April 3, 2000
Text of Judge's Verdict on Microsoft Case
ASHINGTON -- Following is the
text of the statement issued Monday by Judge
Thomas Penfield Jackson of United States District
Court:
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.