ICPs, and that the ICP channel is
not a significant browser distribution channel. But the ICP agreements injure Microsoft's browser
distribution. Foreclosure is not limited to browser distribution. An ICP's endorsement of a
particular browser and its accompanying standards has a real effect on browser adoption,
especially in a market characterized by network effects and heavily influenced byindustry
itself has recognized the importance of content providers, particularly in their standard-setting
capacity, to its Internet mission.
Microsoft's ICP restrictions have, in addition, had significant impact on the browser usage
and distribution practices of important ICPs. For instance, one of the largest
Absent these prohibitions, Intuit would have
continued the promotion and distribution of Navigator, not only from its websites, but also in its
capacity as a leading ISV.
These exclusionary effects must of course be considered in the context of Microsoft's other
exclusionary practices. And they should be considered also in light of the importance and
prominence of Microsoft's ICP partners (including Disney, Time Warner, and Intuit), which are
among the most popular and visible of all content providers.
c. Relegating Its Rivals To Reliance On Other, Less Efficient And
More Costly Distribution Channels Cannot Compensate For The
Foreclosure Microsoft Has Created In The ISP, ICP and OEM
Microsoft's summary judgment argument is largely premised on the fact that, putting the
ISP, OEM, and ICP channels aside, other distribution channels remain available to Microsoft's
rivals. But the alternatives are decidedly and demonstrably inferior. Most significantly, Microsoft
itself has repeatedly recognized that ISPs and OEMs are the most important browser distribution
Recent depositions of Netscape executives -- on which Microsoft misleadingly relies to
support its assertions -- in fact unequivocably confirm the importance of the OEM and ISP
channels to browser distribution.
The record further shows that other methods of distribution, such as mailing physical CDs
or disks to individual homes, are more costly and much less effective than distribution through
ISPs and OEMs. In particular, as
browsers have expanded in size the downloading of browsers has become more cumbersome, less
effective, and a far less successful means of distributing browsers.
the serious limitations of downloading.
In light of this evidence, it is plain that numerous issues of fact remain disputed about the
extent and significance of the exclusionary effects of Microsoft's ISP, OEM and ICP restrictions.
Summary judgment is therefore unwarranted.
2. The Exclusionary Provisions In Microsoft's ISP, ICP And OEM
Agreements Are Not Necessary To Further Legitimate Interests
Microsoft's summary judgment motion should be denied because plaintiffs have adduced
strong proof of the significant exclusionary effects of Microsoft's practices. Microsoft's motion
also must fail because Microsoft cannot show that there are no disputed material facts concerning
the other half of the rule of reason analysis: Microsoft's assertion that its contractual restrictions
were implemented for "valid business reasons." MS Memo at 59, 61-62.12 On this point too the
plaintiffs' evidence overwhelms Microsoft's unsubstantiated claims.
In addition to ignoring numerous disputed facts, Microsoft's argument on this point
misstates the applicable legal standard. As discussed above, see supra, Section II.B, it is well-
settled that an anticompetitive contractual restriction may be justified only if the restraint's
anticompetitive effects are both outweighed by, and reasonably necessary to further, a legitimate
Microsoft is thus simply wrong when it argues that the mere existence of "legitimate
business reasons" is sufficient to justify its exclusionary contract provisions. To prevail, it must
demonstrate more -- that the asserted business reason is truly valid, that it could not be achieved
by a means less restrictive of competition, and that its benefits outweigh the harm to competition
resulting from the exclusionary provisions.
When measured against this standard, the evidence demonstrates not only that Microsoft's
motion must be denied, but also that Microsoft's purported justifications for its exclusionary
conduct are plainly insubstantial.
a. Microsoft's Anticompetitive Restrictions On ISPs Are Not Justified
Microsoft seeks to justify the restrictive provisions in its ISP agreements by arguing that
the contracts are "nothing more than commonplace cross-marketing arrangements." MS Memo at
63. This simply repeats Microsoft's mantra that its conduct merely reflects "ordinary business
practice[s] typical of those used in a competitive market" and therefore cannot "constitute anti-
competitive conduct." MS Memo at 76 (internal quotations omitted). As noted above, that
argument is incorrect as a matter of law in light of Microsoft's monopoly power. It is also
For example, Microsoft cites provisions in Netscape's browser distribution agreements
In addition, unlike the Microsoft
agreements, Netscape's licenses contain
and (also unlike the Microsoft agreements) they do not
Microsoft argues that "consumers benefitted" from its ISP agreements because "they were
part of an overall effort to make it easier for Windows 95 users to gain access to the Internet." MS
Memo at 63, 67. This argument is both misleading and disingenuous. On their face, the
exclusionary provisions harm consumers by making it more difficult for them to obtain non-
Microsoft browsers, and Microsoft has not explained how those exclusions might benefit
consumers. Moreover, even were Microsoft to offer proof that some part of the agreements
benefit consumers, the relevant question is not that, but instead whether the exclusionary
provisions in the agreements are necessary to achieve those benefits. They are not, and Microsoft
cannot show any connection between making Internet Explorer available to more PC users, and
restricting ISPs ability to distribute and promote competing browsers.
Microsoft suggests that the restrictions compensated Microsoft both for maintaining the
ISP referral server and for permitting ISPs in it to enjoy the ICW's favorable desktop placement,
MS Memo at 63, but there is no reason why Microsoft had to receive compensation in the form of
exclusionary restrictions. To the contrary,
demonstrates that Microsoft could be compensated in ways that do not exclude rivals.
The evidence shows that any interest Microsoft might assert in receiving compensation for
"renting" its desktop real-estate is pretextual. SeeEastman Kodak, 504 U.S. at 484. According to
Indeed, Microsoft recently
made the decision to permit major OEMs to place the ISPs of the OEM's choice in the Internet
Connection Wizard for Windows 98 and to
that Microsoft has little interest in charging for its desktop real-estate.
Far from trying to benefit consumers, Microsoft imposed its ISP restrictions to choke off
distributional avenues for competing browsers and thereby choke off consumer choice. See
b. Microsoft's Anticompetitive Restrictions On OLSs
Are Not Justified
Microsoft defends its contractual restrictions on the ability of OLSs to promote and
distribute non-Microsoft browsers with the refrain that the restrictions are necessary to prevent
"free riding." See generally Sylvania, 433 U.S. at 55 (explaining that preventing free riding may
justify certain vertical restraints). As Microsoft explains, the OLSs are given preferred placement
on the Windows desktop and assistance in developing a proprietary client (or browser "shell")
based on Internet Explorer in exchange for the OLSs' agreement to curtail their distribution and
promotion of non-Microsoft browsers. See MS Memo at 71. Having granted OLSs these benefits,
the argument runs, Microsoft is entitled to "some assurance that the OLSs will not take advantage
of that assistance and then turn around and adopt competing technologies." Id. at 72.
As Judge Easterbrook has explained, however, "[w]hen payment is possible, free-riding is
not a problem because the ‘ride' is not free." SeeChicago Professional Sports Ltd. Partnership v.
NBA, 961 F.2d 667, 675 (7th Cir. 1992) (Easterbrook, J.). If Microsoft wishes to be paid for
benefits it confers on Online Service Providers, then -- as with its ISP agreements -- it can charge
OLSs a fee rather than receive compensation in the form of exclusionary rights.14 Microsoft
similarly cannot show that restricting OLSs' distribution and promotion of competing browsers is
reasonably necessary to ensure that competitors do not free ride on Microsoft's technological
assistance. Any such assistance Microsoft provides to an OLS would be useful only in developing
a customized OLS browser based on Internet Explorer, and could not readily be used to assist the
OLS in working with Netscape or another browser producer. Thus, there is negligible danger of
free riding. Because Microsoft cites no evidence, let alone a lack of genuinely disputed evidence,
to the contrary, its argument therefore cannot meet its summary judgment burden.
b. Microsoft's Anticompetitive Restrictions On ICPs Are Not Justified
Microsoft offers the same justifications for the exclusionary provisions in its ICP
agreements; and, for the same reasons, those asserted justifications are insufficient. Even if
Microsoft's creation of its "channel bar" might have "facilitated the use of innovative technologies
and provided consumers with easy access to high quality content on the Internet," see MS Memo
at 69-70, Microsoft makes no attempt to explain why restricting ICPs' relationships with
competing web browsers and requiring ICPs to implement Internet Explorer-specific technologies
is reasonably necessary to provide ICPs placement on the channel bar. Moreover, the restrictions
apply only to ICPs' relationships with the top two "Other Browsers,"
a fact that supports the inference that Microsoft imposed the restriction
not for any procompetitive purpose but rather to impede the commercial opportunities of its
In any event, there simply is no justification for Microsoft's restrictions on ICP's ability to
compensate Netscape, and Microsoft asserts none. At a minimum, there certainly is no undisputed
justification, and therefore no basis for summary judgment.
c. Microsoft's Restrictive OEM LicensesAre Not Justified
Microsoft's principal defense of the exclusionary provisions in its OEM agreements is an
argument of antitrust immunity based on the copyright laws. That argument is addressed
separately in Section II.D, below. We address here Microsoft's effort to defend the exclusionary
OEM agreements on economic grounds.
Microsoft first asserts that its OEM restrictions "preserve the operating system as a stable
and consistent platform that supports a broad range of compatible software applications software."
MS Memo at 57. The platform issue, however, has to do with the APIs to which ISVs write. Those APIs are unaffected by alterations to the Windows boot-up sequence, modifications to the
contents of desktop folders, or creation of icons of different shapes and sizes. To the contrary,
Microsoft has promoted Internet Explorer to end-users on the basis that the icon
could be easily removed, see Gaspar Dec. ¶ 19 (Consent Decree Case); Sibley Dec. ¶ 43 n.48
(citing sources); Cole 50:2 - 51:24, while using its screen restrictions to prohibit the OEMs from
removing the Internet Explorer icon themselves. Thus, lifting the prohibition on OEMs removing
access to web browsing via Internet Explorer would not "undermine the consistency of the
[Windows] platform in any meaningful way." Sibley Dec. ¶ 43.
Microsoft provides no evidentiary support for its platform argument. Even if it did, factual
questions concerning the degree to which the restriction furthers the asserted justification, and
whether the justification outweighs the anticompetitive effects it causes, plainly would preclude
summary judgment. See, e.g.,id. ¶ 43 & n.47 (questioning Microsoft's argument because ISVs
commonly distribute shared program libraries with applications to ensure that their software runs
on the large installed base of machines that lack the latest version of Windows).
Microsoft also argues that its restrictions on altering the initial boot-up process "promote a
consistent user experience," MS Memo at 47, but the record makes clear that there are disputed
questions of material fact as to whether Microsoft's restrictions are reasonably tailored to that
end. As an initial matter, Microsoft's contention that the challenged restrictions are justified in
order to provide customers the benefit of "the same initial user experience" across brands, MS
Memo at 58 (emphasis added), is belied by Microsoft's own conduct. See Sibley Dec.¶ 47.
Among other things, Microsoft permits (1) all OEMs to ship Windows 98 with the "active
desktop" either on or off; (2) all OEMs to add items of varying sizes to the active desktop (but not
to the traditional Windows desktop),
(4) some OEMs to replace the list of ISPs included in the Internet
Referral Server with their own lists; and (5) all OEMs to preload the software of the OEM's
choice, subject to Microsoft's license restrictions.
These exceptions create considerable variation in the initial experience a PC user will have
depending on the OEM from which he or she buys their PC. This level of variation makes clear
that, at most, Microsoft's restrictions might help preserve some very general "look and feel" of the
Windows operating system. The challenged restrictions, however, cannot be shown to be
reasonably necessary to achieve that objective. Removal by OEMs of the Internet Explorer icon
and other means of using Internet Explorer to browse the Web (which Microsoft prohibits) would
not affect the overall "look and feel" of Windows any more than when OEMs add various
software (which Microsoft readily permits). Nor is the "look and feel" of Windows impaired by
permitting OEMs to install icons of different sizes; Microsoft permits precisely that in those
instances when an OEM ships the active desktop enabled (which, because it provides additional
ways of launching Internet Explorer, also increases the likelihood that the user will use Internet
Even with respect to the Windows initial boot process, where Microsoft at least can
plausibly argue some legitimate interest in ensuring that users supply and receive certain
information, the exclusionary provisions in its OEM agreements are far broader than necessary.
As noted above, Microsoft prevents OEMs from
Microsoft also argues that "substantial consumer confusion and disappointment would
result if new personal computers arrived with various advertised features of Windows altered or
deleted in various ways unintended by Microsoft." MS Memo at 58. For two reasons, this
argument does not justify the exclusionary restrictions in the OEM agreements.
