UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
STATE OF NEW YORK, et al.,
Plaintiffs
v. Civil Action No. 98-1233 (CKK)
MICROSOFT CORPORATION,
Defendant.
MEMORANDUM OPINION
Presently pending before the Court is a joint stipulation entered by Defendant Microsoft
Corporation and the Plaintiff States of New York, Ohio, Illinois, Kentucky, Louisiana,
Maryland, Michigan, North Carolina, and Wisconsin ("Plaintiff Settling States"). The
stipulation indicates that these States have joined the settlement between the United States and
Microsoft in United States v. Microsoft Corp., No. 98-1232 (D.D.C.). In United States v.
Microsoft Corp., the United States and Microsoft have proposed entry of a consent decree-the
Second Revised Proposed Final Judgment ("SRPFJ")-as the final judgment in that case.
Pursuant to Federal Rule of Civil Procedure 54(b), the Plaintiff Settling States1 ask the Court to
enter the SRPFJ as a final judgment as to their claims. For the reasons set forth in the
Memorandum Opinion issued in United States v. Microsoft, No. 98-1232 (D.D.C. Nov. 1, 2002),
appended hereto as Appendix A, the Court conditionally approves the SRPFJ as a final judgment
1Remaining as Plaintiffs in this case, but not addressed in this Memorandum Opinion, are
the States of California, Connecticut, Florida, Iowa, Kansas, Minnesota, Utah, and West
Virginia, the Commonwealth of Massachusetts, and the District of Columbia.
as to the claims of the Plaintiff Settling States.
In considering proposed settlements, the Court is generally required to assess whether the
settlement fairly and reasonably resolves the controversy in a manner consistent with the public
interest. See Citizens for a Better Env't v. Gorsuch, 718 F.2d 1117, 1126 (D.C. Cir.1983).
"Naturally, the agreement reached normally embodies a compromise; in exchange for the saving
of cost and elimination of risk, the parties each give up something they might have won had they
proceeded with the litigation." Id. at 1124 (quoting United States v. Armour & Co., 402 U.S.
673, 681 (1971)); see also United States v. Microsoft Corp., 56 F.3d 1448, 1461 (D.C. Cir.
1995). "[T]he reviewing court is not to substitute its judgment for that of the parties to the
decree but to assure itself that the terms of the decree are fair and adequate and are not unlawful,
unreasonable, or against public policy." United States v. Hooker Chemicals and Plastics Corp.,
540 F. Supp. 1067, 1072 (W.D.N.Y. 1982). In addition, because approval of a settlement is a
judicial act that is committed to the informed discretion of the trial court, the Court must satisfy
itself that the decree is equitable in any effect it may have upon third parties. Donovan v.
Robbins, 752 F.2d 1170, 1176-77 (7th Cir.1985); see also Hooker Chemicals and Plastics Corp.,
540 F. Supp. at 1072 ("[T]he court must eschew any rubber stamp approval in favor of an
independent evaluation, yet, at the same time, it must stop short of the detailed and thorough
investigation that it would undertake if it were actually trying the case.") (quoting City of Detroit
v. Grinnell Corp. 495 F.2d 448, 462 (2d Cir. 1974)).
The standard described above cannot be said to exceed that imposed by the Tunney Act,
15 U.S.C. Û 16(b)-(h). The Tunney Act requires the Court to subject any consent decree
proposed in any civil proceeding brought by the United States under the antitrust laws to a
2
determination of whether entry of such decree is in the "public interest." 15 U.S.C. Û 16(b),(e);
See generally Microsoft, 56 F.3d 1448. The Court recited the legal history of this case and its
former companion case-United States v. Microsoft Corp.-in Memorandum Opinions issued in
United States v. Microsoft Corp. on July 1, 2002, and November 1, 2002. In its November 1,
2002, Opinion in United States v. Microsoft Corp., the Court determined that, save for the
provision specifying the Court's reservation of jurisdiction, entry of the SRPFJ as the final
judgment in that case is in the public interest. See Appendix A; Microsoft, No. 98-1232, slip op.
(D.D.C. Nov. 1, 2002). As the claims of the Plaintiff Settling States are indistinguishable from
the claims of the United States, except that the Plaintiff Settling States advanced claims under
state law as well as federal law, based upon the detailed analysis set forth in the record of United
States v. Microsoft Corp., No. 98-1232, the Court finds that, with the exception of the
reservation of jurisdiction, the SRPFJ is fair, reasonable, and in the public interest.
Because the Court has concerns that the reservation of jurisdiction in the proposed decree
is insufficient to ensure clear enforcement of its terms by the Court, the Court shall condition its
entry of the SRPFJ as the final judgment for the claims of the Plaintiff Settling States pending
receipt by the Court of an amendment to that provision. See Appendix A; Microsoft, 98-1232,
slip op. (D.D.C. Nov. 1, 2002). The Court suggests that the public interest would be served if
Microsoft and the parties to the settlement would agree to amend the proposed final judgment to
reserve for the Court, in addition to the powers presently specified in the proposed final
judgment, the power sua sponte to issue orders or directions for the construction or carrying out
of the final judgment, for the enforcement of compliance therewith, and for the punishment of
any violation thereof. Such an amendment would not appear to work a fundamental change to
3
the parties' agreement and would ensure that the Court retains the power intended by Plaintiffs
and which the Court considers necessary to ensure effective implementation of the final
judgment in this case.
Based on the foregoing, the Court conditionally approves the SRPFJ as the final
judgment as to the claims of the Plaintiff Settling States in the above-captioned case. The Court
will enter final judgment upon receipt of a proposed decree which reflects the amendment
described above. Such amendment shall be filed in writing with the Court not later than
November 8, 2002. An appropriate Order accompanies this Memorandum Opinion.
November1, 2002 ____________________________
COLLEEN KOLLAR-KOTELLY
United States District Judge
4
APPENDIX A
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
UNITED STATES OF AMERICA,
Plaintiff,
v. Civil Action No. 98-1232 (CKK)
MICROSOFT CORPORATION,
Defendant.
MEMORANDUM OPINION
Remaining in this case for the Court's determination is the resolution of a single issue:
whether entry of the final judgment proposed by the parties is in the public interest. The Court
makes this determination pursuant to the Antitrust Procedures and Penalties Act ("Tunney Act"),
15 U.S.C. Û 16(b)-(h). In a previous Memorandum Opinion, the Court reviewed the pertinent
procedural history and determined that the parties had satisfied the other requirements of the
Tunney Act. See generally United States v. Microsoft Corp., No. 98-1232, slip op. (D.D.C. July
1, 2002). Having reviewed the voluminous record in this case and considered the factors
enumerated in 15 U.S.C. Û 16(e), the Court finds that, with the exception of the provisions
relating to the retention of the Court's jurisdiction, the proposed consent decree is in the public
interest. Accordingly, the Court conditionally approves the proposed consent decree as the final
judgment in this case, pending the prompt agreement by the parties to a modification of the
Court's retention of its jurisdiction.
I. PROCEDURAL HISTORY
On May 18, 1998, the United States filed a civil complaint alleging that Microsoft had
engaged in anticompetitive conduct in violation of ÛÛ 1 and 2 of the Sherman Act, 15 U.S.C. ÛÛ 1,
2. On that same date, a group of state plaintiffs filed a separate civil complaint alleging similar
violations of federal law, as well as violations of the corresponding provisions of their various
state laws. Not long after filing, the two cases were consolidated and thereafter, proceeded jointly
through discovery and a trial on the merits. On November 5, 1999, Judge Thomas Penfield
Jackson entered 412 findings of fact, United States v. Microsoft Corp., 84 F. Supp. 2d 9 (D.D.C.
1999) (hereinafter cited as "Findings of Fact"), and on April 3, 2000, Judge Jackson entered
conclusions of law, finding Microsoft liable for violations of ÛÛ 1 and 2 of the Sherman Act and
the corresponding state law provisions, United States v. Microsoft Corp., 87 F. Supp. 2d 30
(D.D.C. 2000). On June 7, 2000, Judge Jackson entered final judgment in the consolidated cases
and imposed a structural remedy of divestiture for Microsoft's violations of the Sherman Act.
United States v. Microsoft Corp., 97 F. Supp. 2d 59 (D.D.C. 2000).
Microsoft appealed, and the United States Court of Appeals for the District of Columbia
Circuit determined to consider the appeals in the consolidated cases en banc. Following
extensive briefing and two days of oral argument, the appellate court issued a unanimous per
curiam opinion affirming in part, reversing in part, vacating the remedy decree in full, and
remanding in part for remedy proceedings before a different district court judge. See United
States v. Microsoft Corp., 253 F.3d 34 (D.C. Cir. 2001) (en banc). Following reassignment, on
September 28, 2001, this Court ordered that the parties enter into intensive settlement
negotiations. United States v. Microsoft Corp., Nos. 98-1232 and 98-1233 (D.D.C. Sept. 28,
2
2001) (setting a schedule for settlement discussions). On that same date, the Court entered a
schedule for discovery and commencement of evidentiary proceedings, in the event that the cases
were not resolved through settlement. United States v. Microsoft Corp., Nos. 98-1232 and 98-
1233 (D.D.C. Sept. 28, 2001) (setting discovery guidelines and schedule).
The United States and Microsoft were able to reach a resolution in United States v.
Microsoft Corp., No. 98-1232 (D.D.C.), in the form of a proposed consent decree, filed with the
Court as the "Revised Proposed Final Judgment" on November 6, 2001. As a result, the Court
vacated the discovery schedule with regard to United States v. Microsoft Corp. and
deconsolidated that case from its companion case, State of New York, et. al. v. Microsoft Corp.,
No. 98-1233 (D.D.C.). United States v. Microsoft Corp., Nos. 98-1232 and 98-1233 (D.D.C.
Nov. 2, 2001) (vacating the Sept. 28, 2001, Scheduling Order with regard to Civil Action No. 98-
1232); United States v. Microsoft Corp., Nos. 98-1232 and 98-1233 (Feb. 1, 2002)
(deconsolidating cases). Rather than proceed to an evidentiary hearing on the issue of remedy
along with some of the plaintiffs in State of New York, et. al. v. Microsoft Corp.,2 the United
States and Microsoft commenced the process of obtaining judicial approval of the proposed
consent decree pursuant to the Tunney Act, 15 U.S.C. Û 16(b)-(h).
The November 6, 2001, filing of the Revised Proposed Final Judgment ("RPFJ") was
2In the former companion case, State of New York, et al. v. Microsoft Corp., the States of
New York, Ohio, Illinois, Kentucky, Louisiana, Maryland, Michigan, North Carolina, and
Wisconsin have entered into a conditional settlement with Microsoft as to the issue of remedy.
Those Plaintiff States-"Settling States"-are awaiting approval by this Court of the settlement in
this case before entry of the settlement in State of New York, et al v. Microsoft Corp. pursuant to
Rule 54(b) of the Federal Rules of Civil Procedure. Because the proposed final judgment
addresses the Settling States as well as the United States in its terms, the Court, where
appropriate, refers to both the United States and the Settling States as "Plaintiffs" in this
Memorandum Opinion.
3
accompanied by a "Stipulation" entered into by the United States, Microsoft, and the Settling
States. The Stipulation provided that the Court could enter the proposed final judgment "at any
time after compliance with the requirements of the Antitrust Procedures and Penalties Act, 15
U.S.C. Û 16, and without further notice to any party or other proceedings." Stipulation and
Revised Proposed Final Judgment at 1. The United States filed its "competitive impact
statement" ("CIS") with the Court on November 15, 2001. Pursuant to 15 U.S.C. Û 16(b), the
United States published the proposed final judgment, along with the CIS, in the Federal Register
on November 28, 2001. Revised Proposed Final Judgment and Competitive Impact Statement, 66
Fed. Reg. 59,452 (Nov. 28, 2001). On December 10, 2001, Defendant Microsoft filed with the
Court its "description of . . . written or oral communications by or on behalf of [Microsoft] . . .
with any officer or employee of the United States concerning or relevant to" the proposed consent
decree. Thereafter, Microsoft supplemented this description on March 20, 2002.
The United States received 32,392 comments on the proposed final judgment and
provided the full text of these comments to the Court on February 28, 2002. On March 1, 2002,
the United States submitted the full text of the public's comments for publication in the Federal
Register, and on May 3, 2002, the public comments appeared in the Federal Register pursuant to
that submission. United States' Certificate of Compliance at 4; Public Comments, 67 Fed. Reg.
