EXHIBIT 99.4
IN THE
United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
-------------------
No. ________
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MICROSOFT CORPORATION,
Defendant-Appellant,
v.
UNITED STATES OF AMERICA,
Plaintiff-Appellee.
ON APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
-----------------------------------------
Motion of Appellant Microsoft Corporation
for a Stay of the Judgment Pending Appeal
-----------------------------------------
William H. Neukom
Thomas W. Burt
David A. Heiner, Jr.
Diane D'Arcangelo
Christopher J. Meyers
MICROSOFT CORPORATION
One Microsoft Way
Redmond, Washington 98052
(425) 936-8080
John L. Warden (Bar No. 222083)
Richard J. Urowsky
Steven L. Holley
Theodore Edelman
Michael Lacovara
Richard C. Pepperman, II
Christine C. Monterosso
Bradley P. Smith
SULLIVAN & CROMWELL
125 Broad Street
New York, New York 10004
(212) 558-4000
Counsel for Defendant-Appellant
June 13, 2000 Microsoft Corporation
CORPORATE DISCLOSURE STATEMENT
Pursuant to Rule 26.1 of the Federal Rules of Appellate Procedure and D.C.
Circuit Rule 26.1, Microsoft Corporation certifies that it has no corporate
parents and that no publicly-held company owns 10% or more of Microsoft
Corporation's stock.
TABLE OF CONTENTS
CORPORATE DISCLOSURE STATEMENT i
TABLE OF AUTHORITIES iii
GLOSSARY vi
LIST OF EXHIBITS viii
INTRODUCTION 2
STATEMENT OF THE CASE 3
A. The Complaints and Preliminary Injunction Motion 3
B. Pretrial Proceedings 5
C. The Trial 7
D. Findings of Fact 8
E. Conclusions of Law 11
1. Tying 12
2. Exclusive Dealing 13
3. Monopoly Maintenance 13
4. Attempted Monopolization 15
F. The Final Judgment 15
ARGUMENT 22
I. Microsoft Will Prevail on the Merits 22
II. Microsoft Will Suffer Irreparable Injury Absent a Stay 30
III. No Other Parties Will Be Harmed by a Stay 35
IV. The Public Interest Weighs Strongly in Favor of a Stay 37
CONCLUSION 39
TABLE OF AUTHORITIES
CASES
Association for Intercollegiate Athletics for Women v. NCAA,
735 F.2d 577 (D.C. Cir. 1984) 28
Ball Mem'l Hosp., Inc. v. Mutual Hosp. Ins., Inc.,
784 F.2d 1325 (7th Cir. 1986) 26-27, 28
* Barry Wright Corp. v. ITT Grinnell Corp.,
724 F.2d 227 (1st Cir. 1983) 26
City of Groton v. Connecticut Light & Power Co.,
662 F.2d 921 (2d Cir. 1981) 28
CityFed Fin. Corp. v. Office of Thrift Supervision,
58 F.3d 738 (D.C. Cir. 1995) 22
Continental Ore Co. v. Union Carbide & Carbon Corp.,
370 U.S. 690 (1962) 28
Cuomo v. United States Nuclear Regulatory Comm'n,
772 F.2d 972 (D.C. Cir. 1985) 22
Eastman Kodak Co. v. Image Technical Servs., Inc.,
504 U.S. 451 (1992) 12
FMC Corp. v. Taiwan Tainan Giant Indus. Co.,
730 F.2d 61 (2d Cir. 1984) 32
* Gilliam v. ABC,
538 F.2d 14 (2d Cir. 1976) 26
Hilton v. Braunskill,
481 U.S. 770 (1987) 22
In re Indep. Serv. Orgs. Antitrust Litig.,
989 F. Supp. 1131 (D. Kan. 1997), aff'd,
203 F.3d 1322 (Fed. Cir. 2000) 26
Indiana Grocery, Inc. v. Super Valu Stores, Inc.,
864 F.2d 1409 (7th Cir. 1989) 26
Intergraph Corp. v. Intel Corp.,
195 F.3d 1346 (Fed. Cir. 1999) 26, 28
Jefferson Parish Hosp. Dist. No. 2 v. Hyde,
466 U.S. 2 (1984) 12, 25
MCI v. AT&T,
708 F.2d 1081 (7th Cir.), cert. denied,
464 U.S. 891 (1983) 27
Southern Pac. Communications Co. v. AT&T,
556 F. Supp. 825 (D.D.C. 1983), aff'd,
740 F.2d 980 (D.C. Cir. 1984), cert. denied,
470 U.S. 1005 (1985) 28
Timken Roller Bearing Co. v. United States,
341 U.S. 593 (1951) 29
U.S. Healthcare, Inc. v. Healthsources, Inc.,
986 F.2d 589 (1st Cir. 1993) 26
United States v. American Airlines, Inc.,
743 F.2d 1114 (5th Cir. 1984), cert. denied,
474 U.S. 1001 (1985) 29
United States v. E.I. du Pont de Nemours & Co.,
366 U.S. 316 (1961) 29
* United States v. Microsoft Corp.,
147 F.3d 935 (D.C. Cir. 1998) passim
United States v. Microsoft Corp.,
Nos. 98-1232, 1233, 1998 WL 614485 (D.D.C. Sept. 14, 1998) 5, 6
United States v. National Lead Co.,
332 U.S. 319 (1947) 29
* WGN Continental Broad. Co. v. United Video, Inc.,
693 F.2d 622 (7th Cir. 1982) 26
RULES, TREATISES AND OTHER AUTHORITIES
15 U.S.C. (S) 29(b) 1, 16
III Phillip E. Areeda & Hebert Hovenkamp,
Antitrust Law (1996) 24, 27
D.C. Cir. R. 8(a)(1) 22
Fed. R. App. P. 8(a)(2)(A)(ii) 1
Fed. R. Civ. P. 42(a) 5
Fed. R. Civ. P. 43(a) 30
Fed. R. Civ. P. 65(a)(2) 5
Model Code of Judicial Conduct Cannon 3B(9) 21
Joel Brinkley and Steve Lohr, Retracing the Missteps in
Microsoft's Defense at Its Antitrust Trial,
N.Y. Times, June 9, 2000, at A1 21-22
James V. Grimaldi, Reluctant Ruling for Judge,
Wash. Post, June 8, 2000, at A01 21
Frances Katz, Netscape 6 Is Designed to Adapt to Non-PC Uses,
Chicago Trib., Apr. 10, 2000, at 11 15
John R. Wilke, For Antitrust Judge, Trust,
or Lack of It, Really Was the Issue,
Wall St. J., June 8, 2000, at A1 21
GLOSSARY
"APIs" Application Programming Interfaces. APIs are interfaces exposed by an
operating system or other platform software that can be invoked by an
application or middleware to obtain services like displaying text on the video
monitor or saving a document to the hard disk.
"Conclusions" The term "conclusions" refers to the district court's Conclusions
of Law entered April 3, 2000.
"Consent Decree" The consent decree is the final judgment entered in Civil
Action No. 94-1564 on August 21, 1995 and reported at 1995 WL 505998 (D.D.C.).
"Findings" The term "findings" refers to the district court's Findings of Fact
entered November 5, 1999.
"IAP" Internet Access Provider. Plaintiffs use the term IAP to refer
collectively to both ISPs and OLSs.
"ICPs" Internet Content Providers. ICPs are entities that provide content to
users of the Internet by maintaining Web sites.
"ISPs" Internet Service Providers. ISPs provide their subscribers with a
connection to the Internet via telephone, cable or satellite in exchange for a
monthly fee.
"ISVs" Independent Software Vendors. ISVs are entities engaged in developing and
marketing software products.
"Linux" Linux is an operating system created in 1991 by Linus Torvalds, a
Finnish graduate student, and subsequently modified on a cooperative basis by
software developers around the world.
"Mac OS" Mac OS is Apple's operating system for Macintosh personal computers.
"OEM" Original Equipment Manufacturer. OEMs are manufacturers or assemblers of
personal computers.
"Office" Microsoft Office. Office is a suite of business productivity
applications developed by Microsoft, including Word word processing software,
Excel spreadsheet software, PowerPoint presentation graphics software and Access
relational database software.
"OLSs" Online Services. OLSs provide their subscribers with a connection to the
Internet as well as proprietary content and services like e-mail and personal
Web pages.
"OS/2 Warp" OS/2 Warp is an operating system first released by IBM in the fall
of 1994. Early versions of OS/2 were developed jointly by IBM and Microsoft.
"Windows 2000 Windows 2000 Professional is an operating system developed by
Professional" Microsoft that was commercially released in February 2000. Windows
2000 Professional is the successor to Microsoft's Windows NT 4.0 operating
system and is targeted primarily at business customers.
"Windows 2000 Windows 2000 Server is a server operating system developed by
Server" Microsoft that was commercially released in February 2000. Windows 2000
Server is the successor to Microsoft's Windows NT 4.0 Server operating system.
Windows 2000 Server is used in computer networks and competes with Novell
NetWare and a number of UNIX variants, including Tru-64 UNIX from Compaq, HP-UX
from Hewlett-Packard, AIX from IBM and Solaris from Sun Microsystems.
"Windows CE" Windows CE is an operating system developed by Microsoft for use
in, inter alia, handheld devices and television set-top boxes. Windows CE
competes with Aperios from Sony, ultron from Matsushita and other Japanese
consumer electronics companies, OS/9 from Microware and a wide range of other
embedded operating systems.
