)
)
UNITED STATES OF AMERICA, )
)
Plaintiff, )
)
v. ) Civil Action No. 98-1232 (TPJ)
)
MICROSOFT CORPORATION, )
)
Defendant. )
)
_________________________________________________________________
)
STATE OF NEW YORK, et al., )
)
Plaintiffs )
)
v. )
)
MICROSOFT CORPORATION, )
)
Defendant )
)
_________________________________________________________________
) Civil Action No. 98-1233 (TPJ)
)
MICROSOFT CORPORATION, )
)
v. )
)
Counterclaim-Plaintiff, )
)
ELLIOT SPITZER, attorney )
general of the State of )
New York, in his official )
capacity, et al., )
)
Counterclaim-Defendants. )
)
_________________________________________________________________
CONCLUSIONS OF LAW
The United States, nineteen individual states, and the District of
Columbia ("the plaintiffs") bring these consolidated civil enforcement
actions against defendant Microsoft Corporation ("Microsoft") under
the Sherman Antitrust Act, 15 U.S.C. �� 1 and 2. The plaintiffs
charge, in essence, that Microsoft has waged an unlawful campaign in
defense of its monopoly position in the market for operating systems
designed to run on Intel-compatible personal computers ("PCs").
Specifically, the plaintiffs contend that Microsoft violated �2 of the
Sherman Act by engaging in a series of exclusionary, anticompetitive,
and predatory acts to maintain its monopoly power. They also assert
that Microsoft attempted, albeit unsuccessfully to date, to monopolize
the Web browser market, likewise in violation of �2. Finally, they
contend that certain steps taken by Microsoft as part of its campaign
to protect its monopoly power, namely tying its browser to its
operating system and entering into exclusive dealing arrangements,
violated � 1 of the Act.
Upon consideration of the Court's Findings of Fact ("Findings"), filed
herein on November 5, 1999, as amended on December 21, 1999, the
proposed conclusions of law submitted by the parties, the briefs of
amici curiae, and the argument of counsel thereon, the Court concludes
that Microsoft maintained its monopoly power by anticompetitive means
and attempted to monopolize the Web browser market, both in violation
of � 2. Microsoft also violated � 1 of the Sherman Act by unlawfully
tying its Web browser to its operating system. The facts found do not
support the conclusion, however, that the effect of Microsoft's
marketing arrangements with other companies constituted unlawful
exclusive dealing under criteria established by leading decisions
under � 1.
The nineteen states and the District of Columbia ("the plaintiff
states") seek to ground liability additionally under their respective
antitrust laws. The Court is persuaded that the evidence in the record
proving violations of the Sherman Act also satisfies the elements of
analogous causes of action arising under the laws of each plaintiff
state. For this reason, and for others stated below, the Court holds
Microsoft liable under those particular state laws as well.
I. SECTION TWO OF THE SHERMAN ACT
A. Maintenance of Monopoly Power by Anticompetitive Means
Section 2 of the Sherman Act declares that it is unlawful for a person
or firm to "monopolize . . . any part of the trade or commerce among
the several States, or with foreign nations . . . ." 15 U.S.C. � 2.
This language operates to limit the means by which a firm may lawfully
either acquire or perpetuate monopoly power. Specifically, a firm
violates � 2 if it attains or preserves monopoly power through
anticompetitive acts. See United States v. Grinnell Corp., 384 U.S.
563, 570-71 (1966) ("The offense of monopoly power under � 2 of the
Sherman Act has two elements: (1) the possession of monopoly power in
the relevant market and (2) the willful acquisition or maintenance of
that power as distinguished from growth or development as a
consequence of a superior product, business acumen, or historic
accident."); Eastman Kodak Co. v. Image Technical Services, Inc., 504
U.S. 451, 488 (1992) (Scalia, J., dissenting) ("Our � 2 monopolization
doctrines are . . . directed to discrete situations in which a
defendant's possession of substantial market power, combined with his
exclusionary or anticompetitive behavior, threatens to defeat or
forestall the corrective forces of competition and thereby sustain or
extend the defendant's agglomeration of power.").
1. Monopoly Power
The threshold element of a � 2 monopolization offense being "the
possession of monopoly power in the relevant market," Grinnell, 384
U.S. at 570, the Court must first ascertain the boundaries of the
commercial activity that can be termed the "relevant market." See
Walker Process Equip., Inc. v. Food Mach. & Chem. Corp., 382 U.S. 172,
177 (1965) ("Without a definition of [the relevant] market there is no
way to measure [defendant's] ability to lessen or destroy
competition."). Next, the Court must assess the defendant's actual
power to control prices in - or to exclude competition from - that
market. See United States v. E. I. du Pont de Nemours & Co., 351 U.S.
377, 391 (1956) ("Monopoly power is the power to control prices or
exclude competition.").
In this case, the plaintiffs postulated the relevant market as being
the worldwide licensing of Intel-compatible PC operating systems.
Whether this zone of commercial activity actually qualifies as a
market, "monopolization of which may be illegal," depends on whether
it includes all products "reasonably interchangeable by consumers for
the same purposes." du Pont, 351 U.S. at 395. See Rothery Storage &
Van Co. v. Atlas Van Lines, Inc., 792 F.2d 210, 218 (D.C. Cir. 1986)
("Because the ability of consumers to turn to other suppliers
restrains a firm from raising prices above the competitive level, the
definition of the 'relevant market' rests on a determination of
available substitutes.").
The Court has already found, based on the evidence in this record,
that there are currently no products - and that there are not likely
to be any in the near future - that a significant percentage of
computer users worldwide could substitute for Intel-compatible PC
operating systems without incurring substantial costs. Findings ��
18-29. The Court has further found that no firm not currently
marketing Intel-compatible PC operating systems could start doing so
in a way that would, within a reasonably short period of time, present
a significant percentage of such consumers with a viable alternative
to existing Intel-compatible PC operating systems. Id. �� 18, 30-32.
From these facts, the Court has inferred that if a single firm or
cartel controlled the licensing of all Intel-compatible PC operating
systems worldwide, it could set the price of a license substantially
above that which would be charged in a competitive market - and leave
the price there for a significant period of time - without losing so
many customers as to make the action unprofitable. Id. � 18. This
inference, in turn, has led the Court to find that the licensing of
all Intel-compatible PC operating systems worldwide does in fact
constitute the relevant market in the context of the plaintiffs'
monopoly maintenance claim. Id.
The plaintiffs proved at trial that Microsoft possesses a dominant,
persistent, and increasing share of the relevant market. Microsoft's
share of the worldwide market for Intel-compatible PC operating
systems currently exceeds ninety-five percent, and the firm's share
would stand well above eighty percent even if the Mac OS were included
in the market. Id. � 35. The plaintiffs also proved that the
applications barrier to entry protects Microsoft's dominant market
share. Id. �� 36-52. This barrier ensures that no Intel-compatible PC
operating system other than Windows can attract significant consumer
demand, and the barrier would operate to the same effect even if
Microsoft held its prices substantially above the competitive level
for a protracted period of time. Id. Together, the proof of dominant
market share and the existence of a substantial barrier to effective
entry create the presumption that Microsoft enjoys monopoly power. See
United States v. AT&T Co., 524 F. Supp. 1336, 1347-48 (D.D.C. 1981)
("a persuasive showing . . . that defendants have monopoly power . . .
through various barriers to entry, . . . in combination with the
evidence of market shares, suffice[s] at least to meet the
government's initial burden, and the burden is then appropriately
placed upon defendants to rebut the existence and significance of
barriers to entry"), quoted with approval in Southern Pac.
Communications Co. v. AT&T Co., 740 F.2d 980, 1001-02 (D.C. Cir.
1984).
At trial, Microsoft attempted to rebut the presumption of monopoly
power with evidence of both putative constraints on its ability to
exercise such power and behavior of its own that is supposedly
inconsistent with the possession of monopoly power. None of the
purported constraints, however, actually deprive Microsoft of "the
ability (1) to price substantially above the competitive level and (2)
to persist in doing so for a significant period without erosion by new
entry or expansion." IIA Phillip E. Areeda, Herbert Hovenkamp & John
L. Solow, Antitrust Law � 501, at 86 (1995) (emphasis in original);
see Findings �� 57-60. Furthermore, neither Microsoft's efforts at
technical innovation nor its pricing behavior is inconsistent with the
possession of monopoly power. Id. �� 61-66.
Even if Microsoft's rebuttal had attenuated the presumption created by
the prima facie showing of monopoly power, corroborative evidence of
monopoly power abounds in this record: Neither Microsoft nor its OEM
customers believe that the latter have - or will have anytime soon -
even a single, commercially viable alternative to licensing Windows
for pre-installation on their PCs. Id. �� 53-55; cf. Rothery, 792 F.2d
at 219 n.4 ("we assume that economic actors usually have accurate
perceptions of economic realities"). Moreover, over the past several
years, Microsoft has comported itself in a way that could only be
consistent with rational behavior for a profit-maximizing firm if the
firm knew that it possessed monopoly power, and if it was motivated by
a desire to preserve the barrier to entry protecting that power.
Findings �� 67, 99, 136, 141, 215-16, 241, 261-62, 286, 291, 330, 355,
393, 407.
In short, the proof of Microsoft's dominant, persistent market share
protected by a substantial barrier to entry, together with Microsoft's
failure to rebut that prima facie showing effectively and the
additional indicia of monopoly power, have compelled the Court to find
as fact that Microsoft enjoys monopoly power in the relevant market.
Id. � 33.