23,654 (Books 2-12) (May 3, 2002). On May 9, 2002, the United States published in the Federal
Register an "addendum containing the correct text of thirteen (13) comments for which either an
incomplete or incorrect electronic version had been included in the original submission to the
Federal Register." Addendum to Public Comments, 67 Fed. Reg. 31,373 (May 9, 2002); United
States Certificate of Compliance at 4. The United States certified compliance with 15 U.S.C. Û16
4
(b)-(d) on May 9, 2002. On July 1, 2002, this Court confirmed the applicability of the Tunney
Act to these proceedings and found that the parties had complied with the Act's requirements
such that the matter was ripe for the Court's determination of the public interest. See United
States v. Microsoft Corp., No. 98-1232, slip op. (D.D.C. July 1, 2002).3
II. TUNNEY ACT
A. Tunney Act
Concerned with the appearance of impropriety engendered by the secrecy of consent
decree negotiations in antitrust cases, in addition to exposing to "sunlight" the process by which
such consent decrees are negotiated, 119 Cong. Rec. at 24599, Congress determined that the
judiciary should do more than merely "rubber stamp" proposed consent decrees in antitrust cases,
H. Rep. No. 93-1463, at 8 (1974), reprinted in 1974 U.S.C.C.A.N. 6535, 6536; S. Rep. No. 93-
298, at 5 (1973). See also United States v. Microsoft Corp., 56 F.3d 1448, 1458 (D.C. Cir. 1995)
(quoting legislative history). Accordingly, Û 16(e) of Title 15 mandates that, prior to the entry of
a consent judgment proposed by the United States in an antitrust action, the district court must
determine that "entry of such judgment is in the public interest." 15 U.S.C. Û 16(e). Subsection
(e) specifically requires the Court to "make an independent determination as to whether or not
entry of a proposed consent decree is in the public interest." S. Rep. 93-298, at 5; Microsoft, 56
F.3d at 1458 (quoting legislative history).
3Pursuant to the stipulation filed with the Court on November 6, 2001, Microsoft began
complying with portions of the proposed final judgment on December 16, 2001, as if "it were in
full force and effect." Stipulation at 2. On August 28, 2002, the United States submitted a
"Notice" to the Court advising "the Court of Microsoft's compliance with various milestones
established by the Second Revised Proposed Final Judgment (`SRPFJ')." Notice at 1 (Aug. 28,
2002). In general terms, the Notice indicates that Microsoft is in compliance with its
requirements and "takes seriously its obligations under the SRPFJ." Id. at 7.
5
"The court's role in protecting the public interest is one of ensuring that the government
has not breached its duty to the public in consenting to the decree." United States v. Bechtel, 648
F.2d 660, 666 (9th Cir. 1981). In making this determination, the Court "may consider" the
following:
(1) the competitive impact of such judgment, including termination of alleged
violations, provisions for enforcement and modification, duration or relief sought,
anticipated effects of alternative remedies actually considered, and any other
considerations bearing upon the adequacy of such judgment;
(2) the impact of entry of such judgment upon the public generally and individuals
alleging specific injury from the violations set forth in the complaint including
consideration of the public benefit, if any, to be derived from a determination of the
issues at trial.
15 U.S.C. Û 16(e). The D.C. Circuit characterized these considerations more simply as an inquiry
into the "purpose, meaning, and efficacy of the decree." Microsoft, 56 F.3d at 1462.
The D.C. Circuit identified a number of issues to which the district court should pay
particularly close attention in its examination of the decree and corresponding assessment of the
public interest. "A district judge pondering a proposed consent decree . . . should pay special
attention to the decree's clarity," as it is the district judge who must "preside over the
implementation of the decree." Id. at 1461-62. Based on a similar rationale, district courts are
expected to "pay close attention" to the enforcement provisions in a proposed consent decree. Id.
at 1462. Where there exist third-party claims that entry of the proposed decree will cause
affirmative harm, the district court should at least pause or "hesitate" in order to consider these
claims before reaching a conclusion that the proposed decree is appropriate. Id.
Notwithstanding the district court's focused consideration of these and other issues, the
Court must recall that its "authority to review the [proposed] decree depends entirely on the
government's exercising its prosecutorial discretion by bringing a case in the first place." Id. at
6
1459-60. Accordingly, the Court must accord deference to the "government's predictions as to
the effect of the proposed remedies." United States v. Thomson Corp., 949 F. Supp. 907, 914
(D.D.C. 1996) (quoting Microsoft, 56 F.3d at 1461); see also United States v. Western Elec. Co.,
900 F.2d 283, 297 (D.C. Cir. 1990) ("[A]lthough we see no doctrinal basis for the district court to
defer to the DOJ's interpretation of the decree or its views about antitrust law, it is to be expected
that the district court would seriously consider the Department's economic analysis and
predictions of market behavior."). In this vein, "a proposed decree must be approved even if it
falls short of the remedy the court would impose on its own, as long as it falls within the range of
acceptability or is within the reaches of public interest." United States v. AT&T, 552 F. Supp.
131, 151 (D.D.C. 1982) (quotation marks omitted), aff'd without opinion sub nom. Maryland v.
United States, 460 U.S. 1001 (1983); accord Microsoft, 56 F.3d at 1460; Bechtel, 648 F.2d. at
666.
Having so identified the general standard in Tunney Act cases, this Court must inquire as
to whether that standard applies equally and without modification in this case. The instant case is
more complicated than the usual case in that it contradicts the rule that "because it is a settlement
[and] there are no findings that the defendant has actually engaged in illegal practices . . . it is
therefore inappropriate for the [district court] judge to measure the remedies in the decree as if
they were fashioned after trial." Microsoft, 56 F.3d at 1460-61 (emphasis omitted). In this case
there has been a trial, and there have been findings of liability on numerous grounds. See
Microsoft, 253 F.3d 34. Therefore, it seems entirely appropriate to "measure the remedies" based
upon the post-trial liability findings in this case. Microsoft, 56 F.3d at 1461. Accordingly, the
findings of liability provide an essential foundation to this Court's analysis, as a "discrepancy
7
between the remedy and undisputed facts of antitrust violations could be such as to render the
decree `a mockery of judicial power.'" Mass. School of Law at Andover, Inc. v. United States,
118 F.3d 776, 782 (D.C. Cir. 1997) (quoting Microsoft, 53 F.3d at 1462); accord Thomson, 949 F.
Supp. at 913 ("[T]he court is to compare the complaint filed by the government with the proposed
consent decree and determine whether the remedies negotiated between the parties and proposed
by the Justice Department clearly and effectively address the anticompetitive harms initially
identified.").
While this is not to say that the circumstances of this case call for a review of the proposed
decree in the absence of deference, the Court cannot simply proceed as if this were a case based
upon untested allegations. In the ususal case "[r]emedies which appear less than vigorous may
well reflect an underlying weakness in the government's case." Microsoft, 56 F.3d at 1460-61.
Yet in this case, many, though certainly not all, of the strengths and weaknesses of the
government's case have already been exposed. In this regard, the Court cannot overlook the fact
that the appellate court sustained liability against Microsoft for violation of Û 2 of the Sherman
Act. Microsoft, 253 F.3d 59-78. Therefore, without applying a wholly distinct standard, this
Court must remain ever-mindful of the posture of this case when assessing the proposed consent
decree for determination of the public interest.
Given the liability findings, part of the public interest analysis will require consideration
of the extent to which the proposed consent decree "meets the requirements for an antitrust
remedy." AT&T, 552 F. Supp. at 153. "[A] remedies decree in an antitrust case must seek to
`unfetter a market from anticompetitive conduct,' Ford Motor Co. [v. United States], 405 U.S.
8
[562,] 577 [1972], . . . to `terminate the illegal monopoly,4 deny to the defendant the fruits of its
statutory violation, and ensure that there remain no practices likely to result in monopolization in
the future,' [United Shoe, 391 U.S. at 250]." Microsoft, 253 F.3d at 103. Although this inquiry is
usually reserved for cases which are litigated through remedy, such as State of New York, et al. v.
Microsoft Corp., No. 98-1233 (D.D.C.), consideration of these "objectives," to the extent they are
applicable to the facts of this case, remains appropriate because liability has been established in
this case. Still, the Court's assessment of the remedy's ability to satisfy these objectives is
tempered by the deference owed to the government in the Tunney Act context. See generally
Microsoft, 56 F.3d 1448.
Applying these principles to the instant case, because the district court has rendered
findings of fact and liability which have been reviewed on appeal, the Court examines, in general
terms, the correspondence between the liability findings and the conduct restrictions in the
proposed consent decree. In conjunction with this inquiry, the Court is particularly attentive to
the clarity of the proposed decree's provisions, the enforcement mechanisms, and to claims that
4The Court notes that the objective of "terminat[ing] the illegal monopoly," United States
v. United Shoe Mach. Corp., 391 U.S. 244, 250 (1968), is incompatible with the facts of this
case. Neither the district court, nor the appellate court concluded that Microsoft had unlawfully
obtained its monopoly. See Microsoft, 253 F.3d 34; Microsoft, 87 F. Supp. 2d 30; see also
Microsoft, 56 F.3d at 1452 (observing in the precursor to this case that "the government did not
allege and does not contend-and this is of crucial significance to this case-that Microsoft
obtained its alleged monopoly position in violation of the antitrust laws") (emphasis in original).
Moreover, as noted by the appellate court, "the District Court expressly did not adopt the
position that Microsoft would have lost its position in the OS market but for its anticompetitive
behavior." Microsoft, 253 F.3d at 107 (citing Findings of Fact Ï 411). In this context, outright
termination of the monopoly is a questionable remedial goal, as such action would exceed the
limits of the controversy presented to the Court. Accordingly, the Court's inquiry into the extent
to which the proposed consent decree "terminates the illegal monopoly," United Shoe, 391 U.S.
at 250, will be limited, and the Court will instead focus upon terminating the illegal maintenance
of the monopoly.
9
harm will result from the implementation of the proposed decree. Microsoft, 53 F.3d at 1461-62.
III. DISCUSSION
A. Court of Appeals Opinion
In most cases, judicial analysis of the public interest in a Tunney Act proceeding
commences, quite logically, with an examination of the allegations laid out in the complaint. See,
e.g., Thomson, 949 F. Supp. at 909-11 (describing complaint). Indeed, the district court is
without authority to "reach beyond the complaint to evaluate claims that the government did not
make and to inquire as to why they were not made." Microsoft, 56 F.3d at 1459. In light of the
procedural posture of this case, however, the complaint in this case is of little moment, as
proceedings have far surpassed the allegations stage. Instead, the opinion of the appellate court
provides the underpinning for this Court's analysis of the proposed decree. As a result, the Court
pauses to summarize and recount the pertinent portions of the appellate opinion in this case.
Where appropriate, a more detailed examination of the appellate court's opinion appears in the
context of the Court's discussion of the specific provisions of the proposed final judgment.
1. Market Definition
The appellate court began its opinion by examining Plaintiffs'5 Û 2 Sherman Act claims
and specifically, whether the district judge had identified the proper market for purposes of
assessing Microsoft's monopoly power. The appellate court concluded that the district court had
5In referring to "Plaintiffs" throughout this Memorandum Opinion, the Court refers to the
United States, as well as the Plaintiff States in Civ. No. 98-1233, who entered into a settlement
agreement with Microsoft. See supra note 1. The Court notes, however, that the appellate
court's opinion applies not only to the claims brought by the United States and the Settling
States, but also to those states who have opted to litigate the issue of remedy in State of New
York, et al. v. Microsoft, No. 98-1233 (D.D.C.).
10
properly defined the relevant market as "the licensing of all Intel-compatible PC6 operating
systems7 worldwide." Microsoft, 253 F.3d at 52 (quoting Microsoft, 87 F. Supp. 2d at 36).
Having agreed with the district court's definition of the relevant market, the appellate court
adopted the district court's determination that "circumstantial evidence proves that Microsoft
possesses monopoly power." Id. at 56. The appellate court further noted that "if we were to
require direct proof [of monopoly power], . . . Microsoft's behavior may well be sufficient to
show the existence of monopoly power." Id. at 57.
2. Theory of Liability
Integral to the appellate court's adoption of the market definition was its simultaneous
acceptance of Plaintiffs' theory of Microsoft's market dominance. Both the district and appellate
courts noted that Microsoft's lawfully acquired monopoly is naturally protected by a "structural
barrier," known as the "applications barrier to entry." Id. at 55. "That barrier . . . stems from two
characteristics of the software market: (1) most consumers prefer operating systems for which a
large number of applications have already been written; and (2) most developers prefer to write
6"PC" is short for "personal computer." Findings of Fact Ï 1.
7The appellate court, relying upon the factual testimony presented to the district court,
explained the functions of a PC operating system:
Operating systems perform many functions, including allocating computer memory
and controlling peripherals such as printers and keyboards. Operating systems also
function as platforms for software applications. They do this by "exposing"-i.e.,
making available to software developers-routines or protocols that perform certain
widely-used functions. These are known as Application Programming Interfaces, or
"APIs." For example, Windows contains an API that enables users to draw a box on
the screen. Software developers wishing to include that function in an application
need not duplicate it in their own code. Instead, they can "call"-i.e., use-the
Windows API. Windows contains thousands of APIs, controlling everything from
data storage to font display.
Microsoft, 253 F.3d at 53 (citations omitted).
11
for operating systems that already have a substantial consumer base." Id. (citing Findings of Fact
ÏÏ 30, 36). This barrier creates a "chicken-and-egg" or network effects situation, which
perpetuates Microsoft's operating system dominance because "applications will continue to be
written for the already dominant Windows,8 which in turn ensures that consumers will continue to
prefer it over other operating systems." Id. Because "[e]very operating system has different
APIs,"9 applications written for one operating system will not function on another operating
system unless the developer undertakes the "time consuming and expensive" process of
transferring and adapting, known in the industry as "porting," the application to the alternative
operating system. Id. at 53.