LIST OF EXHIBIT
Memorandum & Order and Final Judgment Exhibit 1
DOJ's Complaint Exhibit 2
States' First Amended Complaint Exhibit 3
Microsoft's Motion To Limit Issues for Trial Exhibit 4
Memorandum of Microsoft in Opposition to Plaintiffs'
Motion To Compel and in Support of Microsoft's
Motion To Limit Issues for Trial Exhibit 5
Microsoft's Statement of Extraneous Issues
To Be Excluded from Trial Exhibit 6
Microsoft's Objections to Plaintiffs' New Requests for
Relief and Attempt To Expand This Case Beyond the
Allegations in the Complaints Exhibit 7
Summary Judgment Opinion Exhibit 8
Transcript of Hearing on September 17, 1998 Exhibit 9
Microsoft's Motion In Limine To Exclude Hearsay Statements
in the Direct Examination of Jim Barksdale Exhibit 10
Findings of Fact Exhibit 11
Memorandum & Order re: Participation of
Lawrence Lessig as Amicus Curiae Exhibit 12
Brief of Lawrence Lessig as Amicus Curiae Exhibit 13
Conclusions of Law Exhibit 14
Transcript of Status Conference on April 4, 2000 Exhibit 15
Transcript of Status Conference on April 5, 2000 Exhibit 16
Scheduling Order No. 8 Exhibit 17
Microsoft's Memorandum and Reply Memorandum in
Support of Its Motion for Summary Rejection of the
Government's Breakup Proposal Exhibit 18
Microsoft's Position as to Future Proceedings
on the Issue of Remedy Exhibit 19
Microsoft's Summary Response to Plaintiffs'
Proposed Final Judgment Exhibit 20
Transcript of Hearing on May 24, 2000 Exhibit 21
Microsoft's Offer of Proof and Supplemental Offer of Proof Exhibit 22
Microsoft's Comments on Plaintiffs' Revised
Proposed Final Judgment Exhibit 23
Plaintiffs' Summary Response to Microsoft's Comments
on Revised Proposed Final Judgment Exhibit 24
Microsoft's Reply to Plaintiffs' Response to
Microsoft's Comments on their Revised
Proposed Final Judgment Exhibit 25
James V. Grimaldi, Reluctant Ruling for Judge, Wash. Post,
June 8, 2000, at A01 (available on the Internet at
http://washingtonpost.com/wp-dyn/articles/A17224-2000Jun7.html ) Exhibit 26
John R. Wilke, For Antitrust Judge, Trust,
or Lack of It, Really Was the Issue,
Wall St. J., June 8, 2000, at A1 Exhibit 27
Joel Brinkley and Steve Lohr, Retracing the Missteps in
Microsoft's Defense at Its Antitrust Trial, N.Y. Times,
June 9, 2000, at A1 (available on the Internet at
http://www.nytimes.com/library/tech/00/06/biztech/articles/09trial.html )
Exhibit 28
Defendant Microsoft Corporation's Motion for Stay Exhibit 29
Plaintiffs' Response to Microsoft's Motion for Stay Exhibit 30
Defendant Microsoft Corporation's Reply
Memorandum in Support of Its Motion
for a Stay Pending Appeal Exhibit 31
Order of June 13, 2000 Exhibit 32
Pursuant to Rule 8 of the Federal Rules of Appellate Procedure, defendant-
appellant Microsoft Corporation ("Microsoft") hereby moves for a stay of all
provisions of the district court's June 7, 2000 final judgment pending
resolution of this appeal.
Although the district court's judgment and accompanying memorandum made clear
that it was highly unlikely that the district court would stay the judgment
pending appeal, Microsoft filed a short stay motion with the district court on
June 7, 2000. Five days later, plaintiffs filed a response to Microsoft's stay
motion urging the district court to deny the motion, but to defer its ruling
until (i) Microsoft filed its notice of appeal and (ii) the district court was
in a position to resolve a motion for certification of direct appeal to the
Supreme Court--issues wholly unrelated to the district court's consideration of
a stay pending appeal. On June 13, 2000, the district court entered an order
finding that "consideration of a stay pending appeal is premature in that no
notice of appeal has yet been filed" and "reserv[ing] ruling on Microsoft's
motion until such time as a timely notice of appeal is filed."
Microsoft's stay motion has been pending for nearly a week, and the district
court has "failed to afford the relief requested" by the motion. Fed. R. App. P.
8(a)(2)(A)(ii). Accordingly, Microsoft now asks this Court to stay the judgment
pending appeal. Time is of the essence here. Many extreme provisions of the
judgment start to take effect 90 days after its entry, and Microsoft must begin
preparing immediately if it is to be in compliance with the judgment in 84 days.
Microsoft
therefore respectfully requests that the Court set an expedited briefing
schedule on Microsoft's motion so that it can be resolved as soon as possible.
Microsoft will promptly advise the Court if, contrary to all expectations, the
district court grants Microsoft's stay motion now that a notice of appeal has
been filed.
INTRODUCTION
This is an appeal from a judgment of the district court (Hon. Thomas Penfield
Jackson) holding Microsoft liable for violations of Sections 1 and 2 of the
Sherman Act and various corresponding provisions of state law. The judgment was
entered in two consolidated actions, one brought by the Antitrust Division of
the U.S. Department of Justice ("DOJ") and the other by nineteen States and the
District of Columbia.
Microsoft's appeal will present an overwhelming case for reversal of the
judgment based on an array of serious substantive and procedural errors that
infected virtually every aspect of the proceedings below. These flaws culminated
in the entry of unprecedented relief that extends far beyond the case that was
presented, without affording Microsoft an evidentiary hearing on the terms of
one of the most complex antitrust decrees in history. Based on six hearsay
declarations submitted by plaintiffs, the district court ordered that Microsoft
be split into two companies, disclose its valuable intellectual property to
competitors, redesign all of its operating system software to plaintiffs' vague
specifications and re-price that software according to an arbitrary court-
imposed formula.
Although final implementation of the breakup is stayed pending appeal, the
judgment's other extreme provisions take effect 90 days after entry. Absent a
stay from this Court, these provisions will (i) result in a confiscation of
large amounts of Microsoft's intellectual property, (ii) interfere with
Microsoft's release of new products such as its Windows Millenium operating
system, (iii) require Microsoft to redesign all of its existing operating
systems within six months of the judgment's effective date or else withdraw them
from the marketplace, (iv) force Microsoft immediately to divert vast resources
from software development to complying with the judgment and formulating the
required breakup plan, and (v) make it difficult for Microsoft to conduct
business in the highly-competitive, fast-moving software industry at a critical
time when software is being transformed from standalone products to Web-based
services. The effect of these provisions will be devastating, not only to
Microsoft, but also to its employees, shareholders, business partners and
customers, and could have a significant adverse impact on the Nation's economy.
A stay pending appeal is necessary to prevent these far-reaching and
irreversible consequences of a profoundly flawed ruling.
STATEMENT OF THE CASE
A. The Complaints and Preliminary Injunction Motion
On May 18, 1998, the DOJ and various States commenced these actions alleging
violations of Sections 1 and 2 of the Sherman Act and the States' respective
antitrust statutes. Plaintiffs
asserted two claims under Section 1 (unlawful tying and exclusive dealing) and
two claims under Section 2 (attempted monopolization of "Internet browsers" and
maintenance of a monopoly in "PC operating systems"). (DOJ Compl. (P)(P) 130-41;
States First Am. Compl. (P)(P) 85-90, 93-97.) The central allegation of
plaintiffs' complaints was that Microsoft had unlawfully foreclosed Netscape
Communications Corp. ("Netscape") from distributing and promoting its Web
browsing software, called Navigator, by (i) including Microsoft's own Web
browsing software, called Internet Explorer, in its Windows 95 and Windows 98
operating systems, (ii) entering into exclusive distribution and promotion
agreements relating to Internet Explorer with distributors such as online
services ("OLSs"), Internet service providers ("ISPs") and Internet content
providers ("ICPs"), and (iii) not granting computer manufacturers ("OEMs") that
preinstall Windows the right to modify the initial Windows startup sequence and
the Windows desktop to prevent end users from accessing Internet Explorer.
Plaintiffs contended that Microsoft sought to limit Netscape's distribution of
Navigator because it was concerned that Navigator could become a competing
"platform" to which applications could be written, and thus might reduce what
plaintiffs viewed as the sole barrier to entry into the PC operating system
business. (DOJ Compl. (P)(P) 3-4, 7-9; States First Am. Compl. (P)(P) 32-37.)
According to plaintiffs, this so-called barrier--referred to as the
"applications barrier to entry"--results from Microsoft's success in persuading
software developers to write large numbers of applications for Windows relative
to other operating systems. (DOJ Compl. (P) 3; States First Am. Compl. (P) 35.)
In plaintiffs' view, this purported barrier could be eroded if more applications
were written for cross-platform "middleware" such as Navigator that has versions
that run on multiple operating systems. (DOJ Compl. (P)(P) 66-68; States First
Am. Compl. (P)(P) 34-36.)
As the district court observed in its September 1998 summary judgment decision,
plaintiffs' complaints both sought virtually the same narrow relief, namely, an
order enjoining Microsoft from:
(1) entering into or enforcing certain contractual provisions which allegedly
foreclose distribution and/or promotion of competing Internet browsers; (2)
distributing a "bundled" version of its operating system and browser unless
Microsoft provides a practical way of removing browser functions and provides
OEMs that do not wish to license the browser an appropriate deduction from the
royalty rate; (3) distributing a "bundled" version of its operating system and
browser unless Microsoft treats Netscape Corporation's ("Netscape") browser the
same as its own with respect to inclusion and removal; and (4) retaliating
against any OEM that chooses to remove Microsoft's browser from Windows 98.
United States v. Microsoft Corp., Nos. 98-1232, 1233, 1998 WL 614485, at *1
(D.D.C. Sept. 14, 1998). Together with their complaints, plaintiffs filed
motions for a preliminary injunction seeking largely the same relief--what
plaintiffs at the time referred to as a "surgical strike." Plaintiffs argued
that in the absence of preliminary relief, Netscape would be effectively
foreclosed from
getting Navigator into the hands of consumers and that consumers would thus be
deprived of their choice of Web browsing software.
