Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

Commonwealth of Massachusetts v. Microsoft Corporation

June 30, 2004

COMMONWEALTH OF MASSACHUSETTS, EX REL., APPELLANT
v.
MICROSOFT CORPORATION, APPELLEE
UNITED STATES OF AMERICA, APPELLEE
v.
MICROSOFT CORPORATION, ET AL., APPELLEES THE COMPUTER AND COMMUNICATIONS INDUSTRY ASSOCIATION AND THE SOFTWARE AND INFORMATION INDUSTRY ASSOCIATION, APPELLANTS



Appeal from the United States District Court for the District of Columbia (No. 98cv01233) Appeal from the United States District Court for the District of Columbia (No. 98cv01232)

Before: Ginsburg, Chief Judge, and Edwards, Sentelle, Randolph, Rogers, and Tatel, Circuit Judges.

The opinion of the court was delivered by: Ginsburg, Chief Judge

Argued November 4, 2003

In United States v. Microsoft Corp., 253 F.3d 34 (D.C. Cir. 2001) ( Microsoft III ), we affirmed in part and reversed in part the judgment of the district court holding Microsoft had violated §§ 1 and 2 of the Sherman Antitrust Act, vacated the associated remedial order, and directed the district court, on the basis of further proceedings, to devise a remedy "tailored to fit the wrong creating the occasion" therefor, id. at 107, 118-19. On remand, the United States and certain of the plaintiff states entered into a settlement agreement with Microsoft. Pursuant to the Antitrust Procedures and Penalties (Tunney) Act, 15 U.S.C. §§ 16(b)-(h), the district court held the parties' proposed consent decree, as amended to allow the court to act sua sponte to enforce the decree, was in "the public interest." Meanwhile, the Commonwealth of Massachusetts and several other plaintiff states refused to settle with Microsoft and instead litigated to judgment a separate remedial decree. The judgment entered by the district court in their case closely parallels the consent decree negotiated by the United States.

Massachusetts alone appeals the district court's entry of that decree. It argues the district court abused its discretion in adopting several provisions Microsoft proposed while rejecting several others Massachusetts and the other litigating states proposed. Massachusetts also challenges a number of the district court's findings of fact. Based upon the record before us in Microsoft III and the record of the remedial proceedings following remand, we affirm the district court's remedial decree in its entirety.

The Computer and Communications Industry Association (CCIA) and the Software and Information Industry Association (SIIA) separately appeal the district court's denial of their motion, following the district court's approval of the consent decree between the United States and Microsoft, to intervene in the case for the purpose of appealing the district court's public-interest determination. They argue the factors the district court was to consider in determining whether to allow them to intervene weighed in their favor. We agree and reverse the district court's denial of their motion to intervene for the purpose of appealing that court's publicinterest determination.

CCIA and SIIA make various arguments -- some overlapping those raised by Massachusetts -- that the consent decree between the United States and Microsoft is not in the public interest. They also argue the parties did not satisfy the procedural requirements of the Tunney Act. For these reasons, they seek vacatur of the district court's order approving the consent decree and a remand for entry of "a proper remedy." We find no merit in any of CCIA's and SIIA's objections, substantive or procedural. We therefore uphold the district court's approval of the consent decree as being in the public interest.

I. Background

The facts underlying the present appeals have been recounted several times. See New York v. Microsoft Corp., 224 F. Supp. 2d 76 (D.D.C. 2002) ( States' Remedy ); United States v. Microsoft Corp., 231 F. Supp. 2d 144 (D.D.C. 2002) ( U.S. Consent Decree ); see also Microsoft III. We therefore limit our discussion of the facts and of the proceedings to a brief review of events prior to our remand in 2001 and a more detailed account of what has transpired since then.

In May 1998 the United States filed a complaint against Microsoft alleging violations of federal antitrust laws. At the same time, a number of states and the District of Columbia filed a complaint against Microsoft alleging violations of both federal and state antitrust laws. The two complaints, which the district court consolidated, sought various forms of relief, including an injunction against certain of Microsoft's business practices.