Plaintiffs proceeded under the theory that certain kinds of software products, termed
"middleware,"10 could reduce the "self-reinforcing cycle," Findings of Fact Ï 39, by serving as a
platform for applications, taking over some of the platform functions provided by Windows and
thereby "weaken[ing] the applications barrier to entry," id. Ï 68. One of middleware's defining
8"In 1985, Microsoft began shipping a software package [for the PC] called Windows.
The product included a graphical user interface, which enabled users to perform tasks by
selecting icons and words on the screen using a mouse." Findings of Fact Ï 7. In 1995,
Microsoft introduced an updated version of its Windows software known as "Windows 95."
Id. Ï 8. Similarly, in 1998, Microsoft released "Windows 98." Id. Since that time, Microsoft
has continued to update, revise, and re-create its "Windows" PC operating system.
9"APIs" are applications programming interfaces. As Judge Jackson explained:
[An] operating system supports the functions of applications by exposing interfaces,
called "application programming interfaces," or "APIs." These are synapses at
which the developer of an application can connect to invoke pre-fabricated blocks
of code in the operating system. These blocks of code in turn perform crucial tasks,
such as displaying text on the computer screen.
Findings of Fact Ï 2.
10Such software takes the name "middleware" because "it relies on the interfaces
provided by the underlying operating system while simultaneously exposing its own APIs to
developers" and, therefore, is said to reside in the middle. Findings of Fact Ï 28.
12
characteristics as a software product is its ability to "expos[e] its own APIs." Findings of Fact
Ï 28. Eventually, reasoned Plaintiffs, if applications were written to rely on the middleware API
set, rather than the Windows API set, the applications could be made to run on alternative
operating systems simply by porting the middleware. Ultimately, by writing to the middleware
API set, applications developers could write applications which would run on any operating
system on which the middleware was preset. Plaintiffs focused their attention primarily upon two
such middleware threats to Microsoft's operating system dominance-Netscape Navigator11 and
the Java technologies. Microsoft, 253 F.3d at 53. The district and appellate courts accepted
Plaintiffs' theory of competition despite the fact that "neither Navigator, Java, nor any other
middleware product could [at that time], or would soon, expose enough APIs to serve as a
platform for popular applications." Id.; Findings of Fact ÏÏ 28-29.
3. Four-Part Test for Liability
Having concluded that the district court properly identified the relevant market as the
market for Intel-compatible PC operating systems and properly excluded middleware products
from that market, the appellate court turned its attention to the issue of whether Microsoft
responded to the threat posed by middleware in violation of Û 2 of the Sherman Act. Specifically,
the appellate court set out to determine whether Microsoft "maintain[ed], or attempt[ed] to . . .
maintain, a monopoly by engaging in exclusionary conduct." Microsoft, 253 F.3d at 58. The
appellate court recounted that the district court answered that inquiry in the affirmative, finding
11"Although certain Web browsers provided graphical user interfaces as far back as 1993,
the first widely-popular graphical browser distributed for profit, called Navigator, was brought to
market by the Netscape Communications Corporation (`Netscape') in December 1994."
Findings of Fact Ï 17.
13
Microsoft liable for violating Û 2 of the Sherman Act:
by engaging in a variety of exclusionary acts . . . [s]pecifically . . . : (1) the way in
which it integrated [Internet Explorer] into Windows; (2) its various dealings with
Original Equipment Manufacturers ("OEMs"), Internet Access Providers ("IAPs"),
Internet Content Providers ("ICPs"), Independent Software Vendors (ISVs), and
Apple Computer; (3) its efforts to contain and to subvert Java technologies; and (4)
its course of conduct as a whole.
Id. In order to review the district court's findings on this point, the appellate court outlined a
four-part test for determining whether particular conduct can be said to violate antitrust law.
"First, to be condemned as exclusionary, a monopolist's act must have an `anticompetitive effect.'
That is, it must harm the competitive process and thereby harm consumers." Id. at 58 (emphasis
in original). Second, the plaintiff must "demonstrate that the monopolist's conduct harmed
competition, not just a competitor." Id. at 59. Third, "the monopolist may proffer a
`procompetitive justification' for its conduct." Id. (quoting Eastman Kodak Co. v. Image
Technical Servs. Inc., 504 U.S. 451, 483 (1992)). If this justification stands unrebutted by the
plaintiff, the monopolist may escape liability. Therefore, the fourth prong of the inquiry requires
that the plaintiff "demonstrate that the anticompetitive harm of the conduct outweighs the
procompetitive benefit." Id. The appellate court stressed that, although evidence of intent is
relevant "to understand the likely effect of the monopolist's conduct," when assessing the balance
between the anticompetitive harm and the procompetitive effect, the trial court should focus on
the "effect of [the exclusionary] conduct, not the intent behind it." Id.
Using this framework, the appellate court addressed Microsoft's challenge to each of the
findings by the district court. The appellate court examined the district court's four basic areas of
findings with regard to Û 2 liability in an order different from that of the district court. The Court
presents these holdings, in the order addressed by the appellate court.
14
4. Original Equipment Manufacturer ("OEM") Licenses
Commencing its analysis with the "[l]icenses [i]ssued to [o]riginal [e]quipment
[m]anufacturers,"12 id. at 59, the appellate court focused upon three license provisions
"prohibiting the OEMs from: removing any desktop icons, folders, or `Start' menu entries; (2)
altering the initial boot sequence; and (3) otherwise altering the appearance of the Windows
desktop," id. at 61 (citing Findings of Fact Ï 213). Into the category of "otherwise altering the
appearance of the Windows desktop," the appellate court subsumed the automatic launch of an
alternative user interface, the prohibition against the addition of icons and folders different in size
and shape from those used by Microsoft, and the prohibition on the use of the "Active Desktop"
feature13 to display third-party brands. Id. at 62; see also Findings of Fact Ï 213. Of these license
provisions, the appellate court concluded that, "with the exception of the one restriction
prohibiting automatically launched alternative interfaces, all of the OEM license restrictions at
issue represent uses of Microsoft's market power to protect its monopoly, unredeemed by any
legitimate justification." Id. at 64. In commencing its next area of analysis, the appellate court
noted with regard to the license restrictions imposed upon OEMs that they "have a significant
effect in closing rival browsers out of one of the two primary channels of distribution." Id.
5. Integration of Internet Explorer ("IE") and Windows
The appellate court next turned its attention toward the "[i]ntegration of [Internet Explorer
12Manufacturers of PCs are known as "original equipment manufacturers" or "OEMs."
Findings of Fact Ï 10.
13"The Active Desktop was a Microsoft feature that, if enabled, allowed the Windows
user to position Web pages as open windows that appear on the background, or `wallpaper' of
the Windows desktop." Findings of Fact Ï 314.
15
("IE")]14 and Windows." Id. At the outset of its analysis, the appellate court took a narrow view
of the district court's determination, noting that the district court's "broad[]" condemnation of
"Microsoft's decision to bind `Internet Explorer to Windows with . . . technological shackles'" is
supported by only three specific actions taken by Microsoft. Id. (quoting Microsoft, 87 F. Supp.
2d at 39). The appellate court identified these three as (1) "excluding IE from the `Add/Remove
Programs' utility"; (2) "designing Windows so as in certain circumstances to override the user's
choice of a default browser other than IE"; and (3) "commingling code related to browsing and
other code in the same files, so that any attempt to delete the files containing IE would, at the
same time, cripple the operating system." Id. at 64-65. Pursuant to its four part test for liability,
the appellate court concluded that Microsoft could be held liable for the first and the third of these
actions. Id. at 65-67. As to the second of these actions, the override of the user's choice of
default in certain circumstances, the court determined that Microsoft had proffered a
procompetitive justification that went unrebutted by Plaintiffs, namely that the override was the
result of "valid technical reasons" which justified the override in a "few out of the nearly 30
means of accessing the Internet." Id. at 67 (quotation marks omitted). Finding that Plaintiffs had
neither rebutted Microsoft's procompetitive justification, nor demonstrated that the
anticompetitive effect of the challenged act outweighed such justification, the appellate court held
that "Microsoft may not be held liable for this aspect of its product design." Id.
14Internet Explorer is Microsoft's Web browser. Findings of Fact Ï 17.
16
6. Agreements with Internet Access Providers ("IAPs")
Directing its attention to Microsoft's "agreements with various IAPs,"15 which the district
court "condemned" as exclusionary, the appellate court identified five Microsoft actions
specifically relied upon by the district court for this condemnation:
(1) offering IE free of charge to IAPs[;] . . . (2) offering IAPs a bounty for each
customer the IAP signs up for service using the IE browser[;] . . . (3) developing the
IE Access Kit ("IEAK"), a software package that allows an IAP to "create a
distinctive identity for its service in as little as a few hours by customizing the [IE]
title bar, icon, start and search pages," Findings of Fact Ï 249[;] . . . (4) offering the
IEAK to IAPs free of charge, on the ground that those acts, too, helped Microsoft
preserve its monopoly[,] [Microsoft, 87 F. Supp. 2d] at 41-42[;] . . . (5) agree[ing] to
provide easy access to IAPs' services from the Windows desktop in return for the
IAPs' agreement to promote IE exclusively and to keep shipments of internet access
software using Navigator under a specific percentage, typically 25%. See [Microsoft,
87 F. Supp. 2d] at 42 (citing Findings of Fact ÏÏ 258, 262, 289).
Id. at 67-68. Grouping the first four of these actions together as "Microsoft's inducements," the
appellate court held that these four actions merely "offer[ed] a consumer an attractive deal" and,
therefore, could not be treated as anticompetitive. Id. at 68. In contrast, the appellate court
agreed with the district court that Microsoft's exclusive contracts with IAP's "are exclusionary
devices, in violation of Û 2 of the Sherman Act." Id. at 71.
7. Agreements with Internet Content Providers ("ICPs"), Independent Software
Vendors ("ISVs"), and Apple
The appellate court next considered Microsoft's "dealings with ICPs, which develop
websites; ISVs, which develop software; and Apple, which is both an OEM and a software
developer." Id. at 71. The "deals" at issue in this portion of the case are grants of "free licenses
15"PCs typically connect to the Internet through the services of Internet access providers
(`IAPs'), which generally charge subscription fees to their customers in the United States."
Findings of Fact Ï 15.
17
to bundle IE with [the ICPs' and ISVs'] offerings" and the exchange of "other valuable
inducements for [ICPs' and ISVs'] agreement to distribute, promote, and rely on IE rather than
Navigator." Id. (quoting Microsoft, 87 F. Supp. 2d at 42-43) (brackets and quotation marks
omitted). The district court held these agreements to be anticompetitive in violation of Û 2 of the
Sherman Act because they had the effect of "directly induc[ing] developers to focus on
[Microsoft's] own APIs rather than ones exposed by Navigator." Id. (quoting Microsoft, 87 F.
Supp. 2d at 42-43) (quotation marks omitted).
At the outset of its analysis in this context, the appellate court concluded bluntly that
"[w]ith respect to [Microsoft's] deals with ICPs, the District Court's findings do not support
liability." Id. In contrast, the appellate court sustained the district court's finding of liability with
regard to Microsoft's agreements with ISVs because Plaintiffs made "a prima facie showing that
the deals have an anticompetitive effect," and Defendant did not successfully rebut this showing.
Id. at 72. In particular, the appellate court found that the exclusive provisions in these so-called
"First Wave Agreements" with ISVs foreclosed a substantial share of the market for Navigator.
Id.
Turning its attention in this context finally to Microsoft's relationship with Apple, the
appellate court concluded that Microsoft's agreement with Apple was exclusionary in violation of
Û 2 of the Sherman Act. Id. at 72-74. The appellate court recounted that in mid-1997, Microsoft
and Apple entered into an agreement which obligated Microsoft to continue to release "up-to-
date" versions of its office productivity software for Apple's systems, Mac Office. Id. at 73
(quoting Findings of Fact ÏÏ 350-52). The agreement further obligated Apple to make IE the
default browser. Id. (quoting Findings of Fact ÏÏ 350-52). Pursuant to this same agreement,
18
Apple promised not to install Navigator during the "default installation," and not to "position
icons for non[-]Microsoft browsing software on the desktop of new Macintosh PC systems or
Mac OS upgrades." Id. (quoting Findings of Fact ÏÏ 350-52). Similarly, the agreement
prohibited Apple "from encouraging users to substitute another browser for IE, and state[d] that
Apple [would] `encourage its employees to use IE.'" Id. (quoting Findings of Fact Ï 352)
(brackets omitted). The appellate court concluded that "[t]his exclusive deal between Microsoft
and Apple ha[d] a substantial effect upon the distribution of rival browsers." Id. Given the
absence of a "procompetitive justification for the exclusive dealing arrangement," the appellate
court affirmed the district court's finding of Û 2 liability based upon Microsoft's exclusive deal
with Apple. Id. at 74.
