IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF COLUMBIA

UNITED STATES OF AMERICA,

Plaintiff,

vs.

MICROSOFT CORPORATION,

Defendant.

 

STATE OF NEW YORK ex rel.

Attorney General ELIOT SPITZER, et al.,

Plaintiffs,

vs.

MICROSOFT CORPORATION,

Defendant.

 

MICROSOFT CORPORATION,

Counterclaim-Plaintiff,

vs.

ELIOT SPITZER,

Attorney General of the State of New York,

In his official capacity, et al.,

Counterclaim-Defendants.

 

 

 

Civil Action No. 98-1232 (TPJ)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Civil Action No. 98-1233 (TPJ)

DEFENDANT MICROSOFT CORPORATION’S

PROPOSED CONCLUSIONS OF LAW

January 18, 2000

TABLE OF CONTENTS

 

TABLE OF AUTHORITIES -- iv

PRELIMINARY STATEMENT -- 1

ARGUMENT -- 2

I. Plaintiffs Failed To Prove an Unlawful Tying Arrangement in Violation of Section 1 of the Sherman Act -- 2

A. Windows 98 Is a Single, Integrated Product -- 3

B. No OEM Has Been Forced To Purchase a Second Distinct Product -- 12

C. The Alleged Tie Does Not Foreclose a Substantial Amount of Sales of the Tied Product -- 14

II. Plaintiffs Failed To Prove That Microsoft Entered into Unlawful Exclusive Dealing Agreements in Violation of Section 1 of the Sherman Act -- 15

A. Plaintiffs Failed To Establish the Requisite Degree of Foreclosure -- 17

1. This Court Has Already Determined the Standard Applicable to Plaintiffs’ Exclusive Dealing Claims -- 17

2. The Challenged Agreements Did Not Foreclose Netscape’s Access to Users of Web Browsing Software -- 18

B. The Challenged Agreements Did Not Have the Required Anticompetitive Effect -- 21

III. Plaintiffs Failed To Prove That Microsoft’s OEM License Agreements Constituted an Unlawful Restraint of Trade in Violation of Section 1 of the Sherman Act -- 25

A. The Challenged Provisions of Microsoft’s OEM License Agreements Simply Restate Microsoft’s Rights, as the Holder of Valid Copyrights, To Preserve the Integrity of Its Copyrighted Works -- 26

B. The Challenged Provisions of Microsoft’s OEM License Agreements Do Not Unduly Restrict the Opportunities of Competitors -- 33

IV. Plaintiffs Failed To Prove That Microsoft Unlawfully Attempted To Monopolize the Alleged Market for Web Browsing Software in Violation of Section 2 of the Sherman Act -- 35

A. Plaintiffs Failed To Prove That Microsoft Acted with a Specific Intent To Obtain Monopoly Power in the Alleged Market for Web Browsing Software -- 36

B. Plaintiffs Failed To Prove That There Is a Dangerous Probability That Microsoft Will Achieve Monopoly Power in the Alleged Market for Web Browsing Software -- 39

V. Plaintiffs Failed To Prove That Microsoft Unlawfully Maintained a Monopoly in "Intel-Compatible PC Operating Systems" in Violation of Section 2 of the Sherman Act -- 45

A. Microsoft Does Not Possess "Monopoly Power" in a Properly Defined Product Market -- 45

1. The Relevant Product Market in This Case Is Not Restricted to "Intel-Compatible PC Operating Systems" -- 46

2. Microsoft Does Not Have the Power To Control Prices or Exclude Competition in the Relevant Market -- 49

B. Microsoft Did Not Engage in Anticompetitive Conduct That Contributed Significantly to the Maintenance of a Monopoly -- 54

1. The Integration of Internet Explorer and Windows Was Procompetitive—Not Anticompetitive—Because It Resulted in an Improvement to the Operating System -- 57

2. Microsoft’s Agreements with OEMs, OLSs, ISPs, ICPs and ISVs Were Not Anticompetitive Because They Did Not Result in Substantial Foreclosure -- 59

3. Microsoft Had No Duty To Predisclose Information about Windows 95 to Netscape Before the Release of the Product -- 60

4. Plaintiffs Failed To Prove Predatory Pricing -- 62

5. Plaintiffs Concede That the Remainder of the Alleged Anticompetitve Acts Came to Naught -- 64

C. Plaintiffs Cannot Make Up for the Shortcomings in Their Monopoly Maintenance Claim by Arguing That "Everything Should Be Taken Together" -- 67

1. Plaintiffs’ Claims Should Be Separately Considered in the Context of the Evidence as a Whole -- 68

2. Plaintiffs Failed To Establish the Requisite Causal Connection Between the Allegedly Anticompetitive Acts and the Maintenance of the Alleged Monopoly -- 69

CONCLUSION -- 70

TABLE OF AUTHORITIES

CASES

Abcor Corp. v. AM Int’l, Inc.,
916 F.2d 924 (4th Cir. 1990) 38

Advanced Computer Servs. of Mich., Inc. v. MAI Sys. Corp.,
845 F. Supp. 356 (E.D. Va. 1994) 32-33

Association for Intercollegiate Athletics for Women v. NCAA,
735 F.2d 577 (D.C. Cir. 1984) 36, 37, 56

Bacchus Indus., Inc. v. Arvin Indus., Inc.,
939 F.2d 887 (10th Cir. 1991) 41, 44

* Ball Mem’l Hosp., Inc. v. Mutual Hosp. Ins., Inc.,
784 F.2d 1325 (7th Cir. 1986) 45, 49-50, 51, 55

Barr Labs., Inc. v. Abbott Labs.,
978 F.2d 98 (3d Cir. 1992) 24, 41, 42, 43, 44

* Barry Wright Corp. v. ITT Grinnell Corp.,
724 F.2d 227 (1st Cir. 1983) passim

Berkey Photo, Inc. v. Eastman Kodak Co.,
603 F.2d 263 (2d Cir. 1979), cert. denied,
444 U.S. 1093 (1980) 57-58, 61

Broadcast Music, Inc. v. CBS,
441 U.S. 1 (1979) 32

Broadway Delivery Corp. v. UPS,
651 F.2d 122 (2d Cir.), cert. denied,
454 U.S. 968 (1981) 41

Brooke Group Ltd. v. Brown & Williamson Tobacco Corp.,
509 U.S. 209 (1993) 38, 62-63

Brown Shoe Co. v. United States,
370 U.S. 294 (1962) 46

California Computer Prods., Inc. v. IBM,
613 F.2d 727 (9th Cir. 1979) 57, 61

CDC Techs., Inc. v. IDEXX Labs., Inc.,
7 F. Supp. 2d 119 (D. Conn. 1998), aff’d,
186 F.3d 74 (2d Cir. 1999) 19

Chuck’s Feed & Seed Co. v. Ralston Purina Co.,
810 F.2d 1289 (4th Cir.), cert. denied,
484 U.S. 827 (1987) 21-22

City of Anaheim v. Southern California Edison Co.,
955 F.2d 1373 (9th Cir. 1992) 69

City of Groton v. Connecticut Light & Power Co.,
662 F.2d 921 (2d Cir. 1981) 68

City of Mishawaka v. American Elec. Power Co.,
616 F.2d 976 (7th Cir. 1979), cert. denied,
449 U.S. 1096 (1981) 69

City of Vernon v. Southern Cal. Edison Co.,
1990-1 Trade Cases (CCH) ¶ 69,032 (C.D. Cal. 1990),
rev’d in part on other grounds, 955 F.2d 1361 (9th Cir.),
cert. denied, 506 U.S. 908 (1992) 69

Colorado Interstate Gas Co. v. Natural Gas Pipeline Co. of Am.,
885 F.2d 683 (10th Cir. 1989) 39, 43

Conoco Inc. v. Inman Oil Co.,
774 F.2d 895 (8th Cir. 1985) 36

Continental Ore Co. v. Union Carbide & Carbon Co.,
370 U.S. 690 (1962) 68-69

Corsearch, Inc. v. Thomson & Thomson,
792 F. Supp. 305 (S.D.N.Y. 1992) 28-29

Data Gen. Corp. v. Gruman Sys. Support Corp.,
761 F. Supp. 185 (D. Mass. 1991), aff’d,
36 F.3d 1147 (1st Cir. 1994) 61

David L. Aldridge Co. v. Microsoft Corp.,
995 F. Supp. 728 (S.D. Tex. 1998) 61

Deauville Corp. v. Federated Dep’t Stores, Inc.,
756 F.2d 1183 (5th Cir. 1985) 44

Dial A Car, Inc. v. Transportation, Inc.,
82 F.3d 484 (D.C. Cir. 1996) 43-44

* Directory Sales Management Corp. v. Ohio Bell Tel. Co.,
833 F.2d 606 (6th Cir. 1987) 13

Eastman Kodak Co. v. Image Technical Servs., Inc.,
504 U.S. 451 (1992) 4

Empire Volkswagen Inc. v. World-Wide Volkswagen Corp.,
814 F.2d 90 (2d Cir. 1987) 24

Fonar Corp. v. Domenick,
105 F.3d 99 (2d Cir.), cert. denied,
522 U.S. 908 (1997) 27

