Today, the second most important court in the land found Microsoft guilty as charged -- guilty of abusing its monopoly power. Though the appeals court clearly was unhappy with Judge Jackson, it affirmed many of his critical findings that Microsoft had violated our nation's antitrust laws. Microsoft was counting on the appellate court to rescue it from the trial verdict; that didn't happen.
Because the judges sent the case back to the trial court, Microsoft has succeeded in delaying judgment. The Court also ruled for Microsoft on some important points and warned against breaking up the company.
But on many critical issues, the appeals court affirmed the merits of the case against Microsoft. The court gave a fairly strong go-ahead to reigning in product tying, co-mingling of code, and restrictive dealings with Internet Service Providers, hardware vendors and others. The court flatly rejected Microsoft's contention that intellectual property rights trump antitrust claims, and it affirmed the critical importance of software interoperability as an antitrust concern. As a result, there now is a firm legal basis for imposing significant remedies to restrain Microsoft and thereby improve competition and benefit consumers.
mobile 1.202.361.3040, voice 1.202.387.8030, love@cptech.org.
"Today is a bad day for both Microsoft and Judge Jackson. Microsoft clearly won on some important points, the break-up in particular was hammered, Jackson is out, the remedies will be redone, and Jackson was overturned on some important issues, for example, the court was more sympathetic to tying than was Judge Jackson. However, Microsoft was found guilty under the antitrust laws and the decision was much more pro-antitrust enforcement than many had expected.
We were pleased the court rejected Microsoft's arguments that intellectual property rights trump antitrust claims -- and that it appreciated the ways that firms like Microsoft use interoperability issues to harm their rivals. The court held that many of Microsoft's exclusionary practices were designed to maintain its monopoly, and even where the court was somewhat sympathetic to Microsoft, such as in the area of product tying, the court gave trust busters plenty of room to protect the public. When the new remedies phase begins, we will ask the court to take a closer look at the 1984 European Commission undertaking in the IBM antitrust case.
http://i.cnn.net/cnn/LAW/library/documents/microsoft/microsoft.0628.ruling.pdf
Page 33
b. Microsoft's justifications for the license restrictions
Microsoft argues that the license restrictions are legally
justified because, in imposing them, Microsoft is simply ''exercising
its rights as the holder of valid copyrights.'' Appellant's
Opening Br. at 102. Microsoft also argues that the
licenses ''do not unduly restrict the opportunities of Netscape
to distribute Navigator in any event.'' Id.
Microsoft's primary copyright argument borders upon the
frivolous. The company claims an absolute and unfettered
right to use its intellectual property as it wishes: ''[I]f
intellectual property rights have been lawfully acquired,'' it
says, then ''their subsequent exercise cannot give rise to
antitrust liability.'' Appellant's Opening Br. at 105. That is
no more correct than the proposition that use of one's personal
property, such as a baseball bat, cannot give rise to tort
liability. As the Federal Circuit succinctly stated: ''Intellectual
property rights do not confer a privilege to violate the
antitrust laws.'' In re Indep. Serv. Orgs. Antitrust Litig., 203
F.3d 1322, 1325 (Fed. Cir. 2000).
Page 35
In sum, we hold that with the exception of the one restriction
prohibiting automatically launched alternative interfaces,
all the OEM license restrictions at issue represent uses of
Microsoft's market power to protect its monopoly, unredeemed
by any legitimate justification. The restrictions
therefore violate § 2 of the Sherman Act.
Page 39
In view of the contradictory testimony in the record, some
of which supports the District Court's finding that Microsoft
commingled browsing and non-browsing code, we cannot conclude
that the finding was clearly erroneous. See Anderson
v. City of Bessemer City, 470 U.S. 564, 573-74 (1985) (''If the
district court's account of the evidence is plausible in light of
the record viewed in its entirety, the court of appeals may not
reverse it even though convinced that had it been sitting as
the trier of fact, it would have weighed the evidence differently.'').
Accordingly, we reject Microsoft's argument that we
should vacate Finding of Fact 159 as it relates to the commingling
of code, and we conclude that such commingling has
an anticompetitive effect; as noted above, the commingling
deters OEMs from pre-installing rival browsers, thereby reducing
the rivals' usage share and, hence, developers' interest
in rivals' APIs as an alternative to the API set exposed by
Microsoft's operating system.
[snip]
Plaintiffs
plainly made out a prima facie case of harm to competition in
the operating system market by demonstrating that Microsoft's
actions increased its browser usage share and thus
protected its operating system monopoly from a middleware
threat and, for its part, Microsoft failed to meet its burden of
showing that its conduct serves a purpose other than protecting
Page 40
its operating system monopoly. Accordingly, we hold
that Microsoft's exclusion of IE from the Add/Remove Programs
utility and its commingling of browser and operating
system code constitute exclusionary conduct, in violation of
§ 2.