8. Java
The appellate court grouped the next category of Microsoft conduct under the heading
"Java" in reference to "a set of technologies developed by Sun Microsystems" ("Sun"). Id. The
Java technologies are described as "another type of middleware posing a potential threat to
Windows' position as the ubiquitous platform for software development." Id. (citing Findings of
Fact Ï 28). The appellate opinion recounts that the district court identified four steps taken by
Microsoft to "exclude Java from developing as a viable cross-platform threat: (a) designing a
[Java Virtual Machine ("JVM")16] incompatible with the one developed by Sun; (b) entering into
16"The Java technologies include: (1) a programming language; (2) a set of programs
written in that language, called the `Java class libraries,' which expose APIs; (3) a compiler,
which translates code written by a developer into `bytecode'; and (4) a Java Virtual Machine
(`JVM'), which translates bytecode into instructions to the operating system. [Findings of Fact]
Ï 73. Programs calling upon the Java APIs will run on any machine with a `Java runtime
environment,' [`JRE'] that is, Java class libraries and a JVM. Id. ÏÏ 73, 74." Microsoft, 253
F.3d at 74. The terms "JRE" and "JVM" are sometimes used interchangeably to refer to the Java
19
contracts, the so called `First Wave Agreements,' requiring major ISVs to promote Microsoft's
JVM exclusively; (c) deceiving Java developers about the Windows-specific nature of the tools it
distributed to them; and (d) coercing Intel to stop aiding Sun in improving the Java technologies."
Id. Of these actions, the appellate court concluded that all but the first action were
anticompetitive in violation of Û 2. Id. at 74-78. With regard to the first enumerated action, the
incompatible JVM, the appellate court held that because the incompatible JVM did not have an
anticompetitive effect which outweighed the procompetitive justification for the design, it could
not provide a basis for antitrust liability. Id. at 75.
Specifically, with regard to the First Wave Agreements, the appellate court observed that
the district court had found the agreements, "although not literally exclusive . . . were exclusive in
practice." Id. at 75. Although the district court did not enter precise findings as to the effect of
the First Wave Agreements upon rival Java distribution, the appellate court determined that "the
record indicates that Microsoft's deals with the major ISVs had a significant effect upon JVM
promotion." Id. In the absence of procompetitive justification, the appellate court imposed
liability for this aspect of the First Wave Agreements. Id. at 76.
As to the Java developer tools, the appellate court's imposition of liability focused not
upon the fact that the tools created programs which were not cross platform, but upon the fact that
Microsoft deceived software developers about the Windows-specific nature of the tools. Id. at
76-77. The appellate court found that Microsoft's deception was intentional and without
procompetitive explanation. Id. at 77. As a result, the appellate court imposed liability for
Microsoft's deception. Id.
platform. The court uses the term JVM throughout this Memorandum Opinion for that purpose.
20
9. Intel
As noted above, the appellate court's final imposition of liability arose out of a "threat" by
Microsoft directed at Intel. Id. at 77. "Intel is [a firm] engaged principally in the design and
manufacture of microprocessors." Findings of Fact Ï 95. A segment of Intel's business develops
software, with the primary focus upon "finding useful ways to consume more microprocessor
cycles, thereby stimulating demand for advanced Intel microprocessors." Id. The appellate court
recounted that in 1995, Intel was in the process of "developing a high performance, Windows-
compatible JVM." Microsoft, 253 F.3d at 77. Furthering its efforts to combat the cross-platform
threat of Java to the Windows platform, Microsoft repeatedly "urged Intel not to help Sun by
distributing Intel's fast, Sun compliant JVM." Id. Eventually, Microsoft "threatened Intel that if
it did not stop aiding Sun . . . then Microsoft would refuse to distribute Intel technologies bundled
with Windows." Id. Intel capitulated after Microsoft threatened to support an Intel competitor,
AMD, if Intel's efforts with Java continued. Id.
The appellate court acknowledged Microsoft's anticompetitive intent, as well as the
anticompetitive effect of Microsoft's actions toward Intel. Id. Microsoft did not offer a
procompetitive justification for its treatment of Intel, but "lamely characterize[d] its threat to Intel
as `advice.'" Id. Rejecting the characterization of Microsoft's threat as mere "advice," the
appellate court found the district court's imposition of liability to be supported by both fact and
law. Id. at 77-78. On this basis, the appellate court imposed Û 2 liability for Microsoft's threat to
Intel.
Corresponding to the above-described imposition of liability pursuant to Û 2 of the
Sherman Act, the appellate court imposed liability upon Microsoft for violations of the relevant
21
"state law counterparts of" the Sherman Act. Id. at 46. Beyond these findings, the appellate court
did not find Microsoft liable for any additional antitrust violations. Specifically, the appellate
court reversed the district court's conclusion that Microsoft's "course of conduct" as a whole
constitutes a separate violation of Û 2. Id. at 78. In addition, the appellate court rejected the
district court's finding of attempted monopolization and remanded the Û 1 tying claim for further
proceedings at the district court level.17 Plaintiffs opted not to pursue the tying claim on
remand.18 Joint Status Report (Sept. 20, 2001) at 2.
10. Vacating the District Court's Order of Remedy
Following its review of the district court's conclusions with regard to liability, the
appellate court considered the district court's choice of remedy. Over the objection of Defendant
Microsoft, the district court decided to consider the merits of Plaintiffs' remedy proposal in the
absence of an evidentiary hearing. Microsoft, 253 F.3d at 98-99; see also Microsoft, 97 F. Supp.
2d at 61. The district court did so based on the rationale that Microsoft's evidentiary proffers
largely concerned "testimonial predictions about future events" which would be of little use to the
court in identifying an "optimum remedy." Microsoft, 253 F.3d at 99 (quoting Microsoft, 97 F.
Supp. 2d at 62). Based upon its finding of liability for illegal monopoly maintenance, attempted
17Plaintiffs' complaint also included a separate claim of "monopoly leveraging" under Û 2
of the Sherman Act. Judge Jackson granted summary judgment in favor of Microsoft as to this
claim on the grounds that the theory runs "contrary to both economic theory and the Sherman
Act's plain language." United States v. Microsoft, 1998 WL 614485, at * 27 (D.D.C. Sept. 14,
1998).
18Plaintiffs' tying claim alleged that "Microsoft's contractual and technological bundling
of the IE [W]eb browser (the `tied' product) with its Windows operating system (`OS') (the
`tying' product) resulted in a tying arrangement that was per se unlawful." Microsoft, 253 F.3d
at 84.
22
monopolization, and illegal tying, the district court entered a remedy "nearly identical to
plaintiffs' proposal" mandating the divestiture of Microsoft Corporation into an "Operating
Systems Business" and an "Applications Business." Id. at 99-100 (quoting Microsoft, 97 F. Supp.
2d at 64). The original decree entered by the district court, often referred to as the Initial Final
Judgment ("IFJ"), also included a number of "interim restrictions on Microsoft's conduct." Id. at
100. The interim restrictions included, inter alia, mandatory disclosure "to third-party developers
the APIs and other technical information necessary to ensure that software effectively
interoperates with Windows," id. (describing IFJ Û 3.b), a prohibition on Microsoft's ability to
enter into contracts which oblige third parties to limit their "`development, production,
distribution, promotion, or use of, or payment for' non-Microsoft platform level software," id.
(quoting IFJ Û 3.e), and a "`Restriction on Binding Middleware Products to Operating System
Products' unless Microsoft also offers consumers `an otherwise identical version' of the operating
system without the middleware," id. (quoting IFJ Û 3.g).
The appellate court found three fundamental flaws in the district court's order of remedy,
each of which alone justified vacating the remedial decree. The appellate court first concluded
that the failure to hold an evidentiary hearing in the face of disputed facts concerning the remedy
violated the "cardinal principle of our system of justice that factual disputes must be heard in an
open court and resolved through trial-like evidentiary proceedings." Id. at 101. The appellate
court rejected the district court's conclusion that evidentiary proceedings would not be useful,
noting that "a prediction about future events is not, as a prediction, any less a factual issue." Id. at
102. Moreover, noted the appellate court, "drafting an antitrust decree by necessity `involves
predictions and assumption concerning future economic and business events.'" Id. (quoting Ford
23
Motor Co., 405 U.S. at 578).
In addition to the failure to hold an evidentiary hearing, the appellate court faulted the
district court for its "fail[ure] to provide an adequate explanation for the relief it ordered." Id. at
103. Finding the trial court's devotion of "a mere four paragraphs of its order to explaining its
reasons for the remedy" insufficient, the appellate court observed that the initial remedy was not
accompanied by an explanation of the manner in which the remedy would accomplish the
objectives of a remedial decree in an antitrust case. Id. In this regard, the appellate court recited
that "a remedies decree in an antitrust case must seek to `unfetter a market from anticompetitive
conduct,' Ford Motor Co., 405 U.S. at 577, to `terminate the illegal monopoly, deny to the
defendant the fruits of its statutory violation, and ensure that there remain no practices likely to
result in monopolization in the future,' [United Shoe, 391 U.S. at 250]." Id. (internal citations in
original).
Lastly, the appellate court concluded that the substantial modifications to the liability
imposed by the district court merited a new determination of the remedy for the surviving
antitrust violations. In particular, the appellate court noted that of the three original findings of
liability, only liability for illegal monopoly maintenance in violation of Û 2 of the Sherman Act
had survived, and even this aspect of liability had been modified. Id. at 103-04. The appellate
court determined that where "sweeping equitable relief is employed to remedy multiple
violations, and some-indeed most-of the findings of remediable violations do not withstand
scrutiny" the remedy decree must be vacated because there no longer exists a rational connection
between the liability imposed and the remedy ascribed thereto. Id. at 105. Accordingly, the
appellate court remanded the case for this Court to resolve any factual disputes surrounding a
24
remedy and for this Court to exercise its "broad discretion" in imposing the "relief it calculates
will best remedy the conduct . . . found to be unlawful." Id.
11. Causation and Remedy
In its appeal, Microsoft "urge[d]" the circuit court to "reverse on the monopoly
maintenance claim, because [P]laintiffs 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." Id. at 78. Relying
heavily on the treatise on antitrust law authored by Phillip E. Areeda and Herbert Hovenkamp, the
appellate court determined that liability in this case could be established through an "infer[ence]"
of causation. Id. at 79 (citing 3 PHILLIP E. AREEDA & HERBERT HOVENKAMP, ANTITRUST LAW
Ï 651c, at 78 (1996)). Applying this "rather edentulous test for causation" the appellate court
identified two relevant inquiries, the satisfaction of which would result in liability:
(1) whether as a general matter the exclusion of nascent threats is the type of conduct
that is reasonably capable of contributing significantly to a defendant's continued
monopoly power and (2) whether Java and Navigator reasonably constituted nascent
threats at the time Microsoft engaged in the anticompetitive conduct at issue.
Id. On the record from the district court, the appellate court readily concluded that both inquiries
had been satisfied and that liability must be imposed. Id.
The appellate court noted, however, that "Microsoft's concerns over causation have more
purchase in connection with the appropriate remedy issue, i.e., whether the court should impose a
structural remedy or merely enjoin the offensive conduct at issue." Id. at 80. Again relying upon
Areeda and Hovenkamp, the appellate court focused upon the structural remedy that had been
imposed by Judge Jackson and identified a relationship between the evidence of causation and the
imposition of "radical structural relief":
25
As we point out later in this opinion, divestiture is a remedy that is imposed only with
great caution, in part because its long-term efficacy is rarely certain. Absent some
measure of confidence that there has been an actual loss to competition that needs to
be restored, wisdom counsels against adopting radical structural relief. See 3 AREEDA
& HOVENKAMP, ANTITRUST LAW Ï 653b, at 91-92 ("[M]ore extensive equitable relief,
particularly remedies such as divestiture designed to eliminate the monopoly
altogether, raise more serious questions and require a clearer indication of a
significant causal connection between the conduct and creation or maintenance of the
market power.").
Id. (internal citation omitted). Later in the opinion, the appellate court again quoted from Areeda
and Hovenkamp, highlighting the need for "a clearer indication of a significant causal connection
between the conduct and creation or maintenance of the market power" where the remedy is
structural relief. Id. at 106 (quoting 3 AREEDA & HOVENKAMP, ANTITRUST LAW Ï 653b, at 91-
92) (emphasis added by appellate court). The appellate court instructed that in the absence of "a
sufficient causal connection between Microsoft's anticompetitive conduct and its dominant
position in the OS market . . . the antitrust defendant's unlawful behavior should be remedied by
`an injunction against the continuation of that conduct.'" Id. (quoting 3 AREEDA & HOVENKAMP,
ANTITRUST LAW Ï 650a, at 67).