After a lengthy bench trial the district court entered findings of fact, United States v. Microsoft Corp., 84 F. Supp. 2d 9 (D.D.C. 1999) ( Findings of Fact ), and held Microsoft had violated §§ 1 and 2 of the Sherman Act by illegally maintaining its monopoly in the market for "Intel-compatible PC operating systems," by attempting to monopolize the browser market, and by tying its Windows operating system to its Internet Explorer (IE) browser. United States v. Microsoft Corp., 87 F. Supp. 2d 30 (D.D.C. 2000) ( Conclusions of Law ). The district court also held Microsoft violated the antitrust laws of the several states. Id. at 56. Based upon its findings of fact and conclusions of law, the district court decreed that Microsoft would be split into two separate companies, one selling operating systems and one selling program applications. See United States v. Microsoft Corp., 97 F. Supp. 2d 59 (D.D.C. 2000) ( Remedy I ). Microsoft appealed the decisions of the district court, alleging several legal and factual errors.

We upheld the district court's ruling that Microsoft violated § 2 of the Sherman Act by the ways in which it maintained its monopoly, but we reversed the district court's finding of liability for attempted monopolization, and we remanded the tying claim to the district court to apply the rule of reason rather than the rule of per se illegality. See Microsoft III. We also vacated the district court's remedial decree, for three reasons: "First, [the district court had] failed to hold an evidentiary hearing despite the presence of remedies-specific factual disputes"; "[s]econd, the court did not provide adequate reasons for its decreed remedies"; and third, we had "drastically altered the scope of Microsoft's liability, and it [was] for the District Court in the first instance to determine the propriety of a specific remedy for the limited ground of liability which we ha[d] upheld." Id. at 107.

On remand the district court ordered the parties to file a Joint Status Report. This they did in September 2001, whereupon the district court ordered them to undertake settlement discussions. See United States v. Microsoft Corp., 2001 U.S. Dist. LEXIS 24272 (D.D.C. Sept. 28, 2001). As a result, the United States and the States of Illinois, Louisiana, Maryland, Michigan, New York, North Carolina, Ohio, and Wisconsin, and the Commonwealth of Kentucky, agreed to enter into a consent decree with Microsoft. On November 6, 2001 the settling parties filed a Revised Proposed Final Judgment, 1 Joint Appendix in No. 03-5030 (hereinafter J.A. (I)) at 113-30, for the district court's review. The States of California, Connecticut, Florida, Iowa, Kansas, Minnesota, Utah, and West Virginia, the Commonwealth of Massachusetts, and the District of Columbia refused to enter into the consent decree. The district court therefore bifurcated the remaining proceedings: On "Track I" was the district court's "public interest" review of the proposed consent decree, as required by the Tunney Act whenever the Government proposes to settle a civil antitrust case, see 15 U.S.C. § 16(e); on "Track II" was the continuing litigation between the non-settling states (hereinafter "the States") and Microsoft concerning the remedy.

Track I

On November 15, 2001 the Government filed its Competitive Impact Statement (CIS), 1 J.A. (I) at 136-202, as required by the Act, 15 U.S.C. § 16(b), and on November 28, 2001 it published in the Federal Register both the Revised Proposed Final Judgment and the CIS for public comment. 66 Fed. Reg. 59,452 (Nov. 28, 2001). In February 2002 the Government filed with the district court its response to the more than 32,000 public comments it had received, along with a Second Revised Proposed Final Judgment, 6 Joint Appendix in No. 02-7155 (hereinafter J.A. (II)) at 3664-81, reflecting modifications agreed to by the settling parties in the light of the public comments. The public comments, which the Government made available at its website in March 2002, were subsequently published in the Federal Register as well. 67 Fed. Reg. 23,654 (May 3, 2002). The Tunney Act also requires the defendant to file with the district court "any and all written or oral communications . with any officer or employee of the United States" relating to the proposed consent judgment. 15 U.S.C. § 16(g). Microsoft made such a filing in December 2001 and again in March 2002. See Part III.C.2.