Significant factual issues exist as to whether the restrictions challenged by the plaintiffs
were designed to advance Microsoft's asserted interest. Internal Microsoft documents show that
Microsoft began serious efforts to enforce and augment its exclusionary provisions only
Second, Microsoft could have achieved the objective of preventing consumer confusion
through substantially less anticompetitive means. For instance, Microsoft has permitted certain
17 There is no reason why
Microsoft could not similarly permit OEMs to insert additional screens in the start-up sequence
that permit end users to select the browser of their choice, pursuant to guidelines designed to
ensure the process' smooth operation and preserve the general "uniformity" of the first-boot
Moreover, that OEMs -- who have an unquestioned interest in meeting consumer demand -
- have sought at various times to remove the Internet Explorer icon from the Windows 95 and
Windows 98 desktops,
or urged Microsoft to ship Windows
98 with Internet Explorer uninstalled,
supports the conclusion that permitting OEMs to remove the Internet Explorer icon and
associated means of browsing the web would meet, rather than disappoint, consumer
expectations. Any legitimate interest in avoiding "consumer confusion and disappointment," see
MS Memo at 58, could be met by requiring disclosure when OEMs remove the means of using
Internet Explorer to browse the Web. OEMs vigorously compete against one another by
advertising to end users the particular features of the machines they sell; many OEMs allow end-
users to choose the precise components of their PCs, including the preinstalled software;18 and
because the OEM market is competitive, OEMs that cause user "confusion and disappointment"
would be punished by fewer sales,
There is every reason,
therefore, to believe that a labeling requirement can prevent customer disappointment without
inflicting the competitive harm caused by Microsoft's exclusionary license provisions.
For similar reasons, Microsoft's restrictions cannot be sustained on the theory that they
"preserve Microsoft's reputation as a supplier of quality operating system software." MS
Memo at 58-59. OEMs have no incentive to engage in conduct that will cause consumer
confusion or otherwise impair Microsoft's goodwill. OEMs not only bear their own support costs
and face vigorous competition, but also bear the costs of customer support calls directed to
Microsoft, as Microsoft refers customer calls to the pertinent OEM.
Thus, Microsoft's contention, MS Memo at 58, that its reputation, not the
OEMs', would "suffer if Windows did not perform as represented" by Microsoft misses the point;
the very structure Microsoft has created (quite aside from its contractual restrictions) is designed
to ensure that OEMs take actions consistent with preserving Microsoft's reputation.
Moreover, the facts simply do not support Microsoft's contention that lifting the
challenged restrictions threatens to tarnish the Windows brand. Permitting OEMs to promote
browsers and to provide browser choice in the boot-up sequence no more threatens Microsoft's
reputation than Microsoft's decision to permit OEMs to provide in that sequence their own ISP
sign-up software. Nor does permitting OEMs to vary the size of shapes and icons, which
Microsoft permits when the OEM ships the "active desktop" enabled (but with respect to the
"classic" desktop screen). Of course, even if Microsoft's conduct were consistent with respect to
the claimed justification, a labeling requirement, as discussed above, would (along with ordinary
OEM incentives to minimize costs and seek to meet consumer demand) suffice to prevent any
reputational injury to Microsoft from OEM removal of the means of using Internet Explorer to
browse the web, removal of the On-Line Services Folder, or addition of a choice of user interface
in the initial boot-up sequence.
Finally, Microsoft cannot argue that its screen restrictions are justified because they simply
reflect ordinary business practice typical of those used in a competitive market. First, as already
noted, this argument simply does not apply here because of Microsoft's uncontested monopoly
power. Second, the factual reality is that, far from using practices similar to Microsoft, other
operating system vendors commonly allow significantly more customization than Microsoft. For
instance, permits OEMs to choose among alternative
interfaces and to decide whether or not to install the browser that ships with its operating system
products; and does not believe that permitting OEMs these options will impair its goodwill,
fragment its operating system as a platform, cause end-user confusion or disappointment.
3. Microsoft's Sudden Revision Of Some Of Its Exclusionary Agreements The Eve Of Litigation Provides No Basis For Summary Judgment
Microsoft argues that certain exclusionary provisions in its ISP and ICP agreements
challenged by the plaintiffs are "effectively moot," MS Memo at 13, on the ground that Microsoft
has "unilaterally waived" those provisions. Seeid. at 65, 68. (Microsoft makes no such argument
about its OEM or OLS restrictions.)
Microsoft's courthouse conversion suggests, at the very least, both that Microsoft has no
legitimate need for those provisions and that it recognizes their doubtful legality.20 But it does not
provide a legal defense in these cases. To the contrary, "[i]t is the duty of the courts to beware of
efforts to defeat injunctive relief by protestations of repentance and reform." United States v.
Oregon State Med. Soc'y, 343 U.S. 326, 333 (1952).
There are several flaws in Microsoft's mootness argument. In the first place, Microsoft has
not waived all of its exclusionary agreements. While it announced last March -- the night before
Mr. Gates testified before Congress about the agreements -- that it was waiving the restrictive
provisions, it in fact waived some provisions, modified but did not entirely abandon others, and
left some agreements -- including the exclusionary provisions in its agreement with AOL, which is
by far the largest and most important ISP -- entirely unchanged.
In any event, it is plain that this Court retains jurisdiction to pass on the legality of even the
"waived" practices because those practices caused anticompetitive effects that are within the
court's power to remedy. SeeNorthwestern Environmental Defense Center v. Gordon, 849 F.2d
1241, 1245 (9th Cir. 1988) ("The fact that the alleged violation has itself ceased is not sufficient to
render a case moot. As long as effective relief may still be available to counteract the effects of
the violation, the controversy remains live and present.").
Moreover, regardless of the effects of Microsoft's abandoned or modified conduct, it is
settled that "voluntary cessation of allegedly illegal conduct" does "not make the case moot."
United States v. W.T. Grant Co., 345 U.S. 629, 632 (1953). In such circumstances -- when the
"defendant is free to return to his old ways," id. -- the defendant must demonstrate that it is
"‘absolutely clear'" that "‘the allegedly wrongful behavior could not reasonably be expected to
recur.'" Vitek v. Jones, 445 U.S. 480, 487 (1980) (quoting United States v. Phosphate Export
Ass'n, 393 U.S. 199, 203 (1968)). Microsoft has not met this "heavy" burden. County of Los
Angeles v. Davis, 440 U.S. 625, 631 (1979). With respect to both its ISP and ICP restrictions,
Microsoft merely abandoned some of the challenged practices when threatened with government
enforcement action. It has not even "disclaimed any intention to revive them." W.T. Grant,
345 U.S. at 633. And, even if it had made such a disclaimer, "[s]uch a profession does not suffice
to make a case moot." Id.21
C. Microsoft's Requirement That OEMs Distribute Internet Explorer As A Condition
Of Licensing Windows Is An Unlawful Tying Arrangement
1. Microsoft's Forced Licensing of Internet Explorer to OEMs Violates
Section 1 Of The Sherman Act
There are four elements to a Section 1 perse tying claim: (1) two separate products or
services exist; (2) the sale of one product (the tying product) is conditioned on the purchase of the
other (the tied product); (3) the seller has "appreciable economic power" in the tying market; and
(4) the tying arrangement affects a not insubstantial volume of interstate commerce in the tied
product. See Jefferson Parish Hospital Dist. No. 2 v. Hyde, 466 U.S. 1, 9-18 (1984); Eastman
Kodak, 504 U.S. at 462. For the purposes of summary judgment, on which all disputed issues
must be resolved against the moving party, Microsoft does not contest the third and fourth
elements. Its arguments on the first and second are both factually and legally inadequate to
warrant summary judgment. Indeed, its coercive bundling of Internet Explorer with Windows is
per se illegal.22
a. Microsoft Conditions The License Of Windows On OEM
Distribution Of Internet Explorer
Microsoft devotes a single page to the "conditioning" element of the plaintiffs' tying
claims, arguing that its refusal to allow OEMs to license Windows without Internet Explorer does
not amount to "conditioning" because it has charged OEMs only a single royalty for both
Windows and Internet Explorer and "has never charged OEMs a separate royalty" for Internet
Explorer alone. MS Memo at 49. This formalism fails to address the evidence that, despite the
fact that Internet Explorer and Windows are not separately priced, Microsoft's coercive bundling
and refusals to permit unbundling have constituted, and continue to constitute, a powerful
Microsoft correctly states that "conditioning the availability of one product on the purchase
of another is a necessary element of a tying claim under Section 1 of the Sherman Act." MS
Memo at 49. However, Microsoft misinterprets the "purchase" (or "conditioning") requirement to
mean that a separate charge must be assessed for Internet Explorer. To the contrary, as Professors
Areeda and Hovenkamp explain:
A tying arrangement is the sale or lease of one item ("tying
product") only on condition that the buyer or lessee take a second
item ("tied product") from the same source. . . . And the tie may be
obvious as in the classic form, or somewhat more subtle, as when a
machine is sold or leased at a price that covers "free" servicing.
3A P.E. Areeda & H. Hovenkamp, Antitrust Law, ¶ 760b6 (1996). Whether the market price of
the tied product is zero or something higher is thus immaterial to the potential for anticompetitive
harm, and accordingly should be immaterial to analysis of whether there is a tying arrangement.23
Even though no separate price is charged for Internet Explorer, and even though it is
licensed under the same licensing agreement as Windows, the evidence plainly indicates that
Microsoft's insistence that OEMs accept and preinstall it constitutes anticompetitive conditioning
because it has materially affected OEMs' judgment as to the browser software they preinstall on
their PCs. See supra, Section II.B.1.a(2). The competitive harm which the per se rule against
tying is designed to prevent includes the denial of "free access to the market for the tied product"
and the forcing of consumers to "forego their free choice between competing products." Northern
Pac. Ry., 356 U.S. 1, 6 (1958). Microsoft's tying of Internet Explorer to Windows produces these
precise evils, and thus imposes real costs on OEMs. Microsoft's argument -- the mere formalism
that there is no separately priced purchase of Internet Explorer -- cannot entitle it to summary
b. Under The Clear Standards Set Forth By The Supreme Court And
In Subsequent Caselaw, Windows and Internet Explorer Are
Separate Products For Purposes Of Tying Analysis
Microsoft's real attack on the plaintiffs' per se tying claim challenges the first element of
the tying offense, whether Internet Explorer and Windows operating systems are separate
products. Instead of coming to grips in any serious way with Jefferson Parish and Eastman
Kodak, the controlling decisions on the separate product issue, Microsoft relies on prior and/or
distinguishable lower court decisions, and on the D.C. Circuit's decision in the consent decree
action brought last year by the United States, United States v. Microsoft, 1998 WL 327855 (D.C.
Cir. June 23, 1998) (hereinafter, "the consent decree case").
The Supreme Court held in Jefferson Parish, and reiterated in Eastman Kodak, that
whether something that is sold by the defendant as a single package or bundle consists of one or
more "products" for tying purposes depends on whether there is demand for each of the bundled
products separately, apart from the package, and whether, in light of this separate demand, it is
efficient for the defendant to sell the different components or products separately.24 The antitrust
issue raised by tying doctrine is thus whether the defendant is required also to offer an unbundled
alternative (i.e., offer the tying product without the particular tied product required as a condition
of that offer), based on whether there is demand for the products separately.
Jefferson Parish makes clear that the test is based in economics, not technology. Under
Jefferson Parish, "the answer to the question whether one or two products are involved turns not
on the functional relation between them, but rather on the character of the demand for the two
items." 466 U.S. at 19; see alsoMultistate Legal Studies, 63 F.3d at 1547; Klamath-Lake
Pharmaceutical Assn. v. Klamath Medical Service Bureau, 701 F.2d 1276, 1289 (9th Cir.), cert.
denied, 464 U.S. 822 (1983) ("Products that function together and are sold in combination may
still be ‘separate' if consumers would prefer to buy them individually at the price necessary to
market them separately . . . . It is the relationship of the producer's selling decision to market
demand, not the physical characteristics of the products alone, that determines the existence of
legally separable products.")
(1) There Is Separate Demand For
Internet Explorer And Windows
Microsoft concedes that there is demand for Internet Explorer without or separate from
Windows operating systems. For example, the evidence shows that Microsoft has for years
offered Internet Explorer separate from Windows, both for Windows users and for users of
operating systems other than Windows, and even Microsoft's brief argues that many users obtain
their browsers separately. See MS Memo at 9-17. Customers who acquire either Microsoft's
browser or another browser in these various ways, whether from ISPs (in most cases), through
retail purchase, or otherwise, obviously do so independently of the acquisition of their operating
system. Microsoft offers Internet Explorer separately, and users obtain it separately, in order to
satisfy consumer demand for web browsers.