2. Maintenance of Monopoly Power by Anticompetitive Means
In a � 2 case, once it is proved that the defendant possesses monopoly
power in a relevant market, liability for monopolization depends on a
showing that the defendant used anticompetitive methods to achieve or
maintain its position. See United States v. Grinnell, 384 U.S. 563,
570-71 (1966); Eastman Kodak Co. v. Image Technical Services, Inc.,
504 U.S. 451, 488 (1992) (Scalia, J., dissenting); Intergraph Corp. v.
Intel Corp., 195 F.3d 1346, 1353 (Fed. Cir. 1999). Prior cases have
established an analytical approach to determining whether challenged
conduct should be deemed anticompetitive in the context of a monopoly
maintenance claim. The threshold question in this analysis is whether
the defendant's conduct is "exclusionary" - that is, whether it has
restricted significantly, or threatens to restrict significantly, the
ability of other firms to compete in the relevant market on the merits
of what they offer customers. See Eastman Kodak, 504 U.S. at 488
(Scalia, J., dissenting) (� 2 is "directed to discrete situations" in
which the behavior of firms with monopoly power "threatens to defeat
or forestall the corrective forces of competition").[1](1)
If the evidence reveals a significant exclusionary impact in the
relevant market, the defendant's conduct will be labeled
"anticompetitive" - and liability will attach - unless the defendant
comes forward with specific, procompetitive business motivations that
explain the full extent of its exclusionary conduct. See Eastman
Kodak, 504 U.S. at 483 (declining to grant defendant's motion for
summary judgment because factual questions remained as to whether
defendant's asserted justifications were sufficient to explain the
exclusionary conduct or were instead merely pretextual); see also
Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585, 605
n.32 (1985) (holding that the second element of a monopoly maintenance
claim is satisfied by proof of "'behavior that not only (1) tends to
impair the opportunities of rivals, but also (2) either does not
further competition on the merits or does so in an unnecessarily
restrictive way'") (quoting III Phillip E. Areeda & Donald F. Turner,
Antitrust Law � 626b, at 78 (1978)).
If the defendant with monopoly power consciously antagonized its
customers by making its products less attractive to them - or if it
incurred other costs, such as large outlays of development capital and
forfeited opportunities to derive revenue from it - with no prospect
of compensation other than the erection or preservation of barriers
against competition by equally efficient firms, the Court may deem the
defendant's conduct "predatory." As the D.C. Circuit stated in Neumann
v. Reinforced Earth Co.,
[P]redation involves aggression against business rivals through the
use of business practices that would not be considered profit
maximizing except for the expectation that (1) actual rivals will be
driven from the market, or the entry of potential rivals blocked or
delayed, so that the predator will gain or retain a market share
sufficient to command monopoly profits, or (2) rivals will be
chastened sufficiently to abandon competitive behavior the predator
finds threatening to its realization of monopoly profits.
786 F.2d 424, 427 (D.C. Cir. 1986).
Proof that a profit-maximizing firm took predatory action should
suffice to demonstrate the threat of substantial exclusionary effect;
to hold otherwise would be to ascribe irrational behavior to the
defendant. Moreover, predatory conduct, by definition as well as by
nature, lacks procompetitive business motivation. See Aspen Skiing,
472 U.S. at 610-11 (evidence indicating that defendant's conduct was
"motivated entirely by a decision to avoid providing any benefits" to
a rival supported the inference that defendant's conduct "was not
motivated by efficiency concerns"). In other words, predatory behavior
is patently anticompetitive. Proof that a firm with monopoly power
engaged in such behavior thus necessitates a finding of liability
under � 2.
In this case, Microsoft early on recognized middleware as the Trojan
horse that, once having, in effect, infiltrated the applications
barrier, could enable rival operating systems to enter the market for
Intel-compatible PC operating systems unimpeded. Simply put,
middleware threatened to demolish Microsoft's coveted monopoly power.
Alerted to the threat, Microsoft strove over a period of approximately
four years to prevent middleware technologies from fostering the
development of enough full-featured, cross-platform applications to
erode the applications barrier. In pursuit of this goal, Microsoft
sought to convince developers to concentrate on Windows-specific APIs
and ignore interfaces exposed by the two incarnations of middleware
that posed the greatest threat, namely, Netscape's Navigator Web
browser and Sun's implementation of the Java technology. Microsoft's
campaign succeeded in preventing - for several years, and perhaps
permanently - Navigator and Java from fulfilling their potential to
open the market for Intel-compatible PC operating systems to
competition on the merits. Findings �� 133, 378. Because Microsoft
achieved this result through exclusionary acts that lacked
procompetitive justification, the Court deems Microsoft's conduct the
maintenance of monopoly power by anticompetitive means.
a. Combating the Browser Threat
The same ambition that inspired Microsoft's efforts to induce Intel,
Apple, RealNetworks and IBM to desist from certain technological
innovations and business initiatives - namely, the desire to preserve
the applications barrier - motivated the firm's June 1995 proposal
that Netscape abstain from releasing platform-level browsing software
for 32-bit versions of Windows. See id. �� 79-80, 93-132. This
proposal, together with the punitive measures that Microsoft inflicted
on Netscape when it rebuffed the overture, illuminates the context in
which Microsoft's subsequent behavior toward PC manufacturers
("OEMs"), Internet access providers ("IAPs"), and other firms must be
viewed.
When Netscape refused to abandon its efforts to develop Navigator into
a substantial platform for applications development, Microsoft focused
its efforts on minimizing the extent to which developers would avail
themselves of interfaces exposed by that nascent platform. Microsoft
realized that the extent of developers' reliance on Netscape's browser
platform would depend largely on the size and trajectory of
Navigator's share of browser usage. Microsoft thus set out to maximize
Internet Explorer's share of browser usage at Navigator's expense. Id.
�� 133, 359-61. The core of this strategy was ensuring that the firms
comprising the most effective channels for the generation of browser
usage would devote their distributional and promotional efforts to
Internet Explorer rather than Navigator. Recognizing that
pre-installation by OEMs and bundling with the proprietary software of
IAPs led more directly and efficiently to browser usage than any other
practices in the industry, Microsoft devoted major efforts to usurping
those two channels. Id. � 143.
i. The OEM Channel
With respect to OEMs, Microsoft's campaign proceeded on three fronts.
First, Microsoft bound Internet Explorer to Windows with contractual
and, later, technological shackles in order to ensure the prominent
(and ultimately permanent) presence of Internet Explorer on every
Windows user's PC system, and to increase the costs attendant to
installing and using Navigator on any PCs running Windows. Id. ��
155-74. Second, Microsoft imposed stringent limits on the freedom of
OEMs to reconfigure or modify Windows 95 and Windows 98 in ways that
might enable OEMs to generate usage for Navigator in spite of the
contractual and technological devices that Microsoft had employed to
bind Internet Explorer to Windows. Id. �� 202-29. Finally, Microsoft
used incentives and threats to induce especially important OEMs to
design their distributional, promotional and technical efforts to
favor Internet Explorer to the exclusion of Navigator. Id. �� 230-38.
Microsoft's actions increased the likelihood that pre-installation of
Navigator onto Windows would cause user confusion and system
degradation, and therefore lead to higher support costs and reduced
sales for the OEMs. Id. �� 159, 172. Not willing to take actions that
would jeopardize their already slender profit margins, OEMs felt
compelled by Microsoft's actions to reduce drastically their
distribution and promotion of Navigator. Id. �� 239, 241. The
substantial inducements that Microsoft held out to the largest OEMs
only further reduced the distribution and promotion of Navigator in
the OEM channel. Id. �� 230, 233. The response of OEMs to Microsoft's
efforts had a dramatic, negative impact on Navigator's usage share.
Id. � 376. The drop in usage share, in turn, has prevented Navigator
from being the vehicle to open the relevant market to competition on
the merits. Id. �� 377-78, 383.
Microsoft fails to advance any legitimate business objectives that
actually explain the full extent of this significant exclusionary
impact. The Court has already found that no quality-related or
technical justifications fully explain Microsoft's refusal to license
Windows 95 to OEMs without version 1.0 through 4.0 of Internet
Explorer, or its refusal to permit them to uninstall versions 3.0 and
4.0. Id. �� 175-76. The same lack of justification applies to
Microsoft's decision not to offer a browserless version of Windows 98
to consumers and OEMs, id. � 177, as well as to its claim that it
could offer "best of breed" implementations of functionalities in Web
browsers. With respect to the latter assertion, Internet Explorer is
not demonstrably the current "best of breed" Web browser, nor is it
likely to be so at any time in the immediate future. The fact that
Microsoft itself was aware of this reality only further strengthens
the conclusion that Microsoft's decision to tie Internet Explorer to
Windows cannot truly be explained as an attempt to benefit consumers
and improve the efficiency of the software market generally, but
rather as part of a larger campaign to quash innovation that
threatened its monopoly position. Id. �� 195, 198.
To the extent that Microsoft still asserts a copyright defense,
relying upon federal copyright law as a justification for its various
restrictions on OEMs, that defense neither explains nor operates to
immunize Microsoft's conduct under the Sherman Act. As a general
proposition, Microsoft argues that the federal Copyright Act, 17
U.S.C. �101 et seq., endows the holder of a valid copyright in
software with an absolute right to prevent licensees, in this case the
OEMs, from shipping modified versions of its product without its
express permission. In truth, Windows 95 and Windows 98 are covered by
copyright registrations, Findings � 228, that "constitute prima facie
evidence of the validity of the copyright." 17 U.S.C. �410(c). But the
validity of Microsoft's copyrights has never been in doubt; the issue
is what, precisely, they protect.
Microsoft has presented no evidence that the contractual (or the
technological) restrictions it placed on OEMs' ability to alter
Windows derive from any of the enumerated rights explicitly granted to
a copyright holder under the Copyright Act. Instead, Microsoft argues
that the restrictions "simply restate" an expansive right to preserve
the "integrity"of its copyrighted software against any "distortion,"
"truncation," or "alteration," a right nowhere mentioned among the
Copyright Act's list of exclusive rights, 17 U.S.C. �106, thus raising
some doubt as to its existence. See Twentieth Century Music Corp. v.