The Tunney Act provides the district court with several procedural options to aid it in making its determination whether the proposed consent decree is in the public interest. The court may "take testimony of Government officials or experts" as it deems appropriate, 15 U.S.C. § 16(f)(1); authorize participation by interested persons, including appearances by amici curiae, id. § 16(f)(3); review comments and objections filed with the Government concerning the proposed judgment, as well as the Government's response thereto, id. § 16(f)(4); and "take such other action in the public interest as the court may deem appropriate," id. § 16(f)(5). The district court exercised several of these options. It held a hearing with the purpose of having the parties provide to the court information it needed to decide whether to approve the Second Revised Proposed Final Judgment. The district court denied CCIA's request to intervene in the case, see id. § 16(f)(3), but it did allow CCIA and SIAA to participate in the hearing as amici curiae. In July 2002 the district court concluded both the Government and Microsoft had complied with the requirements of the Tunney Act and held that the matter was ripe for the court to determine whether the decree was in the "public interest." United States v. Microsoft Corp., 215 F. Supp. 2d 1, 23 (D.D.C. 2002) ( Tunney Act Proceedings ).

On November 1, 2002 the district court ruled the Second Revised Proposed Final Judgment would be in the public interest if modified in one respect: The parties would have to provide for the district court to "retain jurisdiction to take action sua sponte in conjunction with the enforcement of the decree." U.S. Consent Decree, at 202. This they did in a Third Revised Proposed Final Judgment, which the district court duly entered. United States v. Microsoft Corp., 2002 WL 31654530 (D.D.C. Nov. 12, 2002) ( Final Consent Decree ).*fn1

On December 20, 2002 CCIA and SIIA filed a joint motion for leave to intervene, as of right or alternatively by permission, see FED. R. CIV. P. 24, for the purpose of appealing the district court's judgment that the consent decree was in the "public interest." The district court denied their motion, United States v. Microsoft Corp., 2003 WL 262324 (D.D.C. Jan. 11, 2003) ( Order Denying Intervention ), and the movants now appeal both the district court's denial of their motion for leave to intervene and, if allowed, the district court's publicinterest determination under the Tunney Act.

Track II

Pursuant to the district court's scheduling order of September 28, 2001, Microsoft and the States submitted competing remedial proposals in December of that year. This time the States did not propose to divide Microsoft but, as discussed in Part II.A.6, they did include proposals the district court considered structural in nature, including requirements that Microsoft offer "open source licensing for Internet Explorer" and "auction to a third party the right to port Microsoft Office to competing operating systems." Microsoft objected to the States' proposed remedy and offered as an alternative the Revised Proposed Final Judgment to which it had agreed in the Track I proceedings. Both sides later submitted revised proposals. In February 2002 Microsoft submitted the Second Revised Proposed Final Judgment, and in March the States submitted a Second Proposed Remedy (SPR), 6 J.A. (II) at 3160-3201. The Second Revised Proposed Final Judgment and the SPR are the two proposals the district court ultimately reviewed.

After an expedited discovery schedule, the hearing on remedies began in March 2002 and ran for 32 trial days spanning three months, over which time the court reviewed written direct testimony and heard live testimony from dozens of witnesses.*fn2 States' Remedy, at 87. The district court issued its findings of fact and its legal conclusions in a combined opinion. The final judgment in the proceedings on Track II -- that is, the remedy adopted by the district court -- is attached as an appendix to the district court's opinion. See States' Remedy, at 266-77.

Massachusetts alone among the States appeals. We address the Commonwealth's appeal in Part II below and CCIA's and SIIA's appeal in Part III.

II. Commonwealth of Massachusetts v. Microsoft, No. 02-7155

We review the district court's findings of fact for clear error, United States ex rel. Modern Elec., Inc. v. Ideal Elec. Sec. Co., 81 F.3d 240, 244 (D.C. Cir. 1996); see also FED. R. CIV. P. 52(a) ("[f]indings of fact . shall not be set aside unless clearly erroneous"), but resolve issues of law de novo, Modern Elec., Inc., 81 F.3d at 244. We review the district court's decision whether to grant equitable relief only for abuse of discretion. See Microsoft III, at 105; see also Ford Motor Co. v. United States, 405 U.S. 562, 573 (district court "clothed with `large discretion' to fit the decree to the special needs of the individual case").

A. Remedial Proposals

Massachusetts objects to several provisions the district court included in the remedial decree. The Commonwealth also appeals the district court's refusal to adopt certain other provisions proposed by the States.