In effect, the appellate court appears to have identified a proportionality between the
severity of the remedy and the strength of the evidence of the causal connnection. Accordingly,
the "[m]ere existence of an exclusionary act does not itself justify full feasible relief against the
monopolist to create maximum competition." Id. (quoting 3 AREEDA & HOVENKAMP, ANTITRUST
LAW Ï 650a, at 67). Similarly, because structural relief is "designed to eliminate the monopoly
altogether," 3 AREEDA & HOVENKAMP, ANTITRUST LAW Ï 650a, at 67, "wisdom counsels against
adopting radical structural relief" in the "absen[ce] of some measure of confidence that there has
been an actual loss to competition that needs to be restored," id. Instead, the court crafting a
26
remedy must assess the strength of the causation evidence that established liability and "tailor"
the relief accordingly. Microsoft, 253 F.3d at 107.
As the Court recounted above, the United States, along with nine State Plaintiffs, reached
an agreement on the issue of remedy. As a result, these Plaintiffs opted not to litigate further the
issue of remedy. The United States proceeded to seek approval of the settlement agreement and
the entry of the agreement as the final judgment in this case pursuant to the Tunney Act, 15
U.S.C. Û 16(b)-(h). Having determined that the issue is ripe for the Court's consideration, the
Court addresses the proposed final judgment and the public interest in the paragraphs below.
B. Second Revised Proposed Final Judgment
The Second Revised Proposed Final Judgment (SRPFJ) which the parties seek to have
entered as a final judgment in this case sets forth a number of restrictions upon Microsoft's
conduct which are intended to remedy the effects of Microsoft's anticompetitive behavior.
Section III of the SRPFJ, entitled "Prohibited Conduct," contains the substance of these
restrictions, organized into subsections by letters. SRPFJ Û III.A-J. Sections III.A, B, and F can
be grouped together according to the similarity of their terms and the manner in which the terms
compliment each other. Each of these sections restricts Microsoft's ability to utilize its market
power as a means, via retaliation and coercion, to protect its monopoly.
1. Anti-Retaliation and Uniform Licenses
Section III.A bars Microsoft from "retaliat[ion]" against OEMs by altering its commercial
relationship with that OEM or "withholding newly introduced forms of non-monetary
Consideration . . . from that OEM" in certain circumstances. Id. Û III.A. In particular, the
provision bars retaliation where Microsoft knows the OEM "is or is contemplating":
27
1. developing, distributing, promoting, using, selling, or licensing any software
that competes with Microsoft Platform Software or any product or service that
distributes or promotes any Non-Microsoft Middleware;
2. shipping a Personal Computer that (a) includes both a Windows Operating
System Product and a non-Microsoft Operating System, or (b) will boot with
more than one Operating System; or
3. exercising any of the options or alternatives provided for under this Final
Judgment.
SRPFJ Û III.A. The provision further requires Microsoft to provide written notice to a "Covered
OEM"19 and at least "thirty days' opportunity to cure" prior to termination of that OEM's
Windows Operating System Product license. Id. However, where Microsoft has already
provided "two or more such notices during the term of [the Covered OEM's] Window's
Operating System Product License," Microsoft is not obligated to provide "such a termination
notice and opportunity to cure." Id.
There are two exceptions to subsection A. First, and without controversy, the provision
shall not be construed to "prohibit Microsoft from enforcing any provision of any license with
any OEM or intellectual property right that is not inconsistent with th[e] Final Judgment." Id.
Second, and more significantly, the provision does not prohibit Microsoft from "providing
Consideration to any OEM with respect to any Microsoft product or service where that
Consideration is commensurate with the absolute level or amount of that OEM's development,
distribution, promotion or licensing of that Microsoft product or service." Id.
The United States identifies Û III.A as a provision broadly drawn so as to "ensure[] that
OEMs have contractual and economic freedom to make decisions about distributing and
19"Covered OEMs" is a defined term. Pursuant to Û VI.D, "`Covered OEMs' means the
20 OEMs with the highest worldwide volume of licenses of Windows Operating System
Products reported to Microsoft in Microsoft's fiscal year preceding the effective date of the Final
Judgment." SRPFJ Û VI.D.
28
supporting non-Microsoft middleware products without fear of coercion or retaliation by
Microsoft." United States Mem. in Support of the RPFJ (hereinafter cited as "United States
Mem.") at 57. Section III.A focuses on OEMs because of the significance of the OEM channel as
a means of distributing rival middleware and operating systems. Id. The exception in Û III.A for
consideration commensurate with the promotion of or other similar support for Microsoft's
products is intended to preserve "permissible collaborations between an OEM and Microsoft to
promote Microsoft products and services." United States Response to Public Comments
(hereinafter cited as "United States Resp.") at 78. For example, explains the government, "an
OEM that collaborates with Microsoft on developing a particular product through extensive
testing, or offers advertising or other promotion, may be compensated for its greater role through
a higher level of Consideration for that product than one that is not developing or supporting that
product." Id. Given this reasoned explanation, the Court concludes that the exception in Û III.A
for compensation commensurate with an OEM's promotion or similar support for a Microsoft
product is appropriately tailored to permit procompetitive agreements between Microsoft and
OEMs.
a. "Microsoft Platform Software"
The Court pauses its discussion of Û III.A at this point to examine the term "Microsoft
Platform Software," which is the first of a number of carefully defined terms used throughout the
SRPFJ. The proposed final judgment defines Microsoft Platform Software as the combination or
alternative of two other defined terms. See SRPFJ Û VI.L. "`Microsoft Platform Software' means
(i) a Windows Operating System Product and/or (ii) a Microsoft Middleware Product." Id. Each
of the two terms used in the definition of "Microsoft Platform Software" raises its own
29
definitional issues, with the more complex issues arising in conjunction with latter of the two.
Accordingly, the Court will examine each definition in turn.
i. Windows Operating System Product
The SRPFJ defines a "Windows Operating System Product" as
the software code (as opposed to source code) distributed commercially by Microsoft
for use with Personal Computers as Windows 2000 Professional, Windows XP Home,
Windows XP Professional, and successors to the foregoing, including the Personal
Computer versions of the products currently code named "Longhorn" and
"Blackcomb" and their successors, including upgrades, bug fixes, service packs, etc.
The software code that comprises a Windows Operating System Product shall be
determined by Microsoft in its sole discretion.
SRPFJ Û VI.U. Controversy swirls around the SRPFJ's definition of "Windows Operating
System Product" largely because of the final sentence in the definition, which leaves to
Microsoft's discretion the determination of which code shall comprise a Windows Operating
System Product. This controversy, to quote the Immortal Bard, is really "much ado about
nothing." The criticism of this aspect of the definition arises from an interpretation which views
the final sentence as a form of absolution for Microsoft from any liability for the illegal tying of
two distinct products based upon the design of its Windows operating system product. Such
criticism is misplaced.
The definitions in the final judgment in this case do not possess the power to alter the
application of the antitrust laws to Microsoft's conduct or its products. The power to determine
which software code constitutes a "Windows Operating System Product" for purposes of the
SRPFJ cannot logically be viewed as a grant of special rights or immunity from prosecution under
the antitrust laws for illegal tying. Quite simply, the code that Microsoft identifies as a
"Windows Operating System Product" has no impact upon the ability of the Department of
30
Justice, or any future plaintiff, to allege that the product identified as a "Windows Operating
System Product" for purposes of the SRPFJ is an illegal amalgamation of two separate products
under Û 1 of the Sherman Act. Likewise, the definition of "Windows Operating System Product"
in the SRPFJ cannot curtail the ability of a court to determine that Microsoft has illegally tied two
products which are separate under the antitrust laws. Instead, the definition merely recognizes
that, as a practical matter, Microsoft retains the power to determine which software code it will
include in the products marketed as "Windows."
The definition of "Windows Operating System Product" is similarly misunderstood as
enabling Microsoft to somehow manipulate which code is included in the definition in order to
avoid classification as a "Microsoft Middleware Product." According to this misreading of the
definition, Microsoft could avoid inclusion of a particular piece of code within the definition of
"Microsoft Middleware Product," SRPFJ Û VI.K, by simply declaring that the code is part of a
"Windows Operating System Product." The fatal flaw in this reading of the definition is the
presumption that "Microsoft Middleware Product" and "Windows Operating System Product" are
mutually exclusive terms; that is not the case. Software code can simultaneously fall within both
the "Windows Operating System Product" and "Microsoft Middleware Product" definitions.
Id. Û VI.K, U. Once again, therefore, the definition of "Windows Operating System Product"
merely recognizes that Microsoft, as the distributor of a product called "Windows," has the
discretion to determine which code to include in its distribution of that product.
ii. "Microsoft Middleware Product"
As recounted above, the latter portion of the definition of "Microsoft Platform Software"
rests upon the definition of "Microsoft Middleware Product." In the SRPFJ, "Microsoft
31
Middleware Product" means:
1. the functionality provided by Internet Explorer, Microsoft's Java Virtual
Machine, Windows Media Player, Windows Messenger, Outlook Express and
their successors in a Windows Operating System Product, and
2. for any functionality that is first licensed, distributed or sold by Microsoft
after the entry of this Final Judgment and that is part of any Windows
Operating System Product
a. Internet browsers, email client software, networked audio/video client
software, instant messaging software or
b. functionality provided by Microsoft software that -
i. is, or in the year preceding the commercial release of any new
Windows Operating System Product was, distributed
separately by Microsoft (or by an entity acquired by
Microsoft) from a Windows Operating System Product;
ii. is similar to the functionality provided by a Non-Microsoft
Middleware Product; and
iii. is Trademarked.20
Functionality that Microsoft describes or markets as being part of a Microsoft
Middleware Product (such as a service pack, upgrade, or bug fix for Internet
Explorer), or that is a version of a Microsoft Middleware Product (such as Internet
Explorer 5.5), shall be considered to be part of that Microsoft Middleware Product.
SRPFJ Û VI.K. The first portion of this definition captures various types of functionality
provided by one of a set of existing, named products and their successors. The functionalities in
this list go beyond the functionality provided by the Java technologies and Netscape's Navigator,
20Trademarked is defined in the SRPFJ to have the following meaning:
distributed in commerce and identified as distributed by a name other than
Microsoft¬ or Windows¬ that Microsoft has claimed as a trademark or service mark
by (i) marking the name with trademark notices, such as ¬ or TM, in connection with
a product distributed in the United States; (ii) filing an application for trademark
protection for the name in the United States Patent and Trademark Office; or (iii)
asserting the name as a trademark in the United States in a demand letter or lawsuit.
Any product distributed under descriptive or generic terms or a name comprised of
the Microsoft¬ or Windows¬ trademarks together with descriptive or generic terms
shall not be Trademarked as that term is used in this Final Judgment. Microsoft
hereby disclaims any trademark rights in such descriptive or generic terms apart from
the Microsoft¬ or Windows¬ trademarks, and hereby abandons any such rights that
it may acquire in the future.
SRPFJ Û VI.T.
32
the middleware technologies which were the focus of the liability findings in this case, and
include a broad range of existing middleware technologies.
The latter portion of the definition enables inclusion in the decree of future technologies,
provided the new technologies meet certain requirements. To fall within the prescient portion of
the definition, the software code must first be distributed as part of any "Windows Operating
System Product," the definition of which the Court discussed above. Id. The rationale for this
requirement is quite clear, as Windows is Microsoft's product in the monopoly market. If the
Microsoft software has not been included in Windows, it lacks a fundamental relationship to the
theory and imposition of liability in this case. The second element of such future functionality is
that it must also be distributed separately from a Windows Operating System Product. The
government's rationale for this requirement derives from its view that the "competitive
significance of middleware products such as browsers and media players will be relatively small
if they are not distributed in any form separate from a Windows Operating System Product."
United States Resp. at 44. This view results from the fact that, absent separate distribution,
Microsoft will remain unable to reach the "large installed base of Windows machines" and can
only impact users willing to upgrade to new versions of the operating system. Id. Even then,
Microsoft releases new operating systems at fairly long intervals and, in the absence of separate
distribution, will be unable to update and release new versions of products provided originally
with the operating system. Id. at 44-45. Therefore, according to the government, the
competitively significant middleware portions of Windows, of necessity, will be distributed
separately.
The third element of the definition is based upon yet another defined term requiring that
33
the "Microsoft Middleware Product" provide similar functionality to that provided by a "Non-
Microsoft Middleware Product." SRPFJ Û VI.K. In this instance, the definition of "Non-
Microsoft Middleware Product"21 is indisputably broad, incorporating anything which can be
reasonably identified as "middleware" and which has achieved a certain level of popularity. Id. Û
VI.N.
Finally, the requirement that Microsoft trademark the future functionality derives from the
government's recognition of the "business reality that Microsoft often names and markets the
technologies that it wishes developers and consumers to adopt." United States Resp. at 53. The
government further explains that, in its view, "Microsoft has little incentive to bury its new
products inside other applications in order to avoid having it meet the Trademark standard." Id.