B. Pretrial Proceedings
Following a scheduling conference on May 22, 1998, the district court
consolidated the two actions pursuant to Rule 42(a) of the Federal Rules of
Civil Procedure. The district court also advanced the trial of both actions on
the merits and consolidated it with the preliminary injunction hearing pursuant
to Rule 65(a)(2). In view of the narrow focus of plaintiffs' complaints and
requested relief, the district court, over Microsoft's objection, scheduled the
trial to commence on September 8, 1998--less than four months away. The court
also limited each side to twelve trial witnesses and required the parties to
file the direct examinations of their witnesses in the form of written
declarations.
On June 23, 1998, a little more than a month after the complaints were filed,
this Court reversed the district court's December 11, 1997 order granting a sua
sponte preliminary injunction in a closely related action brought by the DOJ
against Microsoft under a 1994 consent decree. United States v. Microsoft Corp.,
147 F.3d 935 (D.C. Cir. 1998). This Court held, based on the record before it,
that Windows 95 and Internet Explorer 4.0 constitute an "integrated product"
under the consent decree because there are "facially plausible benefits" to the
"integrated design" of Windows 95, including its Internet Explorer components,
"as compared to an operating system combined with a stand-alone browser such as
Netscape's Navigator." Id. at 950. Based largely on this Court's decision,
Microsoft moved for summary judgment on plaintiffs' tying and other claims.
In denying Microsoft's motion for summary judgment on plaintiffs' tying claim,
the district court observed that although this Court's opinion "was ostensibly
limited to interpreting the specific terms of the Consent Decree, the analysis
was, in the Court of Appeals' eyes, `consistent with tying law.'" 1998 WL
614485, at *10 (quoting 147 F.3d at 950). The district court acknowledged that
this Court had articulated the controlling legal standard in this case for
"determining whether an integration amounts to a single product for purposes of
evaluating a tying claim," id., a ruling the court would repudiate eighteen
months later in its conclusions of law when it condemned Microsoft's design of
Windows 95 and 98 as unlawful ties. In its summary judgment decision, however,
the district court applied this Court's standard, stating that it could not
"determine whether Windows and IE are `separate products' until it becomes clear
what are the synergistic benefits that are unique to the Windows/IE combination,
i.e., benefits that could not be obtained by combining another browser with
Windows." Id. at *12.
Although the district court denied Microsoft's summary judgment motion, this
Court's June 1998 decision eviscerated the central contention of plaintiffs'
complaints, namely, that Microsoft had "tied" Internet Explorer to Windows 95
and Windows 98. (See, e.g., DOJ Compl. (P)(P) 18-23, 103-23, 134-37; States
First Am. Compl. (P)(P) 47-50, 54-69, 93-95.) In the months following that
decision, plaintiffs responded by dramatically expanding the scope of their
case, raising new allegations not included in their complaints and seeking to
convert the case into an omnibus Section 2 monopoly maintenance action. Over
Microsoft's vehement and repeated objections, plaintiffs advanced new
allegations concerning Microsoft's interactions with Intel Corporation
("Intel"), Apple Computer Corp. ("Apple"), RealNetworks, Inc. ("RealNetworks")
and IBM Corp. ("IBM"). Plaintiffs also contended that Microsoft unlawfully
impeded marketplace acceptance of the Java technologies promoted by Sun
Microsystems, Inc. ("Sun") by creating its own implementation of Java optimized
for use with Windows. This allegation was already the subject of a lawsuit
between Sun and Microsoft. See Sun Microsystems, Inc. v. Microsoft Corp., No. C-
97-20884-RMW (N.D. Cal.).
Despite the dramatic transformation of the cases, the district court did not
require plaintiffs to amend their complaints. Rather, the court assured
Microsoft that it "would not be making any findings" and "would not predicate
any relief" on matters unrelated to the conduct challenged in the complaints
(Sept. 17, 1998 Tr. at 7), an assurance the court would later ignore both in
making its findings of fact and in fashioning relief. The court also refused to
give Microsoft additional time to conduct discovery and prepare for a greatly
expanded trial, notwithstanding Microsoft's repeated pleas for both. Because
Microsoft ultimately had less than five months to prepare for trial (and much
less time to prepare its defense to plaintiffs' new allegations involving
various highly technical subjects), Microsoft was unable to pursue entire
avenues of necessary discovery. The limited time available to Microsoft was
particularly unfair given that the DOJ had been investigating the issues for
years before filing its complaint using compulsory process granted by the
Antitrust Civil Process Act.
C. The Trial
Notwithstanding Microsoft's motion for a continuance, trial began on October 19,
1998, less than five months after the complaints were filed. The Final Pretrial
Order provided that "no new discovery shall be initiated by any party after
entry of this Final Pretrial Order except with prior leave of the Court for
cause shown." The parties concluded their cases-in-chief on February 26, 1999,
and presented rebuttal evidence between June 1, 1999 and June 24, 1999.
At trial, the district court largely suspended application of the Federal Rules
of Evidence, admitting into evidence numerous newspaper and magazine articles
and other rank hearsay. For example, sixty-nine paragraphs of the written direct
testimony of James Barksdale, then chief executive officer of Netscape and
plaintiffs' first witness, contained large amounts of inadmissible hearsay,
oftentimes multiple levels of hearsay. Yet, the district court denied
Microsoft's motion in limine to exclude such hearsay statements.
In the middle of trial, an event occurred that completely changed the
competitive landscape of the software industry. On November 24, 1998, America
Online, Inc. ("AOL"), a Microsoft competitor that provided plaintiffs' second
witness, agreed to acquire Netscape--the company plaintiffs
claimed had been fatally injured by Microsoft's conduct--in a stock acquisition
valued at $10 billion at the time of closing. In a related transaction, AOL
entered into a three-year "strategic alliance" with Sun, another competitor of
Microsoft that likewise provided plaintiffs with a trial witness.
D. Findings of Fact
The district court bifurcated briefing on findings of fact and conclusions of
law, and issued its findings of fact on November 5, 1999. Although 412
paragraphs long, the court's findings do not contain a single citation to the
record, making it impossible to ascertain the purported basis for many findings
and thereby compounding the many evidentiary errors at trial. The court also did
not make any specific credibility determinations, and many of its "findings"
consist of nothing more than sweeping, conclusory assertions. What is more, the
court simply ignored vast amounts of uncontradicted evidence submitted by
Microsoft, including Microsoft's explanation of why it did not charge separately
for Internet Explorer and Microsoft's detailed description of the many benefits
flowing from the integrated design of Windows that cannot be duplicated by
combining an operating system with a standalone browser like Navigator.
The district court adopted nearly every position advanced by plaintiffs. The
court found that Microsoft possesses monopoly power in the market for "Intel-
compatible PC operating systems" (Findings (P) 33), a putative market that is so
narrow that it excludes both Apple's Mac OS operating system (id. (P)(P) 20-21)
and the competing platform technologies--Navigator and Java--that the court
determined posed the greatest competitive threat to Microsoft's purported
operating system monopoly and that were the crux of plaintiffs' claims of
anticompetitive conduct (id. (P)(P) 68-77).
The court also accepted plaintiffs' position as to the so-called "applications
barrier to entry." (Id. (P) 36.) According to the district court, "[t]he
overwhelming majority of consumers will only use a PC operating system for which
there already exists a large and varied set of high-quality, full-featured
applications." (Id. (P) 30.) Even if a competing operating system "attracted
several thousand compatible applications," the court stated, it "would still
look like a gamble from the consumer's perspective next to Windows, which
supports over 70,000 applications." (Id. (P) 40.) The court concluded that
"[a]lthough Apple's Mac OS supports more than 12,000 applications," including
Microsoft Office, "even an inventory of that magnitude is not sufficient to
enable Apple to present a significant percentage of users with a viable
substitute for Windows." (Id. (P) 47.)
Many of the district court's other findings are clearly erroneous, particularly
those regarding Microsoft's supposed foreclosure of Netscape from specific
channels of distribution. For example, the court found that "Microsoft has
largely succeeded in exiling Navigator from the crucial OEM distribution
channel." (Findings (P) 239.) According to the court, "[b]y the beginning of
January 1999, Navigator was present on the desktop of only a tiny percentage of
the PCs that OEMs were shipping." (Id.) In fact, documents reporting the results
of AOL's due diligence
investigation prior to acquiring Netscape--elsewhere relied on by the district
court--state that as of 1998 Navigator was distributed on "22% of OEM
shipments." (DX 2440 at 341778.) When confronted with these documents at trial,
plaintiffs' economist, Frank Fisher, acknowledged that Barksdale's testimony
that Microsoft had foreclosed Netscape from the OEM channel was an
"exaggeration." (June 3, 1999 A.M. Tr. at 56-58.) There is thus no credible
evidence to support the district court's finding of foreclosure in the OEM
channel.
Significantly, the district court found that Microsoft had not foreclosed
Netscape from the marketplace as a whole. In particular, the court found that
"Microsoft did not actually prevent users from obtaining and using Navigator"
and that "Netscape could still carpet bomb the population with CD-ROMs and make
Navigator available for downloading." (Findings (P) 357.) The court further
found that "Navigator's installed base has grown even as its usage share has
fallen" (id. (P) 378), demonstrating that Netscape was able not only to get
Navigator into the hands of consumers, but also to get them to use it instead of
Internet Explorer, even though Internet Explorer is included in Windows. In
fact, the court noted that "Navigator's installed base in the United States
alone grew from fifteen million in 1996 to thirty-three million in December
1998" (id.), the very period in which plaintiffs claimed that Microsoft had
foreclosed Netscape from promoting and distributing Navigator. And the court
later found (Conclusions at 38) that Netscape was able to distribute 160 million
copies of Navigator (nearly 1.6 copies for every Web user) in 1998 alone--the
same year in which plaintiffs suggested that a preliminary injunction was
necessary to prevent Microsoft from foreclosing Netscape's distribution.