Microsoft argues that there is no separate demand for the alleged tying products
(Windows 95 and Windows 98) without the tied product (Internet Explorer) on the ground that the
plaintiffs "cannot show that there is separate demand for operating system software products
that do not provide web browsing functionality." MS Memo at 45. This argument is both wrong
on the facts and rests on a misunderstanding of the applicable legal test. The issue is not whether
there is demand for operating system (tying) products without any browser (tied) products
whatsoever, but rather whether there is demand for the particular tying product (Windows)
without the particular tied product (Internet Explorer) required by the defendant.
The facts presented in Jefferson Parish itself are a clear example of this point. The
Supreme Court fully recognized that there was, and could be, no suggestion that anyone wanted
surgery (the tying product) without any anesthesia (the tied product); but it nonetheless asked
whether there was demand for surgery without the particular anesthesiologists required by the
defendant, and cited numerous earlier cases in which tying arrangements had been found despite
the uselessness of the tying product without some product in the tied product market. See
Jefferson Parish, 466 U.S. at 19, n.30, 22-23.
In any event, there is abundant, uncontroverted evidence both of demand (and a separate
market) for Windows without any browser product at all, and of demand for Windows without
Internet Explorer in particular. This evidence includes the following.
(1) OEMs have repeatedly sought to effectively remove Internet Explorer by removing
icons and other means of access to Internet Explorer, and they have sought both to sell computers
both without Internet browsing capability at all and with browsers other than Internet Explorer.
Microsoft argues that "[r]emoving `icons and other means of access' is not the same as
removing Internet Explorer, and thus does not establish separate consumer demand for Windows
without those technologies." MS Memo at 47. But as discussed below, it is immaterial whether
OEMs have sought to remove all "technologies" that Microsoft chooses to associate with Internet
Explorer. The issue for tying purposes is the economic question whether OEMs have sought,
whether by removing icons, other means of access, or otherwise, to serve demand for Windows
without Internet Explorer from the perspective of the end user. The evidence shows exactly that.
(2) Some users prefer Windows operating systems with a browser other than Internet
Explorer; other users, particularly corporate customers, prefer Windows operating systems with no
browser at all. Microsoft ignores the evidence both that some corporate users do not want to
license any browser along with Windows, and that other users wish to select from among
competing browsers on the merits and across operating system platforms, and therefore do not
want to have Internet Explorer forced upon them.
This evidence too shows separate demand for Windows without Internet
(3) Microsoft and others in the industry recognize that browsers and operating
systems are separate products. As detailed in the plaintiffs' PI Briefs, Microsoft has recognized it
is in a "browser war" with Netscape, has made obtaining ever higher "browser share" a top
corporate goal in order to win that war, and has meticulously tracked that browser share wholly
apart from its share of Windows or any other product. See U.S. PI Memo at 19-22, 60-64, and
cites therein. Moreover, Microsoft's strategy of making its Internet Explorer browser "cross-
platform" (i.e., available to run on multiple operating systems) itself demonstrates that the browser
is a separate product. The cross-platform versions of Internet Explorer are designed to
satisfy consumer demand for browsers as products in their own right, not as components of
particular operating systems. Indeed, Microsoft recognizes that numerous users do not wish to
have their choice of browser linked to their choice (or lack thereof) of operating system.26
Microsoft does not dispute that it has developed versions of Internet Explorer 3.0 and 4.0 for the
Macintosh, Windows 3.1, and Solaris, or that it will continue to develop future versions of Internet
Explorer to be a cross-platform product.
(4) The practices of vendors of other operating systems demonstrate that there is
separate demand for operating systems. Microsoft argues that Windows and Internet Explorer
should not be considered separate products on the ground that "every modern operating system for
personal computers includes a variety of technologies that facilitate access to information on
the Internet, including web browsing functionality." MS Memo at 45. The evidence shows just
the opposite.27 Other operating system vendors approach the bundling, if any, of browser
products with their operating systems in a way fundamentally different from Microsoft.
Microsoft has not identified a single operating system vendor which requires licensees to install
and not to remove a particular browser as a condition of licensing the operating system. Rather,
other vendors either do not bundle a browser at all, see, e.g., Wack Dec., ¶¶
23-26, or permit OEM licensees not to install a browser offered with the operating system (or to
remove it after installation) if they wish. See, e.g.,
Microsoft does not really contest the evidence that both it and other industry participants
treat browsers as separate products or that some OEMs and computer users would like to obtain
Windows operating systems without the Internet browsing functionality provided by Internet
Explorer. It argues, instead, that this evidence is insufficient because there must be evidence of
"widespread sales of the tying item in unbundled form." MS Memo at 45, quoting 10 P.E.
Areeda, H. Hovenkamp, E. Elhauge, Antitrust Law ¶ 1745d2 at 211. But Microsoft is creating a
legal "Catch-22." There obviously cannot be widespread sales of Windows without Internet
Explorer because Microsoft, with its dominance of the desktop PC operating system market, has
consistently required OEMs to take Internet Explorer as a condition of obtaining Windows. For
this very reason, the available (and substantial) evidence of separate demand for Windows and
Internet Explorer may well understate the actual extent of such demand. OEMs, having long
since recognized that they have no choice, have simply acquiesced with Microsoft's required
(2) It Would Be Efficient To Offer OEMs
The Option Of Windows Without Internet Explorer
The efficiency question in tying cases is whether, in light of the demand for an unbundled
option, it is efficient for the defendant to provide such an option. Eastman Kodak, 504 U.S. at
462. Thus, in this case the question is whether it is efficient for Microsoft to satisfy the demand
for separate or standalone browsing functionality provided by Internet Explorer, and the demand
for Windows operating system functionality without the web browsing functionality provided by
There is no dispute that Microsoft can efficiently satisfy end users' demand for separate or
standalone web browsing functionality. Microsoft does so by offering the standalone versions of
its Internet Explorer web browser product, both to users of Windows and to users of various non-
Windows operating systems.
Similarly, if Microsoft wanted to satisfy the demand of OEMs and computer users for
operating systems without the web browsing functionality provided by Internet Explorer, rather
than wanting just to exclude its browser rivals, it could efficiently offer those OEMs or users the
alternative of Windows without that particular web browsing functionality.28 In the case of
Windows 95, Microsoft concededly provided the means, through the Add/Remove utility, for
users to remove Internet Explorer. It could have offered OEMs a similarly unbundled version of
Windows 95,29 but chose not to do so and, instead, prohibited the OEMs from themselves utilizing
the Add/Remove utility or otherwise removing IE.
With regard to Windows 98, where Microsoft has chosen not to offer anyone the ready
means of removing Internet Explorer using the Add/Remove utility or otherwise, it would
nonetheless be efficient for Microsoft to offer an unbundled alternative. Felten Dec., ¶¶ 7-10.30
Of course, under Jefferson Parish, Microsoft need not necessarily offer a version of Windows 98
without utilization of any browsing functionality, but rather without that functionality necessarily
belonging to a particular browser -- Internet Explorer. This is precisely what other operating
system vendors universally, and efficiently, do in providing their operating system products.
Plaintiffs' evidence will establish that it is readily possible and efficient for Microsoft to offer
Windows 98 in a way that satisfies the demand of OEMs and users who desire either an operating
system without web browsing functionality or an operating system on which it is easier or more
economical to install a different web browser product.
Microsoft argues that the removal of what it calls "Internet Explorer technologies" from
Windows 98 will "severely degrad[e] the operating systems." MS Memo at 42. This argument --
the linchpin of Microsoft's entire defense to the tying claims -- rests on a semantic sleight of hand
and is insufficient for summary judgment both as a matter of law and as a matter of fact. This
sleight of hand is Microsoft's equation of "Internet Explorer technologies" with every bit of
software code used to browse the Internet using Internet Explorer. This gambit, identical to the
one Microsoft attempted and the Court rejected last winter, is inconsistent with the economic
inquiry made in Jefferson Parish.31
The efficiency of providing an unbundled alternative is fundamentally an economic
question, not a technical one. As OEMs have recognized, removing access to Web browser
functionality from Windows or another software product effectively removes the web browser,
eliminating the ability of the remaining Windows product to satisfy the separate demand for such
functionality (even if shared files are left behind). Moreover, removing such functionality or
access to such functionality from Windows leaves a fully functioning operating system that
satisfies the demand of OEMs and users who desire either an operating system without web
browsing functionality or on which it is easier or more economical to install a different browser.
Microsoft can efficiently remove or permit OEMs to remove the specific Internet Explorer Web
browser functionality from its bundled Windows products and, if desired, to substitute the Web
browsing functionality provided by competing browsers.
c. Cases Involving Product Design Do Not Create Any Exemption
From The Antitrust Laws
Microsoft argues that the "integration" of "Internet Explorer technologies" with Windows
98 is a "technological" tie-in and is, therefore, subject to "a specific body of case law" that
prevents any inquiry into the nature of the tie, the facts bearing on its adoption and
implementation, or its competitive effects. MS Memo at 20. Indeed, Microsoft argues that
"technically interconnected products" are essentially "immune" from tying claims -- that the
court's inquiry is at an end once a defendant has made a plausible showing that there is "some"
technological benefit from the challenged combination and that the tie was not carried out "solely
for the purpose of tying two separate products." MS Memo 20, 24 (emphasis added). In
substance, Microsoft argues that, even though it may be a monopolist, its bundling of Internet
Explorer with Windows is not subject to antitrust scrutiny so long as it can show some plausible
benefit from the conduct, regardless of whether the conduct is anticompetitive regardless of
whether the conduct is on balance beneficial or harmful to consumers.
As discussed in Section II.C.2, infra, Microsoft's arguments do not and cannot justify its
conduct under Section 2 of the Sherman Act if (as is clear here) the conduct serves to maintain
monopoly power by raising barriers to entry, increasing rivals' costs, or foreclosing competition
on the merits.
Microsoft rests its argument on a few lower court cases that, for two reasons, are inapposite
here, even as to plaintiffs' Section 1 claims. First, Microsoft's interpretation of these cases
conflicts with the Supreme Court's later, seminal pronouncements on tying law in Jefferson Parish
and Eastman Kodak. Second, Microsoft has not properly understood even the cases on which it
Both the Supreme Court and the lower courts have relied on the demand-based analysis
mandated by Jefferson Parish to evaluate separate product claims in "technological" tie-ins under
Section l of the Sherman Act. See Eastman Kodak, 504 U.S. at 461-63 (in context of what the
Court characterized as a "high-technology" service industry, relied on Jefferson Parish and other
established tying cases, without any suggestion that any different, more relaxed "body of law"
should apply in technology-related cases); Data General v. Grumman Systems Support, 36 F.3d
1147, 1178-81 (lst Cir. 1994) (alleged tie of ADEX software and services); Service & Training,
963 F.2d at 683-85 (reversing grant of summary judgment to defendant on claim of tie between
ADEX and repair services); Allen-Myland v. IBM Corp., 33 F.3d 194, 200-16 (3d Cir. 1994)
(reversing judgment for defendant on alleged tie of large-scale mainframe computers and the
labor to install upgrades to mainframes); Digidyne Corp. v. Data General Corp., 734 F.2d 1336,
1339 (9th Cir. 1984) (holding tie of NOVA computer system to NOVA operating system
Similarly, the cases on which Microsoft relies in fact look to standard tie-in criteria to
evaluate the lawfulness of "technological" ties and rest on facts materially different from those
alleged (and not disputed by Microsoft) here.
In Telex Corp. v. IBM Corp., 367 F. Supp. 258 (N.D. Okla. 1973), rev'd other grounds,
510 F.2d 894 (10th Cir. 1975), for example, which appears to be the origin of the "technological"
tie-in language, the court held that, unlike the circumstances here, there was no forced tie of
memory and control functions in a central controller. Telex, 367 F. Supp. at 347 ("the integrated
control in the System 370 is wholly optional. IBM continues to offer central processing units
without integrated controllers.")
Similarly, in Response of Carolina, Inc. v. Leasco Response, Inc., 537 F.2d 1307 (5th Cir.