These explanations address and rebut to the Court's satisfaction criticisms of the "trademarked"
requirement in the definition of "Microsoft Middleware Product."
b. Anti-Retaliation: Original Equipment Manufacturers ("OEMs")
Having examined the various components of the definition of "Microsoft Platform
Software," the Court returns to its original inquiry into the effect of Û III.A. The government
asserts, and the Court sees little basis to disagree, that Û III.A will prevent Microsoft from
hindering an OEM's ability to choose to support products which have the capacity to threaten
21The SRPFJ defines "Non-Microsoft Middleware" as
a non-Microsoft software product running on a Windows Operating System Product
(i) that exposes a range of functionality to ISVs through published APIs, and that
could, if ported to or made interoperable with, a non-Microsoft Operating System,
thereby make it easier for applications that rely in whole or in part on the
functionality supplied by that software product to be ported to or run on that
non-Microsoft Operating System, and (ii) of which at least one million copies were
distributed in the United States within the previous year.
SRPFJ Û VI.N.
34
Microsoft's operating system monopoly. Contrary to some criticism, the Court regards the
limited scope of this provision, in that it addresses only competition relative to Microsoft's
dominant role as a platform for applications, as entirely appropriate given the middleware theory
of liability pursued in this case. See generally Microsoft, 253 F.3d 34. The Court further regards
Û III.A as presenting clear and enforceable terms.
The only lingering concern held by the Court is that Û III.A does nothing to prevent
Microsoft from making threats of retaliation. The factual findings and liability in this case
evidence that Microsoft has used not only actual retaliation, but threats of retaliation in coercing
certain kinds of behavior. See, e.g., id. at 77-78 (discussing Microsoft's "threat to Intel"). Given
the power Microsoft wields as a monopolist, it would be appropriate to prohibit Microsoft from
stifling competition with threats of bad treatment. The United States explains the absence of any
ban on threats rather logically, noting that where the retaliation itself is prohibited, any threat of
retaliation is empty and, therefore, without power. United States Resp. at 75. While a rational
explanation, the Court regards a ban on threats of retaliation, at a minimum, as more comforting
to business entities dealing with Microsoft when making decisions about supporting Microsoft
competitors. Nevertheless, it is a far cry from making a "mockery of judicial power" that the
remedy in this case does not include a ban on threats of retaliation. Microsoft, 56 F.3d at 1462.
Accordingly, this criticism matters little in the Court's assessment of the public interest, as a
consent decree need not reflect the Court's own choice of a remedy, but instead, giving due
respect to the government's view of the effect of the remedial proposal, need only reflect a certain
consonance with the liability allegations, or more appropriately in this case, the liability findings.
See id.at 1461.
35
c. Anti-Retaliation: Independent Software Vendors ("ISVs") and Independent
Hardware Vendors ("IHVs")
Section III.F mirrors Û III.A to some extent, in that it too prohibits retaliation, but Û III.F
applies to Microsoft's conduct towards ISVs and IHVs. SRPFJ Û III.F. Pursuant to Û III.F.1:
Microsoft shall not retaliate against any ISV or IHV because of that ISV's or IHV's:
a. developing, using, distributing, promoting or supporting any software that
competes with Microsoft Platform Software or any software that runs on any
software that competes with Microsoft Platform Software, or
b. exercising any of the options or alternatives provided for under this Final
Judgment.
Id. Û III.F.1. Inasmuch as Û III.F.1 mirrors Û III.A, criticism with regard to the absence of a ban
on threats of retaliation is equally applicable. For the reasons discussed with regard to Û III.A,
however, the Court need not tarry long on the absence of such a prohibition. In all other respects,
the protections in Û III.F reflect the liability findings against Microsoft for retaliating against ISVs
and IHVs. See Microsoft, 253 F.3d at 72-73 (discussing Microsoft's dealings with Apple), 77-78
(describing Microsoft's "threat to Intel"22). Furthermore, because Û III.F.1 prohibits retaliation
responsive to IHVs' or ISVs' support for software which "competes" with not only "Microsoft
Platform Software," but "any software that runs on software that competes with Microsoft
Platform Software," its protections are broadly drawn. SRPFJ Û III.F.1. Simultaneously,
however, Û III.F.1 remains appropriately grounded in its reflection of the monopoly market in this
case and does not stray inappropriately into markets unrelated to the market in which liability was
imposed. Id. The Court observes, in this regard, that there is little justification for protection
against retaliation for software which does not "compete" with the monopoly product or run on
22In the Findings of Fact, Judge Jackson noted that Intel is both an IHV and an ISV.
Findings of Fact Ï 95 ("Although Intel is engaged principally in the design and manufacture of
microprocessors, it also develops some software.").
36
software which "competes" with the monopoly product. The Court, therefore, finds that the
protections afforded by Û III.F.1 are appropriately drawn so as to advance the public interest.
d. Uniform Licenses
Section III.B is said to strengthen Û III.A by mandating that Microsoft provide uniform
license terms to Covered OEMs. SRPFJ Û III.B. The uniform royalties are to be established in a
schedule, which is accessible to Plaintiffs and the covered OEMs. Id. Notwithstanding the
general uniformity of the licenses, Microsoft may provide volume discounts based upon the
volume of the OEM's licenses of a Windows Operating System Product or group of such
products. Id. Û III.B.2. The licenses may also include discounts so long as the discounts are
uniform among the Covered OEMs.23 Id. Û III.B.3. The discounts must also be based on
objective, verifiable criteria and may not be inconsistent with other portions of the SRPFJ. Id.
This section simplifies the complex royalty licenses so as to prevent Microsoft from using the
license terms as a means by which to coerce and control the OEMs into favoring Microsoft
products. United States Mem. at 57. Still, the provision is limited such that larger OEMs may,
quite reasonably, receive different treatment than some of the smaller OEMs. Id.
The strongest criticism of Û III.B argues that it should forbid Microsoft's practice of using
market development allowances ("MDAs") and other discounts. Vociferous though this criticism
may be, it ignores the fact that there is no liability in this case which regards the use of MDAs
themselves, or in conjunction with other anticompetitive behavior, to be an antitrust violation.
See Microsoft, 253 F.3d 34. Quite to the contrary, the United States takes the view that MDAs
23However, Microsoft may establish a two tiered discount schedule, one for the ten
largest Covered OEMs, and another for the eleventh through the twentieth Covered OEMs.
SRPFJ Û III.B.3.a.
37
and similar discounts, when not misused, constitute "efficient behavior that has little or no
potential to be used by Microsoft for anticompetitive purposes." United States Resp. at 81. Other
provisions of the SRPFJ protect against the potential for misuse of MDAs, via retaliation or
selective rewarding, such that there is little justification, and certainly no necessity, for a ban on
Microsoft's use of MDAs and other discounts. Moreover, MDAs and similar discounts are
prohibited any time they are inconsistent with any other term of the SRPFJ. SRPFJ Û III.B.3.
By mandating uniformity, the SRPFJ sacrifices the ability of OEMs to negotiate the most
favorable terms. The Court recognizes that despite the obvious benefit to be gained by uniformity
in licenses, undoubtedly, there are some which would be happier with the freedom to negotiate.
Yet, the Tunney Act, and the case law which follows, dictate that it is for the United States to
weigh the benefits of such a trade in the first instance, and that, barring a breach of duty in
consenting to the decree, Bechtel, 648 F.2d at 666, the Court should respect the government's
"predictions as to the effect of the proposed remed[y]." Microsoft, 56 F.3d at 1461. Adhering to
this guidance, the Court cannot say that the imposition of uniform licenses and the preservation of
Microsoft's ability to utilize MDAs and similar discounts approach a breach of duty by the
government.
In sum, the Court finds the above-described provisions in the SRPFJ to be an effective
means of protecting against Microsoft's utilization of its monopoly position to retaliate against
companies that choose to support products that have the capacity to threaten Microsoft's
monopoly. In particular, the Court finds that the definitions discussed in this section, though they
appear throughout the SRPFJ, namely "Windows Operating System Product," "Microsoft
Middleware Product," and "Microsoft Platform Software," comport with the theory of liability in
38
this case and, in many instances, exceed the actual scope of the liability in some ways, such that a
number of products not directly involved in Microsoft's anticompetitive conduct are addressed in
the proposed final judgment. The Court finds that, to the extent that these definitions encompass
products beyond the scope of the liability findings, such breadth is appropriate, and likely
necessary, to ensure that the anticompetitive conduct ceases and to prevent its reoccurrence. See
Bechtel, 648 F.2d at 666 ("It is not contrary to the public interest, as contemplated by the [Tunney
Act], to enter a decree that is not necessary, or that grants relief to which the government might
not be strictly entitled. The public does not suffer because [the defendant] consented to
limitations on its activities that could not otherwise be imposed.").
2. Flexibility in OEM Licenses
a. Icons, Shortcuts, and Menu Entries
Unlike Sections III.A and III.B, which bear a more general relation to the liability
findings, the conduct enjoined in Û III.C correlates closely to Microsoft practices which were
found to violate Û 2 of the Sherman Act. Rather than a blanket prohibition on the license
restrictions which were found to be anticompetitive, Û III.C provides substantial, though not
absolute, flexibility to OEMs in configuring personal computers. Subsection C.1 prohibits
restriction on an OEM's installation and display of icons, shortcut, and menu entries for any
"Non-Microsoft Middleware or any product or service . . . that distributes, uses, promotes, or
supports any Non-Microsoft Middleware, . . . anywhere . . . in a Windows Operating System
Product where a list of icons, shortcuts, or menu entries for applications are generally displayed."
SRPFJ Û III.C.1. Section VI.M. defines "Non-Microsoft Middleware" broadly as:
a non-Microsoft software product running on a Windows Operating System Product
that exposes a range of functionality to ISVs through published APIs, and that could,
39
if ported to or made interoperable with, a non-Microsoft Operating System, thereby
make it easier for applications that rely in whole or in part on the functionality
supplied by that software product to be ported to or run on that non-Microsoft
Operating System.
Id. Û VI.M. Excluded from the mandated flexibility in Û III.C.1 is Microsoft's ability to limit the
icons, shortcuts, or menu entries placed in a particular area according to the functionality
provided by the product, so long as the limitation is non-discriminatory with respect to Microsoft
and non-Microsoft products. Id. Û III.C.1. In practical terms, this limitation means, for example,
that if Microsoft has created a menu list for software providing email capability, the OEM is not
free to configure Windows to place icons for programs which do not provide email capability in
that area. This limitation is intended to balance Microsoft's concerns with protecting consumer
clarity and the provision of OEM flexibility. United States Resp. at 89-90. The government
notes that the prohibition on discrimination in the application of this exception prevents Microsoft
from "prescrib[ing] the functionality so narrowly that it becomes, in effect, discriminatory." Id. at
91. Likewise, the non-discrimination language precludes Microsoft from "completely
forbid[ding] the promotion or display of a particular Non-Microsoft Middleware Product on the
ground that Microsoft does not have a competing product itself." Id. "To do so," explains the
government, "would be discriminatory." Id.
The Court has reviewed the common complaint of some individuals and entities filing
comments that the term "functionality" used in SRPFJ Û III.C.1 is too vague to be enforced. In
short, the Court disagrees. Admittedly the term is broad and somewhat flexible, but in this area of
technology, overly restrictive terminology will prove useless as the technology continues to
evolve. Therefore, the Court takes the view that the phrase "particular types of functionality"
carries sufficient meaning to be applied effectively and without confusion. SRPFJ Û III.C.1.
40
Section III.C.1 provides flexibility in product configuration while preserving for Microsoft
control over the appearance of its product at the outermost edges. The core freedom of
configuration provided in Û III.C.1 far outweighs the limited exception to this freedom where
such configuration works a bizarre and unjustified result. Accordingly, the Court takes the view
that Û III.C.1 will redress the illegal conduct, promote competition, and further the public interest.
b. Size and Shape of Icons
Section III.C.2. enables installation and display of shortcut icons of any size or shape,
provided the shortcut "do[es] not impair the functionality of the user interface." Id. Û III.C.2.
This provision, like the one described above, provides OEM flexibility, while eliminating the
most extreme manifestations of that flexibility. Once again the central complaint about
subsection C.2 involves an allegation of vagueness. Some individuals and entities argue that
there is insufficient clarity in what it means to "impair the functionality of the user interface." Id.
The appellate court displayed a certain limited respect for Microsoft's configuration of the
user interface when it held that the prevention of "drastic alteration of Microsoft's copyrighted
work" was a valid basis for one of Microsoft's license restrictions. Microsoft, 253 F.3d at 63. At
the same time, the appellate court rejected Microsoft's general claim that its license restrictions
"merely prevent OEMs from taking actions that would reduce substantially the value of
Microsoft's copyrighted work." Id. The exception in Û III.C.2 for alterations which "impair the
functionality" of the user interface attempts to strike a balance between these polar examples. In
the Court's view, there is no ambiguity in the language of Û III.C.2, and the Court cannot say that
its effect is inconsonant with the liability in this case. Quite to the contrary, this provision
appears to strike the appropriate balance between OEM freedom, Microsoft's interests in
41
protecting the functionality of its product against drastic alteration, and the appellate court's
imposition of liability.
c. Automatically Launched Software
Section III.C.3 concerns licensing restrictions which are oddly reminiscent of restrictions
for which the appellate court did not impose antitrust liability, namely the automatic launch of an
alternative user interface at the conclusion of the boot sequence. Id. The appellate court
observed that the automatic launch of software which replaces the Microsoft user interface
worked a "drastic alteration" of Microsoft's copyrighted product, while Microsoft's restriction
had only a "marginal anticompetitive effect." Id. As a result, the appellate court rejected the
imposition of liability for Microsoft's prohibition in its OEM licenses of this practice. Id.