E. Conclusions of Law
The parties subsequently submitted their proposed conclusions of law. Over
Microsoft's objection, the district court invited Professor Lawrence Lessig, the
same professor whom this Court prevented from acting as special master in the
prior consent decree action, to participate as amicus curiae. In overruling
Microsoft's objection, the court stated that Professor Lessig would "submit his
views exclusively on the issue of technological tying," a subject on which the
court said he was "uniquely qualified to offer advice." (Mem. & Order at 2.) In
his amicus brief, Professor Lessig stated that the district court's "opinion in
the summary judgment stage of this case seemed to indicate" that the standard
articulated by this Court in its June 1998 decision governs the "separate
product" issue, which lies at the heart of the tying claim. (Brief of Lawrence
Lessig at 11.) After discussing this Court's decision, Professor Lessig
concluded that "under the Court of Appeals test, Microsoft must prevail." (Id.
at 17.)
In its conclusions of law entered on April 3, 2000, the court nevertheless
decided that Microsoft violated Section 1 of the Sherman Act by unlawfully tying
Internet Explorer to Windows. The court, however, rejected plaintiffs' exclusive
dealing claim, holding that the challenged agreements with various third parties
"did not foreclose enough of the relevant market to constitute a (S) 1
violation." (Conclusions at 39.) The court also determined that Microsoft had
violated Section 2 by maintaining a monopoly in operating systems and by
attempting to monopolize Web browsing software, despite the fact that
distribution foreclosure is a central premise of both violations in this case.
1. Tying
Having been told by Professor Lessig that Microsoft must prevail under this
Court's test for technological tying, the district court simply refused to apply
that test. (Id. at 26-27.) The court did so even though it recognized that this
Court's decision "sought to guide [the court], insofar as practicable, in the
further proceedings it fully expected to ensue on the tying issue." (Id. at 26.)
The court held that this Court's "undemanding test" is "inconsistent with
pertinent Supreme Court precedents" (id. at 27), namely, Jefferson Parish
Hospital District No. 2 v. Hyde, 466 U.S. 2 (1984), and Eastman Kodak Co. v.
Image Technical Services, Inc., 504 U.S. 451 (1992), even though this Court
carefully considered both cases in its June 1998 decision.
Specifically, the court concluded that this Court's admonition "to refrain from
any product design assessment as to whether the `integration' of Windows and
Internet Explorer is a `net plus'. . . is at odds with the Supreme Court's own
approach," which focuses on whether there is separate consumer demand for the
alleged products. (Conclusions at 29.) "To the extent that the Supreme Court has
spoken authoritatively on these issues," the district court stated, it "is bound
to follow its guidance and is not at liberty to extrapolate a new rule governing
the tying of software products." (Id. at 34.) The district court thus declined
to follow this Court's test in favor of the "consumer-demand" test of Jefferson
Parish and Eastman Kodak, despite the fact that this Court had expressly
rejected the assertion that this "consumer-demand" test should apply to claims
of "technological tying." 147 F.3d at 946-47. In so doing, the court recognized
that its conclusion "is arguably at variance" with this Court's decision, but
asserted that it was obliged to follow this Court's pronouncements only "until
the trail falters." (Conclusions at 26-27.)
2. Exclusive Dealing
The district court dismissed plaintiffs' exclusive-dealing claims under Section
1 because the challenged agreements did not exclude Netscape from the
marketplace:
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.
(Id. at 38 (emphasis added).) In fact, the court determined that in 1998 alone,
"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.) The court concluded that "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." (Id.)
3. Monopoly Maintenance
Despite finding that Netscape had access "to every PC user worldwide," the court
held that Microsoft had unlawfully maintained a monopoly in operating systems
primarily based on its erroneous conclusion that Microsoft had excluded Netscape
from the OEM and Internet access provider ("IAP") distribution channels. (Id. at
10-17.) The court stated: "The fact that Microsoft's arrangements with various
firms did not foreclose enough of the relevant market to constitute a (S) 1
violation in no way detracts from the Court's assignment of liability for the
same arrangements under (S) 2." (Id. at 39.)
The court concluded that Microsoft's design of Windows 95 and Windows 98 to
include built-in Web browsing functionality and Microsoft's refusal to permit
OEMs to "reconfigure or modify" its copyrighted operating systems to hide access
to that functionality reduced the likelihood that OEMs would preinstall
Navigator on their new computers. (Id. at 11.) The court also found that
"Microsoft adopted similarly aggressive measures to ensure that the IAP channel
would generate browser usage share for Internet Explorer rather than Navigator."
(Id. at 15.) The court held that Microsoft's agreements with Apple, ICPs and
independent software vendors ("ISVs") "supplemented Microsoft's efforts in the
OEM and IAP channels" (id. at 17), and that Microsoft also unfairly "impeded
Java's progress" (id. at 19).
In holding that Microsoft had unlawfully maintained a monopoly, the district
court branded as anticompetitive Microsoft's efforts "to maximize Internet
Explorer's share of browser usage at Navigator's expense" at a time when
Navigator enjoyed a substantial majority of usage share. (Id. at 10.) Indeed,
the notion that Microsoft's desire to increase Internet Explorer's usage share
somehow rendered its conduct anticompetitive was a recurring theme throughout
the court's ruling. The court also concluded that conduct that was not itself
anticompetitive could become unlawful when viewed together with other conduct.
(Id. at 20-21.) "Viewing Microsoft's conduct as a whole," the court stated,
"reinforces the conviction that it was predacious" by demonstrating that
Microsoft induced third parties "to take actions that would help enhance
Internet Explorer's share of browser usage at Navigator's expense." (Id. at 21.)
By condemning vigorous competition by a new entrant into a purported market, the
court evinced a profound misunderstanding of the antitrust laws.
4. Attempted Monopolization
The court's holding that Microsoft attempted to monopolize Web browsing software
cannot be reconciled with its own findings of fact. For example, the court found
that Microsoft's intent was to "demonstrate that Navigator would not become the
standard" Web browsing software at a time when "Navigator seemed well on its way
to becoming the standard." (Findings (P)(P) 133, 377.) Indeed, the court found
that Navigator usage share was "above eighty percent in January 1996." (Id. (P)
360.) Yet, in its conclusions of law, the court determined that Microsoft's
efforts to prevent Netscape from monopolizing Web browsing software established
that Microsoft itself had an unlawful intent to monopolize because "there is no
evidence that Microsoft tried" to prevent its
efforts "from achieving overkill." (Conclusions at 23.) In so ruling, the court
invoked the negligence standard in resolving the issue of specific intent:
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 shares to those extreme heights.(Id. at 22 (emphasis added).)
F. The Final Judgment
The district court's April 3, 2000 order accompanying its conclusions of law
stated that it would enter relief "following proceedings to be established by
further Order of the Court." The court thereafter held two chambers conferences
to discuss the procedures to be employed during the remedies phase of the trial.
At those conferences, Microsoft stated that it could not take a position on the
procedures to be followed until it received plaintiffs' request for relief.
(Apr. 4, 2000 Tr. at 14-16, 18; Apr. 5, 2000 Tr. at 7-8.) The court responded
that Microsoft's position was "fair" and "reasonable." (Apr. 4, 2000 Tr. at 15,
18; Apr. 5, 2000 Tr. at 8.) When asked by Microsoft whether it "contemplate[d]
further proceedings of some kind or another" on remedies, the court replied, "I
would assume that there would be further proceedings." (Apr. 4, 2000 Tr. at 8-
9.) The court stated that it might "replicate the procedure at trial with
testimony in written form subject to cross-examination." (Id. at 11.)
Microsoft proposed that it file a "summary response" shortly after receiving
plaintiffs' proposed relief, which "would consist of three things: our
objections to the government's proposal, our counterproposal and our submission
to the court of our position on the procedure that should be employed in
adjudicating the remedy question." (Apr. 5, 2000 Tr. at 6.) The court thereafter
issued Scheduling Order No. 8, which called for Microsoft to submit only a
"summary response" to plaintiffs' proposed relief consisting of the three items
Microsoft had suggested.
On April 28, 2000, plaintiffs filed their proposed final judgment, together with
a supporting memorandum and six declarations. Although such radical relief was
not even hinted at in their complaints, plaintiffs (with the exception of two
States, Illinois and Ohio) requested that Microsoft be broken up into two
separate companies, one that would have Microsoft's operating systems and the
other that would have Microsoft's applications and other products (including
numerous operating system components).
The other provisions of plaintiffs' proposed final judgment were just as extreme
and unwarranted as their breakup proposal. For example, plaintiffs requested
that Microsoft be required to disclose proprietary information about its
operating systems--including source code--to all who claim a desire to make
their products "interoperate effectively" with Microsoft's operating systems, a
group that includes all of Microsoft's competitors. Plaintiffs further requested
that Microsoft be required to redesign all of its existing and future operating
systems to enable OEMs and end users to substitute third-party software for
components of the operating
system, thus forcing Microsoft to offer new operating system features on an a la
carte basis and severely hindering Microsoft's ability to improve its products.
Moreover, like the breakup proposal, the scope of the injunctive relief
requested by plaintiffs extended far beyond the case that was tried,
encompassing products like Windows CE, Windows 2000 Server and Microsoft Office
that are wholly outside the markets defined by the court.
In accordance with Scheduling Order No. 8, Microsoft filed its own proposed
final judgment, its summary objections to plaintiffs' proposed final judgment
and its recommendations for future proceedings on remedies. Microsoft also filed
a motion for summary rejection of plaintiffs' breakup proposal, arguing that
dismemberment of Microsoft is unwarranted as a matter of law. In its submission
on future proceedings, Microsoft asserted that the nature and scope of the
procedures required depended on the kinds of remedies the court was prepared to
consider; the more extreme the remedies under consideration, the more discovery
and the more time Microsoft would need to prepare for an evidentiary hearing on
relief. Microsoft thus requested that if the court elected not to enter
Microsoft's proposed final judgment, the court should enter a schedule providing
for three to six months in which to conduct discovery and prepare for an
evidentiary hearing, depending on which of three requested categories of relief
the court intended to consider. Such additional proceedings were absolutely
essential in this case because much of the relief requested by plaintiffs
related to highly complex subjects such as Microsoft's addition of Kerberos
support in Windows 2000 that were not even touched on at trial. Indeed, by
filing six declarations with their proposed final judgment, plaintiffs
implicitly acknowledged that the trial record was insufficient to support the
sweeping relief they requested.