Aiken, 422 U.S. 151, 155 (1973) (not all uses of a work are within
copyright holder's control; rights limited to specifically granted
"exclusive rights"); cf. 17 U.S.C. � 501(a) (infringement means
violating specifically enumerated rights).[2](2)
It is also well settled that a copyright holder is not by reason
thereof entitled to employ the perquisites in ways that directly
threaten competition. See, e.g., Eastman Kodak, 504 U.S. at 479 n.29
("The Court has held many times that power gained through some natural
and legal advantage such as a . . . copyright, . . . can give rise to
liability if 'a seller exploits his dominant position in one market to
expand his empire into the next.'") (quoting Times-Picayune Pub. Co.
v. United States, 345 U.S. 594, 611 (1953)); Square D Co. v. Niagara
Frontier Tariff Bureau, Inc., 476 U.S. 409, 421 (1986); Data General
Corp. v. Grumman Systems Support Corp., 36 F.3d 1147, 1186 n.63 (1st
Cir. 1994) (a copyright does not exempt its holder from antitrust
inquiry where the copyright is used as part of a scheme to
monopolize); see also Image Technical Services, Inc. v. Eastman Kodak
Co., 125 F.3d 1195, 1219 (9th Cir. 1997), cert. denied, 523 U.S. 1094
(1998) ("Neither the aims of intellectual property law, nor the
antitrust laws justify allowing a monopolist to rely upon a pretextual
business justification to mask anticompetitive conduct."). Even
constitutional privileges confer no immunity when they are abused for
anticompetitive purposes. See Lorain Journal Co. v. United States, 342
U.S. 143, 155-56 (1951). The Court has already found that the true
impetus behind Microsoft's restrictions on OEMs was not its desire to
maintain a somewhat amorphous quality it refers to as the "integrity"
of the Windows platform, nor even to ensure that Windows afforded a
uniform and stable platform for applications development. Microsoft
itself engendered, or at least countenanced, instability and
inconsistency by permitting Microsoft-friendly modifications to the
desktop and boot sequence, and by releasing updates to Internet
Explorer more frequently than it released new versions of Windows.
Findings � 226. Add to this the fact that the modifications OEMs
desired to make would not have removed or altered any Windows APIs,
and thus would not have disrupted any of Windows' functionalities, and
it is apparent that Microsoft's conduct is effectively explained by
its foreboding that OEMs would pre-install and give prominent
placement to middleware like Navigator that could attract enough
developer attention to weaken the applications barrier to entry. Id. �
227. In short, if Microsoft was truly inspired by a genuine concern
for maximizing consumer satisfaction, as well as preserving its
substantial investment in a worthy product, then it would have relied
more on the power of the very competitive PC market, and less on its
own market power, to prevent OEMs from making modifications that
consumers did not want. Id. �� 225, 228-29.
ii. The IAP Channel
Microsoft adopted similarly aggressive measures to ensure that the IAP
channel would generate browser usage share for Internet Explorer
rather than Navigator. To begin with, Microsoft licensed Internet
Explorer and the Internet Explorer Access Kit to hundreds of IAPs for
no charge. Id. �� 250-51. Then, Microsoft extended valuable
promotional treatment to the ten most important IAPs in exchange for
their commitment to promote and distribute Internet Explorer and to
exile Navigator from the desktop. Id. �� 255-58, 261, 272, 288-90,
305-06. Finally, in exchange for efforts to upgrade existing
subscribers to client software that came bundled with Internet
Explorer instead of Navigator, Microsoft granted rebates - and in some
cases made outright payments - to those same IAPs. Id. �� 259-60, 295.
Given the importance of the IAP channel to browser usage share, it is
fair to conclude that these inducements and restrictions contributed
significantly to the drastic changes that have in fact occurred in
Internet Explorer's and Navigator's respective usage shares. Id. ��
144-47, 309-10. Microsoft's actions in the IAP channel thereby
contributed significantly to preserving the applications barrier to
entry.
There are no valid reasons to justify the full extent of Microsoft's
exclusionary behavior in the IAP channel. A desire to limit free
riding on the firm's investment in consumer-oriented features, such as
the Referral Server and the Online Services Folder, can, in some
circumstances, qualify as a procompetitive business motivation; but
that motivation does not explain the full extent of the restrictions
that Microsoft actually imposed upon IAPs. Under the terms of the
agreements, an IAP's failure to keep Navigator shipments below the
specified percentage primed Microsoft's contractual right to dismiss
the IAP from its own favored position in the Referral Server or the
Online Services Folder. This was true even if the IAP had refrained
from promoting Navigator in its client software included with Windows,
had purged all mention of Navigator from any Web site directly
connected to the Referral Server, and had distributed no browser other
than Internet Explorer to the new subscribers it gleaned from the
Windows desktop. Id. �� 258, 262, 289. Thus, Microsoft's restrictions
closed off a substantial amount of distribution that would not have
constituted a free ride to Navigator.
Nor can an ostensibly procompetitive desire to "foster brand
association" explain the full extent of Microsoft's restrictions. If
Microsoft's only concern had been brand association, restrictions on
the ability of IAPs to promote Navigator likely would have sufficed.
It is doubtful that Microsoft would have paid IAPs to induce their
existing subscribers to drop Navigator in favor of Internet Explorer
unless it was motivated by a desire to extinguish Navigator as a
threat. See id. �� 259, 295. More generally, it is crucial to an
understanding of Microsoft's intentions to recognize that Microsoft
paid for the fealty of IAPs with large investments in software
development for their benefit, conceded opportunities to take a
profit, suffered competitive disadvantage to Microsoft's own OLS, and
gave outright bounties. Id. �� 259-60, 277, 284-86, 295. Considering
that Microsoft never intended to derive appreciable revenue from
Internet Explorer directly, id. �� 136-37, these sacrifices could only
have represented rational business judgments to the extent that they
promised to diminish Navigator's share of browser usage and thereby
contribute significantly to eliminating a threat to the applications
barrier to entry. Id. � 291. Because the full extent of Microsoft's
exclusionary initiatives in the IAP channel can only be explained by
the desire to hinder competition on the merits in the relevant market,
those initiatives must be labeled anticompetitive.
In sum, the efforts Microsoft directed at OEMs and IAPs successfully
ostracized Navigator as a practical matter from the two channels that
lead most efficiently to browser usage. Even when viewed
independently, these two prongs of Microsoft's campaign threatened to
"forestall the corrective forces of competition" and thereby
perpetuate Microsoft's monopoly power in the relevant market. Eastman
Kodak Co. v. Image Technical Services, Inc., 504 U.S. 451, 488 (1992)
(Scalia, J., dissenting). Therefore, whether they are viewed
separately or together, the OEM and IAP components of Microsoft's
anticompetitive campaign merit a finding of liability under � 2.
iii. ICPs, ISVs and Apple
No other distribution channels for browsing software approach the
efficiency of OEM pre-installation and IAP bundling. Findings ��
144-47. Nevertheless, protecting the applications barrier to entry was
so critical to Microsoft that the firm was willing to invest
substantial resources to enlist ICPs, ISVs, and Apple in its campaign
against the browser threat. By extracting from Apple terms that
significantly diminished the usage of Navigator on the Mac OS,
Microsoft helped to ensure that developers would not view Navigator as
truly cross-platform middleware. Id. � 356. By granting ICPs and ISVs
free licenses to bundle Internet Explorer with their offerings, and by
exchanging other valuable inducements for their agreement to
distribute, promote and rely on Internet Explorer rather than
Navigator, Microsoft directly induced developers to focus on its own
APIs rather than ones exposed by Navigator. Id. �� 334-35, 340. These
measures supplemented Microsoft's efforts in the OEM and IAP channels.
Just as they fail to account for the measures that Microsoft took in
the IAP channel, the goals of preventing free riding and preserving
brand association fail to explain the full extent of Microsoft's
actions in the ICP channel. Id. �� 329-30. With respect to the ISV
agreements, Microsoft has put forward no procompetitive business ends
whatsoever to justify their exclusionary terms. See id. �� 339-40.
Finally, Microsoft's willingness to make the sacrifices involved in
cancelling Mac Office, and the concessions relating to browsing
software that it demanded from Apple, can only be explained by
Microsoft's desire to protect the applications barrier to entry from
the threat posed by Navigator. Id. � 355. Thus, once again, Microsoft
is unable to justify the full extent of its restrictive behavior.
b. Combating the Java Threat
As part of its grand strategy to protect the applications barrier,
Microsoft employed an array of tactics designed to maximize the
difficulty with which applications written in Java could be ported
from Windows to other platforms, and vice versa. The first of these
measures was the creation of a Java implementation for Windows that
undermined portability and was incompatible with other
implementations. Id. �� 387-93. Microsoft then induced developers to
use its implementation of Java rather than Sun-compliant ones. It
pursued this tactic directly, by means of subterfuge and barter, and
indirectly, through its campaign to minimize Navigator's usage share.
Id. �� 394, 396-97, 399-400, 401-03. In a separate effort to prevent
the development of easily portable Java applications, Microsoft used
its monopoly power to prevent firms such as Intel from aiding in the
creation of cross-platform interfaces. Id. �� 404-06.
Microsoft's tactics induced many Java developers to write their
applications using Microsoft's developer tools and to refrain from
distributing Sun-compliant JVMs to Windows users. This stratagem has
effectively resulted in fewer applications that are easily portable.
Id. � 398. What is more, Microsoft's actions interfered with the
development of new cross-platform Java interfaces. Id. � 406. It is
not clear whether, absent Microsoft's machinations, Sun's Java efforts
would by now have facilitated porting between Windows and other
platforms to a degree sufficient to render the applications barrier to
entry vulnerable. It is clear, however, that Microsoft's actions
markedly impeded Java's progress to that end. Id. � 407. The evidence
thus compels the conclusion that Microsoft's actions with respect to
Java have restricted significantly the ability of other firms to
compete on the merits in the market for Intel-compatible PC operating
systems.
Microsoft's actions to counter the Java threat went far beyond the
development of an attractive alternative to Sun's implementation of
the technology. Specifically, Microsoft successfully pressured Intel,
which was dependent in many ways on Microsoft's good graces, to
abstain from aiding in Sun's and Netscape's Java development work. Id.