1. Commingling

In Microsoft III we upheld the district court's finding that Microsoft's integration of IE and the Windows operating system generally "prevented OEMs from pre-installing other browsers and deterred consumers from using them." 253 F.3d at 63-64. Because they could not remove IE, installing another browser meant the OEM would incur the costs of supporting two browsers. Id. at 64. Accordingly, OEMs had little incentive to install a rival browser, such as Netscape Navigator. Relying upon the district court's findings of fact, we determined that Microsoft took three actions to bind IE to Windows: (1) it excluded IE from the "Add/Remove Programs" utility; (2) it commingled in the same file code related to browsing and code used by the operating system so that removal of IE files would cripple Windows; and (3) it designed Windows in such a manner that, in certain circumstances, a user's choice of an internet browser other than IE would be overridden. Id. at 64-65. Although all three acts had anticompetitive effects, only the first two had no offsetting justification and, therefore, "consitute[d] exclusionary conduct[ ] in violation of § 2." Id. at 67. As for overriding the user's choice of an internet browser, we held the plaintiffs had neither rebutted Microsoft's proffered technical justification nor demonstrated that its justification was outweighed by the anticompetitive effect. We therefore concluded Microsoft was not "liable for this aspect of its product design." Id.

On remand, turning to the commingling of IE and Windows code, the district court stated that an appropriate remedy "must place paramount significance upon addressing the exclusionary effect of the commingling, rather than the mere conduct which gives rise to the effect." States' Remedy, at 156. The court was concerned about adopting any remedy that would require Microsoft to remove Windows software code -- as the States' proposed remedy would do -- based upon what it perceived to be a very difficult, even if not "technologically impossible," task. Id. at 157. For instance, the court found the States did not offer a reasonable method of distinguishing "operating system" code from "nonoperating system" code, such as code that provides middleware functionality.*fn3 Id. Moreover, based upon "testimony of various [independent software vendors (ISVs)] that the quality of their products would decline if Microsoft were required to remove code from Windows," the court concluded both ISVs and consumers would be harmed if Microsoft were forced to redesign Windows by removing software code. Id. at 158. Finally, the district court was alert to "the admonition [in the case law] that it is not a proper task for the Court to undertake to redesign products." Id.; see also United States v. Microsoft Corp., 147 F.3d 935, 948 (D.C. Cir. 1998) ( Microsoft II) ("Antitrust scholars have long recognized the undesirability of having courts oversee product design"). Accordingly, the district court instead approved the proposed requirement that Microsoft "permit OEMs to remove end-user access to aspects of the Windows operating system which perform middleware functionality." States' Remedy, at 159. Specifically, § III.H of the decree requires Microsoft to "[a]llow end users . and OEMs . to enable or remove access to each Microsoft Middleware Product or Non-Microsoft Middleware Product ." Id. at 270.

Massachusetts maintains the district court erred by addressing the remedy to the exclusionary effect of commingling and not to the commingling itself. In response, Microsoft points out that in the liability proceedings the plaintiffs were concerned primarily with end-user access and that the decree originally entered by the district court likewise addressed Microsoft's binding its middleware to its operating system; the remedy was to allow both OEMs and end users to remove access to Microsoft middleware. Remedy I, at 68. That is why on remand the district court observed that "[n]othing in the rationale underlying the commingling liability finding requires removal of software code to remedy the violation." States' Remedy, at 158. We agree; the district court's remedy is entirely consistent with its earlier finding that "from the user's perspective, uninstalling Internet Explorer [with the Add/Remove Programs utility is] equivalent to removing the Internet Explorer program from Windows." Findings of Fact ¶ 165, at 51.

The district court's decision to fashion a remedy directed at the effect of Microsoft's commingling, rather than to prohibit commingling, was within its discretion. The end-user access provision does this, and it avoids the drawbacks of the States' proposal requiring Microsoft to redesign its software. Allowing an OEM to block end-user access to IE gives the OEM control over the costs associated with supporting more than one internet browser. Indeed, had Microsoft not removed IE from the Add/Remove Programs utility in the first place, OEMs would have retained a simple and direct method of avoiding such costs. See, e.g., Direct Testimony of Dr. Stuart Madnick ¶ 177, 5 J.A. (II) at 2887.