Following plaintiffs' submission of a reply in which they urged the district
court to enter their proposed final judgment "forthwith," the court held a
hearing on May 24, 2000. At the outset of that hearing, Microsoft stated its
view that only two matters were before the court: Microsoft's motion for summary
rejection of plaintiffs' breakup proposal and the court's consideration of a
schedule for further proceedings to take evidence relating to plaintiffs'
requested relief. (May 24, 2000 A.M. Tr. at 4.) Notwithstanding the prior
discussions in chambers and the terms of Scheduling Order No. 8, the court again
changed the rules to Microsoft's prejudice, responding, "I intend to proceed to
the merits of the remedy." (Id. at 5.) The court also made clear that it was not
interested in further submissions on remedies. When plaintiffs volunteered to
submit a brief on a particular issue, the court responded, "I don't want any
more briefs." (Id. at 34.)
At the conclusion of the hearing, Microsoft again asked if there would be
further process on the issue of remedies, to which the court responded, "I'm not
contemplating any further process." (May 24, 2000 P.M. Tr. at 33.) Microsoft
then filed an offer of proof summarizing the anticipated testimony of sixteen
individuals whom it would have called as witnesses at an evidentiary hearing on
relief. Microsoft also stressed that if given an opportunity, it would have
developed testimony
from additional witnesses about the extreme adverse effects of plaintiffs'
proposed final judgment. (Id. at 35-36.)
On May 26, 2000, plaintiffs submitted a revised proposed final judgment that
made minor modifications to their initial proposal. Plaintiffs again urged the
court to enter their proposed relief without any further proceedings. On May 31,
2000, Microsoft submitted objections to the form of plaintiffs' proposed decree,
together with a supplemental offer of proof identifying seven additional
witnesses whom Microsoft would have called at an evidentiary hearing. Plaintiffs
responded to Microsoft's objections on June 5, 2000, agreeing to make only a few
cosmetic changes to their proposed decree and rejecting all of the
clarifications to the decree that they themselves had proffered in prior
filings. Microsoft submitted a reply on June 6, 2000.
On June 7, 2000, the district court signed plaintiffs' proposed final judgment
as ultimately proffered without a single substantive change. The court thus
entered radical and unwarranted permanent injunctive relief in these actions
without granting Microsoft leave to conduct discovery and without making
findings of fact or creating an evidentiary record on the issue of remedies. In
ordering the breakup of Microsoft--which, until the court entered its findings
of fact, had the largest market capitalization in the world--the court did not
even grant Microsoft leave to depose the six individuals who submitted
declarations in support of plaintiffs' proposed remedies.
Together with its final judgment, the district court issued a remarkable six-
page memorandum that purports to explain the basis for its entry of the sweeping
relief requested by plaintiffs. The memorandum is bereft of even a single
citation to case law or evidence. According to the court, "a structural remedy
has become imperative" because "Microsoft does not yet concede that any of its
business practices violated the Sherman Act." (Mem. & Order at 3.) Despite the
court's criticism of Microsoft for being "unwilling to accept the notion that it
broke the law" (id.), it should go without saying that Microsoft's exercise of
its appellate rights provides no conceivable basis for imposing punitive
sanctions.
Rather than finding that the judgment would increase competition, the court
remarked that even "purportedly knowledgeable people" do not know what "may or
may not ensue," and the court dismissed the notion of having an evidentiary
hearing to explore that question because "testimonial predictions of future
events" are "less reliable even than testimony as to historical fact." (Id. at
4.) In an astounding abdication of the judicial function, the court offered the
following reason for its entry of the final judgment served up by plaintiffs:
Plaintiffs won the case, and for that reason alone have some entitlement to a
remedy of their choice. Moreover, plaintiffs' proposed final judgment is the
collective work product of senior antitrust law enforcement officials of the
United States Department of Justice and the Attorneys General of 19 states, in
conjunction with multiple consultants. These officials are by reason of office
obliged and expected to consider--and act in--the public interest; Microsoft is
not. (Id. at 5 (footnote omitted).)
The court was even more blunt in the many press interviews it gave about the
case, both before and after entry of final judgment. For instance, the Wall
Street Journal quoted the court as giving the following explanation for its
refusal to provide Microsoft with any process before entering relief: "[I]t's
procedurally unusual to do what Microsoft is proposing--are you aware of very
many cases in which the defendant can argue with the jury about what an
appropriate sanction should be? Were the Japanese allowed to propose the terms
of their surrender? The government won the case." John R. Wilke, For Antitrust
Judge, Trust, or Lack of It, Really Was the Issue, Wall St. J., June 8, 2000, at
A1. And the Washington Post quoted the following explanation for why the court
adopted plaintiffs' proposed relief without modification: "I am not an
economist. I do not have the resources of economic research or any significant
ability to be able to craft a remedy of my own devising." James V. Grimaldi,
Reluctant Ruling for Judge, Wash. Post, June 8, 2000, at A1.
Perhaps most shocking, however, are the remarks attributed to the court in an
article in The New York Times. When asked about the possibility of a breakup of
Microsoft during a February 2000 interview--which was described as "a rare
audience with a sitting judge during the course of a trial"--the court is quoted
as saying, "I am not sure I am competent to do that." Joel Brinkley & Steve
Lohr, Retracing the Missteps in the Microsoft Defense, N.Y. Times, June 9, 2000,
at A1. The court apparently echoed that sentiment in a later interview. When
asked why it had simply rubberstamped plaintiffs' draconian remedies, the court
is quoted as responding, "I am not in a position to duplicate that and re-
engineer their work. There's no way I can equip myself to do a better job than
they have done." Id. at C9. Lastly, in a repudiation of the most fundamental
tenet of American jurisprudence, the court is quoted as offering the following
explanation for its rejection of Microsoft's pleas for an evidentiary hearing on
relief, "I am not aware of any case authority that says I have to give them any
due process at all. The case is over. They lost." Id. at C8.
ARGUMENT
In determining whether a stay pending appeal is warranted, courts consider four
factors: (i) the likelihood that the moving party will prevail on the merits,
(ii) the prospect of irreparable injury to the moving party absent a stay, (iii)
the possibility of harm to other parties if a stay is granted, and (iv) the
public interest in granting the stay. See Hilton v. Braunskill, 481 U.S. 770,
776 (1987); see also D.C. Cir. R. 8(a)(1). If the arguments for one factor are
particularly strong, a stay may issue even if the arguments for other factors
are less so. See CityFed Fin. Corp. v. Office of Thrift Supervision, 58 F.3d
738, 747 (D.C. Cir. 1995). Hence, "[a] stay may be granted with either a high
probability of success and some injury, or vice versa." Cuomo v. United States
Nuclear Regulatory Comm'n, 772 F.2d 972, 974 (D.C. Cir. 1985) (per curiam).
Here, all four factors strongly support issuance of a stay pending appeal.
I. Microsoft Will Prevail on the Merits.
As the preceding discussion makes clear, the proceedings below went badly awry
from the outset. The district court's many serious substantive and procedural
errors are fatal to its conclusion that Microsoft violated the antitrust laws
and to the relief entered. Before listing some of the district court's more
egregious errors, two general observations illustrate how misguided the decision
below is.
First, the court's ruling condemns Microsoft's efforts to add support for
Internet standards like HTML and HTTP to Windows in order to make the operating
system relevant in the Internet era. The court found that "consumers in 1995
were already demanding software that enabled them to use the Web with ease,"
that "IBM had announced in September 1994 its plan to include browsing
capability in OS/2 Warp [the principal challenger to Windows at the time] at no
extra charge," and that "Microsoft had reason to believe that other operating-
system vendors would do the same." (Findings (P) 140.) In such circumstances,
adding Internet support to Windows cannot violate the antitrust laws, no matter
what Microsoft's "intent" was in doing so. Indeed, Microsoft's addition of such
functionality to Windows was but a single instance of a pervasive practice in
high-technology industries--the improvement of a product through the integration
of new functionality previously provided by separate products. See 147 F.3d at
951.
To hold that efforts to improve a product in response to consumer demand and
competitive pressures and to distribute those improvements broadly to consumers
violate the antitrust laws is to turn those laws on their head. The record here
demonstrates that Microsoft's inclusion of Internet support in Windows made it
easier for thousands of software developers to write Internet-enabled
applications that rely on platform services provided by the Internet Explorer
components of the operating system and for millions of consumers to access the
Internet. Even the district court recognized that Microsoft's "inclusion of
Internet Explorer with Windows at no separate charge increased general
familiarity with the Internet and reduced the cost to the public of gaining
access to it." (Findings (P) 408.)
At the same time, Microsoft did nothing to exclude Netscape from the
marketplace. There is no claim that Navigator is incompatible with either
Windows 95 or Windows 98; to the contrary, Netscape's Barksdale testified that
Navigator is "perfectly interoperable" with Windows. (Oct. 22, 1998 P.M. Tr. at
51-52.) The court also found that Netscape had "access to every PC user
worldwide," distributing 160 million copies of Navigator in 1998 alone and
increasing its user base from 15 million to 33 million between 1996 and 1998.
(Conclusions at 38.) Absent a showing of actual exclusion--precluded by these
undisputed facts--no antitrust issue is even presented.
Second, accepting, arguendo, plaintiffs' theory of the case, there is no
antitrust violation. Plaintiffs' theory was that Microsoft attempted to impede
the distribution of Navigator because it threatened to reduce (through a long,
speculative and unproven chain of causation) the hypothesized "applications
barrier to entry" into the market for "Intel-compatible PC operating systems."