Notwithstanding this similarity, Û III.C.3. applies to more than the automatic launch of an
alternative user interface, regulating the automatic launching of any non-Microsoft Middleware
Product "at the conclusion of the initial boot sequence or subsequent boot sequences, or upon
connection to or disconnections from the Internet" without regard to whether such automatically
launched product disturbs the Microsoft user interface. SRPFJ Û III.C.3. This provision protects
automatic launching of Non-Microsoft Middleware Products only where "a Microsoft
Middleware Product that provides similar functionality would otherwise be launched
automatically at that time" and imposes stringent limitations upon such automatic launching. Id.
Where such Non-Microsoft Middleware is permitted to automatically launch, Û III.C.3. requires
that the middleware either provide no user interface or a user interface that resembles the
corresponding Microsoft Middleware Product interface. Id.
In response to complaints regarding the restrictive nature of Û III.C.3, the United States
42
invokes the D.C. Circuit's rejection of liability for the automatic launching of an alternative user
interface as a justification for the limitations in that provision. Microsoft, 253 F.3d at 63. As
explained by the United States, this provision attempts to strike a balance between Microsoft's
interest in "preventing unjustified drastic alterations to its copyrighted work" and allowing new
innovations and product features. United States Resp. at 94. The most obvious flaw in this
rationale, however, is that Û III.C.3 is not directed exclusively at the launching of alternative user
interfaces, but includes the launching of software products which launch automatically, but do so
within the general parameters of the Microsoft user interface. SRPFJ Û III.C.3. Despite some
acknowledgment of this flaw, the United States argues that the restrictions in Û III.C.3 are
tolerable because they "govern[] only the original OEM configuration," such that the end user can
click on an icon to enable the automatic launching of Non-Microsoft Middleware notwithstanding
the restrictions in Û III.C.3. United States Resp. at 94. Given this ability, argues the United
States, Û III.C.3 reflects a "reasonable compromise" between Microsoft's concerns for ease of use
and the liability findings in this case. Id.
In the Court's view, the restrictions in Û III.C.3 give too much credence to Microsoft's
purportedly "valid interest" in providing consistent product characteristics valued by users. Id.
The appellate court rejected a remarkably similar concern proffered by Microsoft in an attempt to
justify the other license restrictions imposed by Microsoft upon OEMs. Microsoft, 253 F.3d at
63-64. The appellate court's rejection in this regard can be read to include any restriction on the
automatic launching of software which does not replace the Microsoft user interface. Compare
id. at 64 ("In sum, we hold that with the exception of the one restriction prohibiting automatically
launched alternative interfaces, all the OEM license restrictions at issue . . . violate Û 2 of the
43
Sherman Act."), with Findings of Fact Ï 213 ("Third, Microsoft prohibited OEMs from installing
programs, including [but not limited to] alternatives to the Windows desktop user interface, which
would launch automatically upon completion of the initial Windows boot sequence."). Moreover,
this Court cannot help but recognize that this provision has the potential to empower Microsoft to
control, or at least regulate, the pace of innovation with regard to middleware products designed
to launch automatically, but which do not replace the user interface and, thereby, run afoul of the
appellate court's opinion.
Importantly, however, the Court does not assess the proposed final judgment in a vacuum.
In this regard, although the Court might have crafted a different remedy, the Court cannot
conclude that the government has violated the public trust in agreeing to the terms set forth in
Û III.C.3. See Bechtel, 648 F.2d at 666. When considered as part of the greater whole of the
proposed decree which offers OEM freedoms not clearly implicated in the appellate court's
ruling, the Court can only conclude that the United States conceded this aspect of OEM flexibility
in exchange for other freedoms which, in the government's view, will more effectively benefit
competition. See Microsoft, 56 F.3d at 1461. "Just as the Court may not second guess the
government's choices about what claims to bring in the first place, it should not treat differently
those concessions proposed in a consent decree that might have been achieved at trial from those
that might not have been achievable." Thomson, 949 F. Supp. at 927. Although liability was
established in this case, there remained litigation surrounding the issue of remedy, during which
there would have been no guarantee that the United States would obtain all of the provisions it
desired. The risks inherent in litigation are likely to be reflected in some portion of the proposed
decree, and these risks are appropriately weighed by the government, rather than the Court, in the
44
first instance. See AT&T, 552 F. Supp. at 151. Giving limited deference to the assessment of the
United States which takes the view that Microsoft has a valid interest in "having a computer boot
up quickly the first time it is turned on," United States Resp. at 94, the Court does not deem this
particular provision, though it is likely one of the proposed decree's more obvious weaknesses, to
so conflict with important public policy or antitrust law that it removes the proposed decree from
"the reaches of the public interest," Microsoft, 56 F.3d at 1458 (quoting statement originally in
United States v. Gillette Co., 406 F. Supp. 713, 716 (D. Mass. 1975)).
d. Internet Access Provider ("IAP") Offers in the Initial Boot Sequence
In general, subsection C.5 is aimed at remedying the restrictions on OEM modification of
the initial boot sequence-"the process that occurs the first time a consumer turns on the
computer," Microsoft, 253 F.3d at 61, which were found by the appellate court to violate Û 2. Id.
at 61-64. The appellate court noted that this restriction "prevents OEMs from using [the initial
boot sequence] to promote the services of IAPs." Id. at 62. This restriction hinders the
distribution and/or promotion of non-Microsoft middleware which was often used by the IAPs in
their internet access software. Id. Removal of this restriction will once again allow OEMs to
promote various IAPs by inserting an option for choosing an IAP during the initial boot sequence.
As with subsection C.3, subsection C.5 of Û III lifts a restriction directly implicated in the
appellate court's liability findings, but does not do so completely. Section III.C.5 enables OEMs
to offer an IAP service of their choosing during the initial boot sequence, but only where the offer
complies with Microsoft's "reasonable technical specifications." SRPFJ Û III.C.5. The appellate
court concluded that Microsoft's prohibition on the inclusion of IAP registration offers in the
initial boot sequence were without procompetitive justification. Microsoft, 253 F.3d at 63-64. In
45
particular, the appellate court rejected Microsoft's arguments that OEM alterations created
"quality issues," id. at 64 (quoting Defendant's Trial Exhibit 2395), and caused consumer
confusion because the district court found that OEMs, not Microsoft, bear the additional support
costs associated with such a result. Id. (citing Findings of Fact Ï 159). Given this holding, there
is little basis in the liability findings for the retention of Microsoft's power to impose "reasonable
technical specifications" on an OEMs' insertion of an IAP offer in the initial boot sequence.
Despite this observation, however, the same analysis which applied to subsection C.3
applies to subsection C.5 of Û III. That is, the Court cannot say that the limited retention of
discretion permitted by Microsoft with regard to the insertion of IAP registration offers is so
flawed that it renders the entire decree, or even this particular section of the decree, outside of the
public interest. See AT&T, 552 F. Supp. at 150-51. Rather, the Court observes once again, that
this limited retreat from the full feasible relief which the United States might have obtained
through litigation reflects the give and take of a negotiated settlement. Id. at 151. Moreover, the
preservation of Microsoft's ability to impose "reasonable technical specifications" upon
registration sequences inserted into the boot sequence is less objectionable than the reservation of
Microsoft authority in Û III.C.3 because the exception from Û III.C.5 subjects Microsoft to an
objective standard of reasonableness. If the technical specifications are objectively
"unreasonable," Microsoft is without power to impose them. As a result, the Court is convinced
that the freedom provided to OEMs by the opportunity to insert IAP registrations during the
initial boot sequences, even as limited by Û III.C.5, will have the procompetitive effect of
enabling promotion and distribution of non-Microsoft middleware. See Microsoft, 253 F.3d at 62.
The Court regards it unlikely that Microsoft's imposition of "reasonable technical specifications"
46
upon this freedom will undercut substantially its value to competition.
e. Alternative Operating Systems and Other Alternatives under the Final Judgment
Subsection C.4 of Û III, prohibits Microsoft from restricting an OEM's ability to "[o]ffer[]
users the option of launching other Operating Systems from the Basic Input/Output System or a
non-Microsoft boot-loader or similar program that launches prior to the start of the Windows
Operating System Product." SRPFJ Û III.C.4. In effect, Û III.C.4. provides OEMs with the option
of launching competing operating systems and prevents Microsoft from interfering with OEM
decisions to do so. Lastly, Û III.C.6. provides protection for OEMs which exercise any of the
options provided to them pursuant to Û III.H. of the SRPFJ, which the Court discusses in greater
detail below. Id. Û III.C.6. The Court sees little worthy of criticism in these final provisions of
subsection C, each of which should serve to provide OEM flexibility, which in turn, should
encourage competition.
f. End-User Access
Like subsection C, subsection H of Û III is aimed at providing flexibility in the OEM
channel of distribution for non-Microsoft middleware, as well as for consumers in configuring
their own Windows installation. Scheduled to take effect not later than twelve months from the
submission of the SRPFJ to the Court, subsection H concerns the addition, removal, and
placement of shortcuts, icons, and menu entries. Id. Û III.H. As recounted above, the appellate
court found that Microsoft's restrictions on icon appearance and placement, folders and menu
entries, and other alterations of the appearance of the desktop had the effect of "impos[ing]
significant costs upon the OEMs." Microsoft, 253 F.3d at 62. As a result of these additional
costs, Microsoft "reduced rival browsers' usage share not by improving its own product but,
47
rather, by preventing OEMs from taking actions that could increase rivals' share of usage." Id.
The appellate court rejected Microsoft's proffered procompetitive justifications for these
restrictions and, therefore, found them to be exclusionary in violation of Û 2 of the Sherman Act.
Id. at 63-64.
Section III.H.1(a) requires that Microsoft permit end users and OEMs "to enable or
remove access to each Microsoft Middleware Product or Non-Microsoft Middleware Product by
. . . displaying or removing icons, shortcuts, or menu entries on the desktop or Start menu, or
anywhere else in a Windows Operating System Product where a list of icons, shortcuts, or menu
entries for applications are generally displayed." SRPFJ Û III.H.1(a). In derogation of this
provision, Microsoft reserves the right to restrict the display of icons, shortcuts, and menu entries
in any list of the same "specified in the Windows documentation as being limited to products that
provide particular types of functionality, provided that the restrictions are non-discriminatory
with respect to non-Microsoft and Microsoft products." Id. The government explains that this
exception is intended to "capture broad categories of products" so as to avoid consumer confusion
by ensuring orderly placement of product icons, shortcuts, and menu entries. United States Resp.
at 99. As is plain from the language of the exception, Microsoft may not use these product
categories to discriminate between its own products and its competitors' products. SRPFJ
Û III.H.1(a).
Section III.H.1(a) is responsive to the appellate court's finding of anticompetitive
behavior in Microsoft's exclusion of IE from the Add/Remove Programs utility. Microsoft, 253
F.3d at 67. The government posits that the provision will "alter Microsoft's current practice of
creating an artificial distinction between . . . Non-Microsoft Middleware Products and Microsoft
48
Middleware Products." United States Resp. at 98. On this rationale, the government predicts that
users will be able, with the assistance of the SRPFJ, "to make choices on the merits about
Microsoft and Non-Microsoft Middleware Products." Id. As with Û III.C.1, Û III.H.1(a) reserves
for Microsoft the right limit the insertion of particular icons, shortcuts, and menu entries in lists or
other areas of Windows which are reserved for particular functionality. SRPFJ Û III.H.1(a).
Once again, the Court does not regard such a limitation as inappropriately restrictive of OEM and
end-user ability to configure Windows. The limitations imposed by Microsoft must be non-
discriminatory and may not be used to benefit Microsoft software over third-party software. Id.
As a result, the Court rejects any contention that such a limitation will hinder the appropriately
procompetitive effect of the remedial provision. On this basis, the Court finds that Û III.H.1(a)
advances the public interest.
Section III.H.1(b) also requires Microsoft to allow end users and OEMs to enable or
remove access to middleware products by "enabling or disabling automatic invocations pursuant
to Û III.C.3 of the SRPFJ that are used to launch Non-Microsoft Middleware Products or
Microsoft Middleware Products." Id. Û III.H.1(b). Again, Û III.C.3. concerns the automatic
launch of Non-Microsoft Middleware. Id. Û III.C.3. The "mechanism" for such enabling or
disabling must offer an unbiased choice between each Microsoft Middleware Product and Non-
Microsoft Middleware Product and may offer such an unbiased choice as between all Microsoft
Middleware Products as a group and Non-Microsoft Middleware Products as a group. Id.