1976), the court applied traditional tie-in law to hold that plaintiff's failure to prove coercion in the
alleged tie (of computer hardware to a computer time-sharing software franchise known as
"Response I") was fatal to its claim. Id. at 1327-30. After discussing the absence of coercion in
great detail and at great length, the court suggested in a sentence of dicta that a tie of two different
products accomplished by product design would be unlawful only if "the technological factor
tying the hardware to the software has been designed for the purpose of tying the products, rather
than to achieve some technologically beneficial result." Id. at 1330 (citing Telex).32 Here, of
course, there is substantial evidence of anticompetitive purpose, see U.S. Memorandum in Support
of Motion for Preliminary Injunction at 60-64; and Microsoft enforced its tie, not just by product
design, but also by contractual prohibitions on OEM efforts to delete the browser.
In Foremost Pro Color v. Eastman Kodak Co., 703 F.2d 534, 539-42 (9th Cir. 1983), the
plaintiff alleged an "implicit" tie of Kodak's new 110 camera to the film and processing supplies
needed to use it. Foremost is readily distinguishable from the present case because it involved not
the bundling of products, but rather the development of new technological formats that rendered
competitors' complements incompatible. The court explained there that the "so-called
technological tie" of a new product that could not be used with old complements, and thus
required the purchase of new ones, did not "standing alone" (without any contractual requirement
that users take the two together) establish a per se unlawful tying arrangement. Id. at 542. Here,
of course, the tying claim is premised not on the creation of any incompatibility, but rather on the
clearly demonstrated contractual coercion lacking in Foremost.
Microsoft describes Innovation Data Processing, Inc. v. IBM Corp., 585 F. Supp. 1470
(D.N.J. 1984), as a case "squarely on point" for the superficial reason that it "involved the
integration of new features into an operating system." MS Memo at 28. But the court there held
that there was no unlawful tie of MVS operating system software and DFDSS software because,
unlike Microsoft in this case, defendant licensed them separately as well as together, at the user's
option. Id. at 1474-75.33
Finally, in ILC I, the court used traditional tie-in criteria to conclude that a disk drive that
integrated a drive unit and head/disk assembly was not an unlawful tie-in. The court found that
the drive unit and the head/drive assembly were designed to be and would be used as a unit; that
the aggregation offered dramatically larger online storage capacity previously unavailable; that the
aggregation satisfied a recognized customer need; that the aggregation resulted in cost savings that
were passed on, at least in part, to end users; that the drive unit and head/drive assembly were
normally used by customers in fixed proportions; and that the practice of other industry
participants, including the plaintiff, was to sell integrated disks and the drive on which they
operated for a single price. 448 F. Supp. at 232-34. The court's analysis, based on these factors,
is flatly inconsistent with Microsoft's argument that, once the defendant makes a plausible
showing of some technological benefit, the court should look no further. Moreover, the facts that
led the ILC I court to find a single product are conspicuously different than those in this case.
Operating systems and browsers are not used in fixed proportions;34 not all sellers bundle the
products together; no consumer savings have been shown to result from the bundling of Windows
and Internet Explorer; and not even Microsoft claims that the benefits from bundling Internet
Explorer (as opposed to any other browser) are "dramatic." See 448 F.Supp. at 233.
Thus, even if the cases on which Microsoft relies were good law -- and, to the extent they
precede and conflict with Jefferson Parish and Eastman Kodak and their progeny, they are not --
they would not provide a basis for summary judgment. Those cases ultimately turned on
traditional tie-in law, not some special laissez faire rules for product design cases, and that law
requires an inquiry into the economic facts relevant to each element of the tie-in standard. For
example, in In re IBM Peripheral EDP Devices, 481 F. Supp. 965 (N.D. Cal. 1979), aff'd, 698
F.2d 1377 (9th Cir. 1983), the court refused to defer to product design choices whenever they are
"justified" or "reasonable" because that would "ignore the possibility that a superior product
might be used as a vehicle for tying sales of other products, and would pronounce products
superior even where the predominant evidence indicated they were not." 481 F. Supp. at 1003.
Instead, the existing generalized standard, one applicable to all types of otherwise legal conduct by
a monopolist, must be applied to the technological design activity at issue here:
[I]f the design choice is unreasonably restrictive of competition,
the monopolist's conduct violates the Sherman Act. This standard
will allow the fact finder to consider the effects of the design on
competitors; the effects of the design on consumers; the degree to
which the design was the product of desirable technological
creativity; and the monopolist's intent, since a contemporaneous
evaluation by the actor should be helpful to the fact finder in
determining the effects of a technological change. Id.
There is no basis in the cases or sound antitrust policy for courts to grant to monopolists
the kind of deference Microsoft seeks. Product design questions can be complex, but they are not
beyond the competence of courts; courts deal with those and similar questions in product liability,
environmental, medical or engineering malpractice, and similar cases.35
Microsoft would have the court believe that showing any plausible benefit from product
design is the same as showing that consumers benefit from the design. That is plainly wrong. A
new product design, particularly one that bundles what would be deemed under ordinary tying
standards to be two separate products, can never be said unambiguously to benefit consumers
unless consumers are given the choice whether to take the bundle. Such a bundled design does not
just reduce cost or improve the functioning of one of the products, but rather changes the products'
various attributes. Invariably, a bundled product design will have some pluses (e.g., the kind of
one-stop shopping benefits present with any tie-in) and some minuses (e.g., in the case of
Windows and Internet Explorer, increased size and impairment of user access to other browsers);
and, as with Microsoft's Windows and Internet Explorer products, some purchasers will prefer the
bundle and others will prefer to buy the products separately. As both the Supreme Court and
lower courts have repeatedly recognized, it is for the market, not the self-serving assertions of the
defendant, to determine whether products are good or bad.36
It is for these reasons that the Supreme Court made clear in Jefferson Parish, and reiterated
in Eastman Kodak, that tie-ins are to be assessed on the basis of consumer demand. Indeed, the
defendants in Jefferson Parish, like Microsoft here, argued that the "package" of facilities and
services including anesthesiology "d[id] not involve a tying arrangement at all -- that they [were]
merely providing a functionally integrated package of services." 466 U.S. at 18-19 (emphasis
added). The Supreme Court rejected the argument, recognizing that companies, whether in low or
high technology industries, would always be able to show some plausible synergies. See id. at 25,
n.41 ("[W]e reject the view of the District Court that the legality of an arrangement of this kind
turns on whether it was adopted for the purpose of improving patient care."); seealsoMultistate
Legal Studies, 63 F.3d 1540, 1547 (10th Cir. 1995) (bundled version of two products should not
be considered single product simply because the combination represents an "effort to improve the
[tying product] by adding elements to it"). The same is true here. Microsoft's case, resting on the
immaterial argument that Windows and Internet Explorer are "integrated," does not warrant
d. The Court Of Appeals Decision In The Consent Decree Case Does
Not Provide A Basis For Summary Judgment Under The Antitrust
Microsoft places principal reliance for its argument that "technically interconnected
products" are essentially "immune" from tying claims on the Court of Appeals' recent decision in
the consent decree case. MS Memo at 20. Microsoft argues that the consent decree decision sets
the legal framework for this case: The "court's evaluation of a claim of integration must be narrow
and deferential," and "an integrated product should pass muster if there are 'facially plausible
benefits to its integrated design.'" MS Memo at 26, quoting slip op. at 14-15. But the Court of
Appeals' holding that facially plausible benefits "pass muster" at the preliminary injunction phase
of a lawsuit involving the interpretation of a consent decree neither disposes of nor forecloses full
analysis of the legal and factual issues raised here.
The principal issue in the consent decree case was whether the challenged tie was an
"integrated" product within the specific meaning of language in Section IV(E)(I) of the decree. As
addressed by the Court of Appeals, that issue was not coextensive with whether Microsoft bundled
one product or two under established antitrust law. The precise issue beforethe court was
whether the government was likely to establish its claim that Microsoft had violated a provision of
the consent decree, which exempted the "develop[ment]" of "integrated product[s]" from its scope
-- not whether it had violated the antitrust laws. Slip op. at *10 ("the decree does not embody
either the entirety of the Sherman Act or even all 'tying' law under that Act," and it cannot be read
"as though its animating spirit were solely the antitrust laws," citing United States v. Armour &
Co., 402 U.S. 673, 681-82 (1971)). The Court understood its task as construing the decree as a
contract, looking to the parties' intent in determining the appropriate meaning of the word
"integrated," which in any event is immaterial here. Slip op. at *19. As the Court elsewhere
noted: "The antitrust question is of course distinct. The parties agree that the consent decree does
not bar a challenge under the Sherman Act." Id. at *15, n.14 (emphasis added).
Moreover, the Court of Appeals expressly left to a more fully developed record whether, in
fact, Microsoft's arguments about "technological benefit" could be substantiated, slip op. at 18, and
even whether Windows 95 and Internet Explorer are an "integrated" product within the meaning of
the consent decree. Id. at 16 & n.15 (Microsoft had "ascrib[ed] facially plausible benefits to its
integrated design," which "the [government] may not have contested . . . as vigorously as it might .
. . . The ultimate sorting out of any factual disputes . . . we of course cannot resolve on the limited
record before us"). The court's decision was "tentative," id. at 19, and "subject to reexamination
on a more complete record." Id. at 18. It accordingly cannot serve as a basis for summary
judgment in this case.
To be sure, the Court of Appeals did express in dicta concern about the competence of
courts to scrutinize the packaging of products in high technology industries such as the computer
software business. The court noted that "[a]ntitrust scholars have long recognized the
undesirability of having courts oversee product design, and any dampening of technological
innovation would be at crosspurposes with the antitrust law." Microsoft, 1998 WL 327855, at
*12. But those concerns do not conflict with, and cannot effect an overruling of, Jefferson Parish
and its progeny. The Jefferson Parish market test does not require courts to engage in product
design oversight or even to look at the relative technological benefits of various products. Rather,
the market test enables courts to let the market evaluate the technological benefits and detriments
of bundled and unbundled products. Cf. Digital Equipment Corp. v. System Industries, Inc., 1990
WL 5588 (D. Mass. 1990) (fact that two products are technologically interrelated is not
determinative under Jefferson Parish separate products test). If there is sufficient demand, then
Jefferson Parish requires the defendant to offer the unbundled alternative and to let the market, not
the defendant, decide whether the bundle is desirable.
In any event, even if Microsoft were correct that the legal standard to be applied in this
case is that technologically tied products are immune from Section 1 scrutiny so long as the
"integration" of products produces "plausible" synergistic benefits and the integration is not purely
pretextual, see 1998 WL 327855, at *13, summary judgment in favor of Microsoft would still be
inappropriate because there are numerous genuinely disputed material facts.37
As to Windows 98, Microsoft claims that there can be no genuine dispute that the inclusion
of Internet Explorer in Windows 98 achieves technologically beneficial results. MS Memo at 33.
However, the facts cast serious doubt on the assertion that there are any necessary synergistic
benefits of the bundled version, and that Microsoft's requirement that Internet Explorer be used is
First, as discussed above, there is no compelling evidence that requiring the use of Internet
Explorer in particular, as opposed to any other browser inserted by an OEM or end user, is
necessary to provide the benefits Microsoft describes. For example, the other operating system
vendors which have incorporated browsing functionality into their operating systems universally
respect "browser neutrality" in doing so, either by bundling multiple browsers or contractually and
technically permitting OEMs and end users to replicate the synergies of bundling by substituting
browsers different than the one selected as default by the operating system manufacturer.
Second, Microsoft cannot claim without serious dispute that all (or even most) users
consider the integration beneficial; there is evidence that certain users (e.g., classes of corporate
customers) do not prefer the integration -- that is, they want an unbundled version. See also SJ
Finally, there is a genuine issue of material fact whether, under the standard applied by the
D.C. Circuit to the consent decree, Windows 98 and Internet Explorer were essentially "bolted"
together. As the United States has previously discussed, see PI Memo at 60-64, numerous
Microsoft documents describe the bundling of Internet Explorer with Windows 98 as precisely
motivated by a desire to thwart competition among browsers (as opposed to maintaining a
competitive advantage among operating systems) -- and even to specifically "weld" the products
together in response to this desire.
In light of these factors, even under the unduly narrow standard articulated by the Court
of Appeals under the consent decree, disputed issues of material fact preclude summary judgment.
2. Microsoft's Forced Licensing Of Internet Explorer To OEMs
Violates Section 2 Of The Sherman Act
The Complaints allege that Microsoft's forced licensing of Internet Explorer as a condition
of OEMs licensing its Windows operating systems significantly injures other browsers and, both
alone and in concert with Microsoft's other anticompetitive conduct, violates Section 2 of the
Sherman Act. It constitutes both unlawful monopolization of the PC operating system market --
because it injures other browsers that threaten to provide an alternative platform that would
diminish the monopoly power of Microsoft's operating systems -- and an unlawful attempt to
monopolize the market for Internet browsers.
