UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
____________________________________
)
UNITED STATES OF AMERICA, )
)
Plaintiff, )
)
v.
) Civil Action No. 98-1232 (TPJ)
)
MICROSOFT CORPORATION, )
)
Defendant. )
____________________________________)
)
STATE OF NEW YORK, et al., )
)
Plaintiffs, )
)
v. )
)
MICROSOFT CORPORATION, )
)
Defendant. )
____________________________________) Civil Action No.
98-1233 (TPJ)
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MICROSOFT CORPORATION, )
)
Counterclaim-Plaintiff, )
)
)
ELIOT SPITZER, attorney general of the )
State of New York, in his official )
capacity, et al., )
)
Counterclaim-Defendants. )
____________________________________)
CONCLUSIONS OF LAW
The United States, nineteen individual states, and the District of Columbia
("the plaintiffs") bring these consolidated civil enforcement actions
against defendant Microsoft Corporation ("Microsoft") under the Sherman
Antitrust Act, 15 U.S.C. §§ 1 and 2. The plaintiffs charge, in essence,
that Microsoft has waged an unlawful campaign in defense of its monopoly
position in the market for operating systems designed to run on
Intel-compatible personal computers ("PCs"). Specifically, the plaintiffs
contend that Microsoft violated §2 of the Sherman Act by engaging in a
series of exclusionary, anticompetitive, and predatory acts to maintain its
monopoly power. They also assert that Microsoft attempted, albeit
unsuccessfully to date, to monopolize the Web browser market, likewise in
violation of §2. Finally, they contend that certain steps taken by
Microsoft as part of its campaign to protect its monopoly power, namely
tying its browser to its operating system and entering into exclusive
dealing arrangements, violated § 1 of the Act.
Upon consideration of the Court's Findings of Fact ("Findings"), filed
herein on November 5, 1999, as amended on December 21, 1999, the proposed
conclusions of law submitted by the parties, the briefs of amici curiae,
and the argument of counsel thereon, the Court concludes that Microsoft
maintained its monopoly power by anticompetitive means and attempted to
monopolize the Web browser market, both in violation of § 2. Microsoft also
violated § 1 of the Sherman Act by unlawfully tying its Web browser to its
operating system. The facts found do not support the conclusion, however,
that the effect of Microsoft's marketing arrangements with other companies
constituted unlawful exclusive dealing under criteria established by
leading decisions under § 1.
The nineteen states and the District of Columbia ("the plaintiff states")
seek to ground liability additionally under their respective antitrust
laws. The Court is persuaded that the evidence in the record proving
violations of the Sherman Act also satisfies the elements of analogous
causes of action arising under the laws of each plaintiff state. For this
reason, and for others stated below, the Court holds Microsoft liable under
those particular state laws as well.
I. SECTION TWO OF THE SHERMAN ACT
A. Maintenance of Monopoly Power by Anticompetitive Means
Section 2 of the Sherman Act declares that it is unlawful for a person or
firm to "monopolize . . . any part of the trade or commerce among the
several States, or with foreign nations . . . ." 15 U.S.C. § 2. This
language operates to limit the means by which a firm may lawfully either
acquire or perpetuate monopoly power. Specifically, a firm violates § 2 if
it attains or preserves monopoly power through anticompetitive acts. See
United States v. Grinnell Corp., 384 U.S. 563, 570-71 (1966) ("The offense
of monopoly power 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 Technical Services, Inc.,
504 U.S. 451, 488 (1992) (Scalia, J., dissenting) ("Our § 2 monopolization
doctrines are . . . directed to discrete situations in which a defendant's
possession of substantial market power, combined with his exclusionary or
anticompetitive behavior, threatens to defeat or forestall the corrective
forces of competition and thereby sustain or extend the defendant's
agglomeration of power.").
1. Monopoly Power
The threshold element of a § 2 monopolization offense being "the possession
of monopoly power in the relevant market," Grinnell, 384 U.S. at 570, the
Court must first ascertain the boundaries of the commercial activity that
can be termed the "relevant market." See Walker Process Equip., Inc. v.
Food Mach. & Chem. Corp., 382 U.S. 172, 177 (1965) ("Without a definition
of [the relevant] market there is no way to measure [defendant's] ability
to lessen or destroy competition."). Next, the Court must assess the
defendant's actual power to control prices in - or to exclude competition
from - that market. See United States v. E. I. du Pont de Nemours & Co.,
351 U.S. 377, 391 (1956) ("Monopoly power is the power to control prices or
exclude competition.").
In this case, the plaintiffs postulated the relevant market as being the
worldwide licensing of Intel-compatible PC operating systems. Whether this
zone of commercial activity actually qualifies as a market, "monopolization
of which may be illegal," depends on whether it includes all products
"reasonably interchangeable by consumers for the same purposes." du Pont,
351 U.S. at 395. SeeRothery Storage & Van Co. v. Atlas Van Lines, Inc., 792
F.2d 210, 218 (D.C. Cir. 1986) ("Because the ability of consumers to turn
to other suppliers restrains a firm from raising prices above the
competitive level, the definition of the 'relevant market' rests on a
determination of available substitutes.").
The Court has already found, based on the evidence in this record, that
there are currently no products - and that there are not likely to be any
in the near future - that a significant percentage of computer users
worldwide could substitute for Intel-compatible PC operating systems
without incurring substantial costs. Findings ¶¶ 18-29. The Court has
further found that no firm not currently marketing Intel-compatible PC
operating systems could start doing so in a way that would, within a
reasonably short period of time, present a significant percentage of such
consumers with a viable alternative to existing Intel-compatible PC
operating systems. Id. ¶¶ 18, 30-32. From these facts, the Court has
inferred that if a single firm or cartel controlled the licensing of all
Intel-compatible PC operating systems worldwide, it could set the price of
a license substantially above that which would be charged in a competitive
market - and leave the price there for a significant period of time -
without losing so many customers as to make the action unprofitable. Id. ¶
18. This inference, in turn, has led the Court to find that the licensing
of all Intel-compatible PC operating systems worldwide does in fact
constitute the relevant market in the context of the plaintiffs' monopoly
maintenance claim. Id.
The plaintiffs proved at trial that Microsoft possesses a dominant,
persistent, and increasing share of the relevant market. Microsoft's share
of the worldwide market for Intel-compatible PC operating systems currently
exceeds ninety-five percent, and the firm's share would stand well above
eighty percent even if the Mac OS were included in the market. Id. ¶ 35.
The plaintiffs also proved that the applications barrier to entry protects
Microsoft's dominant market share. Id. ¶¶ 36-52. This barrier ensures that
no Intel-compatible PC operating system other than Windows can attract
significant consumer demand, and the barrier would operate to the same
effect even if Microsoft held its prices substantially above the
competitive level for a protracted period of time. Id. Together, the proof
of dominant market share and the existence of a substantial barrier to
effective entry create the presumption that Microsoft enjoys monopoly
power. See United States v. AT&T Co., 524 F. Supp. 1336, 1347-48 (D.D.C.
1981) ("a persuasive showing . . . that defendants have monopoly power . .
. through various barriers to entry, . . . in combination with the evidence
of market shares, suffice[s] at least to meet the government's initial
burden, and the burden is then appropriately placed upon defendants to
rebut the existence and significance of barriers to entry"), quoted with
approval inSouthern Pac. Communications Co. v. AT&T Co., 740 F.2d 980,
1001-02 (D.C. Cir. 1984).
At trial, Microsoft attempted to rebut the presumption of monopoly power
with evidence of both putative constraints on its ability to exercise such
power and behavior of its own that is supposedly inconsistent with the
possession of monopoly power. None of the purported constraints, however,
actually deprive Microsoft of "the ability (1) to price substantially above
the competitive level and (2) to persist in doing so for a significant
period without erosion by new entry or expansion." IIA Phillip E. Areeda,
Herbert Hovenkamp & John L. Solow, Antitrust Law ¶ 501, at 86 (1995)
(emphasis in original); see Findings ¶¶ 57-60. Furthermore, neither
Microsoft's efforts at technical innovation nor its pricing behavior is
inconsistent with the possession of monopoly power. Id. ¶¶ 61-66.
Even if Microsoft's rebuttal had attenuated the presumption created by the
prima facie showing of monopoly power, corroborative evidence of monopoly
power abounds in this record: Neither Microsoft nor its OEM customers
believe that the latter have - or will have anytime soon - even a single,
commercially viable alternative to licensing Windows for pre-installation
on their PCs. Id. ¶¶ 53-55; cf. Rothery, 792 F.2d at 219 n.4 ("we assume
that economic actors usually have accurate perceptions of economic
realities"). Moreover, over the past several years, Microsoft has comported
itself in a way that could only be consistent with rational behavior for a
profit-maximizing firm if the firm knew that it possessed monopoly power,
and if it was motivated by a desire to preserve the barrier to entry
protecting that power. Findings ¶¶ 67, 99, 136, 141, 215-16, 241, 261-62,
286, 291, 330, 355, 393, 407.
In short, the proof of Microsoft's dominant, persistent market share
protected by a substantial barrier to entry, together with Microsoft's
failure to rebut that prima facie showing effectively and the additional
indicia of monopoly power, have compelled the Court to find as fact that
Microsoft enjoys monopoly power in the relevant market. Id. ¶ 33.