Foremost Pro Color, Inc. v. Eastman Kodak Co.,
703 F.2d 534 (9th Cir. 1983), cert. denied,
465 U.S. 1038 (1984) 55, 57

Fox Film Corp. v. Doyal,
286 U.S. 123 (1932) 28

G.M. Brod & Co. v. U.S. Home Corp.,
759 F.2d 1526 (11th Cir. 1985) 67

GAF Corp. v. Eastman Kodak Co.,
519 F. Supp. 1203 (S.D.N.Y. 1981) 61

General Indus. Corp. v. Hartz Mountain Corp.,
810 F.2d 795 (8th Cir. 1987) 36

* Gilliam v. ABC,
538 F.2d 14 (2d Cir. 1976) 28, 29, 30, 31-32

Grappone, Inc. v. Subaru of New England, Inc.,
858 F.2d 792 (1st Cir. 1988) 14

Great Escape, Inc. v. Union City Body Co.,
791 F.2d 532 (7th Cir. 1986) 36, 38-39

ILC Peripherals Leasing Corp. v. IBM,
458 F. Supp. 423 (N.D. Cal. 1978), aff’d sub nom.
Memorex Corp. v. IBM, 636 F.2d 1188 (9th Cir. 1980),
cert. denied, 452 U.S. 972 (1981) 58, 61

Image Technical Servs., Inc. v. Eastman Kodak Co.,
125 F.3d 1195 (9th Cir. 1997), cert. denied,
118 S. Ct. 1560 (1998) 48

In re Fine Paper Antitrust Litig.,
685 F.2d 810 (3d Cir. 1982) , cert. denied,
459 U.S. 1156 (1983) 69

In re Indep. Serv. Orgs. Antitrust Litig.,
989 F. Supp. 1131 (D. Kan. 1997) 32, 68

* Indiana Grocery, Inc. v. Super Valu Stores, Inc.,
864 F.2d 1409 (7th Cir. 1988) 39, 41, 43, 50-51

Intergraph Corp. v. Intel Corp.,
195 F.3d 1346 (Fed. Cir. 1999) 28, 69

Jack Walters & Sons Corp. v. Morton Bldg., Inc.,
737 F.2d 698 (7th Cir.), cert. denied,
469 U.S. 1018 (1984) 5

Jefferson Parish Hosp. Dist. No. 2 v. Hyde,
466 U.S. 2 (1984) 4-5, 13, 15, 16

Los Angeles Land Co. v. Brunswick Corp.,
6 F.3d 1422 (9th Cir. 1993), cert. denied,
510 U.S. 1197 (1994) 50, 52

LucasArts Entertainment Co. v. Humongous Entertainment Co.,
870 F. Supp. 285 (N.D. Cal. 1993) 28, 32

M & M Med. Supplies & Serv., Inc. v. Pleasant Valley Hosp.,
981 F.2d 160 (4th Cir. 1992) 41

Magnus Petroleum Co. v. Skelly Oil Co.,
599 F.2d 196 (7th Cir.), cert. denied,
444 U.S. 916 (1979) 24

Matsushita Elec. Indus. Co. v. Zenith Radio Corp.,
475 U.S. 574 (1986) 62

MCI v. AT&T,
708 F.2d 1081 (7th Cir.), cert. denied,
464 U.S. 891 (1983) 56

Midway Mfg. Co. v. Dirkschneider,
571 F. Supp. 282 (D. Neb. 1983) 28

Miller Insituform, Inc. v. Insituform of N. Am., Inc.,
830 F.2d 606 (6th Cir. 1987), cert. denied,
484 U.S. 1064 (1988) 32

Mobil Exploration and Producing U.S., Inc. v. Cajun Constr. Servs., Inc.,
45 F.3d 96 (5th Cir. 1995) 67

Montgomery County Ass’n of Realtors, Inc. v. Realty Photo Master Corp.,
878 F. Supp. 804 (D. Md. 1995), aff’d,
91 F.3d 132 (4th Cir. 1996) 32

Multistate Legal Studies, Inc. v. Harcourt Brace Jovanovich
Legal & Prof’l Publications, Inc.,
63 F.3d 1540 (10th Cir. 1995), cert. denied,
516 U.S. 1044 (1996) 3, 5, 13, 58

* National Bank of Commerce v. Shaklee Corp.,
503 F. Supp. 533 (W.D. Tex. 1980) 31

National Reporting Co. v. Alderson Reporting Co.,
763 F.2d 1020 (8th Cir. 1985) 44

Nifty Foods Corp. v. Great Atl. & Pac. Tea Co.,
614 F.2d 832 (2d Cir. 1980) 41-42

Northeastern Tel. Co. v. AT&T,
651 F.2d 76 (2d Cir. 1981), cert. denied,
455 U.S. 943 (1982) 55

Northern Pac. Ry. Co. v. United States,
356 U.S. 1 (1958) 2-3, 12, 14

Ocean State Physicians Health Plan, Inc. v. Blue Cross & Blue Shield,
883 F.2d 1101 (1st Cir. 1989), cert. denied,
494 U.S. 1027 (1990) 55

Olympia Equip. Leasing Co. v. Western Union Tel. Co.,
797 F.2d 370 (7th Cir. 1986), cert. denied,
480 U.S. 934 (1987) 55

* Omega Envtl., Inc. v. Gilbarco, Inc.,
127 F.3d 1157 (9th Cir. 1997), cert. denied,
119 S. Ct. 46 (1998) passim

Paddock Publications, Inc. v. Chicago Tribune Co.,
103 F.3d 42 (7th Cir. 1996), cert. denied,
520 U.S. 1265 (1997) 25

R.C. Dick Geothermal Corp. v. Thermogenics, Inc.,
890 F.2d 139 (9th Cir. 1989) 46

Reazin v. Blue Cross & Blue Shield of Kansas, Inc.,
899 F.2d 951 (10th Cir.), cert. denied,
497 U.S. 1005 (1990) 49

Response of Carolina, Inc. v. Leasco Response, Inc.,
537 F.2d 1307 (5th Cir. 1976) 58

Richter Concrete Corp. v. Hilltop Concrete Corp.,
691 F.2d 818 (6th Cir. 1982) 39, 40, 43

Roland Mach. Co. v. Dresser Indus., Inc.,
749 F.2d 380 (7th Cir. 1984) 16, 22

Rothery Storage & Van Co. v. Atlas Van Lines, Inc.,
792 F.2d 210 (D.C. Cir. 1986), cert. denied,
479 U.S. 1033 (1987) 46

Roy B. Taylor, Sales, Inc. v. Hollymatic Corp.,
28 F.3d 1379 (5th Cir. 1994) 14, 20

Ryko Mfg. Co. v. Eden Servs.,
823 F.2d 1215 (8th Cir. 1987), cert. denied,
484 U.S. 1026 (1988) 18-19

S.O.S., Inc. v. Payday, Inc.,
886 F.2d 1081 (9th Cir. 1989) 29

SCM Corp. v. Xerox Corp.,
645 F.2d 1195 (2d Cir. 1981) 32

Seagood Trading Corp. v. Jerrico, Inc.,
924 F.2d 1555 (11th Cir. 1991) 21

Service & Training, Inc. v. Data General Corp.,
963 F.2d 680 (4th Cir. 1992) 27-28

Simplex, Inc. v. Diversified Energy Sys., Inc.,
847 F.2d 1290 (7th Cir. 1988) 67

Simpson v. United Oil Co. of Cal.,
377 U.S. 13 (1964) 32

Southern Pac. Communications Co. v. AT&T,
740 F.2d 980 (D.C. Cir. 1984), cert. denied,
470 U.S. 1005 (1985) 54

Southern Pac. Communications Corp. v. AT&T,
556 F. Supp. 825 (D.D.C. 1982), aff’d,
740 F.2d 980 (D.C. Cir. 1984), cert. denied,
470 U.S. 1005 (1985) 68, 69

* Spectrum Sports, Inc. v. McQuillan,
506 U.S. 447 (1993) 35, 39, 45

Stenograph L.L.C. v. Bossard Assocs., Inc.,
144 F.3d 96 (D.C. Cir. 1998) 26

Stewart v. Abend,
495 U.S. 207 (1990) 28

Stitt Spark Plug Co. v. Champion Spark Plug Co.,
840 F.2d 1253 (5th Cir.), cert. denied,
488 U.S. 890 (1988) 21

Tampa Elec. Co. v. Nashville Coal Co.,
365 U.S. 320 (1961) 16

Telex Corp. v. IBM,
367 F. Supp. 258 (N.D. Okla. 1973), rev’d on other grounds,
510 F.2d 894 (10th Cir.), cert. dismissed,
423 U.S. 802 (1975) 12, 58

Thompson Everett, Inc. v. National Cable Adver., L.P.,
57 F.3d 1317 (4th Cir. 1995) 22

Thurman Indus., Inc. v. Pay’N Pak Stores, Inc.,
875 F.2d 1369 (9th Cir. 1989) 46

Times-Picayune Publ’g Co. v. United States,
345 U.S. 594 (1953) 12, 37

Trace X Chem., Inc. v. Canadian Indus., Ltd.,
738 F.2d 261 (8th Cir. 1984), cert. denied,
469 U.S. 1160 (1985) 7, 54