"‘The offense of monopoli[zation] under § 2 of the Sherman Act has two elements: (1) the
possession of monopoly power in the relevant market and (2) the willful acquisition or
maintenance of that power as distinguished from growth or development as a consequence of a
superior product, business acumen, or historic accident.'" Eastman Kodak Co. v. Image Tech.
Servs., Inc., 504 U.S. 451, 481 (1992) (quoting United States v. Grinnell Corp., 384 U.S. 570-71
(1966)). The offense of attempted monopolization under Section 2 has three elements: "that the
defendant (1) has engaged in predatory or anticompetitive conduct with (2) a specific intent to
monopolize, and (3) a dangerous probability of achieving monopoly power. Spectrum Sports v.
McQuillan, 506 U.S. 447, 456 (1993). In substance, Section 2 prohibits the maintenance or
creation of monopoly power by anticompetitive means. See, e.g., Aspen Skiing, 472 U.S. at 602-
603 (Section 2 condemns maintenance of power when accomplished through improper or
anticompetitive means); Barry Wright Corp. v. ITT Grinnell Corp., 724 F.2d 227, 239 (1st Cir.
1983) (Breyer, J.) (explaining that "[a] monopolist's conduct that from a competitive point of view
is unreasonable" violates Sherman Act section 2).
As discussed above, Microsoft argues largely that its licensing of Windows on condition
that OEMs license Internet Explorer is not an unlawful tying arrangement because Internet
Explorer and Windows comprise a single product. MS Memo at 38-48. But, whatever the merits
of that argument under Section 1, it does not follow that Microsoft's forced licensing of Internet
Explorer cannot be challenged under Section 2. As the leading antitrust treatise explains:
Tying law's ‘two product' inquiry distinguishes competitive from
anticompetitive bundling only imperfectly. Some bundling may be
anticompetitive under § 2 even though the bundled items are
technically a single product. . . . For example, concluding that
morning and evening newspaper advertising are the same product
for tying purposes does not foreclose a § 2 challenge to a dominant
newspaper's use of morning/evening bundling to destroy an evening
10 P. E. Areeda, E. Elhauge, and H. Hovenkamp, Antitrust Law ¶ 1752g, at 289 n.46 (1996)
(emphasis added). The very "technological tying" cases Microsoft invokes hold that Section 2
may be violated when a monopolist "uses" its monopoly "power to tighten its hold on the
market." Berkey Photo, 603 F.2d at 274-75; Northeastern Tel. Co. v. American Tel. & Tel. Co.,
651 F.2d 76, 84-85 (2d Cir. 1981), cert. denied, 455 U.S. 943 (1982); Telex, 510 F.2d at 926-27.
Those cases also make clear that, in determining whether a product design decision amounts to an
unlawful use of monopoly power (or, in the language of other cases, is "predatory" or
"exclusionary"), the usual Section 2 standard applies and not some special, deferential rule. See
Northwest Telephone, 651 F.2d at 84-85 & 95 n.29; Inre IBM Peripherals EDP Devices
Antitrust Litigation, 481 F. Supp. 965, 1003 (N.D. Cal. 1979) (rejecting the argument that
illegality should be found only when "the intent was solely an illegal one" and concluding that "[a]
more generalized standard, one applicable to all types of otherwise legal conduct by a
monopolist . . . must be applied to the technological design activity at issue here."), aff'd,
671 F.2d 1377 (9th Cir.), cert. denied, 464 U.S. 955 (1983); seealso GAF Corp. v. Eastman
Kodak Co., 519 F. Supp. 1203, 1228-29 & n.19 (S.D.N.Y. 1981) ("the ‘reasonableness' of the
design of a monopolist's new products . . . may be scrutinized under § 2 in cases in which . . . a
single firm controls the entire market or in which a monopolist engages in coercive conduct to
affect consumer choice," and "an absolute monopolist's design conduct is subject to antitrust
scrutiny by a jury"); California Computer Products, Inc. v. IBM Corp., 613 F.2d 727, 735-36 (9th
Microsoft argues that its refusal to license Windows except with Internet Explorer is
simply an "ordinary business practice typical of those used in a competitive market" and, for
this reason, cannot "constitute anti-competitive conduct violative of Section 2." MS Memo at 76
(quoting Trace X Chem., Inc. v. Canadian Indus., Ltd., 738 F.2d 261, 266 (8th Cir. 1984), cert.
denied, 469 U.S. 1160 (1985)). This contention, however, is both factually and legally flawed.
As noted above, the evidence shows that other operating system vendors permit OEMs to license
their operating system without a particular browser, and to remove browsers shipped with the
operating system. Moreover, other operating system vendors, in contrast to Microsoft, lack
monopoly power; and it has long been clear that, "[w]here a defendant maintains substantial
market power, his activities are examined through a special lens: Behavior that might otherwise
not be the concern to the antitrust laws -- or that might even be viewed as procompetitive -- can
take on exclusionary connotations when practiced by a monopolist." Eastman Kodak, 504 U.S.
at 488 (Scalia, J., dissenting on other grounds) (quoting 3 P.E. Areeda and D.F. Turner, Antitrust
Law ¶ 813, at 300-02 (1978)).
Thus, the Section 2 issues cannot be disposed of by looking merely to the practices of
firms other than Microsoft. Instead, they must be resolved by asking the question that Section 2
requires -- whether Microsoft's insistence that OEMs license Internet Explorer as a condition of
licensing Windows is anticompetitive.38 In making that assessment, the Supreme Court explained
in Aspen, the court should inquire whether the monopolist's conduct "‘(1) tends to impair the
opportunity of rivals'" and (2) "'does so in an unnecessarily restrictive way.'" 472 U.S. at 605
n.32 (quoting 3 P.E. Areeda & D.F. Turner, Antitrust Law 78 (1978)). In other words, Section 2
is violated when a monopolist engages in conduct that excludes rivals and the exclusion is not
reasonably necessary to achieve asserted legitimate business objectives. SeeIn re IBM
Peripherals EDP Devices Antitrust Litig., 481 F. Supp. at 1003 ("If the design choice is
unreasonably restrictive of competition, the monopolist's conduct violates the Sherman Act. The
standard will allow the factfinder to consider the effects of the design on competitors; the effects
of the design on consumers; the degree to which the design was the product of desirable
technological creativity; and the monopolist's intent, since a contemporaneous evaluation by the
actor should be helpful to the factfinder in determining the effects of a technological change.").
The evidence here establishes without question material disputes on these issues. First,
the evidence leaves no doubt that, because of Microsoft's monopoly power, OEMs have no
alternative to the Windows operating system and, thus, to licensing Internet Explorer; that OEMs
that license Internet Explorer are less likely as a result also to distribute other browsers; and that
the forced licensing of Internet Explorer thus forecloses the opportunities of rival browsers. See
supra, Section II.B. The exclusion of non-Microsoft browsers in this way is not a "competitive
advantage" that "‘accrues to any integrated firm,'" MS Memo at 80 (quoting Berkey Photo,
603 F.2d at 276), but rather is a consequence of Microsoft's desktop operating system monopoly.
Second, the evidence supports the conclusion that this exclusion of non-Microsoft
browsers was not reasonably necessary in order for Microsoft to achieve any legitimate business
objective. Microsoft could offer OEMs the option of a Windows product without Internet
Explorer being required to supply browsing functionality and/or easily permit OEMs to remove
the means of access to Internet browsing functionality. See supra, Section II.C.1. It chose to tie
Internet Explorer, instead, precisely in order to deny its browser rivals access to the OEM
This belief in the
effectiveness of the tie has remained unwavering. See, e.g.,
This evidence, and the factual disputes it demonstrates, preclude summary judgment on the
Section 2 claim.
D. Microsoft's Windows Copyright Does Not Protect Its
Anticompetitive OEM License Practices
Microsoft begins its copyright argument by announcing that "Windows 95 and Windows
98 are both copyrighted works," MS Memo at 54, as though that talismanic invocation were
enough to shield it from the antitrust laws. But possession of a copyright does not permit its
owner to do whatever it likes with that copyright, in defiance not only of antitrust law but also of
copyright policy. Microsoft's conduct with respect to its copyrighted works violates both.
Moreover, the relevant facts regarding the restrictions in Microsoft's licensing agreements are
sharply contested, precluding summary judgment.
1. Microsoft Does Not Have ‘Moral Right" Protection
In Its Copyrighted Software
Much of Microsoft's copyright argument relies on a limited and rather obscure set of cases
suggesting that copyright owners are vested with a "moral right" of integrity in their works. This
is a continental law concept largely foreign to American jurisprudence.
Microsoft relies most heavily on Gilliam v. ABC, 538 F.2d 14 (2d Cir. 1976), which does
contain language suggesting that the court envisioned a new right of integrity where a work was
significantly changed but still promoted under its original name; the decision spoke of the
"mutilation" of a work by a licensee. But the Gilliam court itself acknowledged the lack of
statutory or doctrinal support in copyright for its newly-created right.39 Indeed, the court
ultimately grounded its new right in trademark instead.40 In any event, in the two decades since
the decision Gilliam has not been read expansively by other courts. See, e.g.,Halicki v. United
Artists, 812 F.2d 1213 (9th Cir. 1987) (refusing to endorse the broad new moral right plaintiff
read Gilliam to create); Weinstein v. University of Illinois, 811 F.2d 1091, 1095 n.3 (7th Cir.
1987) (same); Smith v. Montoro, 648 F.2d 602 (9th Cir. 1981) (same); Paramount v. Video
Broadcasting, 724 F. Supp. 808, 820 (D. Kan. 1989) (juxtaposition of advertisements with
copyrighted movie on videotape was not copyright infringement, despite Gilliam); cf.Seshadri v.
Kasraian, 130 F.3d 798, 803 (7th Cir. 1997) (rejecting a Gilliam-based integrity argument,
noting that the plaintiffs "might conceivably have some remedy, but it wouldn't be under the
Whatever policy justifications might exist for a moral right of integrity in works of
art, the context in which the concept was developed, they are substantially weaker when the work
at issue is a computer program.42 Computer programs -- and particularly operating systems -- are
functional works. Their value resides not in their artistry, but in what they do. Cf. Apple
Computer v. Microsoft Corp., 35 F.3d 1435 (9th Cir. 1994). Numerous software cases have
allowed defendants to make alterations to a plaintiff's program in appropriate circumstances, and
for a variety of reasons.43 Indeed, the Copyright Act itself expressly allows owners of a copy of a
computer program to "adapt" it in appropriate circumstances without the permission of the
copyright owner, a power that is fundamentally at odds with Microsoft's asserted "right of
integrity" for software. See 17 U.S.C. § 117; Aymes v. Bonelli, 47 F.3d 23 (2d Cir. 1995).
At a minimum, application of this novel concept to software raises a number of material
factual issues, none of which Microsoft has addressed. These include the extent of copyright
protection in the portions of the software being modified, the extent and type of the modification
involved, the purpose of the modification, and the consequences of permitting or prohibiting it.
All of these facts are sharply contested, and summary judgment on this issue would be particularly
2. Copyright Protection Is In Any Event Not Unlimited
The thrust of Microsoft's copyright argument is that it is free to do whatever it wishes in
licensing its copyrighted works. But copyright law does not provide an unbounded property
right. Rather, as the Supreme Court has repeatedly recognized, it is a limited power designed to
encourage to a reasonable degree the creation of new works of authorship. See, e.g.,Stewart v.
Abend, 495 U.S. 207, 224-25 (1990) (noting the Copyright Act's "balance between the artist's
right to control the work . . . and the public's need for access"); Computer Assocs. Int'l, Inc. v.
Altai, Inc., 982 F.2d 693, 711 (2d Cir. 1992) ("interest of copyright law is not in simply
conferring a monopoly on industrious persons, but in advancing the public welfare through
rewarding artistic creativity, in a manner that permits the free use and development of non-
protectable ideas and processes"); Twentieth Century Music Corp. v. Aiken, 422 U.S. 151, 156
(1975) ("private motivation must ultimately serve the cause of promoting broad public availability
of literature, music and other arts"). Limits on the scope of a copyright include the requirement
that protection extend only to "original works of authorship," Feist, 499 U.S. at 346-47; the
requirement that copyright protection extend only to the author's expression, and not to the
underlying idea being expressed, 17 U.S.C. § 102(b); Baker v. Selden, 101 U.S. 99 (1879); and
the absence of copy protection against certain "fair" uses, 17 U.S.C. § 107; Campbell v. Acuff-
Rose Music Inc., 510 U.S. 569 (1994).