2. Maintenance of Monopoly Power by Anticompetitive Means
In a § 2 case, once it is proved that the defendant possesses monopoly
power in a relevant market, liability for monopolization depends on a
showing that the defendant used anticompetitive methods to achieve or
maintain its position. See United States v. Grinnell, 384 U.S. 563, 570-71
(1966); Eastman Kodak Co. v. Image Technical Services, Inc., 504 U.S. 451,
488 (1992) (Scalia, J., dissenting); Intergraph Corp. v. Intel Corp., 195
F.3d 1346, 1353 (Fed. Cir. 1999). Prior cases have established an
analytical approach to determining whether challenged conduct should be
deemed anticompetitive in the context of a monopoly maintenance claim. The
threshold question in this analysis is whether the defendant's conduct is
"exclusionary" - that is, whether it has restricted significantly, or
threatens to restrict significantly, the ability of other firms to compete
in the relevant market on the merits of what they offer customers. See
Eastman Kodak, 504 U.S. at 488 (Scalia, J., dissenting) (§ 2 is "directed
to discrete situations" in which the behavior of firms with monopoly power
"threatens to defeat or forestall the corrective forces of
competition").(1)
If the evidence reveals a significant exclusionary impact in the relevant
market, the defendant's conduct will be labeled "anticompetitive" - and
liability will attach - unless the defendant comes forward with specific,
procompetitive business motivations that explain the full extent of its
exclusionary conduct. See Eastman Kodak, 504 U.S. at 483 (declining to
grant defendant's motion for summary judgment because factual questions
remained as to whether defendant's asserted justifications were sufficient
to explain the exclusionary conduct or were instead merely pretextual); see
also Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585, 605
n.32 (1985) (holding that the second element of a monopoly maintenance
claim is satisfied by proof of "'behavior that not only (1) tends to impair
the opportunities of rivals, but also (2) either does not further
competition on the merits or does so in an unnecessarily restrictive way'")
(quoting III Phillip E. Areeda & Donald F. Turner, Antitrust Law ¶ 626b, at
78 (1978)).
If the defendant with monopoly power consciously antagonized its customers
by making its products less attractive to them - or if it incurred other
costs, such as large outlays of development capital and forfeited
opportunities to derive revenue from it - with no prospect of compensation
other than the erection or preservation of barriers against competition by
equally efficient firms, the Court may deem the defendant's conduct
"predatory." As the D.C. Circuit stated in Neumann v. Reinforced Earth Co.,
[P]redation involves aggression against business rivals through the use of
business practices that would not be considered profit maximizing except
for the expectation that (1) actual rivals will be driven from the market,
or the entry of potential rivals blocked or delayed, so that the predator
will gain or retain a market share sufficient to command monopoly profits,
or (2) rivals will be chastened sufficiently to abandon competitive
behavior the predator finds threatening to its realization of monopoly
profits.
786 F.2d 424, 427 (D.C. Cir. 1986).
Proof that a profit-maximizing firm took predatory action should suffice to
demonstrate the threat of substantial exclusionary effect; to hold
otherwise would be to ascribe irrational behavior to the defendant.
Moreover, predatory conduct, by definition as well as by nature, lacks
procompetitive business motivation. See Aspen Skiing, 472 U.S. at 610-11
(evidence indicating that defendant's conduct was "motivated entirely by a
decision to avoid providing any benefits" to a rival supported the
inference that defendant's conduct "was not motivated by efficiency
concerns"). In other words, predatory behavior is patently anticompetitive.
Proof that a firm with monopoly power engaged in such behavior thus
necessitates a finding of liability under § 2.
In this case, Microsoft early on recognized middleware as the Trojan horse
that, once having, in effect, infiltrated the applications barrier, could
enable rival operating systems to enter the market for Intel-compatible PC
operating systems unimpeded. Simply put, middleware threatened to demolish
Microsoft's coveted monopoly power. Alerted to the threat, Microsoft strove
over a period of approximately four years to prevent middleware
technologies from fostering the development of enough full-featured,
cross-platform applications to erode the applications barrier. In pursuit
of this goal, Microsoft sought to convince developers to concentrate on
Windows-specific APIs and ignore interfaces exposed by the two incarnations
of middleware that posed the greatest threat, namely, Netscape's Navigator
Web browser and Sun's implementation of the Java technology. Microsoft's
campaign succeeded in preventing - for several years, and perhaps
permanently - Navigator and Java from fulfilling their potential to open
the market for Intel-compatible PC operating systems to competition on the
merits. Findings ¶¶ 133, 378. Because Microsoft achieved this result
through exclusionary acts that lacked procompetitive justification, the
Court deems Microsoft's conduct the maintenance of monopoly power by
anticompetitive means.
a. Combating the Browser Threat
The same ambition that inspired Microsoft's efforts to induce Intel, Apple,
RealNetworks and IBM to desist from certain technological innovations and
business initiatives - namely, the desire to preserve the applications
barrier - motivated the firm's June 1995 proposal that Netscape abstain
from releasing platform-level browsing software for 32-bit versions of
Windows. See id. ¶¶ 79-80, 93-132. This proposal, together with the
punitive measures that Microsoft inflicted on Netscape when it rebuffed the
overture, illuminates the context in which Microsoft's subsequent behavior
toward PC manufacturers ("OEMs"), Internet access providers ("IAPs"), and
other firms must be viewed.
When Netscape refused to abandon its efforts to develop Navigator into a
substantial platform for applications development, Microsoft focused its
efforts on minimizing the extent to which developers would avail themselves
of interfaces exposed by that nascent platform. Microsoft realized that the
extent of developers' reliance on Netscape's browser platform would depend
largely on the size and trajectory of Navigator's share of browser usage.
Microsoft thus set out to maximize Internet Explorer's share of browser
usage at Navigator's expense. Id. ¶¶ 133, 359-61. The core of this strategy
was ensuring that the firms comprising the most effective channels for the
generation of browser usage would devote their distributional and
promotional efforts to Internet Explorer rather than Navigator. Recognizing
that pre-installation by OEMs and bundling with the proprietary software of
IAPs led more directly and efficiently to browser usage than any other
practices in the industry, Microsoft devoted major efforts to usurping
those two channels. Id. ¶ 143.
i. The OEM Channel
With respect to OEMs, Microsoft's campaign proceeded on three fronts.
First, Microsoft bound Internet Explorer to Windows with contractual and,
later, technological shackles in order to ensure the prominent (and
ultimately permanent) presence of Internet Explorer on every Windows user's
PC system, and to increase the costs attendant to installing and using
Navigator on any PCs running Windows. Id. ¶¶ 155-74. Second, Microsoft
imposed stringent limits on the freedom of OEMs to reconfigure or modify
Windows 95 and Windows 98 in ways that might enable OEMs to generate usage
for Navigator in spite of the contractual and technological devices that
Microsoft had employed to bind Internet Explorer to Windows. Id. ¶¶ 202-29.
Finally, Microsoft used incentives and threats to induce especially
important OEMs to design their distributional, promotional and technical
efforts to favor Internet Explorer to the exclusion of Navigator. Id. ¶¶
230-38.
Microsoft's actions increased the likelihood that pre-installation of
Navigator onto Windows would cause user confusion and system degradation,
and therefore lead to higher support costs and reduced sales for the OEMs.
Id. ¶¶ 159, 172. Not willing to take actions that would jeopardize their
already slender profit margins, OEMs felt compelled by Microsoft's actions
to reduce drastically their distribution and promotion of Navigator. Id. ¶¶
239, 241. The substantial inducements that Microsoft held out to the
largest OEMs only further reduced the distribution and promotion of
Navigator in the OEM channel. Id. ¶¶ 230, 233. The response of OEMs to
Microsoft's efforts had a dramatic, negative impact on Navigator's usage
share. Id. ¶ 376. The drop in usage share, in turn, has prevented Navigator
from being the vehicle to open the relevant market to competition on the
merits. Id. ¶¶ 377-78, 383.
Microsoft fails to advance any legitimate business objectives that actually
explain the full extent of this significant exclusionary impact. The Court
has already found that no quality-related or technical justifications fully
explain Microsoft's refusal to license Windows 95 to OEMs without version
1.0 through 4.0 of Internet Explorer, or its refusal to permit them to
uninstall versions 3.0 and 4.0. Id. ¶¶ 175-76. The same lack of
justification applies to Microsoft's decision not to offer a browserless
version of Windows 98 to consumers and OEMs, id. ¶ 177, as well as to its
claim that it could offer "best of breed" implementations of
functionalities in Web browsers. With respect to the latter assertion,
Internet Explorer is not demonstrably the current "best of breed" Web
browser, nor is it likely to be so at any time in the immediate future. The
fact that Microsoft itself was aware of this reality only further
strengthens the conclusion that Microsoft's decision to tie Internet
Explorer to Windows cannot truly be explained as an attempt to benefit
consumers and improve the efficiency of the software market generally, but
rather as part of a larger campaign to quash innovation that threatened its
monopoly position. Id. ¶¶ 195, 198.
To the extent that Microsoft still asserts a copyright defense, relying
upon federal copyright law as a justification for its various restrictions
on OEMs, that defense neither explains nor operates to immunize Microsoft's
conduct under the Sherman Act. As a general proposition, Microsoft argues
that the federal Copyright Act, 17 U.S.C. §101 et seq., endows the holder
of a valid copyright in software with an absolute right to prevent
licensees, in this case the OEMs, from shipping modified versions of its
product without its express permission. In truth, Windows 95 and Windows 98
are covered by copyright registrations, Findings ¶ 228, that "constitute
prima facie evidence of the validity of the copyright." 17 U.S.C. §410(c).
But the validity of Microsoft's copyrights has never been in doubt; the
issue is what, precisely, they protect.
Microsoft has presented no evidence that the contractual (or the
technological) restrictions it placed on OEMs' ability to alter Windows
derive from any of the enumerated rights explicitly granted to a copyright
holder under the Copyright Act. Instead, Microsoft argues that the
restrictions "simply restate" an expansive right to preserve the
"integrity"of its copyrighted software against any "distortion,"
"truncation," or "alteration," a right nowhere mentioned among the
Copyright Act's list of exclusive rights, 17 U.S.C. §106, thus raising some
doubt as to its existence. See Twentieth Century Music Corp. v. Aiken, 422
U.S. 151, 155 (1973) (not all uses of a work are within copyright holder's
control; rights limited to specifically granted "exclusive rights"); cf. 17
U.S.C. § 501(a) (infringement means violating specifically enumerated
rights).(2)
It is also well settled that a copyright holder is not by reason thereof
entitled to employ the perquisites in ways that directly threaten
competition. See, e.g., 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 . . . copyright, . . . can give rise to liability if 'a seller
exploits his dominant position in one market to expand his empire into the
next.'") (quoting Times-Picayune Pub. Co. v. United States, 345 U.S. 594,
611 (1953)); Square D Co. v. Niagara Frontier Tariff Bureau, Inc., 476 U.S.