There is no dispute, however, that Microsoft entered the alleged market for Web
browsing software at a time when Netscape was dominant. It is also undisputed
that Microsoft's efforts to develop, promote and distribute Internet Explorer
resulted in lower prices, greater innovation and increased distribution of Web
browsing software. In fact, the district court found that Microsoft's actions
"contributed to improving the quality of Web browsing software, lowering its
cost, and increasing its availability, thereby benefiting consumers." (Findings
(P) 408.) Unambiguously procompetitive conduct in one supposed market does not
become an antitrust violation simply because that conduct allegedly had
collateral effects in another supposed market. As Areeda and Hovenkamp have
observed:
[A]ggressive but non-predatory pricing, higher output, improved product quality,
energetic market penetration, successful research and development, cost-reducing
innovations, and the like are welcomed by the Sherman Act. They are therefore
not to be considered "exclusionary" for (S) 2 purposes even though they tend to
exclude rivals and may even create monopoly.
III Phillip E. Areeda & Hebert Hovenkamp, Antitrust Law (P) 651b, at 76 (1996).
In holding that Microsoft violated the antitrust laws by improving Windows and
distributing broadly the operating system's Internet Explorer technologies, the
district court committed many serious legal errors, several of which are
summarized below:
. The district court erroneously held that Microsoft's inclusion of
Internet support in Windows 95 and Windows 98 constituted an unlawful
tie. In upholding plaintiffs' "technological tying" claim, the trial
court became the first court ever to sustain such a challenge to a
single, integrated product. As this Court observed, "courts have
recognized the limits of their institutional competence and have on
that ground rejected theories of `technological tying.'" 147 F.3d at
949. Similarly, in entering relief that intrudes broadly on
Microsoft's product design decisions based on the purported tying
violation, the district court disregarded this Court's warning about
the "undesirability of having courts oversee product design." Id. at
948. The district court was able to reach this unprecedented result
only by refusing to apply the test articulated by this Court in the
consent decree case and by other courts in cases involving
"technological tying" claims. As the court's handpicked amicus curiae
stated, under this Court's test, "Microsoft must prevail." (Brief of
Lawrence Lessig at 17.) By instead applying a consumer-demand test,
the court adopted a standard that would essentially freeze product
development. As this Court explained, focusing on consumer demand
"seems sure to thwart Microsoft's legitimate desire to continue to
integrate products that had been separate--and hence necessarily would
have been provided in distinct markets." 147 F.3d at 953.
. The district court erroneously held that agreements with distributors
that did not violate Section 1 of the Sherman Act because they did not
foreclose Netscape's access to consumers could nevertheless violate
Section 2. The court concluded that "[t]he fact that Microsoft's
arrangements with various firms did not foreclose enough of the
relevant market to constitute a (S) 1 violation in no way detracts
from the Court's assignment of liability for the same arrangements
under (S) 2." (Conclusions at 39.) That conclusion is contrary to
settled law. E.g., Barry Wright Corp. v. ITT Grinnell Corp., 724 F.2d
227, 236-38 (1st Cir. 1983) (Breyer, J.). An act is anticompetitive
under Section 2 only if it has a significant exclusionary impact. U.S.
Healthcare, Inc. v. Healthsources, Inc., 986 F.2d 589, 597-98 (1st
Cir. 1993). Agreements that do not substantially foreclose competitors
from the marketplace do not have such an exclusionary impact.
. The district court erroneously held that the provisions in Microsoft's
license agreements with OEMs that do not permit OEMs to modify
Microsoft's copyrighted operating systems without Microsoft's
permission violate Section 2 of the Sherman Act by foreclosing
distribution of Navigator. In refusing to grant OEMs a broad license
to modify Windows by removing or hiding features of the operating
system, Microsoft has simply exercised rights granted to it by federal
copyright law. As the holder of valid copyrights, Microsoft is
entitled to require its distributors--including OEMs--to deliver
Windows to users as Microsoft created it. See WGN Continental Broad.
Co. v. United Video, Inc., 693 F.2d 622, 625 (7th Cir. 1982) (Posner,
J.); Gilliam v. ABC, 538 F.2d 14, 21, 23 (2d Cir. 1976). Because the
challenged provisions of Microsoft's OEM license agreements simply
restate, and do not enlarge upon, Microsoft's rights under federal
copyright and trademark law, they do not violate the antitrust laws.
See Intergraph Corp. v. Intel Corp., 195 F.3d 1346, 1362 (Fed. Cir.
1999); In re Indep. Serv. Orgs. Antitrust Litig., 989 F. Supp. 1131,
1134 (D. Kan. 1997), aff'd, 203 F.3d 1322 (Fed. Cir. 2000). In any
event, the court found that "Microsoft's license agreements have never
prohibited OEMs from pre-installing programs, including Navigator, on
their PCs and placing icons and entries for those programs on the
Windows desktop and in the `Start' menu." (Findings (P) 217.)
. The district court erroneously held that Microsoft possesses monopoly
power in a relevant product market. The market defined by the court is
too narrow because it excludes the most serious threats faced by
Microsoft's operating systems, including the competing platform
technologies that were the objects of the allegedly anticompetitive
conduct in this case. In addition, the court did not find that
Microsoft has the power unilaterally to raise prices in or exclude
competition from the operating system business, the touchstone of
monopoly power. See, e.g., Indiana Grocery, Inc. v. Super Valu Stores,
Inc., 864 F.2d 1409, 1414 (7th Cir. 1989); Ball Mem'l Hosp., Inc. v.
Mutual Hosp. Ins., Inc., 784 F.2d 1325, 1335 (7th Cir. 1986). In fact,
the court found that the evidence was insufficient to establish that
Microsoft ever charged a "monopoly price" for Windows. (See Findings
(P) 65.)
. The district court erroneously held that Microsoft maintained a
monopoly through anticompetitive conduct. The general theme running
through the court's ruling is that Microsoft "set out to maximize
Internet Explorer's share of browser usage at Netscape's expense."
(Conclusions at 10.) That says nothing about whether Microsoft engaged
in anticompetitive conduct because "[t]he intent to preserve or expand
one's market share is presumptively lawful." MCI v. AT&T, 708 F.2d
1081, 1113 (7th Cir.), cert. denied, 464 U.S. 891 (1983). The district
court's condemnation of Microsoft's conduct was all the more misguided
given that Microsoft was a new entrant into a line of business
dominated by Netscape. Under these circumstances, efforts to maximize
Microsoft's share at the expense of Netscape were procompetitive.
Indeed, the court found that "[t]he debut of Internet Explorer and its
rapid improvement gave Netscape an incentive to improve Navigator's
quality at a competitive rate." (Findings (P) 408.)
. The district court erroneously held that Microsoft unlawfully
maintained a monopoly even though plaintiffs failed to establish the
requisite causal connection between the alleged anticompetitive
conduct and Microsoft's maintenance of a purported monopoly in
operating systems. "To find that a monopolist's acts may improperly
impair rivals' opportunities does not say how substantial a
contribution that act has made or may make to achieving or maintaining
the monopoly." III Areeda & Hovenkamp, supra (P) 651c, at 77. An
antitrust plaintiff "has the burden of pleading, introducing evidence,
and presumably proving by a preponderance of the evidence that
[anticompetitive] behavior has contributed significantly to the
achievement or maintenance of the monopoly." Id. (P) 650c, at 69. The
district court found that "[t]here is insufficient evidence to find
that, absent Microsoft's actions, Navigator and Java already would
have ignited genuine competition in the market for Intel-compatible PC
operating systems." (Findings (P) 411.) That finding is fatal to
plaintiffs' monopoly maintenance claim.
. The district court erroneously held that acts that are not
anticompetitive under controlling legal principles can somehow become
illegal when viewed in combination with other acts that are not
anticompetitive. Relying on Continental Ore Co. v. Union Carbide &
Carbon Corp., 370 U.S. 690 (1962), the court ruled that conduct that
does not "independently satisfy the second element of a (S) 2 monopoly
maintenance claim" can become anticompetitive when viewed together
with other conduct. (Conclusions at 20.) In Intergraph, the Federal
Circuit recently rejected just such a reading of Continental Ore. 195
F.3d at 1366-67. Contrary to the district court's ruling, "once a
claim is found to be without merit, such a claim cannot be used as a
basis for finding other claims to constitute a violation of the
antitrust laws." Southern Pac. Communications Co. v. AT&T, 556 F.
Supp. 825, 888 n.69 (D.D.C. 1983), aff'd, 740 F.2d 980 (D.C. Cir.
1984), cert. denied, 470 U.S. 1005 (1985). Courts have "reject[ed] the
notion that if there is a fraction of validity to each of the basic
claims and the sum of the fractions is one or more, the plaintiffs
have proved a violation of
section 1 or section 2 of the Sherman Act." City of Groton v.
Connecticut Light & Power Co., 662 F.2d 921, 928-29 (2d Cir. 1981).
. The district court erroneously held that Microsoft possessed a
specific intent to monopolize Web browsing software. In upholding
plaintiffs' attempted monopolization claim, the court stated that
Microsoft attempted to "expand[] Internet Explorer's share of browser
usage--and simultaneously depress[] 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."
(Conclusions at 22-23.) That conclusion is patently insufficient to
establish a specific intent to monopolize. "[S]pecific intent in this
context refers to a purpose to acquire monopoly power by driving one's
rival from the market by exclusionary or predatory means." Association
for Intercollegiate Athletics for Women v. NCAA, 735 F.2d 577, 585
(D.C. Cir. 1984). At most, Microsoft intended to compete vigorously
with Netscape to prevent Navigator from achieving a dominant position
in the eyes of developers. The antitrust laws encourage, rather than
proscribe, such an intent. Ball Mem'l Hosp., 784 F.2d at 1338-39.