U.S. Anchor Mfg., Inc. v. Rule Indus., Inc.,
7 F.3d 986 (11th Cir. 1993) 40, 41

U.S. Healthcare, Inc. v. Healthsource, Inc.,
986 F.2d 589 (1st Cir. 1993) 16, 21, 59

United Air Lines, Inc. v. Austin Travel Corp.,
867 F.2d 737 (2d Cir. 1989) 24

United States v. American Airlines, Inc.,
743 F.2d 1114 (5th Cir. 1984) 64

United States v. E.I. du Pont de Nemours & Co.,
351 U.S. 377 (1956) 39-40, 47, 49

United States v. Eastman Kodak Co.,
853 F. Supp. 1454 (W.D.N.Y. 1994), aff’d,
63 F.3d 95 (2d Cir. 1995) 12

United States v. Empire Gas Corp.,
537 F.2d 296 (8th Cir. 1976), cert. denied,
429 U.S. 1122 (1977) 42

United States v. Grinnell Corp.,
384 U.S. 563 (1966) 45

* United States v. Microsoft Corp.,
147 F.3d 935 (D.C. Cir. 1998) passim

* United States v. Microsoft Corp.,
Nos. 98-1232, 1233, 1998 WL 614485 (D.D.C. Sept. 14, 1998) passim

* United States v. Syufy Enters.,
903 F.2d 659 (9th Cir. 1990) 50, 51, 52, 53

United States v. Waste Management Inc.,
743 F.2d 976 (2d Cir. 1984) 41, 48, 53

United States v. Westinghouse Elec. Corp.,
648 F.2d 642 (9th Cir. 1981) 32

United States Football League v. National Football League,
842 F.2d 1335 (2d Cir. 1988) 67

Walker v. U-Haul of Miss.,
734 F.2d 1068 (5th Cir. 1984) 54

* WGN Continental Broad. Co. v. United Video, Inc.,
693 F.2d 622 (7th Cir. 1982) 30

Whimsicality, Inc. v. Rubie’s Costume Co.,
891 F.2d 452 (2d Cir. 1989) 27

White & White, Inc. v. American Hosp. Supply Corp.,
723 F.2d 495 (6th Cir. 1983) 44

Wilson v. Volkswagen of Am., Inc.,
561 F.2d 494 (4th Cir. 1977), cert. denied,
434 U.S. 1020 (1978) 67

STATUTES AND RULES

17 U.S.C. § 106 28

17 U.S.C. § 410(c) 26-27

Fed. R. Evid. 406 66

TREATISES

ABA Antitrust Section, Monograph No. 8,

Vertical Restrictions upon Buyers Limiting
Purchases of Goods from Others (1982) 19

ABA Section of Antitrust Law,

Antitrust Law Developments (4th ed. 1997) 15, 23, 24, 46

Phillip E. Areeda & Herbert Hovenkamp, Antitrust Law (1996) passim

Phillip E. Areeda, Einer Elhauge & Herbert Hovenkamp,

Antitrust Law (1996) 10

Herbert Hovenkamp, Federal Antitrust Policy (1994) 19

Melville B. Nimmer & David Nimmer, Nimmer on Copyright (1999) 30

OTHER AUTHORITIES

U.S. Dep’t of Justice & Federal Trade Comm’n, Antitrust Guidelines
for the Licensing of Intellectual Property (1995), reprinted in
4 Trade Reg. Rep. (CCH) ¶ 13,132 15

U.S. Dep’t of Justice and Federal Trade Comm’n, Antitrust Guidelines
for Collaborations Among Competitors (1999) 66

PRELIMINARY STATEMENT

There is remarkably little law in plaintiffs’ proposed conclusions of law. Rather than address the legal principles that govern their claims, plaintiffs devote page after page to recounting the Court’s findings of fact, without regard to which of the facts found (or, in some cases, not found) have decisional significance. For example, plaintiffs devote only a single paragraph of their proposed conclusions of law to the Court of Appeals’ decision in the Consent Decree case, even though this Court has already ruled that the issue of whether Windows 98 and its Internet Explorer components are "separate products" is governed by the standards articulated in that decision. See United States v. Microsoft Corp., Nos. 98-1232, 98-1233, 1998 WL 614485, at *10 (D.D.C. Sept. 14, 1998). By essentially ignoring the Court of Appeals’ decision, as well as this Court’s decision on Microsoft’s motion for summary judgment, plaintiffs never acknowledge the absence of any finding that the benefits of Microsoft’s integrated design of Windows 98 could be obtained "by combining another browser with Windows." See id. at *12. The absence of such a finding, however, undermines their tying claim under the Court of Appeals’ decision.

Needless to say, Microsoft respectfully disagrees with many of the Court’s findings of fact and believes that they are unsupported by the record. For purposes of preparing its proposed conclusions of law, however, Microsoft accepts arguendo the facts as found by the Court. Even accepting the Court’s findings of fact, plaintiffs still have not satisfied their burden under the governing law on any of their claims. Among other things, plaintiffs have not shown that Microsoft (i) substantially foreclosed Netscape from getting its Web browsing software into the hands of consumers, (ii) had a specific intent to monopolize the purported market for Web browsing software, and (iii) engaged in anticompetitive conduct that significantly contributed to the maintenance of an alleged monopoly in operating systems for Intel-compatible personal computers.

In fact, the Court found to the contrary in each critical instance. The Court found that "Microsoft did not actually prevent users from obtaining and using Navigator" (Findings ¶ 357), and that rather than seeking to monopolize the purported market for Web browsing software, Microsoft merely sought to prevent Navigator from becoming the "standard software" for browsing the Web (id. ¶¶ 133, 377). The Court also found that "[t]here is insufficient evidence to find that, absent Microsoft’s conduct, Navigator and Java already would have ignited genuine competition in the market for Intel-compatible PC operating systems." (Id. ¶ 411.) Plaintiffs choose to ignore these findings, which are fatal to their claims under Sections 1 and 2 of the Sherman Act.

ARGUMENT

I. Plaintiffs Failed To Prove an Unlawful Tying Arrangement in Violation of Section 1 of the Sherman Act.

Plaintiffs contend that Microsoft violated Section 1 by "unlawfully tying a Web browser to its operating system." (Pls. Conclusions at 53.) As plaintiffs admit, this "technological tying" claim amounts to a direct challenge to the design of Windows 98 under the antitrust laws. (See, e.g., id. at 59, 62.) No court has ever sustained such a challenge to a single integrated product. As the Court of Appeals observed, "courts have recognized the limits of their institutional competence and have on that ground rejected theories of ‘technological tying.’" United States v. Microsoft Corp., 147 F.3d 935, 949 (D.C. Cir. 1998).

A tying arrangement is "an agreement by a party to sell one product but only on the condition that the buyer also purchases a different (or tied) product, or at least agrees that he will not purchase that product from any other supplier." Northern Pac. Ry. Co. v. United States, 356 U.S. 1, 5-6 (1958). To establish a per se unlawful tie, a plaintiff must prove that (i) two separate products are involved, (ii) the sale of one product (the tying product) is conditioned on the purchase of another product (the tied product), (iii) the defendant has market power in the tying product, and (iv) the tie forecloses a substantial amount of potential sales of the tied product. See Multistate Legal Studies, Inc. v. Harcourt Brace Jovanovich Legal & Prof’l Publications, Inc., 63 F.3d 1540, 1546 (10th Cir. 1995), cert. denied, 516 U.S. 1044 (1996).

Plaintiffs’ tying claim fails for at least three independent reasons. First, plaintiffs have not shown that Windows 98 and Internet Explorer are "separate products" under the controlling standard announced by the Court of Appeals. Second, because Internet Explorer is included in the single royalty OEMs pay for Windows 98 (and is otherwise available for free), plaintiffs have not shown that Microsoft forced anyone to purchase (i.e., pay for) a separate tied product. Third, plaintiffs have not shown that the alleged tie forecloses a substantial amount of sales of Web browsing software, the alleged tied product.

II. Plaintiffs Failed To Prove That Microsoft Entered into Unlawful Exclusive Dealing Agreements in Violation of Section 1 of the Sherman Act.

Plaintiffs contend that Microsoft violated Section 1 by entering into unlawful exclusive dealing agreements with ISPs, OLSs and ICPs. (Pls. Conclusions at 62-66.) "Exclusive dealing arrangements require a buyer to purchase products or services for a period of time exclusively from one supplier." ABA Section of Antitrust Law, Antitrust Law Developments 214 (4th ed. 1997). Because there are "well-recognized economic benefits to exclusive dealing arrangements," Omega Envtl., Inc. v. Gilbarco, Inc., 127 F.3d 1157, 1162 (9th Cir. 1997), cert. denied, 119 S. Ct. 46 (1998), such arrangements are analyzed, as plaintiffs acknowledge, under the rule of reason (see Pls. Conclusions at 64). Even the DOJ’s own antitrust guidelines for the licensing of intellectual property recognize that exclusive-dealing arrangements "may have procompetitive effects." 1995 Dep’t of Justice and FTC Guidelines for the Licensing of Intellectual Property, Guideline 4.1.2. For example, those guidelines state that "a licensing arrangement that prevents the licensee from dealing in other technologies may encourage the licensee to develop and market the licensed technology or specialized applications of that technology." Id.