409, 421 (1986); Data General Corp. v. Grumman Systems Support Corp., 36
F.3d 1147, 1186 n.63 (1st Cir. 1994) (a copyright does not exempt its
holder from antitrust inquiry where the copyright is used as part of a
scheme to monopolize); see also Image Technical Services, Inc. v. Eastman
Kodak Co., 125 F.3d 1195, 1219 (9th Cir. 1997), cert. denied, 523 U.S. 1094
(1998) ("Neither the aims of intellectual property law, nor the antitrust
laws justify allowing a monopolist to rely upon a pretextual business
justification to mask anticompetitive conduct."). Even constitutional
privileges confer no immunity when they are abused for anticompetitive
purposes. See Lorain Journal Co. v. United States, 342 U.S. 143, 155-56
(1951). The Court has already found that the true impetus behind
Microsoft's restrictions on OEMs was not its desire to maintain a somewhat
amorphous quality it refers to as the "integrity" of the Windows platform,
nor even to ensure that Windows afforded a uniform and stable platform for
applications development. Microsoft itself engendered, or at least
countenanced, instability and inconsistency by permitting
Microsoft-friendly modifications to the desktop and boot sequence, and by
releasing updates to Internet Explorer more frequently than it released new
versions of Windows. Findings ¶ 226. Add to this the fact that the
modifications OEMs desired to make would not have removed or altered any
Windows APIs, and thus would not have disrupted any of Windows'
functionalities, and it is apparent that Microsoft's conduct is effectively
explained by its foreboding that OEMs would pre-install and give prominent
placement to middleware like Navigator that could attract enough developer
attention to weaken the applications barrier to entry. Id. ¶ 227. In short,
if Microsoft was truly inspired by a genuine concern for maximizing
consumer satisfaction, as well as preserving its substantial investment in
a worthy product, then it would have relied more on the power of the very
competitive PC market, and less on its own market power, to prevent OEMs
from making modifications that consumers did not want. Id. ¶¶ 225, 228-29.
ii. The IAP Channel
Microsoft adopted similarly aggressive measures to ensure that the IAP
channel would generate browser usage share for Internet Explorer rather
than Navigator. To begin with, Microsoft licensed Internet Explorer and the
Internet Explorer Access Kit to hundreds of IAPs for no charge. Id. ¶¶
250-51. Then, Microsoft extended valuable promotional treatment to the ten
most important IAPs in exchange for their commitment to promote and
distribute Internet Explorer and to exile Navigator from the desktop. Id.
¶¶ 255-58, 261, 272, 288-90, 305-06. Finally, in exchange for efforts to
upgrade existing subscribers to client software that came bundled with
Internet Explorer instead of Navigator, Microsoft granted rebates - and in
some cases made outright payments - to those same IAPs. Id. ¶¶ 259-60, 295.
Given the importance of the IAP channel to browser usage share, it is fair
to conclude that these inducements and restrictions contributed
significantly to the drastic changes that have in fact occurred in Internet
Explorer's and Navigator's respective usage shares. Id. ¶¶ 144-47, 309-10.
Microsoft's actions in the IAP channel thereby contributed significantly to
preserving the applications barrier to entry.
There are no valid reasons to justify the full extent of Microsoft's
exclusionary behavior in the IAP channel. A desire to limit free riding on
the firm's investment in consumer-oriented features, such as the Referral
Server and the Online Services Folder, can, in some circumstances, qualify
as a procompetitive business motivation; but that motivation does not
explain the full extent of the restrictions that Microsoft actually imposed
upon IAPs. Under the terms of the agreements, an IAP's failure to keep
Navigator shipments below the specified percentage primed Microsoft's
contractual right to dismiss the IAP from its own favored position in the
Referral Server or the Online Services Folder. This was true even if the
IAP had refrained from promoting Navigator in its client software included
with Windows, had purged all mention of Navigator from any Web site
directly connected to the Referral Server, and had distributed no browser
other than Internet Explorer to the new subscribers it gleaned from the
Windows desktop. Id. ¶¶ 258, 262, 289. Thus, Microsoft's restrictions
closed off a substantial amount of distribution that would not have
constituted a free ride to Navigator.
Nor can an ostensibly procompetitive desire to "foster brand association"
explain the full extent of Microsoft's restrictions. If Microsoft's only
concern had been brand association, restrictions on the ability of IAPs to
promote Navigator likely would have sufficed. It is doubtful that Microsoft
would have paid IAPs to induce their existing subscribers to drop Navigator
in favor of Internet Explorer unless it was motivated by a desire to
extinguish Navigator as a threat. See id. ¶¶ 259, 295. More generally, it
is crucial to an understanding of Microsoft's intentions to recognize that
Microsoft paid for the fealty of IAPs with large investments in software
development for their benefit, conceded opportunities to take a profit,
suffered competitive disadvantage to Microsoft's own OLS, and gave outright
bounties. Id. ¶¶ 259-60, 277, 284-86, 295. Considering that Microsoft never
intended to derive appreciable revenue from Internet Explorer directly, id.
¶¶ 136-37, these sacrifices could only have represented rational business
judgments to the extent that they promised to diminish Navigator's share of
browser usage and thereby contribute significantly to eliminating a threat
to the applications barrier to entry. Id. ¶ 291. Because the full extent of
Microsoft's exclusionary initiatives in the IAP channel can only be
explained by the desire to hinder competition on the merits in the relevant
market, those initiatives must be labeled anticompetitive.
In sum, the efforts Microsoft directed at OEMs and IAPs successfully
ostracized Navigator as a practical matter from the two channels that lead
most efficiently to browser usage. Even when viewed independently, these
two prongs of Microsoft's campaign threatened to "forestall the corrective
forces of competition" and thereby perpetuate Microsoft's monopoly power in
the relevant market. Eastman Kodak Co. v. Image Technical Services, Inc.,
504 U.S. 451, 488 (1992) (Scalia, J., dissenting). Therefore, whether they
are viewed separately or together, the OEM and IAP components of
Microsoft's anticompetitive campaign merit a finding of liability under §
2.
iii. ICPs, ISVs and Apple
No other distribution channels for browsing software approach the
efficiency of OEM pre-installation and IAP bundling. Findings ¶¶ 144-47.
Nevertheless, protecting the applications barrier to entry was so critical
to Microsoft that the firm was willing to invest substantial resources to
enlist ICPs, ISVs, and Apple in its campaign against the browser threat. By
extracting from Apple terms that significantly diminished the usage of
Navigator on the Mac OS, Microsoft helped to ensure that developers would
not view Navigator as truly cross-platform middleware. Id. ¶ 356. By
granting ICPs and ISVs free licenses to bundle Internet Explorer with their
offerings, and by exchanging other valuable inducements for their agreement
to distribute, promote and rely on Internet Explorer rather than Navigator,
Microsoft directly induced developers to focus on its own APIs rather than
ones exposed by Navigator. Id. ¶¶ 334-35, 340. These measures supplemented
Microsoft's efforts in the OEM and IAP channels.
Just as they fail to account for the measures that Microsoft took in the
IAP channel, the goals of preventing free riding and preserving brand
association fail to explain the full extent of Microsoft's actions in the
ICP channel. Id. ¶¶ 329-30. With respect to the ISV agreements, Microsoft
has put forward no procompetitive business ends whatsoever to justify their
exclusionary terms. See id. ¶¶ 339-40. Finally, Microsoft's willingness to
make the sacrifices involved in cancelling Mac Office, and the concessions
relating to browsing software that it demanded from Apple, can only be
explained by Microsoft's desire to protect the applications barrier to
entry from the threat posed by Navigator. Id. ¶ 355. Thus, once again,
Microsoft is unable to justify the full extent of its restrictive behavior.
b. Combating the Java Threat
As part of its grand strategy to protect the applications barrier,
Microsoft employed an array of tactics designed to maximize the difficulty
with which applications written in Java could be ported from Windows to
other platforms, and vice versa. The first of these measures was the
creation of a Java implementation for Windows that undermined portability
and was incompatible with other implementations. Id. ¶¶ 387-93. Microsoft
then induced developers to use its implementation of Java rather than
Sun-compliant ones. It pursued this tactic directly, by means of subterfuge
and barter, and indirectly, through its campaign to minimize Navigator's
usage share. Id. ¶¶ 394, 396-97, 399-400, 401-03. In a separate effort to
prevent the development of easily portable Java applications, Microsoft
used its monopoly power to prevent firms such as Intel from aiding in the
creation of cross-platform interfaces. Id. ¶¶ 404-06.
Microsoft's tactics induced many Java developers to write their
applications using Microsoft's developer tools and to refrain from
distributing Sun-compliant JVMs to Windows users. This stratagem has
effectively resulted in fewer applications that are easily portable. Id. ¶
398. What is more, Microsoft's actions interfered with the development of
new cross-platform Java interfaces. Id. ¶ 406. It is not clear whether,
absent Microsoft's machinations, Sun's Java efforts would by now have
facilitated porting between Windows and other platforms to a degree
sufficient to render the applications barrier to entry vulnerable. It is
clear, however, that Microsoft's actions markedly impeded Java's progress
to that end. Id. ¶ 407. The evidence thus compels the conclusion that
Microsoft's actions with respect to Java have restricted significantly the
ability of other firms to compete on the merits in the market for
Intel-compatible PC operating systems.