�� 396, 406. Microsoft also deliberately designed its Java development
tools so that developers who were opting for portability over
performance would nevertheless unwittingly write Java applications
that would run only on Windows. Id. � 394. Moreover, Microsoft's means
of luring developers to its Java implementation included maximizing
Internet Explorer's share of browser usage at Navigator's expense in
ways the Court has already held to be anticompetitive. See supra, �
I.A.2.a. Finally, Microsoft impelled ISVs, which are dependent upon
Microsoft for technical information and certifications relating to
Windows, to use and distribute Microsoft's version of the Windows JVM
rather than any Sun-compliant version. Id. �� 401-03.
These actions cannot be described as competition on the merits, and
they did not benefit consumers. In fact, Microsoft's actions did not
even benefit Microsoft in the short run, for the firm's efforts to
create incompatibility between its JVM for Windows and others' JVMs
for Windows resulted in fewer total applications being able to run on
Windows than otherwise would have been written. Microsoft was willing
nevertheless to obstruct the development of Windows-compatible
applications if they would be easy to port to other platforms and
would thus diminish the applications barrier to entry. Id. � 407.
c. Microsoft's Conduct Taken As a Whole
As the foregoing discussion illustrates, Microsoft's campaign to
protect the applications barrier from erosion by network-centric
middleware can be broken down into discrete categories of activity,
several of which on their own independently satisfy the second element
of a � 2 monopoly maintenance claim. But only when the separate
categories of conduct are viewed, as they should be, as a single,
well-coordinated course of action does the full extent of the violence
that Microsoft has done to the competitive process reveal itself. See
Continental Ore Co. v. Union Carbide & Carbon Corp., 370 U.S. 690, 699
(1962) (counseling that in Sherman Act cases "plaintiffs should be
given the full benefit of their proof without tightly
compartmentalizing the various factual components and wiping the slate
clean after scrutiny of each"). In essence, Microsoft mounted a
deliberate assault upon entrepreneurial efforts that, left to rise or
fall on their own merits, could well have enabled the introduction of
competition into the market for Intel-compatible PC operating systems.
Id. � 411. While the evidence does not prove that they would have
succeeded absent Microsoft's actions, it does reveal that Microsoft
placed an oppressive thumb on the scale of competitive fortune,
thereby effectively guaranteeing its continued dominance in the
relevant market. More broadly, Microsoft's anticompetitive actions
trammeled the competitive process through which the computer software
industry generally stimulates innovation and conduces to the optimum
benefit of consumers. Id. � 412.
Viewing Microsoft's conduct as a whole also reinforces the conviction
that it was predacious. Microsoft paid vast sums of money, and
renounced many millions more in lost revenue every year, in order to
induce firms to take actions that would help enhance Internet
Explorer's share of browser usage at Navigator's expense. Id. � 139.
These outlays cannot be explained as subventions to maximize return
from Internet Explorer. Microsoft has no intention of ever charging
for licenses to use or distribute its browser. Id. �� 137-38.
Moreover, neither the desire to bolster demand for Windows nor the
prospect of ancillary revenues from Internet Explorer can explain the
lengths to which Microsoft has gone. In fact, Microsoft has expended
wealth and foresworn opportunities to realize more in a manner and to
an extent that can only represent a rational investment if its purpose
was to perpetuate the applications barrier to entry. Id. �� 136,
139-42. Because Microsoft's business practices "would not be
considered profit maximizing except for the expectation that . . . the
entry of potential rivals" into the market for Intel-compatible PC
operating systems will be "blocked or delayed," Neumann v. Reinforced
Earth Co., 786 F.2d 424, 427 (D.C. Cir. 1986), Microsoft's campaign
must be termed predatory. Since the Court has already found that
Microsoft possesses monopoly power, see supra, � I.A.1, the predatory
nature of the firm's conduct compels the Court to hold Microsoft
liable under � 2 of the Sherman Act.
B. Attempting to Obtain Monopoly Power in a Second Market by
Anticompetitive Means
In addition to condemning actual monopolization, � 2 of the Sherman
Act declares that it is unlawful for a person or firm to "attempt to
monopolize . . . any part of the trade or commerce among the several
States, or with foreign nations . . . ." 15 U.S.C. � 2. Relying on
this language, the plaintiffs assert that Microsoft's anticompetitive
efforts to maintain its monopoly power in the market for
Intel-compatible PC operating systems warrant additional liability as
an illegal attempt to amass monopoly power in "the browser market."
The Court agrees.
In order for liability to attach for attempted monopolization, a
plaintiff generally must prove "(1) that the defendant has engaged in
predatory or anticompetitive conduct with (2) a specific intent to
monopolize," and (3) that there is a "dangerous probability" that the
defendant will succeed in achieving monopoly power. Spectrum Sports,
Inc. v. McQuillan, 506 U.S. 447, 456 (1993). Microsoft's June 1995
proposal that Netscape abandon the field to Microsoft in the market
for browsing technology for Windows, and its subsequent,
well-documented efforts to overwhelm Navigator's browser usage share
with a proliferation of Internet Explorer browsers inextricably
attached to Windows, clearly meet the first element of the offense.
The evidence in this record also satisfies the requirement of specific
intent. Microsoft's effort to convince Netscape to stop developing
platform-level browsing software for the 32-bit versions of Windows
was made with full knowledge that Netscape's acquiescence in this
market allocation scheme would, without more, have left Internet
Explorer with such a large share of browser usage as to endow
Microsoft with de facto monopoly power in the browser market. Findings
�� 79-89.
When Netscape refused to abandon the development of browsing software
for 32-bit versions of Windows, Microsoft's strategy for protecting
the applications barrier became one of expanding Internet Explorer's
share of browser usage - and simultaneously depressing Navigator's
share - to an extent sufficient to demonstrate to developers that
Navigator would never emerge as the standard software employed to
browse the Web. Id. � 133. While Microsoft's top executives never
expressly declared acquisition of monopoly power in the browser market
to be the objective, they knew, or should have known, that the tactics
they actually employed were likely to push Internet Explorer's share
to those extreme heights. Navigator's slow demise would leave a
competitive vacuum for only Internet Explorer to fill. Yet, there is
no evidence that Microsoft tried - or even considered trying - to
prevent its anticompetitive campaign from achieving overkill. Under
these circumstances, it is fair to presume that the wrongdoer intended
"the probable consequences of its acts." IIIA Phillip E. Areeda &
Herbert Hovenkamp, Antitrust Law � 805b, at 324 (1996); see also
Spectrum Sports, 506 U.S. at 459 (proof of "'predatory' tactics . . .
may be sufficient to prove the necessary intent to monopolize, which
is something more than an intent to compete vigorously"). Therefore,
the facts of this case suffice to prove the element of specific
intent.
Even if the first two elements of the offense are met, however, a
defendant may not be held liable for attempted monopolization absent
proof that its anticompetitive conduct created a dangerous probability
of achieving the objective of monopoly power in a relevant market. Id.
The evidence supports the conclusion that Microsoft's actions did pose
such a danger.
At the time Microsoft presented its market allocation proposal to
Netscape, Navigator's share of browser usage stood well above seventy
percent, and no other browser enjoyed more than a fraction of the
remainder. Findings �� 89, 372. Had Netscape accepted Microsoft's
offer, nearly all of its share would have devolved upon Microsoft,
because at that point, no potential third-party competitor could
either claim to rival Netscape's stature as a browser company or match
Microsoft's ability to leverage monopoly power in the market for
Intel-compatible PC operating systems. In the time it would have taken
an aspiring entrant to launch a serious effort to compete against
Internet Explorer, Microsoft could have erected the same type of
barrier that protects its existing monopoly power by adding
proprietary extensions to the browsing software under its control and
by extracting commitments from OEMs, IAPs and others similar to the
ones discussed in � I.A.2, supra. In short, Netscape's assent to
Microsoft's market division proposal would have, instanter, resulted
in Microsoft's attainment of monopoly power in a second market. It
follows that the proposal itself created a dangerous probability of
that result. See United States v. American Airlines, Inc., 743 F.2d
1114, 1118-19 (5th Cir. 1984) (fact that two executives "arguably"
could have implemented market-allocation scheme that would have
engendered monopoly power was sufficient for finding of dangerous
probability). Although the dangerous probability was no longer
imminent with Netscape's rejection of Microsoft's proposal, "the
probability of success at the time the acts occur" is the measure by
which liability is determined. Id. at 1118.
This conclusion alone is sufficient to support a finding of liability
for attempted monopolization. The Court is nonetheless compelled to
express its further conclusion that the predatory course of conduct
Microsoft has pursued since June of 1995 has revived the dangerous
probability that Microsoft will attain monopoly power in a second
market. Internet Explorer's share of browser usage has already risen
above fifty percent, will exceed sixty percent by January 2001, and
the trend continues unabated. Findings �� 372-73; see M&M Medical
Supplies & Serv., Inc. v. Pleasant Valley Hosp., Inc., 981 F.2d 160,
168 (4th Cir. 1992) (en banc) ("A rising share may show more
probability of success than a falling share. . . . [C]laims involving
greater than 50% share should be treated as attempts at monopolization
when the other elements for attempted monopolization are also
satisfied.") (citations omitted); see also IIIA Phillip E. Areeda &
Herbert Hovenkamp, Antitrust Law � 807d, at 354-55 (1996)
(acknowledging the significance of a large, rising market share to the
dangerous probability element).
II. SECTION ONE OF THE SHERMAN ACT
Section 1 of the Sherman Act prohibits "every contract, combination .
. . , or conspiracy, in restraint of trade or commerce . . . ." 15
U.S.C. � 1. Pursuant to this statute, courts have condemned commercial
stratagems that constitute unreasonable restraints on competition. See
Continental T.V., Inc. v. GTE Sylvania Inc., 433 U.S. 36, 49 (1977);
Chicago Board of Trade v. United States, 246 U.S. 231, 238-39 (1918),
among them "tying arrangements" and "exclusive dealing" contracts.
Tying arrangements have been found unlawful where sellers exploit
their market power over one product to force unwilling buyers into
acquiring another. See Jefferson Parish Hospital District No. 2 v.