In certain circumstances, exclusive dealing arrangements may "foreclose" competitors from part of the relevant market during the term of the agreements. See Omega Envtl., 127 F.3d at 1162; Roland Mach. Co. v. Dresser Indus., Inc., 749 F.2d 380, 393 (7th Cir. 1984); Barry Wright Corp. v. ITT Grinnell Corp., 724 F.2d 227, 236 (1st Cir. 1983). Nevertheless, because they may be procompetitive, exclusive dealing agreements are unlawful only if they foreclose a "substantial share" of the relevant market. See Tampa Elec. Co. v. Nashville Coal Co., 365 U.S. 320, 327 (1961) ("[E]ven though a contract is found to be an exclusive-dealing arrangement, it does not violate the [antitrust laws] unless the court believes it probable that performance of the contract will foreclose competition in a substantial share of the line of commerce affected."); Jefferson Parish, 466 U.S. 45 (O’Connor, J., concurring) ("Exclusive dealing is an unreasonable restraint on trade only when a significant fraction of buyers or sellers are frozen out of a market by the exclusive deal."). As one court observed, "under this standard judgments for plaintiffs are not easily obtained." U.S. Healthcare, Inc. v. Healthsource, Inc., 986 F.2d 589, 595 (1st Cir. 1993).

Plaintiffs’ exclusive dealing claims fail for at least two independent reasons. First, plaintiffs failed to establish that the agreements foreclosed the requisite percentage of the relevant market: namely, the purported market for Web browsing software. Second, even if plaintiffs had shown a sufficient degree of foreclosure, the challenged agreements did not have the required anticompetitive effect because they were short term and non-exclusive. In fact, the agreements were procompetitive because they enabled Internet Explorer to compete effectively against Netscape Navigator during a time period in which the Court found that Navigator enjoyed a usage share above 80%. (Findings ¶ 360.)

III. Plaintiffs Failed To Prove That Microsoft’s OEM License Agreements Constituted an Unlawful Restraint of Trade in Violation of Section 1 of the Sherman Act.

Plaintiffs contend that the provisions of Microsoft’s OEM license agreements stating that OEMs may not modify Microsoft’s copyrighted Windows operating system without Microsoft’s permission violate Section 1 in two ways. First, plaintiffs claim that Microsoft has effectuated its alleged "tying arrangement" by prohibiting OEMs from modifying or deleting any aspect of Windows. (Pls. Conclusions at 53-62.) Second, plaintiffs assert that the provisions of Microsoft’s OEM license agreements that require OEMs to allow Windows to go through its initial startup sequence the very first time a new machine is turned on and to display the Windows desktop screen as designed, developed and tested by Microsoft amount to an unreasonable restraint of trade. (Id. at 30-32.)

These claims fail for two reasons. First, in licensing Windows as a unified whole and refusing to give OEMs the right to modify Windows without its permission, Microsoft has simply exercised rights granted to it by federal copyright law. As the holder of valid copyrights, Microsoft is entitled to require its distributors¾ including OEMs¾ to deliver Windows to users as Microsoft designed it. That is the essence of copyright. Because the challenged provisions of Microsoft’s OEM license agreements simply restate, and do not enlarge upon, Microsoft’s rights under federal copyright law, they do not violate the antitrust laws. Second, the challenged provisions of Microsoft’s OEM license agreements are lawful under the rule of reason because they do not unduly restrict the opportunities of competitors, especially when Microsoft’s intellectual property rights are taken into consideration.

IV. Plaintiffs Failed To Prove That Microsoft Unlawfully Attempted To Monopolize the Alleged Market for Web Browsing Software in Violation of Section 2 of the Sherman Act.

Plaintiffs contend that Microsoft violated Section 2 by unlawfully attempting to monopolize the alleged market for Web browsing software. (Pls. Conclusions at 66-70.) To prevail on an attempted monopolization claim, a plaintiff must prove "(1) that the defendant 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, Inc. v. McQuillan, 506 U.S. 447, 456 (1993). Although their attempted monopolization claim was at one time a focal point of their case, plaintiffs relegated their discussion of this claim to the last four pages of their proposed conclusions of law. Plaintiffs’ lack of enthusiasm for their attempted monopolization claim is not surprising, for they cannot satisfy the essential elements of that claim given the Court’s findings.

First, the Court did not find that Microsoft acted with a specific intent to obtain monopoly power in the alleged market for Web browsing software. The Court instead found that Microsoft attempted to increase Internet Explorer’s usage share to such a level as would prevent Netscape Navigator, which enjoyed an overwhelming usage share at the outset, from becoming the "standard" Web browsing software. Such a finding falls well short of establishing that Microsoft attempted to monopolize the alleged market for Web browsing software. In fact, it describes procompetitive conduct.

Second, the Court did not find a dangerous probability that Microsoft will obtain monopoly power in the relevant market in the future. The Court instead found that (i) Internet Explorer’s and Navigator’s usage shares in 1998 were both approximately 50%, (ii) Navigator’s installed base will continue to grow, and (iii) Microsoft is not likely to drive non-Microsoft Web browsing software from the marketplace. (See Findings ¶¶ 303, 373, 378, 384-85.)

A. Plaintiffs Failed To Prove That Microsoft Acted with a Specific Intent To Obtain Monopoly Power in the Alleged Market for Web Browsing Software.

The intent required to establish attempted monopolization is a specific intent to obtain monopoly power in the relevant market, i.e., "the intent to control prices or unreasonably restrict competition." Conoco Inc. v. Inman Oil Co., 774 F.2d 895, 905 (8th Cir. 1985); accord Great Escape, Inc. v. Union City Body Co., 791 F.2d 532, 540 (7th Cir. 1986). As one court explained,

[t]he specific intent element requires proof that the defendant intended his acts to produce monopoly power. Specific intent does not merely mean intent to prevail over one’s rivals . . . .

General Indus. Corp. v. Hartz Mountain Corp., 810 F.2d 795, 801 (8th Cir. 1987). The specific intent required for attempted monopolization "has little relation to the defendant’s altruistic or malevolent motivations." Association for Intercollegiate Athletics for Women v. NCAA, 735 F.2d 577, 585 (D.C. Cir. 1984). "Rather, specific intent in this context refers to a purpose to acquire monopoly power by driving one’s rival from the market by exclusionary or predatory means." Id. (emphasis added). Indeed, plaintiffs themselves acknowledge that "[s]pecific intent is the intent to bring about the forbidden objective of monopoly." (Pls. Conclusions at 67.)

The Court did not find that Microsoft acted with a specific intent to drive Netscape from the marketplace and thus obtain monopoly power. The absence of such a finding is alone fatal to plaintiffs’ attempted monopolization claim. In fact, the Court found that "the evidence is insufficient to find that Microsoft’s ambition is a future in which most or all of the content available on the Web would be accessible only through its own browsing software." (Findings ¶ 384.) Such a finding cannot be reconciled with plaintiffs’ claim that Microsoft acted with the specific intent "to destroy competition or build monopoly." Times-Picayune Publ’g, 345 U.S. 626; see also Association for Intercollegiate Athletics, 735 F.2d at 585 ("The district court’s frequent reference to NCAA’s contemplated co-existence with AIAW reflects the court’s recognition that the relevant inquiry was whether NCAA intended to destroy AIAW.").

Plaintiffs argue that although "the evidence [is] insufficient to find that Microsoft’s present ambition is to ensure that most or all of the content on the Web is accessible only through its browser[,] the specific intent element does not require so extravagant an aspiration." (Pls. Conclusions at 68 n.13.) According to plaintiffs, "it is enough that the defendant sought monopoly power." (Id.) This is but a word game and cannot survive the Court’s finding that Microsoft only attempted to increase Internet Explorer’s usage share and, in so doing, prevent Netscape Navigator from becoming the "standard" Web browsing software. In other words, Microsoft sought to compete.

In particular, the Court found that "[i]n late 1995 and early 1996, Navigator seemed well on its way to becoming the standard software for browsing the Web." (Findings ¶ 377.) According to the Court, this concerned Microsoft because if software developers "believed that Navigator would emerge as the standard software employed to browse the Web," they might "write to the APIs exposed by Navigator in large enough numbers to threaten the applications barrier." (Id. ¶ 133.) The Court thus determined that Microsoft’s goal over the next three years was to "attract just as much if not more usage" for Internet Explorer, thereby "demonstrat[ing] that Navigator would not become the standard" Web browsing software. (Id.; see also id. ¶ 377.) In so finding, the Court relied on a number of contemporaneous internal Microsoft documents showing that Microsoft’s ambition was to increase Internet Explorer’s usage share to such an extent as would prevent Netscape from dictating Internet standards, not to obtain monopoly power. For example, the Court quoted Microsoft e-mails stating that "‘getting browser share up to 50% (or more) is still the major goal’" (id. ¶ 138) and that Microsoft’s "‘mission’" is not to "‘let Netscape dictate standards and control the browser api’s [sic]’" (id. ¶ 377). The Court’s findings that Microsoft sought to prevent Netscape from monopolizing the alleged market for Web browsing software are insufficient to establish that Microsoft’s goal was to gain such a position itself. See Abcor Corp. v. AM Int’l, Inc., 916 F.2d 924, 927 (4th Cir. 1990) ("By themselves, the statements show only that AMI planned to increase its competitive activity in the Washington area.").