Microsoft's actions to counter the Java threat went far beyond the
development of an attractive alternative to Sun's implementation of the
technology. Specifically, Microsoft successfully pressured Intel, which was
dependent in many ways on Microsoft's good graces, to abstain from aiding
in Sun's and Netscape's Java development work. Id. ¶¶ 396, 406. Microsoft
also deliberately designed its Java development tools so that developers
who were opting for portability over performance would nevertheless
unwittingly write Java applications that would run only on Windows. Id. ¶
394. Moreover, Microsoft's means of luring developers to its Java
implementation included maximizing Internet Explorer's share of browser
usage at Navigator's expense in ways the Court has already held to be
anticompetitive. See supra, § I.A.2.a. Finally, Microsoft impelled ISVs,
which are dependent upon Microsoft for technical information and
certifications relating to Windows, to use and distribute Microsoft's
version of the Windows JVM rather than any Sun-compliant version. Id. ¶¶
401-03.
These actions cannot be described as competition on the merits, and they
did not benefit consumers. In fact, Microsoft's actions did not even
benefit Microsoft in the short run, for the firm's efforts to create
incompatibility between its JVM for Windows and others' JVMs for Windows
resulted in fewer total applications being able to run on Windows than
otherwise would have been written. Microsoft was willing nevertheless to
obstruct the development of Windows-compatible applications if they would
be easy to port to other platforms and would thus diminish the applications
barrier to entry. Id. ¶ 407.
c. Microsoft's Conduct Taken As a Whole
As the foregoing discussion illustrates, Microsoft's campaign to protect
the applications barrier from erosion by network-centric middleware can be
broken down into discrete categories of activity, several of which on their
own independently satisfy the second element of a § 2 monopoly maintenance
claim. But only when the separate categories of conduct are viewed, as they
should be, as a single, well-coordinated course of action does the full
extent of the violence that Microsoft has done to the competitive process
reveal itself. See Continental Ore Co. v. Union Carbide & Carbon Corp., 370
U.S. 690, 699 (1962) (counseling that in Sherman Act cases "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"). In essence, Microsoft mounted a deliberate
assault upon entrepreneurial efforts that, left to rise or fall on their
own merits, could well have enabled the introduction of competition into
the market for Intel-compatible PC operating systems. Id. ¶ 411. While the
evidence does not prove that they would have succeeded absent Microsoft's
actions, it does reveal that Microsoft placed an oppressive thumb on the
scale of competitive fortune, thereby effectively guaranteeing its
continued dominance in the relevant market. More broadly, Microsoft's
anticompetitive actions trammeled the competitive process through which the
computer software industry generally stimulates innovation and conduces to
the optimum benefit of consumers. Id. ¶ 412.
Viewing Microsoft's conduct as a whole also reinforces the conviction that
it was predacious. Microsoft paid vast sums of money, and renounced many
millions more in lost revenue every year, in order to induce firms to take
actions that would help enhance Internet Explorer's share of browser usage
at Navigator's expense. Id. ¶ 139. These outlays cannot be explained as
subventions to maximize return from Internet Explorer. Microsoft has no
intention of ever charging for licenses to use or distribute its browser.
Id. ¶¶ 137-38. Moreover, neither the desire to bolster demand for Windows
nor the prospect of ancillary revenues from Internet Explorer can explain
the lengths to which Microsoft has gone. In fact, Microsoft has expended
wealth and foresworn opportunities to realize more in a manner and to an
extent that can only represent a rational investment if its purpose was to
perpetuate the applications barrier to entry. Id. ¶¶ 136, 139-42. Because
Microsoft's business practices "would not be considered profit maximizing
except for the expectation that . . . the entry of potential rivals" into
the market for Intel-compatible PC operating systems will be "blocked or
delayed," Neumann v. Reinforced Earth Co., 786 F.2d 424, 427 (D.C. Cir.
1986), Microsoft's campaign must be termed predatory. Since the Court has
already found that Microsoft possesses monopoly power, see supra, § I.A.1,
the predatory nature of the firm's conduct compels the Court to hold
Microsoft liable under § 2 of the Sherman Act.
B. Attempting to Obtain Monopoly Power in a Second Market by
Anticompetitive Means
In addition to condemning actual monopolization, § 2 of the Sherman Act
declares that it is unlawful for a person or firm to "attempt to monopolize
. . . any part of the trade or commerce among the several States, or with
foreign nations . . . ." 15 U.S.C. § 2. Relying on this language, the
plaintiffs assert that Microsoft's anticompetitive efforts to maintain its
monopoly power in the market for Intel-compatible PC operating systems
warrant additional liability as an illegal attempt to amass monopoly power
in "the browser market." The Court agrees.
In order for liability to attach for attempted monopolization, a plaintiff
generally must prove "(1) that the defendant has engaged in predatory or
anticompetitive conduct with (2) a specific intent to monopolize," and (3)
that there is a "dangerous probability" that the defendant will succeed in
achieving monopoly power. Spectrum Sports, Inc. v. McQuillan, 506 U.S. 447,
456 (1993). Microsoft's June 1995 proposal that Netscape abandon the field
to Microsoft in the market for browsing technology for Windows, and its
subsequent, well-documented efforts to overwhelm Navigator's browser usage
share with a proliferation of Internet Explorer browsers inextricably
attached to Windows, clearly meet the first element of the offense.
The evidence in this record also satisfies the requirement of specific
intent. Microsoft's effort to convince Netscape to stop developing
platform-level browsing software for the 32-bit versions of Windows was
made with full knowledge that Netscape's acquiescence in this market
allocation scheme would, without more, have left Internet Explorer with
such a large share of browser usage as to endow Microsoft with de facto
monopoly power in the browser market. Findings ¶¶ 79-89.
When Netscape refused to abandon the development of browsing software for
32-bit versions of Windows, Microsoft's strategy for protecting the
applications barrier became one of expanding Internet Explorer's share of
browser usage - and simultaneously depressing Navigator's share - to an
extent sufficient to demonstrate to developers that Navigator would never
emerge as the standard software employed to browse the Web. Id. ¶ 133.
While Microsoft's top executives never expressly declared acquisition of
monopoly power in the browser market to be the objective, they knew, or
should have known, that the tactics they actually employed were likely to
push Internet Explorer's share to those extreme heights. Navigator's slow
demise would leave a competitive vacuum for only Internet Explorer to fill.
Yet, there is no evidence that Microsoft tried - or even considered trying
- to prevent its anticompetitive campaign from achieving overkill. Under
these circumstances, it is fair to presume that the wrongdoer intended "the
probable consequences of its acts." IIIA Phillip E. Areeda & Herbert
Hovenkamp, Antitrust Law ¶ 805b, at 324 (1996); see also Spectrum Sports,
506 U.S. at 459 (proof of "'predatory' tactics . . . may be sufficient to
prove the necessary intent to monopolize, which is something more than an
intent to compete vigorously"). Therefore, the facts of this case suffice
to prove the element of specific intent.
Even if the first two elements of the offense are met, however, a defendant
may not be held liable for attempted monopolization absent proof that its
anticompetitive conduct created a dangerous probability of achieving the
objective of monopoly power in a relevant market. Id. The evidence supports
the conclusion that Microsoft's actions did pose such a danger.
At the time Microsoft presented its market allocation proposal to Netscape,
Navigator's share of browser usage stood well above seventy percent, and no
other browser enjoyed more than a fraction of the remainder. Findings ¶¶
89, 372. Had Netscape accepted Microsoft's offer, nearly all of its share
would have devolved upon Microsoft, because at that point, no potential
third-party competitor could either claim to rival Netscape's stature as a
browser company or match Microsoft's ability to leverage monopoly power in
the market for Intel-compatible PC operating systems. In the time it would
have taken an aspiring entrant to launch a serious effort to compete
against Internet Explorer, Microsoft could have erected the same type of
barrier that protects its existing monopoly power by adding proprietary
extensions to the browsing software under its control and by extracting
commitments from OEMs, IAPs and others similar to the ones discussed in §
I.A.2, supra. In short, Netscape's assent to Microsoft's market division
proposal would have, instanter, resulted in Microsoft's attainment of
monopoly power in a second market. It follows that the proposal itself
created a dangerous probability of that result. See United States v.
American Airlines, Inc., 743 F.2d 1114, 1118-19 (5th Cir. 1984) (fact that
two executives "arguably" could have implemented market-allocation scheme
that would have engendered monopoly power was sufficient for finding of
dangerous probability). Although the dangerous probability was no longer
imminent with Netscape's rejection of Microsoft's proposal, "the
probability of success at the time the acts occur" is the measure by which
liability is determined. Id. at 1118.
This conclusion alone is sufficient to support a finding of liability for
attempted monopolization. The Court is nonetheless compelled to express its
further conclusion that the predatory course of conduct Microsoft has
pursued since June of 1995 has revived the dangerous probability that
Microsoft will attain monopoly power in a second market. Internet
Explorer's share of browser usage has already risen above fifty percent,
will exceed sixty percent by January 2001, and the trend continues
unabated. Findings ¶¶ 372-73; see M&M Medical Supplies & Serv., Inc. v.
Pleasant Valley Hosp., Inc., 981 F.2d 160, 168 (4th Cir. 1992) (en banc)
("A rising share may show more probability of success than a falling share.
. . . [C]laims involving greater than 50% share should be treated as
attempts at monopolization when the other elements for attempted
monopolization are also satisfied.") (citations omitted); see also IIIA
Phillip E. Areeda & Herbert Hovenkamp, Antitrust Law ¶ 807d, at 354-55
(1996) (acknowledging the significance of a large, rising market share to
the dangerous probability element).
II. SECTION ONE OF THE SHERMAN ACT
Section 1 of the Sherman Act prohibits "every contract, combination . . . ,
or conspiracy, in restraint of trade or commerce . . . ." 15 U.S.C. § 1.
Pursuant to this statute, courts have condemned commercial stratagems that
constitute unreasonable restraints on competition. See Continental T.V.,
Inc. v. GTE Sylvania Inc., 433 U.S. 36, 49 (1977); Chicago Board of Trade
v. United States, 246 U.S. 231, 238-39 (1918), among them "tying
arrangements" and "exclusive dealing" contracts. Tying arrangements have
been found unlawful where sellers exploit their market power over one
product to force unwilling buyers into acquiring another. See Jefferson
Parish Hospital District No. 2 v. Hyde, 466 U.S. 2, 12 (1984); Northern
Pac. Ry. Co. v. United States, 356 U.S. 1, 6 (1958); Times-Picayune Pub.