Page 46
Plaintiffs having demonstrated a harm to competition, the
burden falls upon Microsoft to defend its exclusive dealing
contracts with IAPs by providing a procompetitive justification
for them. Significantly, Microsoft's only explanation for
its exclusive dealing is that it wants to keep developers
focused upon its APIs-which is to say, it wants to preserve
its power in the operating system market. 02/26/01 Ct.
Appeals Tr. at 45-47. That is not an unlawful end, but
neither is it a procompetitive justification for the specific
means here in question, namely exclusive dealing contracts
with IAPs. Accordingly, we affirm the District Court's deci-
Page 47
sion holding that Microsoft's exclusive contracts with IAPs
are exclusionary devices, in violation of § 2 of the Sherman
Act.
Page 51
This exclusive deal between Microsoft and Apple has a
substantial effect upon the distribution of rival browsers. If a
browser developer ports its product to a second operating
system, such as the Mac OS, it can continue to display a
common set of APIs. Thus,
Page 52
Microsoft offers no procompetitive justification for the exclusive
dealing arrangement. It makes only the irrelevant
claim that the IE-for-Mac Office deal is part of a multifaceted
set of agreements between itself and Apple, see Appellant's
Opening Br. at 61 (''Apple's 'browsing software' obligation
was [not] the quid pro quo for Microsoft's Mac Office obligation[;]
TTT all of the various obligations TTT were part of
one 'overall agreement' between the two companies.''); that
does not mean it has any procompetitive justification. Accordingly,
we hold that the exclusive deal with Apple is
exclusionary, in violation of § 2 of the Sherman Act.
Page 56
Finally, other Microsoft documents confirm that Microsoft
intended to deceive Java developers, and predicted that the
effect of its actions would be to generate Windows-dependent
Java applications that their developers believed would be
cross-platform; these documents also indicate that Microsoft's
ultimate objective was to thwart Java's threat to Microsoft's
monopoly in the market for operating systems. One
Microsoft document, for example, states as a strategic goal:
''Kill cross-platform Java by grow[ing] the polluted Java
market.'' GX 259, reprinted in 22 J.A. at 14514; see also id.
(''Cross-platform capability is by far the number one reason
for choosing/using Java.'') (emphasis in original).
Microsoft's conduct related to its Java developer tools
served to protect its monopoly of the operating system in a
manner not attributable either to the superiority of the
operating system or to the acumen of its makers, and therefore
was anticompetitive. Unsurprisingly, Microsoft offers no
procompetitive explanation for its campaign to deceive developers.
Accordingly, we conclude this conduct is exclusionary,
in violation of § 2 of the Sherman Act.
Page 59
C. Causation
As a final parry, Microsoft urges this court to reverse on
the monopoly maintenance claim, because plaintiffs never
established a causal link between Microsoft's anticompetitive
conduct, in particular its foreclosure of Netscape's and Java's
distribution channels, and the maintenance of Microsoft's
operating system monopoly. See Findings of Fact 411
. . . According to Microsoft,
the District Court cannot simultaneously find that middleware
is not a reasonable substitute and that Microsoft's
exclusionary conduct contributed to the maintenance of monopoly
power in the operating system market. Microsoft
claims that the first finding depended on the court's view that
middleware does not pose a serious threat to Windows, see
supra Section II.A, while the second finding required the
court to find that Navigator and Java would have developed
into serious enough cross-platform threats to erode the applications
barrier to entry. We disagree.
Page 76
Microsoft contends not only that its
integration of IE into Windows is innovative and beneficial
but also that it requires non-removal of IE. In our discussion
of monopoly maintenance we find that these claims fail the
efficiency balancing applicable in that context. But the separate-
products analysis is supposed to perform its function as a
proxy without embarking on any direct analysis of efficiency.
Accordingly, Microsoft's implicit argument-that in this case
looking to a competitive fringe is inadequate to evaluate fully
its potentially innovative technological integration, that such a
comparison is between apples and oranges-poses a legitimate
objection to the operation of Jefferson Parish's
separate-products test for the per se rule.
In fact there is merit to Microsoft's broader argument that
Jefferson Parish's consumer demand test would ''chill innovation
to the detriment of consumers by preventing firms from
integrating into their products new functionality previously
provided by standalone products-and hence, by definition,
subject to separate consumer demand.'' Appellant's Opening
Br. at 69. The per se rule's direct consumer demand and
Page 77
indirect industry custom inquiries are, as a general matter,
backward-looking and therefore systematically poor proxies
for overall efficiency in the presence of new and innovative
integration.
. . .
In light of the monopoly maintenance section, obviously, we
do not find that Microsoft's integration is welfare-enhancing
or that it should be absolved of tying liability. Rather, we
heed Microsoft's warning that the separate-products element
of the per se rule may not give newly integrated products a
fair shake.