Massachusetts says there is unrebutted testimony in the record indicating the removal of end-user access is insufficient "to reduce OEMs' disincentives to install rival middleware." Not so. The cited testimony is that end-users "may accidentally trigger one program when they mean to trigger another. This is especially so when, under Microsoft's Proposed Remedy, Windows is allowed to launch Microsoft middleware on a system on which a consumer has not chosen Microsoft's program to be the default version of the application." Direct Testimony of Peter Ashkin ¶ 78, 5 J.A. (II) at 3100; see also ¶¶ 77, 79-80, id. at 3100-01. First, this testimony indicates only that removal of end-user access to IE may not eliminate every last "accidental" invocation of IE, not that the incidence will not be reduced, as it no doubt will be. Second, under § III.H.2 end users and OEMs may "designate a Non-Microsoft Middleware Product to be invoked in place of [a] Microsoft Middleware Product . in any case where the Windows Operating System Product would otherwise launch the Microsoft Middleware Product .," States' Remedy § III.H.2, at 270-71, which apparently provides OEMs a method to address the conduct about which Massachusetts is concerned.

Finally, the accidental invocations claimed in the cited testimony do not reflect the nature of the concerns OEMs had at the time the district court made its Findings of Fact. The district court found Microsoft had combined commingling of code and removal of IE from the Add/Remove Programs utility in a manner that ensured the presence of IE on the Windows desktop. See Findings of Fact ¶ 241, at 69. The lack of any way to remove end-user access to IE -- now squarely addressed in § III.H of the decree -- made the IE icon an "unavoidable presence" on the Windows desktop; that was what led "to confusion among novice users." Id. ¶ 217, at 63. More, that is, was involved than the occasional invocation of IE by accident; IE was always present because Microsoft prevented OEMs from removing both the code and the enduser's access to it. The accidental invocations of Microsoft middleware claimed in the Ashkin testimony -- to the extent not already resolved by § III.H.2 -- are hardly likely to generate the level of support costs OEMs faced when the IE icon was on every desktop. Certainly the cited testimony is no evidence of such significant costs.

The district court fashioned a remedy aimed at reducing the costs an OEM might face in having to support multiple internet browsers. The court thereby addressed itself to Microsoft's efforts to reduce software developers' interest in writing to the Application Program Interfaces (APIs) exposed by any operating system other than Windows. Far from abusing its discretion, therefore, the district court, by remedying the anticompetitive effect of commingling, went to the heart of the problem Microsoft had created, and it did so without intruding itself into the design and engineering of the Windows operating system. We say, Well done!

But soft! Massachusetts and the amici claim the district court nonetheless erred in rejecting a "code removal" remedy for Microsoft's commingling, principally insofar as the court was concerned with "Microsoft's ability to provide a consistent API set," which Microsoft referred to as the problem of Windows' "fragmentation."*fn4 They argue that any effort to keep software developers writing to Microsoft's APIs -- and thereby avoiding "fragmentation" -- is not procompetitive but rather "an argument against competition."

The district court raised its concern about fragmentation in connection with the States' proposal that Microsoft be required to remove its middleware code from the code of its Windows operating system, as follows:

Microsoft shall not, in any Windows Operating System Product . it distributes . Bind any Microsoft Middleware Product to the Windows Operating System unless Microsoft also has available to license, upon the request of any Covered OEM licensee or Third-Party Licensee, and supports both directly and indirectly, an otherwise identical but "unbound" Windows Operating System Product .

SPR § 1, 6 J.A. (II) at 3166. In other words, Microsoft would be required to make it possible for OEMs and end users to "readily remove or uninstall [from Windows] the binary code" of any Microsoft Middleware Product (as that term is defined in the States' proposal). Id. §§ 22.d & 22.e, 6 J.A. (II) at 3193. The district court found evidence the States' proposal "would hinder, or even destroy Microsoft's ability to provide a consistent API set." States' Remedy, at 252. This evidence included testimony that it would be impossible for Microsoft to maintain the same high level of operating-system balance and stability on which software developers and customers rely. Developers will be less likely to write software programs to an unstable or unpredictable operating system based on the risk that their programs will not function as designed, thereby reducing customer satisfaction.