Hyde, 466 U.S. 2, 12 (1984); Northern Pac. Ry. Co. v. United States,
356 U.S. 1, 6 (1958); Times-Picayune Pub. Co. v. United States, 345
U.S. 594, 605 (1953). Where agreements have been challenged as
unlawful exclusive dealing, the courts have condemned only those
contractual arrangements that substantially foreclose competition in a
relevant market by significantly reducing the number of outlets
available to a competitor to reach prospective consumers of the
competitor's product. See Tampa Electric Co. v. Nashville Coal Co.,
365 U.S. 320, 327 (1961); Roland Machinery Co. v. Dresser Industries,
Inc., 749 F.2d 380, 393 (7th Cir. 1984).
A. Tying
Liability for tying under � 1 exists where (1) two separate "products"
are involved; (2) the defendant affords its customers no choice but to
take the tied product in order to obtain the tying product; (3) the
arrangement affects a substantial volume of interstate commerce; and
(4) the defendant has "market power" in the tying product market.
Jefferson Parish, 466 U.S. at 12-18. The Supreme Court has since
reaffirmed this test in Eastman Kodak Co. v. Image Technical Services,
Inc., 504 U.S. 451, 461-62 (1992). All four elements are required,
whether the arrangement is subjected to a per se or Rule of Reason
analysis.
The plaintiffs allege that Microsoft's combination of Windows and
Internet Explorer by contractual and technological artifices
constitute unlawful tying to the extent that those actions forced
Microsoft's customers and consumers to take Internet Explorer as a
condition of obtaining Windows. While the Court agrees with
plaintiffs, and thus holds that Microsoft is liable for illegal tying
under � 1, this conclusion is arguably at variance with a decision of
the U.S. Court of Appeals for the D.C. Circuit in a closely related
case, and must therefore be explained in some detail. Whether the
decisions are indeed inconsistent is not for this Court to say.
The decision of the D.C. Circuit in question is United States v.
Microsoft Corp., 147 F.3d 935 (D.C. Cir. 1998) ("Microsoft II") which
is itself related to an earlier decision of the same Circuit, United
States v. Microsoft Corp., 56 F.3d 1448 (D.C. Cir. 1995) ("Microsoft
I"). The history of the controversy is sufficiently set forth in the
appellate opinions and need not be recapitulated here, except to state
that those decisions anticipated the instant case, and that Microsoft
II sought to guide this Court, insofar as practicable, in the further
proceedings it fully expected to ensue on the tying issue.
Nevertheless, upon reflection this Court does not believe the D.C.
Circuit intended Microsoft II to state a controlling rule of law for
purposes of this case. As the Microsoft II court itself acknowledged,
the issue before it was the construction to be placed upon a single
provision of a consent decree that, although animated by antitrust
considerations, was nevertheless still primarily a matter of
determining contractual intent. The court of appeals' observations on
the extent to which software product design decisions may be subject
to judicial scrutiny in the course of � 1 tying cases are in the
strictest sense obiter dicta, and are thus not formally binding.
Nevertheless, both prudence and the deference this Court owes to
pronouncements of its own Circuit oblige that it follow in the
direction it is pointed until the trail falters.
The majority opinion in Microsoft II evinces both an extraordinary
degree of respect for changes (including "integration") instigated by
designers of technological products, such as software, in the name of
product "improvement," and a corresponding lack of confidence in the
ability of the courts to distinguish between improvements in fact and
improvements in name only, made for anticompetitive purposes. Read
literally, the D.C. Circuit's opinion appears to immunize any product
design (or, at least, software product design) from antitrust
scrutiny, irrespective of its effect upon competition, if the software
developer can postulate any "plausible claim" of advantage to its
arrangement of code. 147 F.3d at 950.
This undemanding test appears to this Court to be inconsistent with
the pertinent Supreme Court precedents in at least three respects.
First, it views the market from the defendant's perspective, or, more
precisely, as the defendant would like to have the market viewed.
Second, it ignores reality: The claim of advantage need only be
plausible; it need not be proved. Third, it dispenses with any
balancing of the hypothetical advantages against any anticompetitive
effects.
The two most recent Supreme Court cases to have addressed the issue of
product and market definition in the context of Sherman Act tying
claims are Jefferson Parish, supra, and Eastman Kodak, supra. In
Jefferson Parish, the Supreme Court held that a hospital offering
hospital services and anesthesiology services as a package could not
be found to have violated the anti-tying rules unless the evidence
established that patients, i.e. consumers, perceived the services as
separate products for which they desired a choice, and that the
package had the effect of forcing the patients to purchase an unwanted
product. 466 U.S. at 21-24, 28-29. In Eastman Kodak the Supreme Court
held that a manufacturer of photocopying and micrographic equipment,
in agreeing to sell replacement parts for its machines only to those
customers who also agreed to purchase repair services from it as well,
would be guilty of tying if the evidence at trial established the
existence of consumer demand for parts and services separately. 504
U.S. at 463.
Both defendants asserted, as Microsoft does here, that the tied and
tying products were in reality only a single product, or that every
item was traded in a single market.[3](3) In Jefferson Parish, the
defendant contended that it offered a "functionally integrated package
of services" - a single product - but the Supreme Court concluded that
the "character of the demand" for the constituent components, not
their functional relationship, determined whether separate "products"
were actually involved. 466 U.S. at 19. In Eastman Kodak, the
defendant postulated that effective competition in the equipment
market precluded the possibility of the use of market power
anticompetitively in any after-markets for parts or services: Sales of
machines, parts, and services were all responsive to the discipline of
the larger equipment market. The Supreme Court declined to accept this
premise in the absence of evidence of "actual market realities," 504
U.S. at 466-67, ultimately holding that "the proper market definition
in this case can be determined only after a factual inquiry into the
'commercial realities' faced by consumers." Id. at 482 (quoting United
States v. Grinnell Corp., 384 U.S. 563, 572 (1966)).[4](4)
In both Jefferson Parish and Eastman Kodak, the Supreme Court also
gave consideration to certain theoretical "valid business reasons"
proffered by the defendants as to why the arrangements should be
deemed benign. In Jefferson Parish, the hospital asserted that the
combination of hospital and anesthesia services eliminated multiple
problems of scheduling, supply, performance standards, and equipment
maintenance. 466 U.S. at 43-44. The manufacturer in Eastman Kodak
contended that quality control, inventory management, and the
prevention of free riding justified its decision to sell parts only in
conjunction with service. 504 U.S. at 483. In neither case did the
Supreme Court find those justifications sufficient if anticompetitive
effects were proved. Id. at 483-86; Jefferson Parish, 466 U.S. at 25
n.42. Thus, at a minimum, the admonition of the D.C. Circuit in
Microsoft II to refrain from any product design assessment as to
whether the "integration" of Windows and Internet Explorer is a "net
plus," deferring to Microsoft's "plausible claim" that it is of "some
advantage" to consumers, is at odds with the Supreme Court's own
approach.
The significance of those cases, for this Court's purposes, is to
teach that resolution of product and market definitional problems must
depend upon proof of commercial reality, as opposed to what might
appear to be reasonable. In both cases the Supreme Court instructed
that product and market definitions were to be ascertained by
reference to evidence of consumers' perception of the nature of the
products and the markets for them, rather than to abstract or
metaphysical assumptions as to the configuration of the "product" and
the "market." Jefferson Parish, 466 U.S. at 18; Eastman Kodak, 504
U.S. at 481-82. In the instant case, the commercial reality is that
consumers today perceive operating systems and browsers as separate
"products," for which there is separate demand. Findings �� 149-54.
This is true notwithstanding the fact that the software code supplying
their discrete functionalities can be commingled in virtually infinite
combinations, rendering each indistinguishable from the whole in terms
of files of code or any other taxonomy. Id. �� 149-50, 162-63, 187-91.
Proceeding in line with the Supreme Court cases, which are
indisputably controlling, this Court first concludes that Microsoft
possessed "appreciable economic power in the tying market," Eastman
Kodak, 504 U.S. at 464, which in this case is the market for
Intel-compatible PC operating systems. See Jefferson Parish, 466 U.S.
at 14 (defining market power as ability to force purchaser to do
something that he would not do in competitive market); see also
Fortner Enterprises, Inc. v. United States Steel Corp., 394 U.S. 495,
504 (1969) (ability to raise prices or to impose tie-ins on any
appreciable number of buyers within the tying product market is
sufficient). While courts typically have not specified a percentage of
the market that creates the presumption of "market power," no court
has ever found that the requisite degree of power exceeds the amount
necessary for a finding of monopoly power. See Eastman Kodak, 504 U.S.
at 481. Because this Court has already found that Microsoft possesses
monopoly power in the worldwide market for Intel-compatible PC
operating systems (i.e., the tying product market), Findings �� 18-67,
the threshold element of "appreciable economic power" is a fortiori
met.
Similarly, the Court's Findings strongly support a conclusion that a
"not insubstantial" amount of commerce was foreclosed to competitors
as a result of Microsoft's decision to bundle Internet Explorer with
Windows. The controlling consideration under this element is "simply
whether a total amount of business" that is "substantial enough in
terms of dollar-volume so as not to be merely de minimis" is
foreclosed. Fortner, 394 U.S. at 501; cf. International Salt Co. v.
United States, 332 U.S. 392, 396 (1947) (unreasonable per se to
foreclose competitors from any substantial market by a tying
arrangement).
Although the Court's Findings do not specify a dollar amount of
business that has been foreclosed to any particular present or
potential competitor of Microsoft in the relevant market,[5](5)
including Netscape, the Court did find that Microsoft's bundling
practices caused Navigator's usage share to drop substantially from
1995 to 1998, and that as a direct result Netscape suffered a severe
drop in revenues from lost advertisers, Web traffic and purchases of
server products. It is thus obvious that the foreclosure achieved by
Microsoft's refusal to offer Internet Explorer separately from Windows
exceeds the Supreme Court's de minimis threshold. See Digidyne Corp.
v. Data General Corp., 734 F.2d 1336, 1341 (9th Cir. 1984) (citing
Fortner).