In the context of computer programs, these limitations impose significant restrictions on
Microsoft's claimed "right to control the manner in which its copyrighted works are used." MS
Memo at 54. First, it is by now well established that the copyright in a computer program cannot
extend to the functional aspects of that computer program; to design choices dictated by
necessity, cost, convenience or consumer demand; or to portions of the program that are not
original to its creator. See, e.g.,Mitel v. Iqtel, 124 F.3d 1366, 1374-76 (10th Cir. 1997)
(interface specifications of a communications protocol are freely copiable because they are
functional rather than expressive);Apple v. Microsoft Corp., 35 F.3d at 1441 (user interface of a
computer program entitled to only limited protection against "virtually identical" copying, because
of license and because of limited number of different ways the underlying idea can be expressed);
and Computer Associates, 982 F. 2d at 715 (significant portions of the structure, sequence, and
organization of a program may be copied in order to write a similar program to run on a different
Second, copyright law does not provide Microsoft with the unfettered right "to license
their intellectual property as they see fit." MS Memo at 54. Rather, copyright's misuse doctrine
imposes significant restrictions on the ability of a copyright owner to extend its control to
adjacent markets, to prevent the development and use of interoperable programs by competitors,
or to impose anticompetitive restrictions on licensees. Several cases are instructive. In DSC
Communications v. DGI Technologies, the Fifth Circuit held that it was likely copyright misuse
for DSC to use its copyright in the computer program operating a telephone switch to try to
prevent a competitor from designing and testing a compatible switch that used DSC's protocols.
81 F.3d at 601. And in Lasercomb America v. Reynolds, 911 F.2d 970 (4th Cir. 1990) and
Practice Management Info. Corp. v. American Med. Ass'n, 121 F.3d 516 (9th Cir. 1997), as
amended Jan. 9, 1998, the Fourth and Ninth Circuits found copyright misuse where a copyright
owner entered into license agreements that restricted its licensees from competing with it.45
These intellectual property principles establish that Microsoft's copyrights do not give it
the right to impose whatever restrictions it wishes on its licensees. Instead, copyright law offers
no protection for license restrictions, like those at issue here, that attempt to extend Microsoft's
rights beyond what the copyright laws protect or for those that attempt to impose anticompetitive
conditions on the licensing of the copyright.
3. Copyright Interests Do Not Provide Immunity From The Antitrust Laws
The underlying error in Microsoft's copyright argument is that it proceeds from an
assumption that, if Microsoft's restrictions are contained in a license to legitimately copyrighted
material, the copyright automatically prevails and any restrictions it chooses to insert in its
licensing agreements are permissible under the antitrust laws. This assumption is wrong.
A copyright does not give its owner immunity from the laws of general applicability.
Examples are legion,46 and antitrust law is among them. See, e.g., Data General Corp. v.
Grumman Sys. Support, 36 F.3d 1147, 1185 n.63 (1st Cir. 1994) ("[i]t is in any event well settled
that concerted and contractual behavior that threatens competition is not immune from antitrust
scrutiny simply because it involves the exercise of copyright privileges"; citing cases). Antitrust
liability may attach to anticompetitive licensing restrictions.See United States v. Loew's, Inc.,
371 U.S. 38 (1962); United States v. Paramount Pictures, 334 U.S. 131 (1948); Straus v.
American Publishers Ass'n, 231 U.S. 222, 234 (1913); Digidyne, 734 F.2d 1336.
One of the principles adopted by the courts in reconciling antitrust and copyright law is
that a copyright owner may not use licensing agreements to impose certain anticompetitive
restrictions on its licensees. Thus, efforts to use a copyright license to obtain control in an
adjacent market or to tie copyrighted to uncopyrighted works have been held to violate the
antitrust laws. Eastman Kodak, 504 U.S. at 479 n.29 ("The Court has held many times that
power gained through some natural and legal advantage such as a patent, copyright, or business
acumen can give rise to liability if a seller exploits his dominant position in one market to expand
his empire into the next.");47Eastman Kodak v. Image Technical Servs., 125 F.3d 1195 (9th Cir.
1997); Digidyne, 734 F.2d 1336.
Here, the United States complains about allegedly anticompetitive restrictions Microsoft
has included in its licensing agreements: requiring the preinstallation and display of Internet
Explorer and preventing OEMs from utilizing preferred means of developing and installing their
own add-on programs or customizing the user interface. With regard to each restriction, the
conduct at issue is not whether Microsoft has an intellectual property right not to license its
copyrighted works, but whether Microsoft's insertion into its license agreements of restrictions
that exclude competing browsers and maintain and extend Microsoft's operating system
monopoly violates the antitrust laws.
4. Microsoft's Copyright Does Not Preclude Appropriate Relief Once An
Antitrust Violation Has Been Proved
Finally, Microsoft suggests that the relief sought by the United States would infringe its
copyright interests. But Microsoft's rights under the copyright laws are very different at the
remedy stage, after liability has been established. Courts have regularly ordered compulsory
licensing of valid patents and copyrights as a remedy for a proven antitrust violation. See, e.g.,
United States v. Glaxo Group, 410 U.S. 52 (1973) (compulsory licensing of present and future
patents at a court-set rate was an appropriate remedy for past antitrust violations); United States
v. National Lead Co., 332 U.S. 319, 328-35 (1947); Hartford-Empire Co. v. United States, 323
U.S. 386, 419 (1945); F.M. Scherer, Industrial Market Structure and Economic Performance
456 (1980) ("compulsory licensing has been specified as a remedy in more than 125 antitrust
cases . . ."). If plaintiffs establish that Microsoft's licensing restrictions violate the law, the
copyright laws will pose no obstacle to an appropriate remedy.
III. PLAINTIFFS ARE ENTITLED TO PRELIMINARY AND PERMANENT RELIEF
Contrary to the unsupported assertions in its Memorandum in Opposition to Plaintiffs'
Motions for Preliminary Injunction, Microsoft clearly possesses monopoly power; its conduct has
excluded competition; and its conduct cannot be justified by self-serving pronouncements as to
the benefits of "integration" and its asserted rights in the "integrity" of its intellectual property.
Microsoft claims that the relevant product market in this case is broader than that alleged
by the plaintiffs, and that the appropriate market encompasses not only operating systems for
Intel-based PCs, but also for minicomputers, workstations, non-Intel based PCs, network
computers attached to mainframes, and handheld computers. See MS Memo. at 10-11.48
Microsoft's assertion that operating systems for other types of computers are substitutes for
desktop PC operating systems is utterly unsupported by anything other than speculation and
conjecture. There is no evidence that hardware such as workstations (adapted to run higher-
powered applications than PCs) or handheld computers (adapted to run lower-powered
applications than PCs) provide viable substitutes for Intel-based desktop PCs for any significant
number of users. To the contrary, the evidence supports
plaintiffs' allegations that the relevant market in this case is no broader than (and perhaps
narrower than) one for desktop operating systems for Intel-based PCs.
The Court of Appeals has twice considered actions against Microsoft and has commented
on its apparent monopoly power and the characteristics of the operating system market that have
contributed to this power. SeeUnited States v. Microsoft Corp., 56 F.3d 1448, 1451-53 (D.C. Cir,
1995); United States v. Microsoft Corp., 1998 WL 327855, *1 (D.C. Cir. 1998) ("Because IBM
chose to install Microsoft's operating system on its personal computers, Microsoft acquired an
‘installed base' on millions of IBM and IBM-compatible PCs. That base constituted an
exceptional advantage, and has created exceptional risks of monopoly, because of two
characteristics of the software industry -- increasing returns to scale and network externalities.").
Of course, some of the other companies in the operating system business are large and
well-funded, and have numerous smart engineers at their disposal. But those assets do not enable
firms to enter and compete meaningfully in the relevant market. The evidence plainly indicates
that other would-be operating system competitors, including computer giant IBM, despite the
resources at their disposal, have been unable to penetrate the desktop operating system market.
Measured against the
historical record of such companies' utter failure to gain a foothold in the competitive battle
against Windows, their resources might as well be infinite. The barriers to entry -- exactly the
barriers described by the plaintiffs in their opening briefs -- would be no less high.
Microsoft seeks to deal with these barriers (most notably, the strong network effects
exhibited by the operating system market) by simply assuming them away. Microsoft offers no
evidence at all to support its claim that the large installed base of Windows users serves as a
"magnet" for entry, and certainly none that rebuts the substantial evidence that Microsoft's
dominance is reinforced by the positive feedback loop between Windows-specific applications
and further growth in the Windows installed base.
Not a single operating system vendor witness called to testify
in these proceedings has even remotely suggested that he views selling to the Windows installed
base as an attractive business opportunity. To the contrary, such vendors repeatedly have testified
that the desktop market is essentially foreclosed, forcing them to direct their efforts elsewhere.
Finally, Microsoft futilely seeks refuge in the assertion that operating system prices remain
low and represent a small portion of the cost of a personal computer, and that the relevant market
is characterized by rapid technological advances. Whether operating system technology has
advanced in the past several years (itself a subjective judgment which Microsoft makes no effort
to substantiate) is immaterial. The courts have consistently held that a firm may possess
monopoly power in an industry notwithstanding the fact that innovation has continued to occur
and prices have not increased. See, e.g., Allen-Myland, 33 F.3d at 210-11; Greyhound Computer
Corp. v. IBM Corp., 559 F.2d 488, 497 (9th Cir. 1977).
Moreover, Microsoft's argument misstates the facts. The prices of nearly all other
components of personal computers have decreased substantially, even while their technological
capabilities have dramatically expanded. See, e.g., The
price of Windows has not. Ibid. As a result, the percentage of the cost of a PC to a consumer
represented by Windows has been steadily increasing.
declined to take any pricing action in response, choosing instead to maintain Windows royalties at
least at prior levels. This is evidence of monopoly power, not the absence thereof.
As discussed in preceding sections of this Memorandum, Microsoft's monopoly power is
the lens through which its anticompetitive conduct must be viewed.
express fear of disrupting their relationships with Microsoft. Both their absence of choice and
their fear is consistent only with the fact that Microsoft possesses monopoly power. This power,
in turn, is the fulcrum by which Microsoft's coercive business practices have been implemented,
distinguishing them in critical ways from the non-predatory practices of Microsoft's operating
system and browser competitors. Microsoft's exclusionary conduct is not, as Microsoft
characterizes it, merely "commonplace." It is extraordinary, and extraordinary for the very reason
it offends the antitrust laws: it coerces consumer, OEM, ISP, and ISV purchasing and licensing
decisions and forecloses competition through the exertion of monopoly power, not the ordinary
power of persuasion based purely on the merits of Microsoft's products.
* * * * * * * * *
For the reasons set forth in plaintiffs' memoranda in support of preliminary injunction, and
based on the evidence set forth previously and herein, plaintiffs meet each of the factors required
for the entrance of preliminary and permanent injunctive relief.
DATED: August 31, 1998 __________/s/____________
Christopher S Crook
Phillip R. Malone
Steven C. Holtzman
Pauline T. Wan
Karma M. Giulianelli
Michael C. Wilson
Sandy L. Roth
John F. Cove, Jr.
Denise M. DeMory
Mark S. Popofsky
Special Trial Counsel
U.S. Department of Justice
450 Golden Gate Avenue Room 10-0101
San Francisco, CA 94102
Dennis C. Vacco
Pamela Jones Harbour
Deputy Attorney General
Stephen D. Houck
Chief, Antitrust Bureau
Alan R. Kusinitz
Assistant Attorney General
New York State Department of Law
120 Broadway, Suite 2601
New York, New York 10271
1 This memorandum, which responds to both Microsoft's summary judgment motion and its opposition to the motions for a preliminary injunction, addresses the federal law issues. In a separate memorandum, plaintiff states address the state law issues and other issues that do not arise in the United States' case.
2 In Eastman Kodak, the Supreme Court reversed a grant of summary judgment entered by the District Court on the ground that the defendant had proffered some business justifications for its tying arrangement. 504 U.S. at 461. The Court stated that "[l]egal presumptions that rest on formalistic distinctions rather than actual market realities are generally disfavored in antitrust law. This court has preferred to resolve antitrust claims on a case-by-case basis, focusing on the 'particular facts disclosed by the record.'" Id. at 466 [citations omitted].
3 Microsoft's announced intention to make its Internet Explorer browser "forever free" further undercuts any suggestion that Microsoft's conduct would maximize Microsoft's profits, except as a method of perpetuating its operating system monopoly.