Direct Testimony of Scott Borduin ¶ 61, 2 J.A. (II) at 1327.*fn5 The district court concluded, "The weight of the evidence indicates the fragmentation of the Windows platform would be significantly harmful to Microsoft, ISVs, and consumers." States' Remedy, at 253.

Massachusetts argues the district court's finding "ignores and is at odds with this Court's holding that Microsoft's desire to keep developers focused on its APIs was merely another way of saying it `wants to preserve its power in the operating system market,' " citing Microsoft III, at 71. Indeed, as we stated in Microsoft III, "Microsoft's only explanation for its exclusive dealing [contracts with Internet Access Providers (IAPs)] is that it wants to keep developers focused upon its APIs -- which is to say, it wants to preserve its power in the operating system market." Id. We went on to state, however, that this "is not an unlawful end, but neither is it a procompetitive justification for the specific means here in question, namely, exclusive dealing contracts with IAPs." Id.

Massachusetts would turn our observation about Microsoft's rationale for its exclusive contracts with IAPs into a critique of the district court's concern with the extreme fragmentation of Windows the court found was likely to occur if it adopted the States' code removal proposal. But the two points cannot be equated. The States made a proposal the district court found might have resulted in there being "more than 1000" versions of Windows. See States' Remedy, at 253 (citing Direct Testimony of Dr. John Bennett ¶¶ 47, 55, 5 J.A. (II) at 2997-98, 3001). Letting a thousand flowers bloom is usually a good idea, but here the court found evidence, as discussed above, that such drastic fragmentation would likely harm consumers. See also Direct Testimony of Dr. Kenneth Elzinga ¶ 102, 5 J.A. (II) at 2739-40 ("Lowering barriers to entry by destroying . real benefits . harms consumers and is not pro-competitive"). Although it is almost certainly true, as both Massachusetts and the amici claim, that such fragmentation would also pose a threat to Microsoft's ability to keep software developers focused upon its APIs, addressing the applications barrier to entry in a manner likely to harm consumers is not self-evidently an appropriate way to remedy an antitrust violation. See Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209, 224 (1993) ("It is axiomatic that the antitrust laws were passed for `the protection of competition, not competitors,' " quoting Brown Shoe Co. v. United States, 370 U.S. 294, 320 (1962) (emphases in original)).

The district court's end-user access provision fosters competition by opening the channels of distribution to non-Microsoft middleware. It was Microsoft's foreclosure of those channels that squelched nascent middleware threats and furthered the dominance of the API set exposed by its operating system. The exclusive contracts into which Microsoft entered with IAPs were likewise aimed at foreclosing channels through which rival middleware might otherwise have been distributed. Prohibiting Microsoft from continuing those exclusive arrangements, see States' Remedy § III.G, at 269-70, would not have the same deleterious effect upon consumers as would the fragmentation of Windows.

Amici CCIA and SIIA seem to view fragmentation as merely competition by another name. Accordingly, they see fragmentation as a natural, if only temporary, consequence of economic forces: "Competition of any kind will lead to a multiplicity of standards, at least temporarily." The redesign of Windows required by the States' proposal, however, would not be the result of competition on the merits, as CCIA and SIIA seem to suggest. Certainly they point to no economic force that would prompt (or, if such a redesign were mandated, sustain) the degree of fragmentation the States' proposal is predicted to produce. Nor do they explain how such fragmentation would, as they claim, "spark innovation that benefits consumers." They instead quote National Society of Professional Engineers (NSPE) v. United States, 435 U.S. 679, 689 (1978), for the proposition that the Supreme Court has "foreclose[d] the argument that because of the special characteristics of a particular industry, monopolistic arrangements will better promote trade and commerce than competition." But that case provides no support for CCIA's and SIIA's argument here. Like the two cases the Supreme Court cited in making the statement just quoted, see United States v. Trans-Missouri Freight Ass'n, 166 U.S. 290 (1897); and United States v. Joint Traffic Ass'n, 171 U.S. 505 (1898), NSPE involved an agreement among competitors limiting the output of their services. Those arrangements, which were analyzed under § 1 of the Sherman Act, are not analogous to Microsoft's monopoly of the market for operating systems, which is due not only to the exclusionary practices we found unlawful in Microsoft III but also to "positive network effects," see Findings of Fact, at 20. Moreover, in NSPE the district court made no findings there were any potential benefits from the profession's "ethical prohibition against competitive bidding." 435 U.S. at 686. In sharp contrast, here the district court made extensive findings both about the potential harm to consumers from fragmentation and about the dubious benefits of the States' proposal.*fn6 From these findings the court concluded, "There is no indication that there is any competitive or economic advantage to [the degree of fragmentation entailed in the States' proposal] and, quite to the contrary, such a result would likely be detrimental to the consumer." States' Remedy, at 252-54. Although we understand that competition on the merits itself would likely elicit multiple standards -- recall the competition between the VHS and Beta videotape standards -- or even that some as yet unimagined technology might reduce the harm to consumers from fragmentation, CCIA and SIIA fail to demonstrate the district court was unduly concerned about the extent of fragmentation likely to arise from the States' proposal.