The facts of this case also prove the elements of the forced bundling
requirement. Indeed, the Supreme Court has stated that the "essential
characteristic" of an illegal tying arrangement is a seller's decision
to exploit its market power over the tying product "to force the buyer
into the purchase of a tied product that the buyer either did not want
at all, or might have preferred to purchase elsewhere on different
terms." Jefferson Parish, 466 U.S. at 12. In that regard, the Court
has found that, beginning with the early agreements for Windows 95,
Microsoft has conditioned the provision of a license to distribute
Windows on the OEMs' purchase of Internet Explorer. Findings ��
158-65. The agreements prohibited the licensees from ever modifying or
deleting any part of Windows, despite the OEMs' expressed desire to be
allowed to do so. Id. �� 158, 164. As a result, OEMs were generally
not permitted, with only one brief exception, to satisfy consumer
demand for a browserless version of Windows 95 without Internet
Explorer. Id. �� 158, 202. Similarly, Microsoft refused to license
Windows 98 to OEMs unless they also agreed to abstain from removing
the icons for Internet Explorer from the desktop. Id. � 213. Consumers
were also effectively compelled to purchase Internet Explorer along
with Windows 98 by Microsoft's decision to stop including Internet
Explorer on the list of programs subject to the Add/Remove function
and by its decision not to respect their selection of another browser
as their default. Id. �� 170-72.
The fact that Microsoft ostensibly priced Internet Explorer at zero
does not detract from the conclusion that consumers were forced to
pay, one way or another, for the browser along with Windows. Despite
Microsoft's assertion that the Internet Explorer technologies are not
"purchased" since they are included in a single royalty price paid by
OEMs for Windows 98, see Microsoft's Proposed Conclusions of Law at
12-13, it is nevertheless clear that licensees, including consumers,
are forced to take, and pay for, the entire package of software and
that any value to be ascribed to Internet Explorer is built into this
single price. See United States v. Microsoft Corp., Nos. CIV. A.
98-1232, 98-1233, 1998 WL 614485, *12 (D.D.C., Sept. 14, 1998); IIIA
Philip E. Areeda & Herbert Hovenkamp, Antitrust Law � 760b6, at 51
(1996) ("[T]he tie may be obvious, as in the classic form, or somewhat
more subtle, as when a machine is sold or leased at a price that
covers 'free' servicing."). Moreover, the purpose of the Supreme
Court's "forcing" inquiry is to expose those product bundles that
raise the cost or difficulty of doing business for would-be
competitors to prohibitively high levels, thereby depriving consumers
of the opportunity to evaluate a competing product on its relative
merits. It is not, as Microsoft suggests, simply to punish firms on
the basis of an increment in price attributable to the tied product.
See Fortner, 394 U.S. at 512-14 (1969); Jefferson Parish, 466 U.S. at
12-13.
As for the crucial requirement that Windows and Internet Explorer be
deemed "separate products" for a finding of technological tying
liability, this Court's Findings mandate such a conclusion.
Considering the "character of demand" for the two products, as opposed
to their "functional relation," id. at 19, Web browsers and operating
systems are "distinguishable in the eyes of buyers." Id.; Findings ��
149-54. Consumers often base their choice of which browser should
reside on their operating system on their individual demand for the
specific functionalities or characteristics of a particular browser,
separate and apart from the functionalities afforded by the operating
system itself. Id. �� 149-51. Moreover, the behavior of other, lesser
software vendors confirms that it is certainly efficient to provide an
operating system and a browser separately, or at least in separable
form. Id. � 153. Microsoft is the only firm to refuse to license its
operating system without a browser. Id.; see Berkey Photo, Inc. v.
Eastman Kodak Co., 603 F.2d 263, 287 (2d Cir. 1979). This Court
concludes that Microsoft's decision to offer only the bundled -
"integrated" - version of Windows and Internet Explorer derived not
from technical necessity or business efficiencies; rather, it was the
result of a deliberate and purposeful choice to quell incipient
competition before it reached truly minatory proportions.
The Court is fully mindful of the reasons for the admonition of the
D.C. Circuit in Microsoft II of the perils associated with a rigid
application of the traditional "separate products" test to computer
software design. Given the virtually infinite malleability of software
code, software upgrades and new application features, such as Web
browsers, could virtually always be configured so as to be capable of
separate and subsequent installation by an immediate licensee or end
user. A court mechanically applying a strict "separate demand" test
could improvidently wind up condemning "integrations" that represent
genuine improvements to software that are benign from the standpoint
of consumer welfare and a competitive market. Clearly, this is not a
desirable outcome. Similar concerns have motivated other courts, as
well as the D.C. Circuit, to resist a strict application of the
"separate products" tests to similar questions of "technological
tying." See, e.g., Foremost Pro Color, Inc. v. Eastman Kodak Co., 703
F.2d 534, 542-43 (9th Cir. 1983); Response of Carolina, Inc. v. Leasco
Response, Inc., 537 F.2d 1307, 1330 (5th Cir. 1976); Telex Corp. v.
IBM Corp., 367 F. Supp. 258, 347 (N.D. Okla. 1973).
To the extent that the Supreme Court has spoken authoritatively on
these issues, however, this Court is bound to follow its guidance and
is not at liberty to extrapolate a new rule governing the tying of
software products. Nevertheless, the Court is confident that its
conclusion, limited by the unique circumstances of this case, is
consistent with the Supreme Court's teaching to date.[6](6)
B. Exclusive Dealing Arrangements
Microsoft's various contractual agreements with some OLSs, ICPs, ISVs,
Compaq and Apple are also called into question by plaintiffs as
exclusive dealing arrangements under the language in � 1 prohibiting
"contract[s] . . . in restraint of trade or commerce . . . ." 15
U.S.C. � 1. As detailed in �I.A.2, supra, each of these agreements
with Microsoft required the other party to promote and distribute
Internet Explorer to the partial or complete exclusion of Navigator.
In exchange, Microsoft offered, to some or all of these parties,
promotional patronage, substantial financial subsidies, technical
support, and other valuable consideration. Under the clear standards
established by the Supreme Court, these types of "vertical
restrictions" are subject to a Rule of Reason analysis. See
Continental T.V., Inc. v. GTE Sylvania Inc., 433 U.S. 36, 49 (1977);
Jefferson Parish, 466 U.S. at 44-45 (O'Connor, J., concurring); cf.
Business Elecs. Corp. v. Sharp Elecs. Corp., 485 U.S. 717, 724-26
(1988) (holding that Rule of Reason analysis presumptively applies to
cases brought under � 1 of the Sherman Act).
Acknowledging that some exclusive dealing arrangements may have benign
objectives and may create significant economic benefits, see Tampa
Electric Co. v. Nashville Coal Co., 365 U.S. 320, 333-35 (1961),
courts have tended to condemn under the � 1 Rule of Reason test only
those agreements that have the effect of foreclosing a competing
manufacturer's brands from the relevant market. More specifically,
courts are concerned with those exclusive dealing arrangements that
work to place so much of a market's available distribution outlets in
the hands of a single firm as to make it difficult for other firms to
continue to compete effectively, or even to exist, in the relevant
market. See U.S. Healthcare Inc. v. Healthsource, Inc., 986 F.2d 589,
595 (1st Cir. 1993); Interface Group, Inc. v. Massachusetts Port
Authority, 816 F.2d 9, 11 (1st Cir. 1987) (relying upon III Phillip E.
Areeda & Donald F. Turner, Antitrust Law � 732 (1978), Tampa Electric,
365 U.S. at 327-29, and Standard Oil Co. v. United States, 337 U.S.
293 (1949)).
To evaluate an agreement's likely anticompetitive effects, courts have
consistently looked at a variety of factors, including: (1) the degree
of exclusivity and the relevant line of commerce implicated by the
agreements' terms; (2) whether the percentage of the market foreclosed
by the contracts is substantial enough to import that rivals will be
largely excluded from competition; (3) the agreements' actual
anticompetitive effect in the relevant line of commerce; (4) the
existence of any legitimate, procompetitive business justifications
offered by the defendant; (5) the length and irrevocability of the
agreements; and (6) the availability of any less restrictive means for
achieving the same benefits. See, e.g., Tampa Electric, 365 U.S. at
326-35; Roland Machinery Co. v. Dresser Industries, Inc., 749 F.2d
380, 392-95 (7th Cir. 1984); see also XI Herbert Hovenkamp, Antitrust
Law � 1820 (1998).
Where courts have found that the agreements in question failed to
foreclose absolutely outlets that together accounted for a substantial
percentage of the total distribution of the relevant products, they
have consistently declined to assign liability. See, e.g., id. � 1821;
U.S. Healthcare, 986 F.2d at 596-97; Roland Mach. Co., 749 F.2d at 394
(failure of plaintiff to meet threshold burden of proving that
exclusive dealing arrangement is likely to keep at least one
significant competitor from doing business in relevant market dictates
no liability under � 1). This Court has previously observed that the
case law suggests that, unless the evidence demonstrates that
Microsoft's agreements excluded Netscape altogether from access to
roughly forty percent of the browser market, the Court should decline
to find such agreements in violation of � 1. See United States v.
Microsoft Corp., Nos. CIV. A. 98-1232, 98-1233, 1998 WL 614485, at *19
(D.D.C. Sept. 14, 1998) (citing cases that tended to converge upon
forty percent foreclosure rate for finding of � 1 liability).
The only agreements revealed by the evidence which could be termed so
"exclusive" as to merit scrutiny under the � 1 Rule of Reason test are
the agreements Microsoft signed with Compaq, AOL and several other
OLSs, the top ICPs, the leading ISVs, and Apple. The Findings of Fact
also establish that, among the OEMs discussed supra, Compaq was the
only one to fully commit itself to Microsoft's terms for distributing
and promoting Internet Explorer to the exclusion of Navigator.