Co. v. United States, 345 U.S. 594, 605 (1953). Where agreements have been
challenged as unlawful exclusive dealing, the courts have condemned only
those contractual arrangements that substantially foreclose competition in
a relevant market by significantly reducing the number of outlets available
to a competitor to reach prospective consumers of the competitor's product.
See Tampa Electric Co. v. Nashville Coal Co., 365 U.S. 320, 327 (1961);
Roland Machinery Co. v. Dresser Industries, Inc., 749 F.2d 380, 393 (7th
Cir. 1984).
A. Tying
Liability for tying under § 1 exists where (1) two separate "products" are
involved; (2) the defendant affords its customers no choice but to take the
tied product in order to obtain the tying product; (3) the arrangement
affects a substantial volume of interstate commerce; and (4) the defendant
has "market power" in the tying product market. Jefferson Parish, 466 U.S.
at 12-18. The Supreme Court has since reaffirmed this test in Eastman Kodak
Co. v. Image Technical Services, Inc., 504 U.S. 451, 461-62 (1992). All
four elements are required, whether the arrangement is subjected to a per
se or Rule of Reason analysis.
The plaintiffs allege that Microsoft's combination of Windows and Internet
Explorer by contractual and technological artifices constitute unlawful
tying to the extent that those actions forced Microsoft's customers and
consumers to take Internet Explorer as a condition of obtaining Windows.
While the Court agrees with plaintiffs, and thus holds that Microsoft is
liable for illegal tying under § 1, this conclusion is arguably at variance
with a decision of the U.S. Court of Appeals for the D.C. Circuit in a
closely related case, and must therefore be explained in some detail.
Whether the decisions are indeed inconsistent is not for this Court to say.
The decision of the D.C. Circuit in question is United States v. Microsoft
Corp., 147 F.3d 935 (D.C. Cir. 1998) ("Microsoft II") which is itself
related to an earlier decision of the same Circuit, United States v.
Microsoft Corp., 56 F.3d 1448 (D.C. Cir. 1995) ("Microsoft I"). The history
of the controversy is sufficiently set forth in the appellate opinions and
need not be recapitulated here, except to state that those decisions
anticipated the instant case, and that Microsoft II sought to guide this
Court, insofar as practicable, in the further proceedings it fully expected
to ensue on the tying issue. Nevertheless, upon reflection this Court does
not believe the D.C. Circuit intended Microsoft II to state a controlling
rule of law for purposes of this case. As the Microsoft II court itself
acknowledged, the issue before it was the construction to be placed upon a
single provision of a consent decree that, although animated by antitrust
considerations, was nevertheless still primarily a matter of determining
contractual intent. The court of appeals' observations on the extent to
which software product design decisions may be subject to judicial scrutiny
in the course of § 1 tying cases are in the strictest sense obiter dicta,
and are thus not formally binding. Nevertheless, both prudence and the
deference this Court owes to pronouncements of its own Circuit oblige that
it follow in the direction it is pointed until the trail falters.
The majority opinion in Microsoft II evinces both an extraordinary degree
of respect for changes (including "integration") instigated by designers of
technological products, such as software, in the name of product
"improvement," and a corresponding lack of confidence in the ability of the
courts to distinguish between improvements in fact and improvements in name
only, made for anticompetitive purposes. Read literally, the D.C. Circuit's
opinion appears to immunize any product design (or, at least, software
product design) from antitrust scrutiny, irrespective of its effect upon
competition, if the software developer can postulate any "plausible claim"
of advantage to its arrangement of code. 147 F.3d at 950.
This undemanding test appears to this Court to be inconsistent with the
pertinent Supreme Court precedents in at least three respects. First, it
views the market from the defendant's perspective, or, more precisely, as
the defendant would like to have the market viewed. Second, it ignores
reality: The claim of advantage need only be plausible; it need not be
proved. Third, it dispenses with any balancing of the hypothetical
advantages against any anticompetitive effects.
The two most recent Supreme Court cases to have addressed the issue of
product and market definition in the context of Sherman Act tying claims
are Jefferson Parish, supra, and Eastman Kodak, supra. In Jefferson Parish,
the Supreme Court held that a hospital offering hospital services and
anesthesiology services as a package could not be found to have violated
the anti-tying rules unless the evidence established that patients, i.e.
consumers, perceived the services as separate products for which they
desired a choice, and that the package had the effect of forcing the
patients to purchase an unwanted product. 466 U.S. at 21-24, 28-29. In
Eastman Kodak the Supreme Court held that a manufacturer of photocopying
and micrographic equipment, in agreeing to sell replacement parts for its
machines only to those customers who also agreed to purchase repair
services from it as well, would be guilty of tying if the evidence at trial
established the existence of consumer demand for parts and services
separately. 504 U.S. at 463.
Both defendants asserted, as Microsoft does here, that the tied and tying
products were in reality only a single product, or that every item was
traded in a single market.(3) In Jefferson Parish, the defendant contended
that it offered a "functionally integrated package of services" - a single
product - but the Supreme Court concluded that the "character of the
demand" for the constituent components, not their functional relationship,
determined whether separate "products" were actually involved. 466 U.S. at
19. In Eastman Kodak, the defendant postulated that effective competition
in the equipment market precluded the possibility of the use of market
power anticompetitively in any after-markets for parts or services: Sales
of machines, parts, and services were all responsive to the discipline of
the larger equipment market. The Supreme Court declined to accept this
premise in the absence of evidence of "actual market realities," 504 U.S.
at 466-67, ultimately holding that "the proper market definition in this
case can be determined only after a factual inquiry into the 'commercial
realities' faced by consumers." Id. at 482 (quoting United States v.
Grinnell Corp., 384 U.S. 563, 572 (1966)).(4)
In both Jefferson Parish and Eastman Kodak, the Supreme Court also gave
consideration to certain theoretical "valid business reasons" proffered by
the defendants as to why the arrangements should be deemed benign. In
Jefferson Parish, the hospital asserted that the combination of hospital
and anesthesia services eliminated multiple problems of scheduling, supply,
performance standards, and equipment maintenance. 466 U.S. at 43-44. The
manufacturer in Eastman Kodak contended that quality control, inventory
management, and the prevention of free riding justified its decision to
sell parts only in conjunction with service. 504 U.S. at 483. In neither
case did the Supreme Court find those justifications sufficient if
anticompetitive effects were proved. Id. at 483-86; Jefferson Parish, 466
U.S. at 25 n.42. Thus, at a minimum, the admonition of the D.C. Circuit in
Microsoft II to refrain from any product design assessment as to whether
the "integration" of Windows and Internet Explorer is a "net plus,"
deferring to Microsoft's "plausible claim" that it is of "some advantage"
to consumers, is at odds with the Supreme Court's own approach.
The significance of those cases, for this Court's purposes, is to teach
that resolution of product and market definitional problems must depend
upon proof of commercial reality, as opposed to what might appear to be
reasonable. In both cases the Supreme Court instructed that product and
market definitions were to be ascertained by reference to evidence of
consumers' perception of the nature of the products and the markets for
them, rather than to abstract or metaphysical assumptions as to the
configuration of the "product" and the "market." Jefferson Parish, 466 U.S.
at 18; Eastman Kodak, 504 U.S. at 481-82. In the instant case, the
commercial reality is that consumers today perceive operating systems and
browsers as separate "products," for which there is separate demand.
Findings ¶¶ 149-54. This is true notwithstanding the fact that the software
code supplying their discrete functionalities can be commingled in
virtually infinite combinations, rendering each indistinguishable from the
whole in terms of files of code or any other taxonomy. Id. ¶¶ 149-50,
162-63, 187-91.
Proceeding in line with the Supreme Court cases, which are indisputably
controlling, this Court first concludes that Microsoft possessed
"appreciable economic power in the tying market," Eastman Kodak, 504 U.S.
at 464, which in this case is the market for Intel-compatible PC operating
systems. See Jefferson Parish, 466 U.S. at 14 (defining market power as
ability to force purchaser to do something that he would not do in
competitive market); see also Fortner Enterprises, Inc. v. United States
Steel Corp., 394 U.S. 495, 504 (1969) (ability to raise prices or to impose
tie-ins on any appreciable number of buyers within the tying product market
is sufficient). While courts typically have not specified a percentage of
the market that creates the presumption of "market power," no court has
ever found that the requisite degree of power exceeds the amount necessary
for a finding of monopoly power. See Eastman Kodak, 504 U.S. at 481.
Because this Court has already found that Microsoft possesses monopoly
power in the worldwide market for Intel-compatible PC operating systems
(i.e., the tying product market), Findings ¶¶ 18-67, the threshold element
of "appreciable economic power" is a fortiori met.
Similarly, the Court's Findings strongly support a conclusion that a "not
insubstantial" amount of commerce was foreclosed to competitors as a result
of Microsoft's decision to bundle Internet Explorer with Windows. The
controlling consideration under this element is "simply whether a total
amount of business" that is "substantial enough in terms of dollar-volume
so as not to be merely de minimis" is foreclosed. Fortner, 394 U.S. at 501;
cf. International Salt Co. v. United States, 332 U.S. 392, 396 (1947)
(unreasonable per se to foreclose competitors from any substantial market
by a tying arrangement).
Although the Court's Findings do not specify a dollar amount of business
that has been foreclosed to any particular present or potential competitor
of Microsoft in the relevant market,(5) including Netscape, the Court did
find that Microsoft's bundling practices caused Navigator's usage share to
drop substantially from 1995 to 1998, and that as a direct result Netscape
suffered a severe drop in revenues from lost advertisers, Web traffic and
purchases of server products. It is thus obvious that the foreclosure
achieved by Microsoft's refusal to offer Internet Explorer separately from
Windows exceeds the Supreme Court's de minimis threshold. See Digidyne
Corp. v. Data General Corp., 734 F.2d 1336, 1341 (9th Cir. 1984) (citing
Fortner).