4 As used herein, the term "ISPs" includes online services ("OLSs") such as America Online, which are sometimes distinguished from ISPs in that they create and/or bring together Internet content for their subscribers in addition to providing Internet connections. As discussed below, one of the many failings of Microsoft's summary judgment motion is its convenient fiction that the two can be disaggregated with respect to their roles as browser distribution channels. In fact, combined they represent the single most important browser distribution channel.
5 By contrast, the five regional Bell operating companies ("RBOCs") with which Netscape has distribution agreements and upon which Microsoft places so much emphasis in their memorandum, have only about 625,000 subscribers in aggregate, see SJ Ex. 25, the relative insignificance of which has been confirmed by
6 Microsoft argues that it has not enforced the agreements. But there is clear evidence to the contrary. Moreover, the fact that Microsoft asserts that it never took legal action to enforce the agreements does not mean that ISPs were or felt free to ignore them.
7 Indeed, according to This is exactly the raising of rivals' costs with which the antitrust laws are concerned.
8 Moreover, internal Microsoft documents reflect
9 The exclusion results not only from the prohibition on removal of the Internet Explorer icon, but also from the prohibition on removal of other icons and folders from Windows. For example, Microsoft's prohibition of OEM deletion of the Online Services folder, and, in Windows 95, the Internet Connection Wizard, was one of a variety of factors inducing ISPs and online services to enter into restrictive contracts with Microsoft for the licensing and distribution of Internet Explorer. Had OEMs been permitted to delete the Microsoft-selected ISPs and OLSs from Windows in order to further entice those providers into making individual deals with the OEMs, Microsoft would have had less leverage with which to secure the restrictive agreements. But after Microsoft imposed its boot-up and desktop screen restrictions, OEMs could no longer configure their machines such that alternate user interfaces or non-Windows products appeared during the initial Windows boot sequence, and thus have stopped providing important product choices or have been forced to provide them in much less desirable ways that adversely impact consumer selection of competing products.
10 Microsoft also argues that its huge user base reflects the superiority of its Internet browser product. See MS PI Opp. at 5. The basis for this claim appears to be that Internet Explorer did not begin to gain significant market share until 1996, when Microsoft released an improved version of the product. But that is also when Microsoft began to (1) enforce its OEM restrictions (by, inter alia, threatening the termination of major OEM Windows licenses unless OEMs restored Internet Explorer to the desktop screen) and (2) enter into restrictive contracts with ISPs. It is enough, in order to find the agreements to be unlawful, that they have material anticompetitive effects, even if other factors -- like improvements in Internet Explorer -- also affected the relative success of Microsoft and its rivals.
12 Indeed, the balancing of justifications against exclusionary effects, and the assessment of whether the challenged restrictions are necessary to effectuate the asserted justifications, are fact-bound questions that generally cannot be resolved on summary judgment. See, e.g., Betaseed, Inc. v. U & I Inc., 681 F.2d 1203, 1228-30 (9th Cir. 1982) (explaining that "the reasonableness of a restrictive practice is a paradigm fact question" and reversing grant of summary judgment for defendant on rule of reason claim); cf.Eastman Kodak Co. at 483-86 (Section 2 holding) (questions of fact with respect to both "the validity and sufficiency of each claimed justification" made "summary judgment inappropriate.")
13 Microsoft's contractual restrictions with ISPs, ICPs and OEMs are subject to scrutiny under both Section 1's rule of reason and under Section 2. "‘Under this rule [of reason of Section 1], the factfinder weighs all the circumstances of a case in deciding whether a restrictive practice should be prohibited as imposing an unreasonable restraint on competition.'" National Society of Professional Engineers v. United States, 435 U.S. 679, 691 (1978) (quoting Continental T.V., Inc. v. GTE Sylvania Inc., 433 U.S. 36, 49 (1977)). The rule of reason thus requires balancing a restraint's anticompetitive effects against any procompetitive justifications. See, e.g., American Ad Management, Inc. v. GTE Corp., 92 F.3d 781, 791 (9th Cir. 1996); Sullivan v. NFL, 34 F.3d 1091, 1111 (1st Cir. 1994) (rule of reason requires "a weighing of the injury [to competition] and the benefits to competition attributable to the practice"), cert. denied, 513 U.S. 1190 (1995). Furthermore, "[o]ne basic tenet of the rule of reason is that a given restriction is not reasonable, that is, its benefits cannot outweigh its harm to competition, if a reasonable, less restrictive alternative to the policy exists that would provide the same benefits as the current restraint." Sullivan, 34 F.3d at 1103.
14 Aside from Microsoft's ability to secure compensation for its investment, it is in any event unlikely that Microsoft would have refused to engage in "cross-marketing" with an OLS (or ISPs and ICPs) if Microsoft knew at the outset that the OLS might also distribute and promote non-Microsoft browsers. See Sibley Dec., ¶ 50.
16Compare, e.g., SJ Ex. 92 (MSV 9445A) (1/5/96 B. Gates E-mail) and SJ Ex. 51 (MSV 9360A-61A) (1/6/96 Maritz e-mail)) with SJ Ex. 89 (MSV 9404A) (9/4/96) ("Windows Experience Phase II")
18 For instance, Gateway, Dell, and Micron, among other OEMs, have features on their web sites that permit end-users to select the components of their PC, including the software the user would like preinstalled. See Wack Dec. Dell's web site, moreover, informs end-users that Internet Explorer is among the software titles that are included in various Microsoft software packages among which the end-user can choose. Seeid.
19 This discussion should not be read to suggest that any of the operating system vendors discussed in fact compete in the same relevant product market as Microsoft, or that the existence of other operating system vendors has any material impact on Microsoft's monopoly power. In fact, the evidence indicates that none of the operating system vendors discussed have successfully competed with Microsoft in the desktop PC operating system market, and most in fact have stopped trying to do so. See also Section III, infra.
20 A similar inference of no real justification can be drawn from recent Microsoft grants of permission to selected OEMs to change the start-up sequence and/or first screen to some limited degree. Of course, even if the exclusionary agreements did further a legitimate interest of Microsoft to some extent, Microsoft would not be entitled to summary judgment: the justification still would need to be weighed against the anticompetitive effects of the exclusionary agreements. Such weighing is inherently a fact specific exercise, and is far from undisputed in this case.
21 In any event, while Microsoft's "protestations of repentance and reform" is "one of the factors to be considered in determining the appropriateness of granting an injunction," W.T. Grant, 345 U.S. at 632 n.5, 633 (internal quotations omitted), until disputed factual questions -- including Microsoft's purpose in implementing the challenged restrictions -- are resolved, it is premature to conclude that the plaintiffs are not entitled to an injunction providing prophylactic relief against the reinstitution of the waived restrictions and similar anticompetitive schemes. Compareid. at 633-36 (affirming district court's refusal to issue injunction based on undisputed record revealing "no factual dispute" concerning the absence of a threatened future violation) withInternational Salt Co. v. United States, 332 U.S. 392, 400 (1948) (explaining that broad prophylactic relief is especially appropriate "[w]hen the purpose to restrain trade appears from a clear violation of the law").
22 Because Microsoft's forced licensing of Internet Explorer is unlawful per se, anticompetitive effects are presumed. It also is unlawful under the rule of reason, because plaintiffs' evidence actually proves the anticompetitive effects of the tie, which are not outweighed by any legitimate business objectives.
23 Microsoft relies on two lower court cases, neither of which supports its argument. Unlike the case at bar, the tie in Multistate Legal Studies did not increase customers' costs or pressure them to forego alternatives to the tied product. Indeed, the court was careful to note that, under the circumstances there, "economic incentives remained the same" for customers to select alternatives to the defendant's version of the tied product on the merits. Multistate Legal Studies v. Harcourt Brace Jovanovich, 63 F.3d 1540, 1548 (10th Cir. 1995), cert. denied, 516 U.S. 1044 (1996). The evidence here, by contrast, shows that Microsoft's tying was not costless to OEMs and materially altered their economic incentives. Microsoft's requirement that OEMs take IE in order to get Windows, and that they not delete IE, significantly diminishes their incentive to -- and reduces the likelihood that they will -- select an alternative to Microsoft's version of the tied product. The other case cited by Microsoft, Directory Sales Management Corp. v. Ohio Bell Tel. Co., 833 F.2d 606 (6th Cir. 1987), is wholly inapplicable. It holds only that there is no tying arrangement where the seller of the tying product is not the seller of the tied product, does not charge for the tied product, and accordingly had no "economic interest in" the tied product. Id. at 610. That certainly is untrue with respect to Microsoft's interest in Internet Explorer.
24Jefferson Parish, 466 U.S. at 21-22 (a tying arrangement exists if there is "sufficient demand for the purchase of [the tied product] separate from [the tying product] to identify a distinct product market in which it is efficient to offer [the tied product] separately from [the tying product]."); Eastman Kodak, 504 U.S. at 462 (separate products inquiry requires that there be "sufficient consumer demand so that it is efficient for a firm to provide" the two products separately) (internal quotation marks omitted); seealsoMultistate Legal Studies v. Harcourt Brace Jovanovich, 63 F.3d 1540, 1547 (10th Cir. 1995) (same); Service & Training, Inc. v. Data General Corp., 963 F.2d 680, 684 (4th Cir. 1992) ("[t]he purpose of the inquiry into consumer demand is to determine whether there are customers who would, absent an illegal agreement, purchase the tied product without the tying product, and the tying product without the tied product. . . .").
25 Microsoft argues that "the alleged existence of demand among corporate customers for operating systems without web browsing functionality is not a commercial opportunity for competitors of Microsoft (such as Netscape) that is being foreclosed by Microsoft," and that therefore such evidence does not support the United States' position that Windows 98 and Internet Explorer are separate products. Microsoft relies on the following passage from Jefferson Parish: "[W]hen a purchaser is `forced' to buy a product he would not have otherwise bought even from another seller in the tied product market, there can be no adverse impact on competition because no portion of the market which would otherwise have been available to other sellers has been foreclosed." 466 U.S. at 16. Microsoft takes the quoted passage out of context, and confuses its reference not to the "separate products" inquiry, but rather to the distinct question of whether there is "a substantial potential for impact on competition" sufficient to justify per se condemnation. With regard to the question of whether there are separate markets and separate products, Jefferson Parish requires aggregation of consumer demand, including both consumers who wish to add a competing browser and those who do not wish to buy a browser at all. See 466 U.S. at 12 ("[T]he essential characteristic of an invalid tying arrangement lies in the seller's exploitation of its control over the tying product to force the buyer into the purchase of a tied product that the buyer either did notwant at all, or might have preferred to purchase elsewhere on different terms."(emphasis added)).
26 Cross-platform browser products meet unified cross-platform demand for a single set of features and functions offered by a cross-platform browser. PI Exs. 54, 85. These versions share the Internet Explorer brand name, logo, and features; in short, they meet customer demand for one functionally and aesthetically uniform product, known as Internet Explorer, that spans the Macintosh, Unix, and Windows operating systems. See, e.g., The demand for consistency -- for a product with the same look, feel, and features across platforms -- is what Microsoft wasattempting to meet in developing Internet Explorer for non-Windows operating systems.
27 Once again, plaintiffs do not intend to suggest that any of the operating system vendors compete in the same relevant product market as Microsoft or have any material impact on Microsoft's monopoly power. See supra, n. 19; infra, Section III.
28 Of course, such unbundled alternatives do not necessarily entail the unbundling of each and every file or library distributed with Internet Explorer. Indeed, Microsoft's own public documents indicate that the "removal" of an application should generally leave shared program files behind. Felten Dec., ¶ 11. The more logical test of unbundling, particularly in the context of the Jefferson Parish consideration of user demand, not technical interaction, as its appropriate test of separateness, looks to the steps necessary to "remove" the bundled software from the perspective of an end user.
29 In fact, Microsoft offered just such an option after being ordered to do so by the Court.
30 Indeed, in light of the evidence that Microsoft itself has long treated Internet Explorer as a separate product, that users and OEMs repeatedly asked for Windows without Internet Explorer, and that Microsoft designed Windows and Internet Explorer as it did at least in part for anticompetitive purposes, Microsoft was on notice from the outset that Windows are separate products to which the anti-tying laws apply and had ample opportunity from the outset to conform its conduct to the requirements of the law.
31 Similarly, Microsoft's attempts to obscure marketplace reality by invoking various misleading labels for Internet Explorer, such as an "upgrade" to the operating system or "technologies" that are "part of" the operating system, do not transform Internet Explorer into any less of a "product" for tying purposes. Under Jefferson Parish, it is clear that arbitrary labels such as "operating system upgrade" or "Internet Explorer technologies" -- just like the "functionally integrated package of services" self-servingly coined by the defendant there -- cannot overcome evidence of consumer demand for Internet Explorer as a separate product.