Beginning with its decisions in 1996 and 1997 to promote Internet
Explorer exclusively for its PC products, Compaq essentially ceased to
distribute or pre-install Navigator at all in exchange for significant
financial remuneration from Microsoft. Findings �� 230-34. AOL's March
12 and October 28, 1996 agreements with Microsoft also guaranteed
that, for all practical purposes, Internet Explorer would be AOL's
browser of choice, to be distributed and promoted through AOL's
dominant, flagship online service, thus leaving Navigator to fend for
itself. Id. �� 287-90, 293-97. In light of the severe shipment quotas
and promotional restrictions for third-party browsers imposed by the
agreements, the fact that Microsoft still permitted AOL to offer
Navigator through a few subsidiary channels does not negate this
conclusion. The same conclusion as to exclusionary effect can be drawn
with respect to Microsoft's agreements with AT&T WorldNet, Prodigy and
CompuServe, since those contract terms were almost identical to the
ones contained in AOL's March 1996 agreement. Id. �� 305-06.
Microsoft also successfully induced some of the most popular ICPs and
ISVs to commit to promote, distribute and utilize Internet Explorer
technologies exclusively in their Web content in exchange for valuable
placement on the Windows desktop and technical support. Specifically,
the "Top Tier" and "Platinum" agreements that Microsoft formed with
thirty-four of the most popular ICPs on the Web ensured that Navigator
was effectively shut out of these distribution outlets for a
significant period of time. Id. �� 317-22, 325-26, 332. In the same
way, Microsoft's "First Wave" contracts provided crucial technical
information to dozens of leading ISVs that agreed to make their
Web-centric applications completely reliant on technology specific to
Internet Explorer. Id. �� 337, 339-40. Finally, Apple's 1997
Technology Agreement with Microsoft prohibited Apple from actively
promoting any non-Microsoft browsing software in any way or from
pre-installing a browser other than Internet Explorer. Id. �� 350-52.
This arrangement eliminated all meaningful avenues of distribution of
Navigator through Apple. Id.
Notwithstanding the extent to which these "exclusive" distribution
agreements preempted the most efficient channels for Navigator to
achieve browser usage share, however, the Court concludes that
Microsoft's multiple agreements with distributors did not ultimately
deprive Netscape of the ability to have access to every PC user
worldwide to offer an opportunity to install Navigator. Navigator can
be downloaded from the Internet. It is available through myriad retail
channels. It can (and has been) mailed directly to an unlimited number
of households. How precisely it managed to do so is not shown by the
evidence, but in 1998 alone, for example, Netscape was able to
distribute 160 million copies of Navigator, contributing to an
increase in its installed base from 15 million in 1996 to 33 million
in December 1998. Id. � 378. As such, the evidence does not support a
finding that these agreements completely excluded Netscape from any
constituent portion of the worldwide browser market, the relevant line
of commerce.
The fact that Microsoft's arrangements with various firms did not
foreclose enough of the relevant market to constitute a � 1 violation
in no way detracts from the Court's assignment of liability for the
same arrangements under � 2. As noted above, all of Microsoft's
agreements, including the non-exclusive ones, severely restricted
Netscape's access to those distribution channels leading most
efficiently to the acquisition of browser usage share. They thus
rendered Netscape harmless as a platform threat and preserved
Microsoft's operating system monopoly, in violation of � 2. But
virtually all the leading case authority dictates that liability under
� 1 must hinge upon whether Netscape was actually shut out of the Web
browser market, or at least whether it was forced to reduce output
below a subsistence level. The fact that Netscape was not allowed
access to the most direct, efficient ways to cause the greatest number
of consumers to use Navigator is legally irrelevant to a final
determination of plaintiffs' � 1 claims.
Other courts in similar contexts have declined to find liability where
alternative channels of distribution are available to the competitor,
even if those channels are not as efficient or reliable as the
channels foreclosed by the defendant. In Omega Environmental, Inc. v.
Gilbarco, Inc., 127 F.3d 1157 (9th Cir. 1997), for example, the Ninth
Circuit found that a manufacturer of petroleum dispensing equipment
"foreclosed roughly 38% of the relevant market for sales." 127 F.3d at
1162. Nonetheless, the Court refused to find the defendant liable for
exclusive dealing because "potential alternative sources of
distribution" existed for its competitors. Id. at 1163. Rejecting
plaintiff's argument (similar to the one made in this case) that these
alternatives were "inadequate substitutes for the existing
distributors," the Court stated that "[c]ompetitors are free to sell
directly, to develop alternative distributors, or to compete for the
services of existing distributors. Antitrust laws require no more."
Id.; accord Seagood Trading Corp. v. Jerrico, Inc., 924 F.2d 1555,
1572-73 (11th Cir. 1991).
III. THE STATE LAW CLAIMS
In their amended complaint, the plaintiff states assert that the same
facts establishing liability under �� 1 and 2 of the Sherman Act
mandate a finding of liability under analogous provisions in their own
laws. The Court agrees. The facts proving that Microsoft unlawfully
maintained its monopoly power in violation of � 2 of the Sherman Act
are sufficient to meet analogous elements of causes of action arising
under the laws of each plaintiff state.[7](7) The Court reaches the
same conclusion with respect to the facts establishing that Microsoft
attempted to monopolize the browser market in violation of � 2,[8](8)
and with respect to those facts establishing that Microsoft instituted
an improper tying arrangement in violation of � 1.[9](9)
The plaintiff states concede that their laws do not condemn any act
proved in this case that fails to warrant liability under the Sherman
Act. States' Reply in Support of their Proposed Conclusions of Law at
1. Accordingly, the Court concludes that, for reasons identical to
those stated in � II.B, supra, the evidence in this record does not
warrant finding Microsoft liable for exclusive dealing under the laws
of any of the plaintiff states.
Microsoft contends that a plaintiff cannot succeed in an antitrust
claim under the laws of California, Louisiana, Maryland, New York,
Ohio, or Wisconsin without proving an element that is not required
under the Sherman Act, namely, intrastate impact. Assuming that each
of those states has, indeed, expressly limited the application of its
antitrust laws to activity that has a significant, adverse effect on
competition within the state or is otherwise contrary to state
interests, that element is manifestly proven by the facts presented
here. The Court has found that Microsoft is the leading supplier of
operating systems for PCs and that it transacts business in all fifty
of the United States. Findings � 9.[10](10) It is common and universal
knowledge that millions of citizens of, and hundreds, if not
thousands, of enterprises in each of the United States and the
District of Columbia utilize PCs running on Microsoft software. It is
equally clear that certain companies that have been adversely affected
by Microsoft's anticompetitive campaign - a list that includes IBM,
Hewlett-Packard, Intel, Netscape, Sun, and many others - transact
business in, and employ citizens of, each of the plaintiff states.
These facts compel the conclusion that, in each of the plaintiff
states, Microsoft's anticompetitive conduct has significantly hampered
competition.
Microsoft once again invokes the federal Copyright Act in defending
against state claims seeking to vindicate the rights of OEMs and
others to make certain modifications to Windows 95 and Windows 98. The
Court concludes that these claims do not encroach on Microsoft's
federally protected copyrights and, thus, that they are not pre-empted
under the Supremacy Clause. The Court already concluded in �
I.A.2.a.i, supra, that Microsoft's decision to bundle its browser and
impose first-boot and start-up screen restrictions constitute
independent violations of � 2 of the Sherman Act. It follows as a
matter of course that the same actions merit liability under the
plaintiff states' antitrust and unfair competition laws. Indeed, the
parties agree that the standards for liability under the several
plaintiff states' antitrust and unfair competition laws are, for the
purposes of this case, identical to those expressed in the federal
statute. States' Reply in Support of their Proposed Conclusions of Law
at 1; Microsoft's Sur-Reply in Response to the States' Reply at 2 n.1.
Thus, these state laws cannot "stand[] as an obstacle to" the goals of
the federal copyright law to any greater extent than do the federal
antitrust laws, for they target exactly the same type of
anticompetitive behavior. Hines v. Davidowitz, 312 U.S. 52, 67 (1941).
The Copyright Act's own preemption clause provides that "[n]othing in
this title annuls or limits any rights or remedies under the common
law or statutes of any State with respect to . . . activities
violating legal or equitable rights that are not equivalent to any of
the exclusive rights within the general scope of copyright as
specified by section 106 . . . ." 17 U.S.C. � 301(b)(3). Moreover, the
Supreme Court has recognized that there is "nothing either in the
language of the copyright laws or in the history of their enactment to
indicate any congressional purpose to deprive the states, either in
whole or in part, of their long-recognized power to regulate
combinations in restraint of trade." Watson v. Buck, 313 U.S. 387, 404
(1941). See also Allied Artists Pictures Corp. v. Rhodes, 496 F. Supp.
408, 445 (S.D. Ohio 1980), aff'd in relevant part, 679 F.2d 656 (6th
Cir. 1982) (drawing upon similarities between federal and state
antitrust laws in support of notion that authority of states to
regulate market practices dealing with copyrighted subject matter is
well-established); cf. Hines, 312 U.S. at 67 (holding state laws
preempted when they "stand[] as an obstacle to the accomplishment and
execution of the full purposes and objectives of Congress").
The Court turns finally to the counterclaim that Microsoft brings
against the attorneys general of the plaintiff states under 42 U.S.C.
� 1983. In support of its claim, Microsoft argues that the attorneys
general are seeking relief on the basis of state laws, repeats its
assertion that the imposition of this relief would deprive it of
rights granted to it by the Copyright Act, and concludes with the
contention that the attorneys general are, "under color of" state law,
seeking to deprive Microsoft of rights secured by federal law - a
classic violation of 42 U.S.C. � 1983.
Having already addressed the issue of whether granting the relief
sought by the attorneys general would entail conflict with the
Copyright Act, the Court rejects Microsoft's counterclaim on yet more
fundamental grounds as well: It is inconceivable that their resort to
this Court could represent an effort on the part of the attorneys
general to deprive Microsoft of rights guaranteed it under federal
law, because this Court does not possess the power to act in
contravention of federal law. Therefore, since the conduct it
complains of is the pursuit of relief in federal court, Microsoft
fails to state a claim under 42 U.S.C. � 1983. Consequently,
Microsoft's request for a declaratory judgment against the states
under 28 U.S.C. �� 2201 and 2202 is denied, and the counterclaim is
dismissed.