The facts of this case also prove the elements of the forced bundling
requirement. Indeed, the Supreme Court has stated that the "essential
characteristic" of an illegal tying arrangement is a seller's decision to
exploit its market power over the tying product "to force the buyer into
the purchase of a tied product that the buyer either did not want at all,
or might have preferred to purchase elsewhere on different terms."
Jefferson Parish, 466 U.S. at 12. In that regard, the Court has found that,
beginning with the early agreements for Windows 95, Microsoft has
conditioned the provision of a license to distribute Windows on the OEMs'
purchase of Internet Explorer. Findings ¶¶ 158-65. The agreements
prohibited the licensees from ever modifying or deleting any part of
Windows, despite the OEMs' expressed desire to be allowed to do so. Id. ¶¶
158, 164. As a result, OEMs were generally not permitted, with only one
brief exception, to satisfy consumer demand for a browserless version of
Windows 95 without Internet Explorer. Id. ¶¶ 158, 202. Similarly, Microsoft
refused to license Windows 98 to OEMs unless they also agreed to abstain
from removing the icons for Internet Explorer from the desktop. Id. ¶ 213.
Consumers were also effectively compelled to purchase Internet Explorer
along with Windows 98 by Microsoft's decision to stop including Internet
Explorer on the list of programs subject to the Add/Remove function and by
its decision not to respect their selection of another browser as their
default. Id. ¶¶ 170-72.
The fact that Microsoft ostensibly priced Internet Explorer at zero does
not detract from the conclusion that consumers were forced to pay, one way
or another, for the browser along with Windows. Despite Microsoft's
assertion that the Internet Explorer technologies are not "purchased" since
they are included in a single royalty price paid by OEMs for Windows 98,
see Microsoft's Proposed Conclusions of Law at 12-13, it is nevertheless
clear that licensees, including consumers, are forced to take, and pay for,
the entire package of software and that any value to be ascribed to
Internet Explorer is built into this single price. See United States v.
Microsoft Corp., Nos. CIV. A. 98-1232, 98-1233, 1998 WL 614485, *12
(D.D.C., Sept. 14, 1998); IIIA Philip E. Areeda & Herbert Hovenkamp,
Antitrust Law ¶ 760b6, at 51 (1996) ("[T]he 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."). Moreover, the purpose of the
Supreme Court's "forcing" inquiry is to expose those product bundles that
raise the cost or difficulty of doing business for would-be competitors to
prohibitively high levels, thereby depriving consumers of the opportunity
to evaluate a competing product on its relative merits. It is not, as
Microsoft suggests, simply to punish firms on the basis of an increment in
price attributable to the tied product. See Fortner, 394 U.S. at 512-14
(1969); Jefferson Parish, 466 U.S. at 12-13.
As for the crucial requirement that Windows and Internet Explorer be deemed
"separate products" for a finding of technological tying liability, this
Court's Findings mandate such a conclusion. Considering the "character of
demand" for the two products, as opposed to their "functional relation,"
id. at 19, Web browsers and operating systems are "distinguishable in the
eyes of buyers." Id.; Findings ¶¶ 149-54. Consumers often base their choice
of which browser should reside on their operating system on their
individual demand for the specific functionalities or characteristics of a
particular browser, separate and apart from the functionalities afforded by
the operating system itself. Id. ¶¶ 149-51. Moreover, the behavior of
other, lesser software vendors confirms that it is certainly efficient to
provide an operating system and a browser separately, or at least in
separable form. Id. ¶ 153. Microsoft is the only firm to refuse to license
its operating system without a browser. Id.; seeBerkey Photo, Inc. v.
Eastman Kodak Co., 603 F.2d 263, 287 (2d Cir. 1979). This Court concludes
that Microsoft's decision to offer only the bundled - "integrated" -
version of Windows and Internet Explorer derived not from technical
necessity or business efficiencies; rather, it was the result of a
deliberate and purposeful choice to quell incipient competition before it
reached truly minatory proportions.
The Court is fully mindful of the reasons for the admonition of the D.C.
Circuit in Microsoft II of the perils associated with a rigid application
of the traditional "separate products" test to computer software design.
Given the virtually infinite malleability of software code, software
upgrades and new application features, such as Web browsers, could
virtually always be configured so as to be capable of separate and
subsequent installation by an immediate licensee or end user. A court
mechanically applying a strict "separate demand" test could improvidently
wind up condemning "integrations" that represent genuine improvements to
software that are benign from the standpoint of consumer welfare and a
competitive market. Clearly, this is not a desirable outcome. Similar
concerns have motivated other courts, as well as the D.C. Circuit, to
resist a strict application of the "separate products" tests to similar
questions of "technological tying." See, e.g., Foremost Pro Color, Inc. v.
Eastman Kodak Co., 703 F.2d 534, 542-43 (9th Cir. 1983); Response of
Carolina, Inc. v. Leasco Response, Inc., 537 F.2d 1307, 1330 (5th Cir.
1976); Telex Corp. v. IBM Corp., 367 F. Supp. 258, 347 (N.D. Okla. 1973).
To the extent that the Supreme Court has spoken authoritatively on these
issues, however, this Court is bound to follow its guidance and is not at
liberty to extrapolate a new rule governing the tying of software products.
Nevertheless, the Court is confident that its conclusion, limited by the
unique circumstances of this case, is consistent with the Supreme Court's
teaching to date.(6)
B. Exclusive Dealing Arrangements
Microsoft's various contractual agreements with some OLSs, ICPs, ISVs,
Compaq and Apple are also called into question by plaintiffs as exclusive
dealing arrangements under the language in § 1 prohibiting "contract[s] . .
. in restraint of trade or commerce . . . ." 15 U.S.C. § 1. As detailed in
§I.A.2, supra, each of these agreements with Microsoft required the other
party to promote and distribute Internet Explorer to the partial or
complete exclusion of Navigator. In exchange, Microsoft offered, to some or
all of these parties, promotional patronage, substantial financial
subsidies, technical support, and other valuable consideration. Under the
clear standards established by the Supreme Court, these types of "vertical
restrictions" are subject to a Rule of Reason analysis. See Continental
T.V., Inc. v. GTE Sylvania Inc., 433 U.S. 36, 49 (1977); Jefferson Parish,
466 U.S. at 44-45 (O'Connor, J., concurring); cf. Business Elecs. Corp. v.
Sharp Elecs. Corp., 485 U.S. 717, 724-26 (1988) (holding that Rule of
Reason analysis presumptively applies to cases brought under § 1 of the
Sherman Act).
Acknowledging that some exclusive dealing arrangements may have benign
objectives and may create significant economic benefits, see Tampa Electric
Co. v. Nashville Coal Co., 365 U.S. 320, 333-35 (1961), courts have tended
to condemn under the § 1 Rule of Reason test only those agreements that
have the effect of foreclosing a competing manufacturer's brands from the
relevant market. More specifically, courts are concerned with those
exclusive dealing arrangements that work to place so much of a market's
available distribution outlets in the hands of a single firm as to make it
difficult for other firms to continue to compete effectively, or even to
exist, in the relevant market. See U.S. Healthcare Inc. v. Healthsource,
Inc., 986 F.2d 589, 595 (1st Cir. 1993); Interface Group, Inc. v.
Massachusetts Port Authority, 816 F.2d 9, 11 (1st Cir. 1987) (relying upon
III Phillip E. Areeda & Donald F. Turner, Antitrust Law ¶ 732 (1978), Tampa
Electric, 365 U.S. at 327-29, and Standard Oil Co. v. United States, 337
U.S. 293 (1949)).
To evaluate an agreement's likely anticompetitive effects, courts have
consistently looked at a variety of factors, including: (1) the degree of
exclusivity and the relevant line of commerce implicated by the agreements'
terms; (2) whether the percentage of the market foreclosed by the contracts
is substantial enough to import that rivals will be largely excluded from
competition; (3) the agreements' actual anticompetitive effect in the
relevant line of commerce; (4) the existence of any legitimate,
procompetitive business justifications offered by the defendant; (5) the
length and irrevocability of the agreements; and (6) the availability of
any less restrictive means for achieving the same benefits. See, e.g.,
Tampa Electric, 365 U.S. at 326-35; Roland Machinery Co. v. Dresser
Industries, Inc., 749 F.2d 380, 392-95 (7th Cir. 1984); see also XI Herbert
Hovenkamp, Antitrust Law ¶ 1820 (1998).
Where courts have found that the agreements in question failed to foreclose
absolutely outlets that together accounted for a substantial percentage of
the total distribution of the relevant products, they have consistently
declined to assign liability. See, e.g., id. ¶ 1821; U.S. Healthcare, 986
F.2d at 596-97; Roland Mach. Co., 749 F.2d at 394 (failure of plaintiff to
meet threshold burden of proving that exclusive dealing arrangement is
likely to keep at least one significant competitor from doing business in
relevant market dictates no liability under § 1). This Court has previously
observed that the case law suggests that, unless the evidence demonstrates
that Microsoft's agreements excluded Netscape altogether from access to
roughly forty percent of the browser market, the Court should decline to
find such agreements in violation of § 1. See United States v. Microsoft
Corp., Nos. CIV. A. 98-1232, 98-1233, 1998 WL 614485, at *19 (D.D.C. Sept.
14, 1998) (citing cases that tended to converge upon forty percent
foreclosure rate for finding of § 1 liability).