32 Microsoft's reading of Response of Carolina to stand for the proposition that a tying arrangement is unlawful only if its sole purpose is "tying the products" has no basis in that opinion, which suggested there was no such purpose, id. at 1330-31. It also ignores the numerous cases holding intent irrelevant to separate product analysis. See, e.g., ILC Peripherals Leasing Corp. v. IBM Corporation, 448 F. Supp. 228, 234 (N.D. Cal. 1978) (ILC I) ("Good intentions will not change two products into one, and likewise, a single product does not become separate and distinct products because of a malevolent intent").
33 The court did say in dicta that, even if the defendant had not offered the operating system and DFDSS separately, there would be no unlawful "tie" because the items were part of a single product. Id. at 1476. This conclusion rested on the apparent findings that the integration was preferred by customers and that there was no substitute for the DFDSS software that could provide essential loading functions for new operating system customers. Id. Notably, after the Supreme Court decided Jefferson Parish, the Innovation Data Processing court revisited its decision. See Innovation Data Processing, Inc. v. IBM., 603 F. Supp. 646 (D.N.J. 1984). In so doing, the court emphasized that the basis for that decision had been the finding of no coercion, and that there was no need to reach the separate product question in light of the Supreme Court's demand-driven analysis. Id. at 648-49.
34 The fact that operating systems and browsers are not used in fixed proportions is clear, notwithstanding the Court of Appeals' assumption to the contrary in the consent decree case, 1998 WL 327855 at *12 (D.C. Cir. June 23, 1998). For example, some users prefer to use multiple browsers and some prefer to use no browser at all. These facts in part explain the variety of browser distribution practices by operating system vendors other than Microsoft, ranging from no bundling to the bundling of as many as three separate browsers with the operating system to provide consumer choice.
35See, e.g., General Electric Co. v. Joiner, 118 S. Ct. 512, 520 (1997) (in toxic tort case, "neither the difficulty of the task nor any comparative lack of expertise can excuse the judge from exercising the 'gatekeeper' duties that the Federal Rules impose . . . [J]udges have increasingly found in the Rules of Evidence and Civil Procedure ways to help them overcome the inherent difficulty of making determinations about complicated scientific or otherwise technical evidence. . . ") (Breyer, J., concurring); Securities Industry Ass'n v. Board of Governors, 468 U.S. 137, 181 (O'Connor, J., dissenting) ("Careful attention to the statutory language is especially important in an area as technical and complex as banking law, where the policies actually enacted into law are likely to be complicated and difficult for a nonspecialist judiciary to discern in their proper perspective"); Zauderer v. Office of Disciplinary Counsel, 471 U.S. 626, 645 (1985) ("distinguishing deceptive from nondeceptive advertising in virtually any field of commerce may require resolution of exceedingly complex and technical factual issues" and thus there is no reason to have a special rule prohibiting lawyer advertising on this basis); United States v. Western Elec. Co., 969 F.2d 1231 (D.C. Cir. 1992) (involving technical telecommunications issue); United States v. AT&T, 552 F. Supp. 131 (D.D.C. 1982), aff'd sub nom. Maryland v. United States, 460 U.S. 1001 (1983) (evaluating divestiture provisions in telecommunications markets in antitrust decree); International Wood Processors v. Power Dry, Inc., 792 F.2d 416, 430-31 (4th Cir. 1986) (jury properly considered and determined whether process of kiln drying was superior to another, and whether one process was "technologically sound" in antitrust case).. There simply is no reason why courts cannot muster the same kind of technical competence that they use to decide complex issues in other contexts to resolve claims of the tying of high technology products. Indeed they do. See, e.g., Allen-Myland v. IBM, 33 F.3d 194 (3d Cir. 1994).
36See Berkey Photo, 603 F.2d 263, 287 ("no one can determine with any reasonable assurance whether one product is ‘superior' to another. . . The only question that can be answered is whether there is sufficient demand for a particular product to make its production worthwhile, and the response, so long as the free choice of consumers is preserved, can only be inferred from the reaction of the market"); Northeastern Tel., 651 F.2d 76, 95, n. 29 ("In other circumstances, we might be reluctant to allow a jury to second-guess engineers' decisions as to the proper construction of a sophisticated piece of equipment. But in this case we cannot look to the reaction of the competitive market to determine whether one design is superior to another. . ." [citing Berkey Photo]).
37 As the author of the treatise on which the Court so heavily relied for its analysis has since pointed out: [Under the test outlined in the treatise,] the defendant must show that the items operate better when combined by the seller than when bought separately and combined by the buyer. . . But the court went astray in identifying who was combining Windows 95 and Internet Explorer. Did Microsoft combine the products when it manufactured them -- in which case it is one product? Or did the buyers combine the programs when installing onto computers from different disks -- in which case they are two distinct products? . . . . What the court forgot was the threshold rule to judge what constitutes one product: the plaintiff must first show that some buyers would actually want the items in their separated form. There are no buyers who want disk 3 of Windows 95 alone because it is useless without the other disks. But surely, there are buyers who would want to buy Windows 95 independently from Internet Explorer. Therefore, the court should have ruled that Windows 95 and Internet Explorer are separate products. It is obviously feasible to separate them on different diskettes, each of which have independent value -- since that is what Microsoft actually did. Nor can Microsoft claim that they work better when combined by Microsoft than when combined by buyers. Microsoft's main buyers, computer manufacturers, actually did combine them from separate disks. E. Elhauge, "Microsoft Gets An Undeserved Break," New York Times, June 29, 1998.
38 Of course, a finding that Microsoft violated Section 1 by engaging in the conduct challenged here would suffice to show a violation of Section 2. It is settled that acts undertaken by a monopolist that violate Section 1 and contribute to the maintenance of its monopoly power also violate Section 2. See United States v. Griffith, 334 U.S. 100, 106 (1948); United States v. United Shoe Mach. Corp., 110 F. Supp. 255, 342 (D.Mass. 1953), aff'd per curiam, 348 U.S. 521 (1954).
39 In Gilliam, the Second Circuit held that ABC's edits to Monty Python's program probably constituted an "actionable mutilation" of Python's work. It went on to note that "[t]his cause of action . . . finds its roots in the continental concept of droit moral, or moral right . . . . American copyright law, as presently written, does not recognize moral rights or provide a cause of action for their violation, since the law seeks to vindicate the economic, rather than the personal, rights of authors." 538 F.2d at 24.
40 Microsoft has not offered a defense based on trademark law, either in its answer or in its motion for summary judgment.
41 The other cases Microsoft cites also do not advance its argument: Community for Creative Non-Violence v. Reid, 846 F.2d 1485, 1498 (D.C.Cir. 1988) (only notes in dicta that a right against mutilation "may" exist in copyright); WGN Continental Broadcasting Co. V. United Video, 693 F.2d 622 (7th Cir.1982) (expressly notes that the seller lacks market power and will be disciplined by the market if it offers an overloaded product package); and National Bank of Commerce v. Shacklee Corp., 503 F. Supp. 533 (W.D. Tex. 1980) (involves unauthorized use of copyrighted material for the purpose of committing fraud).
42 In 1990, Congress created a limited moral right for creators of certain works of visual art, including a right of integrity and a right to object to "mutilation" of one's work. Visual Artists Rights Act, 17 U.S.C. § 106A. But Congress limited this right, inter alia, to works produced in editions of 200 copies or fewer, declining to extend the right to all copyrighted works. It is beyond cavil that VARA does not apply to Windows. It would render meaningless all the limitations of VARA if Microsoft could create out of whole cloth a new right of integrity that lacked those limitations. Indeed, precisely this reasoning led the Seventh Circuit to reject a broad right of integrity of the sort Microsoft seeks to create here: "It would not be sound to use 17 U.S.C. sec. 106(2) to provide artists with exclusive rights deliberately omitted from the Visual Artists Rights Act." Lee v. A.R.T., Inc., 125 F.3d 580, 583 (7th Cir. 1997).
43See, e.g.,Lotus Dev. Corp. v. Borland Int'l, 49 F.3d 809 (1st Cir. 1995) (Borland was free to create a new spreadsheet program that built on the Lotus spreadsheet menu command hierarchy); DSC Communications v. DGI Technologies, 81 F.3d 597 (5th Cir. 1996) (DGI was free to use plaintiff's communications protocols in developing its own switching software); Mitel v. Iqtel, 124 F.3d 1366 (10th Cir. 1997); Mitek Holdings v. Arce Eng'g, 89 F.3d 1548 (11th Cir. 1996); Sega of America v. Accolade, Inc., 977 F.2d 1510 (9th Cir. 1992); Vault v. Quaid Software, 847 F.2d 255 (5th Cir. 1988).
44 Microsoft also hints at reliance on Section 106(2) of the Copyright Act, which gives a copyright owner the exclusive right to prepare or authorize "derivative works" based on its copyrighted work. The derivative works right, however, does not preclude anyone from writing a different program that is complementary to the plaintiff's work or interoperates with it, because in these circumstances the original work has not been adapted. See P. Goldstein, Copyright § 5.3, at 5:82; accord, Lewis Galoob Toys v. Nintendo of America, Inc., 964 F.2d 965, 969 (9th Cir. 1992) (device which could be attached to a video game console to produce variants of the copyrighted screen displays of the video game did not constitute an infringing derivative work). Indeed, a contrary conclusion would enable Microsoft to prohibit any other company from producing or selling any applications program designed to run on a Microsoft operating system, and enable Microsoft to prohibit consumers from using such non-Microsoft software on PCs running Windows. Moreover, to be derivative and thus require authorization from the copyholder a work must contain new, original, copyrightable expression. See, e.g., 17 U.S.C. § 101 ("A work consisting of editorial revisions, annotations, elaborations, or other modifications which, as a whole, represent an original work of authorship, is a 'derivative work.'"); P. Goldstein, Copyright § 5.3, at 5:82; 1 M. Nimmer & D. Nimmer, Nimmer on Copyright § 3.03 (1997).
45See alsoTamburo v. Calvin, No. 94 C 5206, 1995 U.S. Dist. LEXIS 3399 (N.D. Ill. Mar. 15, 1995) (same); M. Witmark & Sons v. Jensen, 80 F. Supp. 843, 849 (D. Minn. 1948); F.E.L. Publications, Ltd. v. Catholic Bishop, 214 U.S.P.Q. 409, 413 n.9 (7th Cir. 1982) (noting in dictum that "it is copyright misuse to exact a fee for the use of a musical work which is already in the public domain").
46 For example, an author may claim copyright in a work later judged obscene under contemporary standards in a particular community. SeeMitchell Bros. Film Group v. Cinema Adult Theater, 604 F.2d 852,857 (5th Cir. 1979), cert. denied, 445 U.S. 917 (1980). If the work is determined to be obscene, the fact that the author had a copyright will not protect him from criminal liability. Similarly, owning a copyright in a book will not protect the author from civil liability if the book is found to be defamatory. Cf. Belcher v. Tarbox, 486 F.2d 1087, 1088 (9th Cir. 1973)(false and fraudulent material may be copyrighted). Similarly, owning a copyright in a computer "virus" program designed to crash another's computer would not prevent civil and criminal liability for its distribution, notwithstanding the fact that "distribution" is one of the "exclusive rights" of a copyright owner.
47 The WGN case relied on by Microsoft specifically noted that the station lacked market power, suggesting that had an antitrust claim been raised and proved, the outcome might have been different. 693 F.2d at 626.
48 Microsoft, seizing on one line on page 66 of the United States' memorandum in support of its preliminary injunction motion, also erroneously suggests that Netscape Navigator should be included in the relevant operating systems market. However, Netscape and other browser firms threaten Microsoft's monopoly not so much by any potential to become full-fledged operating systems themselves, but rather by their potential to become a cross-platform application program interface (API) layer on top of other operating systems. As such, (and as the plaintiffs' filings generally have made clear), non-Microsoft browsers are complements to, and only partial substitutes for, existing operating systems. As such, it would be wholly inappropriate to place them in the operating system market. Similarly, Microsoft's extreme assertion that there can be no economically relevant market for browsers simply because they may in some respects displace certain operating system functions, see MS PI Opp. at 20, n.4, cannot survive the uncontroverted evidence that consumers do not (and technologically could not) consider acquiring browsers instead of operating systems, and vice versa.
If you would like to send the Antitrust Division your comments on this case,
please direct your correspondence to: Microsoft.firstname.lastname@example.org