. The district court erroneously held that Microsoft's discussions with
Netscape in June 1995--when Microsoft allegedly presented a "market
allocation proposal"--established a dangerous probability of
monopolization, relying on United States v. American Airlines, Inc.,
743 F.2d 1114 (5th Cir. 1984), cert. denied, 474 U.S. 1001 (1985).
(Conclusions at 24.). Even plaintiffs' witness Barksdale suggested
that whatever proposal Microsoft made in June 1995 was vague and in
futuro (Oct. 27, 1998 P.M. Tr. at 69-71), and there is no dispute that
Netscape rejected Microsoft's alleged proposal (see, e.g., Findings
(P)(P) 86-87). Moreover, the June 1995 discussions related to
collaboration in the development of new products--a necessary and
usually procompetitive activity--not price fixing. Indeed, Microsoft
was not even a participant in the purported "Internet browser market"
until it released Windows 95 in August 1995. The facts surrounding
Microsoft's June 1995 discussions with Netscape are thus a far cry
from those at issue in American Airlines, which the court described as
"uniquely unequivocal" and "uniquely consequential." 743 F.2d at 1119.
. The district court erroneously imposed extreme and punitive relief
unrelated to the violations found in this case. It is well-settled
that "[c]ourts are not authorized in civil proceedings to punish
antitrust violators" and that relief "must not be punitive." United
States v. E.I. du Pont de Nemours & Co., 366 U.S. 316, 326 (1961).
Structural remedies are "not to be used indiscriminately, without
regard to the type of violation or whether other effective methods,
less harsh, are available." Timken Roller Bearing Co. v. United
States, 341 U.S. 593, 603-04 (1951) (Reed, J., concurring). The
draconian relief imposed by the court--which includes, but is not
limited to, the only breakup of a unitary company ever ordered under
Section 2 outside the context of negotiated consent decrees--bears no
relation whatsoever to the antitrust violations found. What is more,
the relief ordered is punitive in concept and effect, extending to
products and markets far removed from those in issue at trial, and
thus is unwarranted as a matter of law. See United States v. National
Lead Co., 332 U.S. 319, 351-53 (1947).
. The district court erroneously entered a sweeping permanent
injunction, including a breakup of Microsoft, over Microsoft's
strenuous objection, without conducting an evidentiary hearing on
relief or affording Microsoft an opportunity to present evidence. The
only basis proffered by plaintiffs in support of the relief ultimately
entered were six hearsay declarations untested by cross-examination.
Such a "record" cannot provide a basis for awarding permanent
injunctive relief. See Fed. R. Civ. P. 43(a). Nor did the district
court make corresponding findings of fact and conclusions of law
regarding the terms of the decree. In sum, there was no competent
adjudication of relief, which by itself requires that the judgment be
vacated.
In light of the numerous legal errors and procedural irregularities that
pervaded the proceedings below, it is inconceivable that the judgment will
withstand appellate review. This is reason alone to stay the judgment pending
appeal.
II. Microsoft Will Suffer Irreparable Injury Absent a Stay.
Although the district court's judgment provides that the actual dismemberment of
Microsoft is stayed pending appeal, the judgment's other extreme provisions take
effect 90 days after entry.
Absent a stay, those provisions will inflict massive and irreparable injury on
Microsoft, possibly resulting in the company's demise as an effective competitor
in the software industry. Indeed, the court itself recognized in its June 7,
2000 memorandum that absent appellate intervention, the relief entered will
quickly become "irreversible as a practical matter." (Mem. & Order at 3.)
The non-breakup provisions of the judgment reflect three primary objectives,
none of which is warranted by the violations found by the court and none of
which serves a legitimate purpose under the antitrust laws. First, the judgment
reflects a profound hostility to Microsoft's efforts to improve Windows by
adding new features and functionality. The judgment treats Windows not as a
single product, but rather as a combination of (i) software that fits
plaintiffs' narrow (and static) definition of an "operating system" and (ii) an
indeterminate set of separate technologies (dubbed "middleware products") that
OEMs may elect to turn on or off, or delete altogether, as they choose. By
prohibiting Microsoft from maintaining the consistency of Windows as a platform
for software development, the judgment will destroy the principal value of a
product that Microsoft has spent billions of dollars developing and that has
played a major role in the personal computer revolution. Second, for the
proffered purpose of promoting "interoperability," the judgment will effect a
confiscation of Microsoft's intellectual property in its operating systems by
requiring disclosure of proprietary information--an extreme remedy that is
unrelated to any of the claims alleged in the complaints and that applies to
products that were not even part of this case. Third, the judgment will
effectively compel Microsoft to treat all OEMs and ISVs, among others, exactly
the same in all respects, whether or not such third parties have the capability
or desire to work closely with Microsoft. This will make it virtually impossible
for Microsoft to continue to collaborate with a broad array of OEMs and ISVs to
develop and market innovative new technologies.
Some examples of the serious injury that will befall Microsoft if a stay is not
granted are discussed below.
. The judgment will require Microsoft to disclose large amounts of
proprietary information about its operating systems and other products
to competitors, the ultimate penalty for a company whose business is
based entirely on intellectual property. Paragraph 3.b of the judgment
will require Microsoft to disclose the internals of important products
to all software developers, hardware vendors and OEMs, a group that
includes literally everyone in the computer industry. Even worse,
paragraph 3.b will require Microsoft to permit anyone in the industry,
including all of Microsoft's competitors, "to study, interrogate and
interact" with the source code for Microsoft's operating systems,
which are replete with valuable trade secrets and constitute
Microsoft's "crown jewels." Although the judgment purports to limit
the purpose of such source code access to development of products that
"interoperate effectively" with Windows, that restriction is
hopelessly vague and thus would be impossible to enforce. In short,
the judgment will require Microsoft to disclose much of its
intellectual property--the lifeblood of the company--without
compensation, thereby undermining Microsoft's incentive to innovate.
Once that intellectual property is disclosed, the loss will be
irretrievable. FMC Corp. v. Taiwan Tainan Giant Indus. Co., 730 F.2d
61, 63 (2d Cir. 1984) ("A trade secret once lost is, of course, lost
forever.").
. The judgment will result in a direct and immediate intrusion into
Microsoft's product design decisions. For instance, paragraph 3.g will
prohibit Microsoft from adding most new features (not just Web
browsing functionality) to its operating systems unless it provides
OEMs and end users with a means of removing end user access to those
new features. The judgment thus essentially
draws a line around Windows, preventing its evolution as a software
development platform. The judgment also ignores this Court's
admonition about the "undesirability of having courts oversee product
design" 147 F.3d at 948, as well as its statement that "by allowing
OEMs to conceal IE, rather than refuse it, the remedy fits poorly with
the Department's tying theory," id. at 941 n.3. The effect of this
interference with Microsoft's development of new products during the
pendency of an appeal will be irremediable even if Microsoft prevails.
. The judgment will result in fragmentation of the Windows platform. A
primary benefit of Windows is that it provides a consistent platform
for software developers and users. The net result of paragraphs
3.a.iii(4), 3.f and 3.g will be to undermine the integrity of Windows
as a platform so that neither software developers nor end users can
rely on crucial functionality being present. For example, paragraph
3.f will require Microsoft to permit OEMs to remove software code from
Windows if Microsoft also distributes that code separately from the
operating system through various enumerated channels, a routine
practice in the software industry. If software code that comprises
Windows is not present on a machine because the OEM removed it, then
applications that rely on that software code will not function
properly or at all.
. The judgment will require Microsoft to relinquish its rights under
federal trademark and copyright laws. Paragraph 3.a.iii(4) will
require Microsoft to permit OEMs to substitute third-party software
for components of Microsoft's copyrighted Windows operating systems.
Not only will Microsoft be compelled to allow OEMs to create
derivative works of Windows; the judgment also will permit OEMs to
market their modified versions of the operating system using
Microsoft's trademarks and logos--denying Microsoft the ability to
control what is marketed to customers under the valuable Windows
trademark. The damage to Microsoft's copyright and trademark rights
will not be curable even if Microsoft prevails on this appeal.
. The judgment will prevent Microsoft from releasing new and innovative
operating systems in a timely manner, and may require Microsoft to
halt distribution of its currently shipping operating systems.
Paragraph 3.g will prohibit Microsoft from "distribut[ing]" any
operating system that does not comply with various amorphous design
specifications six months after the effective date of the judgment.
This provision thus will require Microsoft to reengineer all of its
currently shipping operating systems (including Windows 98 and Windows
2000 Professional), as well as soon-to-be-released operating systems
like Windows Millenium. It could take several years for Microsoft to
redesign those products to remove all cross-dependencies among
components that fall within the judgment's vague and open-ended
definition of "middleware," depending on how that term is construed.
As a result, Microsoft will be unable to release Windows Millenium
later this year as scheduled, and it may have to halt distribution of
its currently shipping operating systems six months after the judgment
becomes effective. Plaintiffs' only response to this serious concern
is to note that "Microsoft will have nine months from entry of the
Final Judgment to prepare the modified version[s]" of its operating
systems required by paragraph 3.g. (Pls.' Response to MS Comments at
18.) More fundamentally, requiring Microsoft to devote the lion's
share of its development resources to reengineering its existing
products--which Microsoft will need to begin doing immediately absent
a stay--will greatly delay Microsoft's release of many other new
products.
. The judgment will require Microsoft to modify its existing license
agreements with the top 20 OEMs, wreaking havoc with Microsoft's
relationships with those companies. Paragraph 3.a.ii compels Microsoft
to license Windows to those OEMs "pursuant to uniform license
agreements with uniform terms and conditions." Because that paragraph
also prohibits Microsoft from enforcing any license provision
inconsistent with the judgment, Microsoft will be required to
renegotiate existing license agreements with those OEMs within 90 days
of entry of the judgment--although why any of them would agree to
forego the benefits of their existing contracts is unclear.
. The judgment will make it virtually impossible for Microsoft to work
with and assist software developers and hardware vendors seeking to
create products for use with Windows. Paragraph 3.d.i provides that
Microsoft shall not take "any action affecting" any software developer
or hardware vendor "based directly or indirectly, in whole or in part,
on any actual or contemplated action" by such party to "use,
distribute, promote, or support any Microsoft product." Such
regulation of Microsoft's relationships with software developers and
hardware vendors will block
the sort of collaboration that has facilitated the creation of large
numbers of products compatible with Windows.