Plaintiffs seek to salvage their attempted monopolization claim by arguing that the Court’s finding that "Microsoft deliberately ‘set out to maximize Internet Explorer’s share of browser usage at Navigator’s expense’" is sufficient to establish the requisite specific intent. (Pls. Conclusions at 68 (quoting Findings ¶ 133).) But companies are supposed to attempt to win "market share" from their competitors¾ that is competition. As this Court previously recognized, "[t]he Supreme Court has held that intent to injure or destroy a rival and to expand one’s own business are, standing alone, insufficient to produce an antitrust violation." Microsoft, 1998 WL 614485, at *23 (citing Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209, 225 (1993)). In fact, it is well settled that the "mere intention to exclude competition and to expand one’s own business is not sufficient to show a specific intent to monopolize." Great Escape, 791 F.2d at 541. Hence, this Court’s finding that Microsoft set out "to maximize Internet Explorer’s share of browser usage at Netscape’s expense" (Findings ¶ 133; see also id. ¶ 358) is insufficient to establish a specific intent to monopolize the relevant market.

B. Plaintiffs Failed To Prove That There Is a Dangerous Probability That Microsoft Will Achieve Monopoly Power in the Alleged Market for Web Browsing Software.

"[P]laintiffs also must prove a ‘dangerous probability’ of Microsoft’s succeeding in its efforts to monopolize the market for Internet browsers." Microsoft, 1998 WL 614485, at *25. The dangerous probability element of an attempted monopolization claim "reflects the well-established notion that section 2 of the Sherman Act governs single-firm conduct only when it threatens actual monopolization." Indiana Grocery, Inc. v. Super Valu Stores, Inc., 864 F.2d 1409, 1413 (7th Cir. 1988). Plaintiffs come up short in establishing that Microsoft has an "ability to lessen or destroy competition" in the alleged market for Web browsing software. Spectrum Sports, 506 U.S. 456.

The Court did not find that there is a dangerous probability Microsoft will achieve monopoly power in the alleged market for Web browsing software, i.e., the ability to control prices or exclude competition. United States v. E.I. du Pont de Nemours & Co., 351 U.S. 377, 391 (1956). To the contrary, the Court expressly found that Microsoft "is not likely to drive non-Microsoft PC Web browsing software from the marketplace altogether." (Findings ¶ 385.) The Court also found:

At least partly because of Navigator’s substantial usage share, most developers continue to insist that their Web content be more-or-less as attractive when accessed with Navigator as it is when accessed with Internet Explorer. Navigator will retain an appreciable usage share through the end of 2000. After that point, AOL may be able and willing to prevent Internet Explorer’s share from achieving such dominance that a critical mass of developers will cease to concern themselves with ensuring that their Web content at least be accessible through non-Microsoft browsing software.

(Id.) Those findings preclude plaintiffs’ claim that there is a dangerous probability that Microsoft will achieve monopoly power in the alleged market for Web browsing software. Such monopolization is even less likely now given AOL’s recently-announced agreement to acquire Time Warner and thereby be able to deliver Netscape’s Web browsing software to Time Warner’s vast number of cable television subscribers.

Plaintiffs nevertheless contend that they have satisfied the "dangerous probability" element of their attempted monopolization claim based on Internet Explorer’s increasing usage share. (Pls. Conclusions at 68-69.) This Court previously noted that "whether Microsoft may be deemed to have a ‘dangerous probability’ of monopolizing the browser market depends primarily on Microsoft’s and Netscape’s relative shares of the browser market." Microsoft, 1998 WL 614485, at *26. Contrary to plaintiffs’ contention, however, the Court’s findings regarding the relative usage shares of Internet Explorer and Navigator are insufficient to establish a dangerous probability of monopolization.

The Court found that from early 1996 to the late summer of 1998¾ the period when the alleged anticompetitive conduct was occurring¾ Navigator’s "share of all browser usage fell from above seventy percent to around fifty percent, while Internet Explorer’s share rose from about five percent to around fifty percent." (Findings ¶ 372.) The Court also noted that "[i]n April 1998, Microsoft relied on measurements for internal planning purposes that placed Internet Explorer’s share of all browser usage above forty-five percent." (Id. ¶ 360.) Finally, the Court observed that in evaluating its acquisition of Netscape, "AOL determined that Navigator’s share had fallen from around eighty percent at the end of 1996 to the ‘mid 50% range’ in July 1998 and that Internet Explorer’s share had climbed to between forty-five and fifty percent of the domestic market by 1998 alone." (Id.)

Internet Explorer’s usage share of 50% or less is insufficient to establish a dangerous probability of monopoly power. See U.S. Anchor Mfg., 7 F.3d at 1001 ("[B]ecause Rule possessed less than 50% of the market at the time the alleged predation began and throughout the time when it was alleged to have continued, there was no dangerous probability of success in October 1985 as a matter of law."). In fact, courts have found similar "market shares" to be insufficient to establish a dangerous probability of monopolization. What is more, Internet Explorer’s usage share of "around fifty percent" (Findings ¶ 372) is even less indicative of a dangerous probability of monopolization given the Court’s findings that Netscape Navigator also had a usage share of approximately 50% in July 1998 (id. ¶ 360).

Plaintiffs point out (Pls. Conclusions at 69) that the Court also found that "by 1998, Navigator’s share of incremental browser usage [new browser usage] had fallen below forty percent while Internet Explorer’s share had risen above sixty percent" (Findings ¶ 372). Based on that estimate, the Court stated that "[i]t is safe to conclude . . . that Internet Explorer’s share of all browser usage now exceeds 50%, and that Navigator’s share has fallen below that mark." (Id.) Even assuming that Internet Explorer’s usage share now exceeds 50%, that is still insufficient to establish a dangerous probability of monopolization. See Barr Labs., 978 F.2d at 112-15 (despite defendant’s 50% market share, other factors such as low entry barriers and stable prices showed no dangerous probability of monopolization).

The Court did not find that Navigator is about to be driven from the marketplace. To the contrary, the Court predicted that "Navigator’s installed base will continue to grow." (Findings ¶ 378.) Indeed, the Court found that Navigator’s installed base grew rapidly during the very period in which the challenged conduct occurred, noting that "Navigator’s installed base in the United States alone grew from fifteen million in 1996 to thirty-three million in December 1998." (Id. ¶ 378.) The Court also expressed skepticism that Netscape will lose a significant portion of its large installed base to Microsoft, stating that "Internet Explorer’s quality and features have never surpassed Navigator’s to such a degree as to compel a significant part of Navigator’s installed base to switch to Internet Explorer." (Id. ¶ 375.) Finally, the Court recognized that "[i]f AOL were to halt its distribution and promotion of Internet Explorer, the effect on Internet Explorer’s usage share would be significant, for AOL’s subscribers currently account for over one third of Internet Explorer’s installed base." (Id. ¶ 303.)

Regardless of market share, "proximity to monopolistic status is not enough; the defendant must also have the ability to propel itself to monopolistic control over the market." Colorado Interstate Gas, 885 F.2d at 694. To determine whether a defendant has such an ability, courts look to a number of other factors in addition to market share, including "the strength of competition, probable development of the industry, the barriers to entry, the nature of the anti-competitive conduct, and the elasticity of consumer demand." Barr Labs., 978 F.2d at 112. "The ultimate inquiry in any attempted monopolization case remains whether the defendant has or reasonably might come close to having the ability to control total market output and prices." Indiana Grocery, 864 F.2d at 1414. Microsoft will never have that ability with regard to Web browsing software.

Given the nature of the software business, Internet Explorer’s current usage share, if anything, greatly overstates the likelihood that Microsoft could ever monopolize the alleged market for Web browsing software. That usage share does not reflect control over productive assets, and there are no structural barriers to entry into the development and marketing of Web browsing software. (See Section V.A.2, infra.) The Court made no findings to the contrary; in fact, it expressly found that the software industry is "characterized by dynamic, vigorous competition" (Findings ¶ 59) and that a competing firm "could produce millions of copies of its [software] at relatively low cost" (id. ¶ 30). See White & White, Inc. v. American Hosp. Supply Corp., 723 F.2d 495, 507 (6th Cir. 1983) ("The ‘development of the industry’ analysis is perhaps nowhere so important as in a ‘dynamic and constantly changing’ business.").