The only agreements revealed by the evidence which could be termed so
"exclusive" as to merit scrutiny under the § 1 Rule of Reason test are the
agreements Microsoft signed with Compaq, AOL and several other OLSs, the
top ICPs, the leading ISVs, and Apple. The Findings of Fact also establish
that, among the OEMs discussed supra, Compaq was the only one to fully
commit itself to Microsoft's terms for distributing and promoting Internet
Explorer to the exclusion of Navigator. Beginning with its decisions in
1996 and 1997 to promote Internet Explorer exclusively for its PC products,
Compaq essentially ceased to distribute or pre-install Navigator at all in
exchange for significant financial remuneration from Microsoft. Findings ¶¶
230-34. AOL's March 12 and October 28, 1996 agreements with Microsoft also
guaranteed that, for all practical purposes, Internet Explorer would be
AOL's browser of choice, to be distributed and promoted through AOL's
dominant, flagship online service, thus leaving Navigator to fend for
itself. Id. ¶¶ 287-90, 293-97. In light of the severe shipment quotas and
promotional restrictions for third-party browsers imposed by the
agreements, the fact that Microsoft still permitted AOL to offer Navigator
through a few subsidiary channels does not negate this conclusion. The same
conclusion as to exclusionary effect can be drawn with respect to
Microsoft's agreements with AT&T WorldNet, Prodigy and CompuServe, since
those contract terms were almost identical to the ones contained in AOL's
March 1996 agreement. Id. ¶¶ 305-06.
Microsoft also successfully induced some of the most popular ICPs and ISVs
to commit to promote, distribute and utilize Internet Explorer technologies
exclusively in their Web content in exchange for valuable placement on the
Windows desktop and technical support. Specifically, the "Top Tier" and
"Platinum" agreements that Microsoft formed with thirty-four of the most
popular ICPs on the Web ensured that Navigator was effectively shut out of
these distribution outlets for a significant period of time. Id. ¶¶ 317-22,
325-26, 332. In the same way, Microsoft's "First Wave" contracts provided
crucial technical information to dozens of leading ISVs that agreed to make
their Web-centric applications completely reliant on technology specific to
Internet Explorer. Id. ¶¶ 337, 339-40. Finally, Apple's 1997 Technology
Agreement with Microsoft prohibited Apple from actively promoting any
non-Microsoft browsing software in any way or from pre-installing a browser
other than Internet Explorer. Id. ¶¶ 350-52. This arrangement eliminated
all meaningful avenues of distribution of Navigator through Apple. Id.
Notwithstanding the extent to which these "exclusive" distribution
agreements preempted the most efficient channels for Navigator to achieve
browser usage share, however, the Court concludes that Microsoft's multiple
agreements with distributors did not ultimately deprive Netscape of the
ability to have access to every PC user worldwide to offer an opportunity
to install Navigator. Navigator can be downloaded from the Internet. It is
available through myriad retail channels. It can (and has been) mailed
directly to an unlimited number of households. How precisely it managed to
do so is not shown by the evidence, but in 1998 alone, for example,
Netscape was able to distribute 160 million copies of Navigator,
contributing to an increase in its installed base from 15 million in 1996
to 33 million in December 1998. Id. ¶ 378. As such, the evidence does not
support a finding that these agreements completely excluded Netscape from
any constituent portion of the worldwide browser market, the relevant line
of commerce.
The fact that Microsoft's arrangements with various firms did not foreclose
enough of the relevant market to constitute a § 1 violation in no way
detracts from the Court's assignment of liability for the same arrangements
under § 2. As noted above, all of Microsoft's agreements, including the
non-exclusive ones, severely restricted Netscape's access to those
distribution channels leading most efficiently to the acquisition of
browser usage share. They thus rendered Netscape harmless as a platform
threat and preserved Microsoft's operating system monopoly, in violation of
§ 2. But virtually all the leading case authority dictates that liability
under § 1 must hinge upon whether Netscape was actually shut out of the Web
browser market, or at least whether it was forced to reduce output below a
subsistence level. The fact that Netscape was not allowed access to the
most direct, efficient ways to cause the greatest number of consumers to
use Navigator is legally irrelevant to a final determination of plaintiffs'
§ 1 claims.
Other courts in similar contexts have declined to find liability where
alternative channels of distribution are available to the competitor, even
if those channels are not as efficient or reliable as the channels
foreclosed by the defendant. In Omega Environmental, Inc. v. Gilbarco,
Inc., 127 F.3d 1157 (9th Cir. 1997), for example, the Ninth Circuit found
that a manufacturer of petroleum dispensing equipment "foreclosed roughly
38% of the relevant market for sales." 127 F.3d at 1162. Nonetheless, the
Court refused to find the defendant liable for exclusive dealing because
"potential alternative sources of distribution" existed for its
competitors. Id. at 1163. Rejecting plaintiff's argument (similar to the
one made in this case) that these alternatives were "inadequate substitutes
for the existing distributors," the Court stated that "[c]ompetitors are
free to sell directly, to develop alternative distributors, or to compete
for the services of existing distributors. Antitrust laws require no more."
Id.; accord Seagood Trading Corp. v. Jerrico, Inc., 924 F.2d 1555, 1572-73
(11th Cir. 1991).
III. THE STATE LAW CLAIMS
In their amended complaint, the plaintiff states assert that the same facts
establishing liability under §§ 1 and 2 of the Sherman Act mandate a
finding of liability under analogous provisions in their own laws. The
Court agrees. The facts proving that Microsoft unlawfully maintained its
monopoly power in violation of § 2 of the Sherman Act are sufficient to
meet analogous elements of causes of action arising under the laws of each
plaintiff state.(7) The Court reaches the same conclusion with respect to
the facts establishing that Microsoft attempted to monopolize the browser
market in violation of § 2,(8) and with respect to those facts establishing
that Microsoft instituted an improper tying arrangement in violation of §
1.(9)
The plaintiff states concede that their laws do not condemn any act proved
in this case that fails to warrant liability under the Sherman Act. States'
Reply in Support of their Proposed Conclusions of Law at 1. Accordingly,
the Court concludes that, for reasons identical to those stated in § II.B,
supra, the evidence in this record does not warrant finding Microsoft
liable for exclusive dealing under the laws of any of the plaintiff states.
Microsoft contends that a plaintiff cannot succeed in an antitrust claim
under the laws of California, Louisiana, Maryland, New York, Ohio, or
Wisconsin without proving an element that is not required under the Sherman
Act, namely, intrastate impact. Assuming that each of those states has,
indeed, expressly limited the application of its antitrust laws to activity
that has a significant, adverse effect on competition within the state or
is otherwise contrary to state interests, that element is manifestly proven
by the facts presented here. The Court has found that Microsoft is the
leading supplier of operating systems for PCs and that it transacts
business in all fifty of the United States. Findings ¶ 9.(10) It is common
and universal knowledge that millions of citizens of, and hundreds, if not
thousands, of enterprises in each of the United States and the District of
Columbia utilize PCs running on Microsoft software. It is equally clear
that certain companies that have been adversely affected by Microsoft's
anticompetitive campaign - a list that includes IBM, Hewlett-Packard,
Intel, Netscape, Sun, and many others - transact business in, and employ
citizens of, each of the plaintiff states. These facts compel the
conclusion that, in each of the plaintiff states, Microsoft's
anticompetitive conduct has significantly hampered competition.
Microsoft once again invokes the federal Copyright Act in defending against
state claims seeking to vindicate the rights of OEMs and others to make
certain modifications to Windows 95 and Windows 98. The Court concludes
that these claims do not encroach on Microsoft's federally protected
copyrights and, thus, that they are not pre-empted under the Supremacy
Clause. The Court already concluded in § I.A.2.a.i, supra, that Microsoft's
decision to bundle its browser and impose first-boot and start-up screen
restrictions constitute independent violations of § 2 of the Sherman Act.
It follows as a matter of course that the same actions merit liability
under the plaintiff states' antitrust and unfair competition laws. Indeed,
the parties agree that the standards for liability under the several
plaintiff states' antitrust and unfair competition laws are, for the
purposes of this case, identical to those expressed in the federal statute.
States' Reply in Support of their Proposed Conclusions of Law at 1;
Microsoft's Sur-Reply in Response to the States' Reply at 2 n.1. Thus,
these state laws cannot "stand[] as an obstacle to" the goals of the
federal copyright law to any greater extent than do the federal antitrust
laws, for they target exactly the same type of anticompetitive behavior.
Hines v. Davidowitz, 312 U.S. 52, 67 (1941). The Copyright Act's own
preemption clause provides that "[n]othing in this title annuls or limits
any rights or remedies under the common law or statutes of any State with
respect to . . . activities violating legal or equitable rights that are
not equivalent to any of the exclusive rights within the general scope of
copyright as specified by section 106 . . . ." 17 U.S.C. § 301(b)(3).
Moreover, the Supreme Court has recognized that there is "nothing either in
the language of the copyright laws or in the history of their enactment to
indicate any congressional purpose to deprive the states, either in whole
or in part, of their long-recognized power to regulate combinations in
restraint of trade." Watson v. Buck, 313 U.S. 387, 404 (1941). See also
Allied Artists Pictures Corp. v. Rhodes, 496 F. Supp. 408, 445 (S.D. Ohio
1980), aff'd in relevant part, 679 F.2d 656 (6th Cir. 1982) (drawing upon
similarities between federal and state antitrust laws in support of notion
that authority of states to regulate market practices dealing with
copyrighted subject matter is well-established); cf. Hines, 312 U.S. at 67
(holding state laws preempted when they "stand[] as an obstacle to the
accomplishment and execution of the full purposes and objectives of
Congress").
The Court turns finally to the counterclaim that Microsoft brings against
the attorneys general of the plaintiff states under 42 U.S.C. § 1983. In
support of its claim, Microsoft argues that the attorneys general are
seeking relief on the basis of state laws, repeats its assertion that the
imposition of this relief would deprive it of rights granted to it by the
Copyright Act, and concludes with the contention that the attorneys general
are, "under color of" state law, seeking to deprive Microsoft of rights
secured by federal law - a classic violation of 42 U.S.C. § 1983.
Having already addressed the issue of whether granting the relief sought by
the attorneys general would entail conflict with the Copyright Act, the
Court rejects Microsoft's counterclaim on yet more fundamental grounds as
well: It is inconceivable that their resort to this Court could represent
an effort on the part of the attorneys general to deprive Microsoft of
rights guaranteed it under federal law, because this Court does not possess
the power to act in contravention of federal law. Therefore, since the
conduct it complains of is the pursuit of relief in federal court,
Microsoft fails to state a claim under 42 U.S.C. § 1983. Consequently,
Microsoft's request for a declaratory judgment against the states under 28
U.S.C. §§ 2201 and 2202 is denied, and the counterclaim is dismissed.