. The judgment will prevent Microsoft from entering into routine cross-
promotional and joint development agreements, even plainly
procompetitive ones. Given the judgment's broad definitions of terms
such as "platform software" and "middleware," paragraph 3.e will
forbid Microsoft from entering into any agreement that in any way
limits a third party's development, distribution, promotion or use of
any non-Microsoft software. Similarly, paragraph 3.h will proscribe
routine interactions with other software developers. Plaintiffs' only
response to these concerns is that they "intend to enforce the
provision only against anticompetitive agreements." (Pls.' Response to
MS Comments at 19.) The scope of an injunction cannot be based on the
purported intentions of the party charged with enforcing it.
. The judgment will require Microsoft to submit a "proposed plan of
divestiture" not later than four months after its entry. Requiring
Microsoft to submit such a plan will cause a huge diversion of effort
by Microsoft's executives at a critical time when Microsoft is
attempting to change its entire business and programming model to
remain competitive in the Internet age. This diversion (and the
adverse effect on employee morale when the plan is submitted) will be
entirely pointless even in the event that the decreed breakup is
affirmed--given the lightening pace of change in the software
industry, any "proposed plan of divestiture" created four months after
entry of judgment will be out of date when it comes time actually to
implement the plan.
. The judgment will require Microsoft to freeze its internal
organization. Paragraph 1.d.i compels Microsoft to "preserve,
maintain, and operate the Operating System Business and the
Applications Business as separate . . . as they were on April 27,
2000." This requirement will make it difficult for Microsoft to adapt
its organization to the ever-changing needs of its business.
Reorganizations to realign product units across the imaginary boundary
decreed in the judgment have been a routine part of Microsoft's
business and are essential to ensure that needed resources are brought
to bear on the competitive challenges faced by the company. Freezing
Microsoft's internal organization will result in stagnation, with
fewer products being brought to market.
In sum, compliance with the terms of the judgment, which touch upon virtually
every aspect of Microsoft's business, will be impossible despite Microsoft's
best efforts. The provisions of paragraph 3, read in conjunction with the
definitions of the numerous defined terms (many of which are contrary to normal
industry usage), are hopelessly vague and ambiguous. Moreover, the distraction
that inevitably will flow from efforts to comply with the judgment will damage
Microsoft's most important asset--its ability to recruit, retain and motivate
creative people. As an intellectual property firm, Microsoft's entire business
depends on that asset. The judgment also will prevent Microsoft from working
closely with other companies in the industry to deliver innovative computing
solutions unless Microsoft is willing to work with all companies--including its
competitors--on identical terms. Simply stated, Microsoft cannot operate its
business under the terms of the judgment.
III. No Other Parties Will Be Harmed by a Stay.
No other parties interested in the proceeding will be harmed if the Court grants
a stay, much less suffer injury that would outweigh the serious and irreparable
injury Microsoft will suffer absent a stay. Plaintiffs cannot claim that they
themselves will be harmed in any respect by a stay. Nor can they contend that
other interested parties--i.e., the Microsoft competitors that convinced them to
bring this lawsuit and seek draconian structural relief--will be injured in any
legal sense if relief in these actions is stayed pending appeal.
Nothing in the district court's findings of fact and conclusions of law suggests
that any other party will suffer immediate, tangible harm if the relief in these
actions is stayed pending appeal. The vague "consumer harm" identified in the
court's findings consists primarily of speculation about unspecified innovations
that might have come to market and competition that might have existed but for
Microsoft's alleged conduct. (Findings (P)(P) 411-12.) Yet, the court determined
that there was insufficient evidence to conclude that, absent Microsoft actions,
greater operating system competition would exist today. (See, e.g., id. (P)
411.) Similarly, the antitrust violations found by the court focus primarily on
Microsoft's alleged efforts to restrict Netscape's access to the OEM and IAP
channels of distribution over a very limited period of time. (Conclusions at 10-
18.) But the court also found that Netscape was--and is--able to distribute
Navigator broadly through other channels of distribution to "every PC user
worldwide" (id. at 38), and many of the agreements challenged by plaintiffs have
since expired and are not being renewed by Microsoft (Findings (P)(P) 269, 331).
There is thus no basis in the district court's ruling to suggest that another
party will go out of business or suffer some other irreparable injury unless the
relief entered in these actions takes effect immediately.
In contrast to the vague and speculative harm to consumers and competitors
discussed in the court's findings, if the judgment is not stayed, Microsoft, its
employees, its shareholders, its business partners and customers and the
consuming public will suffer certain, definite and immediate harm. That harm
clearly outweighs any speculative injury that others with an interest in the
proceedings might suffer if a stay is granted.
IV. The Public Interest Weighs Strongly in Favor of a Stay.
The public interest requires a stay of the judgment pending appeal. The
devastating effects of the judgment will not be felt by Microsoft and its
employees and shareholders alone. Tens of thousands of computer manufacturers,
software developers, system integrators and resellers that have built their
entire businesses on Windows, as well as the millions of consumers who use
Microsoft's products, will also suffer grievous injury absent a stay. Indeed,
the entire United States economy may suffer if Microsoft is irreparably injured
while it prosecutes this appeal. Some, but by no means all, of the ways in which
the public will suffer absent a stay of the judgment pending appeal are
described below.
. The public will suffer serious and far-reaching harm if the Windows
platform begins to fragment. Millions of computer users and thousands
of software developers depend on the consistency and stability of the
Windows platform. Paragraphs 3.a.iii, 3.f and 3.g.i of the judgment
threaten to destroy the consistency and stability of Windows by giving
OEMs broad latitude to modify the operating system and yet market
their modified versions using the Windows logo and trademark. If the
Windows platform begins to fragment due to these modifications,
applications designed to run on Windows will no longer work on some or
all versions of the operating system, imposing significant costs on
both software developers and consumers.
. The public will suffer irreparable harm if Microsoft cannot develop
and release new products in a timely manner. Requiring Microsoft to
devote vast resources to redesigning its existing operating systems
and otherwise attempting to comply with the provisions of the judgment
will greatly retard Microsoft's ability to develop innovative products
like the "Pocket PC," the "Tablet PC,"
the "E-book" reader and the "X-Box" game console. That distraction
also will impair Microsoft's ability to pursue its major initiative
for the next competitive era--Next Generation Windows Services. To be
sure, Microsoft's competitors will benefit if Microsoft's ability to
innovate is impeded and its intellectual property is disclosed, but
consumers and the economy will not. In addition, Microsoft is
scheduled to release its latest consumer operating system, Windows
Millenium, later this year. OEMs, software developers and retailers
are already counting on this release to help stimulate demand for
their products in the critical Christmas season. If Microsoft is
required to redesign Windows Millenium in accordance with the
judgment, the release of that product will be delayed for many months.
. The public will suffer severe adverse consequences if Microsoft is
required to halt distribution of Windows six months after the judgment
becomes effective. Despite plaintiffs' unfounded assurances to the
contrary, Microsoft cannot redesign all of its existing operating
systems such as Windows 95, Windows 98 and Windows 2000 Professional
in accordance with the requirements of paragraph 3.g.i in the six-
month period provided. If Microsoft were forced to halt distribution
of those operating systems, the worldwide personal computer industry
would be paralyzed, causing severe economic dislocation.
. Innovation by software developers, hardware vendors and OEMs will be
reduced if the judgment takes effect. Paragraphs 3.a and 3.d seek to
regulate Microsoft's relationships with companies creating products
that are compatible with Windows. By preventing Microsoft from
providing information to any software developer, hardware vendor or
OEM unless Microsoft provides the same information to everyone else in
the industry, including companies creating products for competing
operating systems, the judgment will limit the amount and kind of
information that Microsoft can provide to companies with the resources
and motivation to work closely with Microsoft on joint development
projects. The judgment thus will block the sort of cooperative efforts
that provide major benefits to consumers by producing a wide range of
new technologies.
There can be no doubt that the public interest weighs heavily in favor of a
stay. Even plaintiffs admit that the judgment will have profound and uncertain
effects on the high-technology sector of the United States economy. There is no
reason to subject the Nation's economic well being to such risks before this
Court has had an opportunity to review the fatally flawed decision below.
CONCLUSION
The judgment is the culmination of a proceeding permeated by serious substantive
and procedural errors, and it imposes harsh and unsustainable burdens on
Microsoft, the software industry and the public. The Court should stay the
judgment in its entirety pending this appeal.
Respectfully submitted,
______________________________
William H. Neukom John L. Warden
Thomas W. Burt Richard J. Urowsky
David A. Heiner, Jr. Steven L. Holley
Diane D'Arcangelo Michael Lacovara
Christopher J. Meyers Richard C. Pepperman, II
MICROSOFT CORPORATION Christine C. Monterosso
One Microsoft Way Bradley P. Smith
Redmond, Washington 98052 SULLIVAN & CROMWELL
(425) 936-8080 125 Broad Street
New York, New York 10004
(212) 558-4000
Counsel for Appellant
June 13, 2000 Microsoft Corporation
VERIFICATION
I, William H. Neukom, Senior Vice President, Law and Corporate Affairs of
Microsoft Corporation, state that I have read the foregoing Motion of Appellant
Microsoft Corporation for a Stay of the Judgment Pending Appeal, that I know the
contents thereof, and that the statements contained in the motion are true of my
own knowledge.
I declare under penalty of perjury under 28 U.S.C. (S) 1746 that the foregoing
is true and correct.
Executed at Redmond, Washington this 13th day of June, 2000.
__________________________
William H. Neukom
CERTIFICATE OF SERVICE
I hereby certify that on this 13th day of June, 2000, I caused a true and
correct copy of the foregoing Motion of Appellant Microsoft Corporation for a
Stay of the Judgment Pending Appeal to be served by facsimile (without the
accompanying three volumes of exhibits) and by hand (with the accompanying three
volumes of exhibits) upon:
Phillip R. Malone, Esq.
Antitrust Division
U.S. Department of Justice
325 Seventh Street, N.W.
Room 615
Washington, D.C. 20530
Fax: (202) 307-1454
______________________
Bradley P. Smith