Lastly, noting that Internet Explorer’s usage share increased substantially between 1996 and 1998, plaintiffs argue that these "figures and the unmistakable trajectory are themselves enough to establish proximity to monopoly power." (Pls. Conclusions at 69.) As Professors Areeda and Hovenkamp explained, however, "if the defendant can experience rapid growth in market share, others can as well. Market shares that go from 0 to 60 percent in two years . . . suggest an unstable market in which it is unlikely that any firm could maintain a monopoly output reduction for very long." IIIA AREEDA & HOVENKAMP, supra ¶ 807e, at 359-60. Professor Areeda and Hovenkamp’s words fit Web browsing software to a T. The fact that Internet Explorer could achieve rapid gains in usage share in the face of an entrenched competitor like Netscape Navigator cuts against any conclusion that there is a dangerous probability of monopolization here.

V. Plaintiffs Failed To Prove That Microsoft Unlawfully Maintained a Monopoly in "Intel-Compatible PC Operating Systems" in Violation of Section 2 of the Sherman Act.

Plaintiffs contend that Microsoft violated Section 2 by unlawfully maintaining a monopoly in operating systems for Intel-compatible personal computers. (Pls. Conclusions at 2-53.) The offense of unlawful monopolization 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 historical accident." United States v. Grinnell Corp., 384 U.S. 563, 570-71 (1966). Because "[i]t is sometimes difficult to distinguish robust competition from conduct with long-term anticompetitive effects," Spectrum Sports, 506 U.S. 458-59, courts have recognized that Section 2 of the Sherman Act "must be used with the greatest caution," Ball Mem’l Hosp., Inc. v. Mutual Hosp. Ins., Inc., 784 F.2d 1325, 1338 (7th Cir. 1986). Accordingly, "the plaintiff faces a stiff burden in any § 2 litigation." Id. Plaintiffs have not satisfied that stiff burden in this case.

CONCLUSION

For the foregoing reasons, the Court should conclude that Microsoft has not violated Section 1 or Section 2 of the Sherman Act.

Respectfully submitted,

 

_________________________________

William H. Neukom
Thomas W. Burt
David A. Heiner
Diane D’Arcangelo
Christopher J. Meyers
MICROSOFT CORPORATION
One Microsoft Way
Redmond, Washington 98052
(425) 936-8080

John L. Warden (Bar No. 222083)
Richard J. Urowsky
Steven L. Holley
Theodore Edelman
Michael Lacovara
Richard C. Pepperman, II
Christine Monterosso
SULLIVAN & CROMWELL
125 Broad Street
New York, New York 10004
(212) 558-4000

Counsel for Defendant
Counterclaim-Plaintiff
Microsoft Corportation

January 18, 2000

CERTIFICATE OF SERVICE

I hereby certify that on this 18th day of January, 2000, I caused a true and correct copy of the foregoing Defendant Microsoft Corporation’s Proposed Conclusions of Law to be served by hand upon:

A. Douglas Melamed, Esq.
Antitrust Division
U.S. Department of Justice
950 Pennsylvania Avenue, N.W.
Washington, D.C. 20530

Richard L. Schwartz, Esq.
Deputy Chief, Antitrust Bureau
New York State Attorney General’s Office
120 Broadway, Suite 2601
New York, New York 10271

And by facsimile and overnight carrier upon:

Phillip R. Malone, Esq.
Antitrust Division
U.S. Department of Justice
450 Golden Gate Avenue, Room 10-0101
San Francisco, California 94102
Fax: (415) 436-6687

Kevin J. O’Connor, Esq.
Office of the Attorney General of Wisconsin
P.O. Box 7857
123 West Washington Avenue
Madison, Wisconsin 53703-7957
Fax: (608) 267-2223

Christine Rosso, Esq.
Chief, Antitrust Bureau
Illinois Attorney General’s Office
100 West Randolph Street, 13th Floor
Chicago, Illinois 60601
Fax: (312) 814-2549



______________________
Bradley P. Smith

> Footnotes:

  1. The Court of Appeals referred to the provision of the Consent Decree at issue in that case as "an 'anti-tying' provision," 147 F.3d at 946, and expressly stated that its construction of that provision was "consistent with the antitrust laws," id. at 948; see also id. at 950 ("We believe this understanding is consistent with tying law.").
  2. Other courts have similarly questioned the applicability of Jefferson Parish's "consumer-demand" test to integrated products. See, e.g., Jack Walters & Sons Corp. v. Morton Bldg., Inc., 737 F.2d 698, 704 (7th Cir.) (Posner, J.) ("There are separate markets for sugar and for sugarless breakfast cereals, but it would be surprising to find that a sugary cereal was a tie-in (sugar tied to cereal), assuming the seller refused to sell a sugar-free version."), cert. denied, 469 U.S. 1018 (1984).
  3. Plaintiffs also rely on Multistate Legal Studies. (See Pls. Conclusions at 56.) In that case, however, the Tenth Circuit expressly noted that "the claimed product improvement" took "the form of a marketing change, rather than some complex technological integration of previously separate functions." 63 F.3d at 1551 n.10.
  4. Plaintiffs nevertheless urge the Court to take a more activist role in assessing the design of Microsoft's operating systems, stating that "there is no reason to underestimate judicial capacity." (Pls. Conclusions at 57.) According to plaintiffs, courts are "frequently called on to decide technical issues in cases involving torts, economics, regulatory regimes, and other matters." (Id. at 57 n.10.) Plaintiffs' invitation is directly contrary to the guidance of the Court of Appeals, which stated that "the limited competence of courts to evaluate high-tech product designs and the high cost of error should make them wary of second-guessing the claimed benefits of a particular design decision." 147 F.3d at 950 n.13 (emphasis added).
  5. Although the Court found that "many consumers who need an operating system . . . do not want a browser at all" (Findings ¶ 152), the Court also found that that there is increasing "[c]onsumer demand for software functionality that facilities Web transactions" (id. ¶ 201). Moreover, with respect to consumers who "do not want a browser at all," there could by definition be no foreclosure of non-Microsoft suppliers of Web browsing software because such consumers likewise would not want a copy of Netscape Navigator.
  6. The Court of Appeals also held that the upshot of software developers' practice of distributing Internet Explorer with their applications "is simply that such applications upgrade the purchaser's operating system to the Windows 95/IE level. The customer's act of installing the application implements Microsoft's prior integration of IE into Windows 95." 147 F.3d at 951 n.16 (emphasis added).
  7. Even with regard to Windows 95, a concededly integrated product, "one can imagine [the relevant] code being sold on two different disks, one containing all the code necessary for an operating system, the other with all the code necessary for a graphical interface." 147 F.3d at 949. As the Court of Appeals explained, however, because "the code in the two would largely overlap, it would be odd to speak of either containing a discrete functionality. Rather, each would represent a disabled version of Windows 95." Id. Although "[t]he customer could then 'repair' each by installing them both on a single computer," the Court of Appeals stated that "it would not be meaningful to speak of the customer 'combining' two products." Id. As a result, the Court of Appeals concluded that "Windows 95 is an example of what Professor Areeda calls 'physical or technical interlinkage that the customer cannot perform.'" Id. (quoting X Phillip E. Areeda, Einer Elhauge & Herbert Hovenkamp, Antitrust Law § 1746b, at 227-28 (1996)).
  8. Plaintiffs seeks to avoid this requirement by arguing that "Microsoft conditioned its customers' purchase of Windows on their taking of a browser." (Pls. Conclusions at 60.) Plaintiffs assert that Microsoft forced OEMs to take "the icon and similar means of access." (Id.) Icons and means of access are not "products" any more than the on-off button on a radio is a "product." Plaintiffs' retreat to such arguments serves only to underscore the shortcomings in their tying claim.
  9. In its summary judgment decision, the Court rejected this argument, relying exclusively on Professor Areeda's statement that a tie may be "somewhat more subtle, as when a machine is sold or leased at a price that covers 'free' servicing." 1998 WL 614485, at *12 (quoting IIIA Phillip E. Areeda & Herbert Hovenkamp, Antitrust Law ¶ 760b6, at 51 (1996)). Professor Areeda cited no supporting cases for this statement, which on its face has nothing to do with adding features to a single product. In addition, Professor Areeda's statement does not apply if the alleged tied product is given away for free even when distributed separately by competitors, as is the case here. (Findings ¶ 201.)
  10. This failure of proof, as well as the other shortcomings discussed in this section, are also fatal to plaintiffs' tying claim under the rule of reason. See id. at 29-31 (requiring "a showing of actual adverse effect on competition").
  11. To the extent plaintiffs contend that Microsoft's "First Wave" agreements with software developers and its agreement with Apple to make Internet Explorer the default Web browsing software on the Mac OS violate Section 1 of the Sherman Act, those claims fail for the same reasons. There is no evidence at all as to the effect of the "First Wave" agreements. As to Apple, the Court did not find that Microsoft's agreement with Apple precluded Apple from also shipping Netscape's Web browsing software with its computers. In fact, the relevant agreement between Apple and Microsoft expressly provides that "Apple may bundle browsers other than Internet Explorer with such Mac OS system software releases" (Findings ¶ 351 (internal quotation omitted)), and the evidence shows that Navigator is shipped with every Apple Macintosh.
  12. Plaintiffs largely ignore the Court's discussion of exclusive dealing in their proposed conclusions of law, arguing that such agreements are unlawful if they "constrict[] . . . opportunities of rivals." (Pls. Conclusions at 65.) Plaintiffs' proposed standard is not only inconsistent with the standard adopted by the Court, but also unworkable because it would render virtually every contract unlawful. As then-Judge Breyer wrote for the First Circuit, "virtually every contract to buy 'forecloses' or 'excludes' alternative sellers from some portion of the market, namely the portion consisting of what was bought." Barry Wright, 724 F.2d at 236.
  13. Even the States' consultant, Professor Hovenkamp, endorses this obvious proposition. See Herbert Hovenkamp, Federal Antitrust Policy § 10.8e, at 391 (1994) ("[E]xclusive dealing that 'forecloses' a large percentage of one mode of distribution will have little anticompetitive effect if another mode is available."); accord ABA Antitrust Section, Monograph No. 8, Vertical Restrictions upon Buyers Limiting Purchases of Goods from Others 92 (1982) ("So long as other suppliers are not foreclosed from achieving adequate distribution through other distributors, they will have the opportunity to reach substantially every consumer in the relevant market.").
  14. Indeed, the Court found that "[b]y the end of September 1998, all of the Windows 95 Referral Server agreements had expired by their own terms." (Id. ¶ 269.)
  15. Although the Court made no findings regarding the duration of Microsoft's agreements with the other three OLSs in the OLS folder (id. ¶¶ 305-06), the evidence shows that those agreements were similarly short term.
  16. Microsoft's ICP agreements required ICPs to "distribute Internet Explorer and no 'Other Browser' in connection with any custom Web browsing software or CD-ROM content that they might offer." (Findings ¶ 320.) As the Court observed, however, "only six of the affected ICPs distributed any Web browsing software." (Id. ¶ 332.) The Court thus concluded that "there is not sufficient evidence to support a finding that Microsoft's promotional restrictions actually had a substantial, deleterious impact on Navigator's usage share." (Id.) (And usage share, even if affected, is not the relevant inquiry¾the issue is ability to reach users.)
  17. See, e.g., United Air Lines, Inc. v. Austin Travel Corp., 867 F.2d 737, 742 (2d Cir. 1989); Empire Volkswagen Inc. v. World-Wide Volkswagen Corp., 814 F.2d 90, 97 (2d Cir. 1987); Magnus Petroleum Co. v. Skelly Oil Co., 599 F.2d 196, 200-01 (7th Cir.), cert. denied, 444 U.S. 916 (1979).
  18. "Gilliam further recognized a cause of action in addition to copyright infringement, also based upon the 'mutilation' of the plaintiffs' work." Nimmer on Copyright, supra § 8D.04[A][2], at 8D-54. Specifically, the court held that "[i]t also seems likely that appellants will succeed on the theory that, regardless of the right ABC had to broadcast an edited program, the cuts made constituted actionable mutilation of Monty Python's work." Id. at 23-24. Contrary to the assumption in the Court's summary judgment decision, see 1998 WL 614485, at *16, Microsoft does not rely on that portion of Gilliam.
  19. See also Broadcast Music, Inc. v. CBS, 441 U.S. 1, 19 (1979) ("[W]e would not expect that any market arrangements reasonably necessary to effectuate the rights that are granted [by the copyright laws] would be deemed a per se violation of the Sherman Act."); Simpson v. United Oil Co. of Cal., 377 U.S. 13, 24 (1964) ("The patent laws which give a 17-year monopoly on 'making, using, or selling the invention' are in pari materia with the antitrust laws and modify them pro tanto."); Miller Insituform, Inc. v. Insituform of N. Am., Inc., 830 F.2d 606, 609 (6th Cir. 1987) ("[T]he holder of a patent retains the power to exclude others from manufacturing, using, and selling his inventions without running afoul of the antitrust laws."), cert. denied, 484 U.S. 1064 (1988); United States v. Westinghouse Elec. Corp., 648 F.2d 642, 647 (9th Cir. 1981) ("[I]n all of the cases cited by the government, the offending patentee seeks to do more than enjoy the limited monopoly granted by the patent laws."); LucasArts Entertainment, 870 F. Supp. at 290 ("[A] court must tread gingerly before permitting an antitrust plaintiff to modify the scope of the statutory copyright grant that Congress has seen fit to impose.").
  20. Plaintiffs also failed to establish that Microsoft engaged in anticompetitive conduct. This Court has already recognized that "[t]he test of conduct necessary to prove an attempt claim is, of course, substantially more demanding than the requirements for illegal monopolization." Microsoft, 1998 WL 614485, at *24. As shown below (Section V.B, infra), plaintiffs failed to show that Microsoft engaged in anticompetitive conduct for purposes of their monopolization claim. That failure of proof is also fatal to plaintiffs' attempted monopolization claim.
  21. See also Spectrum Sports, 506 U.S. 459 ("[T]he intent to monopolize . . . is something more than an intent to compete vigorously . . . ."); Richter Concrete Corp. v. Hilltop Concrete Corp., 691 F.2d 818, 826 (6th Cir. 1982) ("Evidence was introduced that Hilltop wanted to increase its market share. Such is the normal desire of competitors; it does not reveal intent to monopolize.").
  22. See also Colorado Interstate Gas Co. v. Natural Gas Pipeline Co. of Am., 885 F.2d 683, 693 (10th Cir. 1989) ("[P]laintiff must show that there was a dangerous probability the defendant would achieve monopoly status as the result of the predatory conduct alleged by the plaintiff.").
  23. See U.S. Anchor Mfg., Inc. v. Rule Indus., Inc., 7 F.3d 986, 994 (11th Cir. 1993) ("To have a dangerous probability of successfully monopolizing a market the defendant must be close to achieving monopoly power[, which] is the power to raise prices to supra-competitive levels or . . . the power to exclude competition in the relevant market either by restricting entry of new competitors or by driving existing competitors out of the market.") (internal quotation omitted); Richter Concrete, 691 F.2d at 826 ("In order to be found liable for attempted monopolization, a firm must possess market strength that approaches monopoly power¾the ability to control prices and exclude competition."). Of course, in the case of Web browsing software, there are no prices¾the software is given away.