Thomas Penfield Jackson
U.S. District Judge
Date:
------------------------------------------------------------------------
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
____________________________________
)
UNITED STATES OF AMERICA, )
)
Plaintiff, )
)
v.
) Civil Action No. 98-1232 (TPJ)
)
MICROSOFT CORPORATION, )
)
Defendant. )
____________________________________)
)
STATE OF NEW YORK, et al., )
)
Plaintiffs, )
)
v. )
)
MICROSOFT CORPORATION, )
)
Defendant. )
____________________________________) Civil Action No.
98-1233 (TPJ)
)
MICROSOFT CORPORATION, )
)
Counterclaim-Plaintiff, )
)
)
ELIOT SPITZER, attorney general of the )
State of New York, in his official )
capacity, et al., )
)
Counterclaim-Defendants. )
____________________________________)
ORDER
In accordance with the Conclusions of Law filed herein this date, it is,
this ______ day of April, 2000,
ORDERED, ADJUDGED, and DECLARED, that Microsoft has violated §§ 1 and 2 of
the Sherman Act, 15 U.S.C. §§ 1, 2, as well as the following state law
provisions: Cal Bus. & Prof. Code §§ 16720, 16726, 17200; Conn. Gen. Stat.
§§ 35-26, 35-27, 35-29; D.C. Code §§ 28-4502, 28-4503; Fla. Stat. chs.
501.204(1), 542.18, 542.19; 740 Ill. Comp. Stat. ch. 10/3; Iowa Code §§
553.4, 553.5; Kan. Stat. §§ 50-101 et seq.; Ky. Rev. Stat. §§ 367.170,
367.175; La. Rev. Stat. §§ 51:122, 51:123, 51:1405; Md. Com. Law II Code
Ann. § 11-204; Mass. Gen. Laws ch. 93A, § 2; Mich. Comp. Laws §§ 445.772,
445.773; Minn. Stat. § 325D.52; N.M. Stat. §§ 57-1-1, 57-1-2; N.Y. Gen.
Bus. Law § 340; N.C. Gen. Stat. §§ 75-1.1, 75-2.1; Ohio Rev. Code §§
1331.01, 1331.02; Utah Code § 76-10-914; W.Va. Code §§ 47-18-3, 47-18-4;
Wis. Stat. § 133.03(1)-(2); and it is
FURTHER ORDERED, that judgment is entered for the United States on its
second, third, and fourth claims for relief in Civil Action No. 98-1232;
and it is
FURTHER ORDERED, that the first claim for relief in Civil Action No.
98-1232 is dismissed with prejudice; and it is
FURTHER ORDERED, that judgment is entered for the plaintiff states on their
first, second, fourth, sixth, seventh, eighth, ninth, tenth, eleventh,
twelfth, thirteenth, fourteenth, fifteenth, sixteenth, seventeenth,
eighteenth, nineteenth, twentieth, twenty-first, twenty-second,
twenty-fourth, twenty-fifth, and twenty-sixth claims for relief in Civil
Action No. 98-1233; and it is
FURTHER ORDERED, that the fifth claim for relief in Civil Action No.
98-1233 is dismissed with prejudice; and it is
FURTHER ORDERED, that Microsoft's first and second claims for relief in
Civil Action No. 98-1233 are dismissed with prejudice; and it is
FURTHER ORDERED, that the Court shall, in accordance with the Conclusions
of Law filed herein, enter an Order with respect to appropriate relief,
including an award of costs and fees, following proceedings to be
established by further Order of the Court.
Thomas Penfield Jackson
U.S. District Judge
1. Proof that the defendant's conduct was motivated by a desire to prevent
other firms from competing on the merits can contribute to a finding that
the conduct has had, or will have, the intended, exclusionary effect. See
United States v. United States Gypsum Co., 438 U.S. 422, 436 n.13 (1978)
("consideration of intent may play an important role in divining the actual
nature and effect of the alleged anticompetitive conduct").
2. While Microsoft is correct that some courts have also recognized the
right of a copyright holder to preserve the "integrity" of artistic works
in addition to those rights enumerated in the Copyright Act, the Court
nevertheless concludes that those cases, being actions for infringement
without antitrust implications, are inapposite to the one currently before
it. See, e.g., WGN Continental Broadcasting Co. v. United Video, Inc., 693
F.2d 622 (7th Cir. 1982); Gilliam v. ABC, Inc., 538 F.2d 14 (2d Cir. 1976).
3. Microsoft contends that Windows and Internet Explorer represent a single
"integrated product," and that the relevant market is a unitary market of
"platforms for software applications." Microsoft's Proposed Conclusions of
Law at 49 n.28.
4. In Microsoft II the D.C. Circuit acknowledged it was without benefit of
a complete factual record which might alter its conclusion that the
"Windows 95/IE package is a genuine integration." 147 F.3d at 952.
5. Most of the quantitative evidence was presented in units other than
monetary, but numbered the units in millions, whatever their nature.
6. Amicus curiae Lawrence Lessig has suggested that a corollary concept
relating to the bundling of "partial substitutes" in the context of
software design may be apposite as a limiting principle for courts called
upon to assess the compliance of these products with antitrust law. This
Court has been at pains to point out that the true source of the threat
posed to the competitive process by Microsoft's bundling decisions stems
from the fact that a competitor to the tied product bore the potential, but
had not yet matured sufficiently, to open up the tying product market to
competition. Under these conditions, the anticompetitive harm from a
software bundle is much more substantial and pernicious than the typical
tie. See X Phillip E. Areeda, Einer Elhauge & Herbert Hovenkamp, Antitrust
Law ¶1747 (1996). A company able to leverage its substantial power in the
tying product market in order to force consumers to accept a tie of partial
substitutes is thus able to spread inefficiency from one market to the
next, id. at 232, and thereby "sabotage a nascent technology that might
compete with the tying product but for its foreclosure from the market."
III Phillip E. Areeda & Herbert Hovenkamp, Antitrust Law ¶ 1746.1d at 495
(Supp. 1999).
7. See Cal. Bus. & Prof. Code §§ 16720, 16726, 17200 (West 1999); Conn.
Gen. Stat. § 35-27 (1999); D.C. Code § 28-4503 (1996); Fla. Stat. chs.
501.204(1), 542.19 (1999); 740 Ill. Comp. Stat. 10/3 (West 1999); Iowa Code
§ 553.5 (1997); Kan. Stat. §§ 50-101 et seq. (1994); Ky. Rev. Stat. §§
367.170, 367.175 (Michie 1996); La. Rev. Stat. §§ 51:123, 51:1405 (West
1986); Md. Com. Law II Code Ann. § 11-204 (1990); Mass. Gen. Laws ch. 93A,
§ 2; Mich. Comp. Laws § 445.773 (1989); Minn. Stat. § 325D.52 (1998); N.M.
Stat. § 57-1-2 (Michie 1995); N.Y. Gen. Bus. Law § 340 (McKinney 1998);
N.C. Gen. Stat. §§ 75-1.1, 75-2.1 (1999); Ohio Rev. Code §§ 1331.01,
1331.02 (Anderson 1993); Utah Code § 76-10-914 (1999); W.Va. Code § 47-18-4
(1999); Wis. Stat. § 133.03(2) (West 1989 & Supp. 1998).
8. See Cal. Bus. & Prof. Code § 17200 (West 1999); Conn. Gen. Stat. § 35-27
(1999); D.C. Code § 28-4503 (1996); Fla. Stat. chs. 501.204(1), 542.19
(1999); 740 Ill. Comp. Stat. 10/3(3) (West 1999); Iowa Code § 553.5 (1997);
Kan. Stat. §§ 50-101 et seq. (1994); Ky. Rev. Stat. §§ 367.170, 367.175
(Michie 1996); La. Rev. Stat. §§ 51:123, 51:1405 (West 1986); Md. Com. Law
II Code Ann. § 11-204(a)(2) (1990); Mass. Gen. Laws ch. 93A, § 2; Mich.
Comp. Laws § 445.773 (1989); Minn. Stat. § 325D.52 (1998); N.M. Stat. §
57-1-2 (Michie 1995); N.Y. Gen. Bus. Law § 340 (McKinney 1988); N.C. Gen.
Stat. §§ 75-1.1, 75-2.1 (1999); Ohio Rev. Code §§ 1331.01, 1331.02
(Anderson 1993); Utah Code § 76-10-914 (1999); W.Va. Code § 47-18-4 (1999);
Wis. Stat. § 133.03(2) (West 1989 & Supp. 1998).
9. See Cal. Bus. & Prof. Code §§ 16727, 17200 (West 1999); Conn. Gen. Stat.
§§ 35-26, 35-29 (1999); D.C. Code § 28-4502 (1996); Fla. Stat. chs.
501.204(1), 542.18 (1999); 740 Ill. Comp. Stat. 10/3(4) (West 1999); Iowa
Code § 553.4 (1997); Kan. Stat. §§ 50-101 et seq. (1994); Ky. Rev. Stat. §§
367.170, 367.175 (Michie 1996); La. Rev. Stat. §§ 51:122, 51:1405 (West
1986); Md. Com. Law II Code Ann. § 11-204(a)(1) (1990); Mass. Gen. Laws ch.
93A, § 2; Mich. Comp. Laws § 445.772 (1989); Minn. Stat. § 325D.52 (1998);
N.M. Stat. § 57-1-1 (Michie 1995); N.Y. Gen. Bus. Law § 340 (McKinney
1988); N.C. Gen. Stat. §§ 75-1.1, 75-2.1 (1999); Ohio Rev. Code §§ 1331.01,
1331.02 (Anderson 1993); Utah Code § 76-10-914 (1999); W.Va. Code § 47-18-3
(1999); Wis. Stat. § 133.03(1) (West 1989 & Supp. 1998).
10. The omission of the District of Columbia from this finding was an
oversight on the part of the Court; Microsoft obviously conducts business
in the District of Columbia as well.