Thomas Penfield Jackson
U.S. District Judge
Date:
______________________________________________________________________
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
)
)
UNITED STATES OF AMERICA, )
)
Plaintiff, )
)
v. ) Civil Action No. 98-1232 (TPJ)
)
MICROSOFT CORPORATION, )
)
Defendant. )
)
_________________________________________________________________
)
STATE OF NEW YORK, et al., )
)
Plaintiffs )
)
v. )
)
MICROSOFT CORPORATION, )
)
Defendant )
)
_________________________________________________________________
) Civil Action No. 98-1233 (TPJ)
)
MICROSOFT CORPORATION, )
)
v. )
)
Counterclaim-Plaintiff, )
)
ELLIOT SPITZER, attorney )
general of the State of )
New York, in his official )
capacity, et al., )
)
Counterclaim-Defendants. )
)
_________________________________________________________________
ORDER
In accordance with the Conclusions of Law filed herein this date, it
is, this ______ day of April, 2000,
ORDERED, ADJUDGED, and DECLARED, that Microsoft has violated �� 1 and
2 of the Sherman Act, 15 U.S.C. �� 1, 2, as well as the following
state law provisions: Cal Bus. & Prof. Code �� 16720, 16726, 17200;
Conn. Gen. Stat. �� 35-26, 35-27, 35-29; D.C. Code �� 28-4502,
28-4503; Fla. Stat. chs. 501.204(1), 542.18, 542.19; 740 Ill. Comp.
Stat. ch. 10/3; Iowa Code �� 553.4, 553.5; Kan. Stat. �� 50-101 et
seq.; Ky. Rev. Stat. �� 367.170, 367.175; La. Rev. Stat. �� 51:122,
51:123, 51:1405; Md. Com. Law II Code Ann. � 11-204; Mass. Gen. Laws
ch. 93A, � 2; Mich. Comp. Laws �� 445.772, 445.773; Minn. Stat. �
325D.52; N.M. Stat. �� 57-1-1, 57-1-2; N.Y. Gen. Bus. Law � 340; N.C.
Gen. Stat. �� 75-1.1, 75-2.1; Ohio Rev. Code �� 1331.01, 1331.02; Utah
Code � 76-10-914; W.Va. Code �� 47-18-3, 47-18-4; Wis. Stat. �
133.03(1)-(2); and it is
FURTHER ORDERED, that judgment is entered for the United States on its
second, third, and fourth claims for relief in Civil Action No.
98-1232; and it is
FURTHER ORDERED, that the first claim for relief in Civil Action No.
98-1232 is dismissed with prejudice; and it is
FURTHER ORDERED, that judgment is entered for the plaintiff states on
their first, second, fourth, sixth, seventh, eighth, ninth, tenth,
eleventh, twelfth, thirteenth, fourteenth, fifteenth, sixteenth,
seventeenth, eighteenth, nineteenth, twentieth, twenty-first,
twenty-second, twenty-fourth, twenty-fifth, and twenty-sixth claims
for relief in Civil Action No. 98-1233; and it is
FURTHER ORDERED, that the fifth claim for relief in Civil Action No.
98-1233 is dismissed with prejudice; and it is
FURTHER ORDERED, that Microsoft's first and second claims for relief
in Civil Action No. 98-1233 are dismissed with prejudice; and it is
FURTHER ORDERED, that the Court shall, in accordance with the
Conclusions of Law filed herein, enter an Order with respect to
appropriate relief, including an award of costs and fees, following
proceedings to be established by further Order of the Court.
Thomas Penfield Jackson
U.S. District Judge
1. Proof that the defendant's conduct was motivated by a desire to
prevent other firms from competing on the merits can contribute to a
finding that the conduct has had, or will have, the intended,
exclusionary effect. See United States v. United States Gypsum Co.,
438 U.S. 422, 436 n.13 (1978) ("consideration of intent may play an
important role in divining the actual nature and effect of the alleged
anticompetitive conduct").
2. While Microsoft is correct that some courts have also recognized
the right of a copyright holder to preserve the "integrity" of
artistic works in addition to those rights enumerated in the Copyright
Act, the Court nevertheless concludes that those cases, being actions
for infringement without antitrust implications, are inapposite to the
one currently before it. See, e.g., WGN Continental Broadcasting Co.
v. United Video, Inc., 693 F.2d 622 (7th Cir. 1982); Gilliam v. ABC,
Inc., 538 F.2d 14 (2d Cir. 1976).
3. Microsoft contends that Windows and Internet Explorer represent a
single "integrated product," and that the relevant market is a unitary
market of "platforms for software applications." Microsoft's Proposed
Conclusions of Law at 49 n.28.
4. In Microsoft II the D.C. Circuit acknowledged it was without
benefit of a complete factual record which might alter its conclusion
that the "Windows 95/IE package is a genuine integration." 147 F.3d at
952.
5. Most of the quantitative evidence was presented in units other than
monetary, but numbered the units in millions, whatever their nature.
6. Amicus curiae Lawrence Lessig has suggested that a corollary
concept relating to the bundling of "partial substitutes" in the
context of software design may be apposite as a limiting principle for
courts called upon to assess the compliance of these products with
antitrust law. This Court has been at pains to point out that the true
source of the threat posed to the competitive process by Microsoft's
bundling decisions stems from the fact that a competitor to the tied
product bore the potential, but had not yet matured sufficiently, to
open up the tying product market to competition. Under these
conditions, the anticompetitive harm from a software bundle is much
more substantial and pernicious than the typical tie. See X Phillip E.
Areeda, Einer Elhauge & Herbert Hovenkamp, Antitrust Law �1747 (1996).
A company able to leverage its substantial power in the tying product
market in order to force consumers to accept a tie of partial
substitutes is thus able to spread inefficiency from one market to the
next, id. at 232, and thereby "sabotage a nascent technology that
might compete with the tying product but for its foreclosure from the
market." III Phillip E. Areeda & Herbert Hovenkamp, Antitrust Law �
1746.1d at 495 (Supp. 1999).
7. See Cal. Bus. & Prof. Code �� 16720, 16726, 17200 (West 1999);
Conn. Gen. Stat. � 35-27 (1999); D.C. Code � 28-4503 (1996); Fla.
Stat. chs. 501.204(1), 542.19 (1999); 740 Ill. Comp. Stat. 10/3 (West
1999); Iowa Code � 553.5 (1997); Kan. Stat. �� 50-101 et seq. (1994);
Ky. Rev. Stat. �� 367.170, 367.175 (Michie 1996); La. Rev. Stat. ��
51:123, 51:1405 (West 1986); Md. Com. Law II Code Ann. � 11-204
(1990); Mass. Gen. Laws ch. 93A, � 2; Mich. Comp. Laws � 445.773
(1989); Minn. Stat. � 325D.52 (1998); N.M. Stat. � 57-1-2 (Michie
1995); N.Y. Gen. Bus. Law � 340 (McKinney 1998); N.C. Gen. Stat. ��
75-1.1, 75-2.1 (1999); Ohio Rev. Code �� 1331.01, 1331.02 (Anderson
1993); Utah Code � 76-10-914 (1999); W.Va. Code � 47-18-4 (1999); Wis.
Stat. � 133.03(2) (West 1989 & Supp. 1998).
8. See Cal. Bus. & Prof. Code � 17200 (West 1999); Conn. Gen. Stat. �
35-27 (1999); D.C. Code � 28-4503 (1996); Fla. Stat. chs. 501.204(1),
542.19 (1999); 740 Ill. Comp. Stat. 10/3(3) (West 1999); Iowa Code �
553.5 (1997); Kan. Stat. �� 50-101 et seq. (1994); Ky. Rev. Stat. ��
367.170, 367.175 (Michie 1996); La. Rev. Stat. �� 51:123, 51:1405
(West 1986); Md. Com. Law II Code Ann. � 11-204(a)(2) (1990); Mass.
Gen. Laws ch. 93A, � 2; Mich. Comp. Laws � 445.773 (1989); Minn. Stat.
� 325D.52 (1998); N.M. Stat. � 57-1-2 (Michie 1995); N.Y. Gen. Bus.
Law � 340 (McKinney 1988); N.C. Gen. Stat. �� 75-1.1, 75-2.1 (1999);
Ohio Rev. Code �� 1331.01, 1331.02 (Anderson 1993); Utah Code �
76-10-914 (1999); W.Va. Code � 47-18-4 (1999); Wis. Stat. � 133.03(2)
(West 1989 & Supp. 1998).
9. See Cal. Bus. & Prof. Code �� 16727, 17200 (West 1999); Conn. Gen.
Stat. �� 35-26, 35-29 (1999); D.C. Code � 28-4502 (1996); Fla. Stat.
chs. 501.204(1), 542.18 (1999); 740 Ill. Comp. Stat. 10/3(4) (West
1999); Iowa Code � 553.4 (1997); Kan. Stat. �� 50-101 et seq. (1994);
Ky. Rev. Stat. �� 367.170, 367.175 (Michie 1996); La. Rev. Stat. ��
51:122, 51:1405 (West 1986); Md. Com. Law II Code Ann. � 11-204(a)(1)
(1990); Mass. Gen. Laws ch. 93A, � 2; Mich. Comp. Laws � 445.772
(1989); Minn. Stat. � 325D.52 (1998); N.M. Stat. � 57-1-1 (Michie
1995); N.Y. Gen. Bus. Law � 340 (McKinney 1988); N.C. Gen. Stat. ��
75-1.1, 75-2.1 (1999); Ohio Rev. Code �� 1331.01, 1331.02 (Anderson
1993); Utah Code � 76-10-914 (1999); W.Va. Code � 47-18-3 (1999); Wis.
Stat. � 133.03(1) (West 1989 & Supp. 1998).
10. The omission of the District of Columbia from this finding was an
oversight on the part of the Court; Microsoft obviously conducts
business in the District of Columbia as well.