  24. See, e.g., M & M Med. Supplies & Serv., Inc. v. Pleasant Valley Hosp., 981 F.2d 160, 168 (4th Cir. 1992) (below 50% usually insufficient); Barr Labs., 978 F.2d at 112-14 (51% insufficient); Bacchus Indus., Inc. v. Arvin Indus., Inc., 939 F.2d 887, 894-95 (10th Cir. 1991) (60 % insufficient); Indiana Grocery, 864 F.2d at 1414 (50% insufficient); United States v. Waste Management Inc., 743 F.2d 976, 983-84 (2d Cir. 1984) (48.8% insufficient); Broadway Delivery Corp. v. UPS, 651 F.2d 122, 129 (2d Cir.) (below 50% insufficient), cert. denied, 454 U.S. 968 (1981); Nifty Foods Corp. v. Great Atl. & Pac. Tea Co., 614 F.2d 832, 841 (2d Cir. 1980) (54.5% insufficient); United States v. Empire Gas Corp., 537 F.2d 296, 305-07 (8th Cir. 1976) (47%-50% insufficient), cert. denied, 429 U.S. 1122 (1977).
  25. See also Barr Labs., 978 F.2d at 112 ("[A]lthough the size of a defendant's market share is a significant determinative of whether a defendant has a dangerous probability of successfully monopolizing the relevant market, it is not exclusive."); Richter Concrete, 691 F.2d at 826 ("Market share alone, however, is not enough to determine a firm's capacity to achieve monopoly.").
  26. Under such circumstances, courts have held that even a defendant with a relatively high market share does not have a dangerous probability of monopolizing the market. See, e.g., Dial A Car, Inc. v. Transportation, Inc., 82 F.3d 484, 486-87 (D.C. Cir. 1996) (no unlawful attempt to monopolize corporate car service business in District of Columbia absent indication that monopolization of business is even possible); Barr Labs., 978 F.2d at 112-14 (increasing market share not sufficient to establish dangerous probability given new entrants into business, low barriers to entry, stable prices and other factors); Bacchus Indus., 939 F.2d at 894-95 (60% market share does not establish dangerous probability in highly competitive business where "innovative and daring entrepreneurs may enter the market quickly"); National Reporting Co. v. Alderson Reporting Co., 763 F.2d 1020, 1025 (8th Cir. 1985) (no dangerous probability given entry of new competitors and defendant's inability to raise prices without rebidding); Deauville Corp. v. Federated Dep't Stores, Inc., 756 F.2d 1183, 1191 (5th Cir. 1985) (ease of entry precluded inference of dangerous probability).
  27. A relevant market also includes a geographic dimension. Brown Shoe Co. v. United States, 370 U.S. 294, 324 (1962). There is no dispute that the relevant geographic market in this case is the world.
  28. As the Supreme Court has recognized, "[t]he 'market' which one must study to determine when a producer has monopoly power will vary with the part of commerce under consideration." du Pont, 351 U.S. 404. The part of commerce under consideration here is the provision of platforms for use by software developers. Plaintiffs allege that Microsoft engaged in anticompetitive conduct targeted at potential platform competitors, that such conduct resulted in a diminution of platform competition, and that Microsoft's "monopoly" is protected by the "applications barrier to entry," a platform concept. As a result, the legally relevant product market in this case is software development platforms, not operating systems.
  29. See also Ball Mem'l Hosp., 784 F.2d at 1335 ("The insurance industry is not like the steel industry, in which a firm must take years to build a costly plant before having anything to sell.").
  30. See also Waste Management, 743 F.2d at 983 ("The fact that such entry has not happened more frequently reflects only the existence of competitive, entry-forestalling prices . . . .").
  31. See also Ocean State Physicians Health Plan, Inc. v. Blue Cross & Blue Shield, 883 F.2d 1101, 1113 (1st Cir. 1989) ("As long as Blue Cross's course of conduct was itself legitimate, the fact that some of its executives hoped to see Ocean State disappear is irrelevant."), cert. denied, 494 U.S. 1027 (1990).
  32. See, e.g., Olympia Equip. Leasing Co. v. Western Union Tel. Co., 797 F.2d 370, 375 (7th Cir. 1986) (Posner, J.) ("Today it is clear that a firm with lawful monopoly power has no general duty to help its competitors, whether by holding a price umbrella over their heads or by otherwise pulling its competitive punches."), cert. denied, 480 U.S. 934 (1987); Ball Mem'l Hosp., 784 F.2d at 1339 ("Even the largest firms may engage in hard competition, knowing that this will enlarge their market shares."); Foremost Pro Color, Inc. v. Eastman Kodak Co., 703 F.2d 534, 544 (9th Cir. 1983) ("A monopolist, no less than any other competitor, is permitted and indeed encouraged to compete aggressively on the merits . . . ."), cert. denied, 465 U.S. 1038 (1984); Northeastern Tel. Co. v. AT&T, 651 F.2d 76, 93 (2d Cir. 1981) ("Even monopolists must be allowed to do as well as they can with their business."), cert. denied, 455 U.S. 943 (1982).
  33. Thus, although it is sometimes said that a monopolist's conduct that violates Section 1 also violates Section 2, it is not true that "all violations of § 1 necessarily establish the 'monopolizing' offense under § 2." III Areeda & Hovenkamp, supra ¶ 651e, at 81. "The monopoly must be acquired or maintained 'by means of' the conduct proscribed under § 1, and not all violations of § 1 have the requisite causal effect." Id. Absent the requisite causal effect, there can be no violation of Section 2.
  34. See also IIIA Areeda & Hovenkamp, supra ¶ 781a, at 255 ("[P]roduct superiority is one of the objects of competition and cannot be wrongful, even for a monopolist.").
  35. Microsoft's agreements with ICPs also were not anticompetitive because they were incapable of making a significant contribution to the maintenance of a monopoly. The Court found that that plaintiffs failed to prove that Microsoft's ICP agreements "actually had a substantial, deleterious impact on Navigator's usage share." (Findings ¶ 332.) The Court also found that "there is insufficient evidence to find that the requirements that Microsoft sought to impose with respect to the use of Microsoft-specific browsing technologies had any discernible, deleterious impact on Navigator's usage share." (Id. ¶ 336.)
  36. The absence of a significant exclusionary impact is also fatal to plaintiffs' claim that Microsoft's agreement with Apple to make Internet Explorer the default Web browsing software on the Mac OS constituted anticompetitive conduct designed to maintain a monopoly. (Pls. Conclusions at 39-40.)
  37. See, e.g., California Computer Prods., 613 F.2d at 744 ("IBM need not have provided its rivals with disk products to examine and copy . . . ."); David L. Aldridge Co. v. Microsoft Corp., 995 F. Supp. 728, 750 (S.D. Tex. 1998) ("Microsoft did not have an affirmative duty to predisclose . . . the new design of Windows95 to [a developer of complementary software]."); Data Gen. Corp. v. Gruman Sys. Support Corp., 761 F. Supp. 185, 192 (D. Mass. 1991) ("The case law has consistently affirmed that a manufacturer is under no obligation to pre-disclose or disclose its knowledge about its products so that competition may arise in the related peripheral hardware, software, and repair service markets."), aff'd, 36 F.3d 1147 (1st Cir. 1994); GAF Corp. v. Eastman Kodak Co., 519 F. Supp. 1203, 1228 (S.D.N.Y. 1981) ("[O]nly in the rarest case will a monopolist's failure to disclose technical information concerning its new product support a claim for treble damages under § 2 of the Sherman Act."); ILC Peripherals, 458 F. Supp. at 437 ("Depriving IBM of its lead time would remove its incentive to invent.").
  38. Plaintiffs characterize the June 1995 meeting with Netscape as an attempt to persuade Netscape "to withdraw from platform competition." (Pls. Conclusions at 22.) In discussing that meeting, the Court did not find that Microsoft made a naked "market division" proposal. The Court instead found that Microsoft attempted to persuade Netscape to design its version of Navigator for Windows 95 to rely on the Internet-related APIs in the operating system. (Findings ¶¶ 81-83.) The Court also found that it was Jim Barksdale who asked about the "line" between Windows 95 and applications like Navigator designed to run on top of it (id. ¶ 85) and that "[t]he meeting ended cordially, with both sides promising to keep the lines of communication open" (id. ¶ 86). Such platform evangelism, which is commonplace in the software industry, is not a naked "market division" proposal and bears no resemblance to the invitation to collude at issue in United States v. American Airlines, Inc., 743 F.2d 1114 (5th Cir. 1984).
  39. Plaintiffs' allegations concerning IBM and Compaq are similarly insufficient. For example, plaintiffs assert that Microsoft "exploited IBM's dependency on Windows." (Pls. Conclusions at 49.) Yet the Court found that "IBM never agreed to renounce SmartSuite or to increase its support for Microsoft software" (Findings ¶ 125) and that IBM "refused to promote Internet Explorer 4.0 exclusively" and "has continued to pre-install Navigator on its PCs" (id. ¶ 238). Although plaintiffs claim that Microsoft attempted "to limit IBM's marketing of Lotus Notes" (Pls. Conclusions at 49), the Court made no finding to that effect. With regard to Compaq, plaintiffs claim that Microsoft "successfully threatened Compaq." (Id. at 32.) Yet, the Court found that Microsoft in 1996 did not "condition its withdrawal of the termination notice on the removal of the AOL and Netscape icons" from the Presario desktops, and that Compaq instead "removed the Spry/Navigator icon" as a result of AOL's protest. (Findings ¶ 207.) The Court also found that Compaq recently "resume[d] the pre-installation of Navigator on its Presario PCs." (Id. ¶ 240.)
  40. See also United States Football League v. National Football League, 842 F.2d 1335, 1373 (2d Cir. 1988) (district court correctly found that testimony about "the NFL's 'habitual disregard' of antitrust advice'" was not admissible under Rule 406 "because testimony as to 'three or four episodes over a 20-year period' was hardly sufficient to 'conclude that a pattern of behavior exists with respect to the conduct at issue here'"); G.M. Brod & Co. v. U.S. Home Corp., 759 F.2d 1526, 1532-33 (11th Cir. 1985) (district court erred in admitting evidence to show that defendant "had a general policy of breaching contracts with small businesses in order to maximize its advantage and profit").
  41. See also In re Indep. Serv. Orgs. Antitrust Litig., 989 F. Supp. at 1142 ("CSU apparently claims that a single unlawful exclusionary act by a defendant, no matter how trivial or insignificant, can and should subject all of defendant's legitimate competitive activities to antitrust scrutiny. We decline to adopt such a rule.").
  42. See also In re Fine Paper Antitrust Litig., 685 F.2d 810, 822 (3d Cir. 1982) ("The 'compartmentalizing' condemned by the Supreme Court [in Continental Ore] consisted of a seriatim examination of the claims against each of five conspiracy defendants as if they were separate lawsuits, thereby overlooking the conspiracy claim itself."), cert. denied, 459 U.S. 1156 (1983).
  43. Plaintiffs' reliance on City of Anaheim v. Southern Cal. Edison Co., 955 F.2d 1373 (9th Cir. 1992), is similarly misplaced. As the court recognized, "if all we are shown is a number of perfectly legal acts, it becomes much more difficult to find overall wrongdoing. Similarly, a finding of some slight wrongdoing in certain areas need not by itself add up to a violation." Id. at 1376. Lastly, plaintiffs rely on dictum in City of Mishawaka v. American Elec. Power Co., 616 F.2d 976 (7th Cir. 1979), cert. denied, 449 U.S. 1096 (1981), which upheld a finding that a regulated utility violated Section 2 by creating and maintaining a "price squeeze." The court then added in dictum that it was "the mix of the various ingredients of utility behavior in a monopoly broth that produce[d] the unsavory flavor." 616 F.2d at 986. Courts have since recognized that "[t]he application of the dictum in Mishawaka is . . . limited." City of Vernon v. Southern Cal. Edison Co., 1990-1 Trade Cases (CCH) ¶ 69,032, at 63,666 (C.D. Cal. 1990), rev'd in part on other grounds, 955 F.2d 1361 (9th Cir), cert. denied, 506 U.S. 908 (1992).