Û III.H.1.(b). The Court finds this provision unobjectionable and appropriately procompetitive.
i. Designation of a Non-Microsoft Middleware Product in Place of a Microsoft
Middleware Product
The second subpart of Û III.H. requires Microsoft to allow end users and OEMs to
49
"designate a Non-Microsoft Middleware Product to be invoked in place of [a] Microsoft
Middleware Product (or vice versa)" in certain circumstances. Id. Û III.H.2. This provision
requires that the option be presented to end users "via an unbiased mechanism" and to OEMs "via
a standard OEM preinstallation kits" in any situation "where the Windows Operating System
Product would otherwise launch the Microsoft Middleware Product in a separate Top-Level
Window and display either (i) all of the user interface elements or (ii) the Trademark of the
Microsoft Middleware Product." Id. As exceptions to the foregoing, Microsoft may invoke a
Microsoft Middleware Product where the product would be "invoked solely for use in
interoperating with a server maintained by Microsoft" or "that designated Non-Microsoft
Middleware Product fails to implement a reasonable technical requirement." Id. Û III.H.2(a)-(b).
The government explains that the central goal and the anticipated effect of Û III.H.2 are that
Microsoft will be required to "implement and respect default settings in a number of
circumstances." United States Resp. at 101.
Critics of Û III.H.2 complain that Microsoft could engineer its software to avoid falling
within the requirements of a "separate Top-Level Window" displaying either "all of the user
interface elements" or the "Trademark of the Microsoft Middleware Product." SRPFJ Û III.H.2.
Microsoft's ability to circumvent this provision through its product design, argue some, will
undercut the usefulness of the affirmative portion of Û III.H.2. The government explains that
these qualifications exist to "ensure that access to defaults exists whenever the alternative
Microsoft product would be launched as the full `product' . . . rather than when just a portion of
the product's underlying functionality is launched to perform functions in Windows itself . . . or
otherwise where the end user might not necessarily be aware that he or she is using a specific
50
Microsoft Middleware Product. " United States Resp. at 102.
The most obvious flaw in this criticism of Û III.H.2 is that such criticism fails to recognize
that the provision offers relief beyond that which might be regarded as necessary to redress the
liability in this case. Microsoft prevailed on its assertion that the override of a user's choice of a
default browser was justified, and as a result, the appellate court did not ascribe liability for
Microsoft's failure to provide true defaults, Findings of Fact Ï 171 ("While Windows 98 does
provide the user with the ability to choose a different default browser, it does not treat this choice
as the `default browser' within the ordinary meaning of the term."). See Microsoft, 253 F.3d at
67. Despite this holding, Û III.H.2 addresses the acknowledged anticompetitive effect of the
override of non-Microsoft defaults, id. at 65, by requiring Microsoft to make non-Microsoft
products the "default" in certain circumstances. SRPFJ Û III.H.2. This requirement in Û III.H.2
exceeds even the scope of the facts addressed during the liability phase because the mandatory
setting of defaults applies to multiple types of software functionality, not merely Web-browsing
functionality. See Microsoft, 253 F.3d 34. Moreover, the government views the limited nature of
Û III.H.2 as one of the strengths of the provision, rather than its weakness. In this regard, the
government notes that paramount in Û III.H.2 is the ability to "provide certainty and a bright line
regarding when Microsoft is obligated to provide and respect a default setting." United States
Resp. at 102. Based on the foregoing, and deferring to the government's view that Û III.H.2 will
have a procompetitive effect because of the clarity in its terms, however circumscribed, the Court
cannot say that the United States has erred or strayed from the realm of acceptable remedies in
sacrificing some flexibility in order to achieve the "bright line" drawn by the provision.
With regard to the latter portion of Û III.H.2, the Court notes that subsections H.2(a) and
51
(b) appear to reflect the two findings by the appellate court as to liability or, more specifically, the
lack thereof. The relationship between subsection H.2(a) and the appellate opinion in this case is
somewhat subtle, but the United States explains that automatic invocation of a "Microsoft
Middleware Product . . . solely for use in interoperating with a server maintained by Microsoft
(outside of the general context of Web browsing)" derives from the appellate court's holding that
Microsoft did not violate Û 2 in designing its product to override a user's browser preference in
conjunction with invocation of the Windows "Help" system, Microsoft, 253 F.3d. at 67. See
United States Resp. at 104-05. The government avers that "[t]he current Windows Help system,
as well as other parts of the Windows interface, rely on interoperating with servers maintained by
Microsoft." Id. at 104. While the Court might not have interpreted the appellate court's holding
to require the precise exception in Û III.H.2(a), the Court cannot say that the provision is
inappropriate, and certainly, the provision does not conflict with the appellate court's holding.
Rather, the provision is remarkable in that it tracks an exception to liability, which was carefully
carved out by the appellate court, without sacrificing the effectiveness of the provision itself.
The link between Û III.H.2(b)'s "reasonable technical requirement" language and the
appellate court's finding with regard to Microsoft's "override the user's preferences" is somewhat
less subtle. Microsoft, 253 F.3d. at 67. Addressing whether Microsoft's product design to
"override the user's choice of a default browser in certain circumstances" was anticompetitive,
the appellate court concluded that Microsoft's proffered "valid technical reasons" were sufficient
to outweigh any anticompetitive effect of the override. Id. As a result, the appellate court did not
ascribe liability for this aspect of Microsoft's product design. Id. Section III.H.2(b) tracks the
appellate court's liability holding on this point, while simultaneously countering any
52
anticompetitive effects of the product design by requiring that Microsoft provide the unfulfilled
technical requirements to any ISV requesting them. SRPFJ Û III.H.2(b). Given the close
relationship between Û III.H.2(b) and the appellate opinion in this case, the Court finds little merit
in the criticism of the provision in the public's comments. Like the exception in Û III.H.2(a), the
exception in subpart H.2(b) acknowledges the nuances of the appellate court's holding and yet
maintains the potency of the restrictive portion of the provision. In doing so, Û III.H comports
with the public interest.
ii. Automatic Alteration of OEM Configuration
The final provision in Û III.H., subsection 3, prohibits a Windows Operating System
Product from automatically altering an OEM's icon, shortcut, or menu-entry configuration
without first seeking confirmation from the user. Id. Û III.H.3(a). Furthermore, pursuant to
Û III.H.3(b), the Windows Operating System Product may not seek confirmation from the end
user for such a non-user initiated change in configuration until "14 days after the initial boot up of
a new Personal Computer." Id. Û III.H.3(b). Any request for confirmation pursuant to this
section must be unbiased with regard to Microsoft Middleware Products and Non-Microsoft
Middleware. Id. Û III.H.3.
Section III.H.3 is written carefully to enable a feature in Microsoft's latest version of
Windows, the "Clean Desktop Wizard," to remove unused icons from the desktop. CIS at 48;
United States Resp. at 107. The 14-day grace period received wide criticism in the public's
comments for its brevity, which, argue critics, devalues space on the desktop. The government
explains that this time-frame was chosen as a "reasonable compromise between the need to use
desktop icons to promote Non-Microsoft Middleware, and the needs of users who would prefer to
53
be presented with the choice of moving unused icons to a folder." United States Resp. at 108.
The government further asserts that there are other valuable areas in Windows within which non-
Microsoft middleware products can be promoted. Id. While the former explanation offered by
the government is valid, the Court finds the latter rationale weak given the role that placement on
the desktop played in the liability proceedings. See, e.g,, Microsoft, 253 F.3d at 61 (finding that
the inability to remove desktop icons for IE protected Microsoft's monopoly), 68-71 (holding that
Microsoft's exclusive agreements with IAPs concerning desktop placement foreclosed a
substantial share of the market). The more salient point made by the government is that the
trigger and the confirmation for change must be unbiased with respect to Microsoft products and
non-Microsoft products, such that the "Clean Desktop Wizard" should not be viewed as a tool for
the suppression of non-Microsoft middleware products. United States Resp. at 107-08.
Moreover, the government explains that the utility does not delete the icons, but merely moves
the icons from the desktop into a folder from which they may be retrieved if the user changes his
or her mind. Id. at 108-09. The Court notes in addition that there is no ascription of liability for
Microsoft's alteration of user preferences and that the closest conduct to any such alteration-the
override of defaults-is conduct for which Microsoft was absolved of liability. Microsoft, 253
F.3d at 67. In sum, the Court is not compelled to conclude that the preservation of a consumer
option for a desktop "clean-up" tool is discordant with the public interest, so long as there exist
adequate protections to ensure that the tool is not used as a sword with which Microsoft can
attack its competitors.
g. Sections III.C and III.H: Remedy for Commingling Liability
Taking a more broad view of Sections III.C and III.H, the United States posits that these
54
sections "remedy Microsoft's anticompetitive commingling of browser and Windows operating
system code by requiring Microsoft to redesign its Windows Operating System Products to permit
OEMs and end users effectively to remove access to Microsoft Middleware Products (Section
III.H) and to allow competing middleware to be featured in its place (Section III.C)." United
States Resp. at 114. The invocation of anticompetitive conduct in this context refers to the
appellate court's affirmance of the following district court finding:
[T]he District Court condemned Microsoft's decision to bind IE to Windows 98 "by
placing code specific to Web browsing in the same files as code that provided
operating system functions." [Findings of Fact] Ï 161; see also id. ÏÏ 174, 192.
Putting code supplying browsing functionality into a file with code supplying
operating system functionality "ensure[s] that the deletion of any file containing
browsing-specific routines would also delete vital operating system routines and thus
cripple Windows . . . ." Id. Ï 164. As noted above, preventing an OEM from
removing IE deters it from installing a second browser because doing so increases the
OEM's product testing and support costs; by contrast, had OEMs been able to
remove IE, they might have chosen to pre-install Navigator alone. See id. Ï 159.
Microsoft, 253 F.3d at 65-66 (ellipsis in original). Rejecting Microsoft's factual assertion that it
does not commingle browsing and non-browsing code, the appellate court reiterated that
"commingling has an anticompetitive effect; . . . 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."
Id. at 66.
The government correctly notes that the basis for the appellate court' condemnation of
commingling is its anticompetitive effect and that, in the absence of such effect, it is not at all
clear that the practice of commingling would be of antitrust concern. United States Resp. at 115.
This observation is significant because, in this instance, the government proposes a remedy which
does not simply proscribe the conduct found to be anticompetitive in violation of Û 2. Instead, the
55
remedy for Microsoft's commingling liability is more closely aligned with alleviating the
anticompetitive effect of the conduct, rather than simply banning the conduct itself.
This approach receives much criticism in the public's comments on the proposed consent
decree. In general terms, these comments insist that Microsoft should be required to "un-
commingle," or make removable, much of the software code in its Windows operating system.
Not surprisingly, the United States rejects this criticism and insists that it has never pursued a
position that would have required the removal or removability of code. Id. at 115-16; see also
Microsoft, 97 F. Supp. 2d at 68 (IFJ requiring the removal of end-user access, not code removal).
Indeed, even the Findings of Fact support the view that code removal is unnecessary: Judge
Jackson noted in Ï 165 that "from the user's perspective, uninstalling Internet Explorer [via the
`Add/Remove' function] was equivalent to removing the Internet Explorer program from
Windows 95." Findings of Fact Ï 165. The United States takes this view one step further,
asserting that, contrary to theories advanced by some individuals and entities filing comments,
"[t]he basis for commingling liability, and remedy, in this case is the presence, from the user's
perspective, of the product, and consequent confusion and other deterrents to installation of
additional, rival middleware products; the mere presence of APIs is not enough." United States
Resp. at 119.
Non-party cries for removal of software code as a remedy appear to reflect a substantive
misunderstanding of the commingling liability in this case, which did not condemn Microsoft for
including middleware functionality along with a product offering operating system
56
functionality.24 The remedy then, need not separate the functionalities, rather, it need only protect
against any anticompetitive effect of the manner in which the functionalities have been bundled.
In this case, the anticompetitive effect was found to be a disincentive to OEMs to install non-
Microsoft middleware products. If that disincentive can be removed, then the remedy is within
the realm of appropriate relief. See 2 PHILLIP E. AREEDA ET AL., ANTITRUST LAW Ï 325a, at 246
(2d ed. 2000) ("[T]he decree . . . will not embody harsh measures when less severe ones will
do.").
The United States predicts that ÛÛ III.C and III.H will enhance competition between
Microsoft middleware and non-Microsoft middleware, see, e.g., CIS at 29, 45, and the Court is
obliged to give some amount of deference to this prediction. Mass. School of Law, 118 F.3d at
782; Microsoft, 56 F.3d at 1461. In fact, the Court sees substantial merit in the government's
explanation of the relationship between the theory of liability advanced by Plaintiffs, Judge
Jackson's Findings of Fact, the district and appellate courts' findings of liability on this point, and
the proposed consent decree's focus on end-user access, rather than code removal or redesign.
Accordingly, the Court rejects the view that a remedial decree which does not mandate the "un-
commingling" of code necessarily renders the remedy inappropriate, inadequate, or discordant
with the public interest.
Adding emphasis to the foregoing conclusion is one final and important consideration-the
effect of the remedy upon consumers and other participants in this segment of the industry. In
24Any such condemnation would likely be reflected in the imposition of liability for
illegal tying, rather than liability for illegal for monopoly maintenance.