Finally, Massachusetts argues the district court's findings relating to fragmentation "fail to respect" the findings of fact made in the liability proceedings. Specifically, the Commonwealth points to Findings of Fact ¶ 193, at 56-57: "Microsoft's contention that offering OEMs the choice of whether or not to install certain browser-related APIs would fragment the Windows platform is unpersuasive." That statement was addressed to the unbinding of IE and Windows, not to the States' proposal, from which the court anticipated far more extensive fragmentation. The district court's rejection of the States' proposal, therefore, is not inconsistent with any of the findings of fact in the liability proceedings.

Relatedly, the amici point to "Microsoft's own fragmentation" of Windows through the publication of successive versions, such as Windows 98, Windows 2000, and Windows XP. The district court addressed this concern and found such fragmentation to be of "relatively small degree" because "Microsoft is able to work towards maintaining backward compatibility with previous versions." States' Remedy, at 253.

To be sure, the remedy the district court adopted does not prevent all fragmentation of the Windows operating system; indeed, it adopted the end-user access provision, which allows OEMs to install rival browsers and other non-Microsoft middleware, with their associated APIs, and to remove the end user's access to IE. Accordingly, fragmentation may yet occur, but if so it will be caused by OEMs competing to satisfy the preferences of end users, not forced artificially upon the market as it would be under the States' proposal.

2. Java deception

Massachusetts argues the district court erred in not including a remedy addressed specifically to Microsoft's deception of Java software developers. Unbeknownst to Java software developers, Microsoft's Java developer tools included certain words and directives that could be executed only in Windows' Java runtime environment. We held this deception "served to protect [Microsoft's] monopoly of the operating system in a manner not attributable either to the superiority of the operating system or to the acumen of its makers, and therefore was anticompetitive." Microsoft III, at 77. Because Microsoft failed to provide a procompetitive explanation for its deception of software developers -- indeed, there appears to be no purpose at all for the practice that would not itself be anticompetitive -- we held its conduct was exclusionary, in violation of § 2 of the Sherman Act. Id.

On remand the district court found a lack of "any evidence" Microsoft's previous Java deception was a continuing threat to competition. States' Remedy, at 265. The Java deception "concern[ed] a single, very specific incident of anticompetitive conduct by Microsoft," which conduct Microsoft had ceased in accordance with a consent decree into which it had entered in another case in another court. Id. For these reasons, the district court did not include a provision in the remedial decree addressed to this unlawful but now terminated conduct.

Massachusetts, quoting United States v. W.T. Grant Co., 345 U.S. 629, 632 (1953), claims that without specific relief prohibiting such deception, Microsoft is "free to return to [its] old ways." Microsoft responds that Massachusetts does not make a showing of the type of abuse contemplated by the Supreme Court in W.T. Grant. We agree. That case involved an interlocking directorate allegedly unlawful under § 8 of the Clayton Act. Soon after the Government filed suit, the common director voluntarily resigned from the relevant boards, after which the district court refused the Government's request for an injunction prohibiting him and the corporations from violating § 8 in the future. The Supreme Court held the defendants' sworn profession of an intention not to revive the interlock was insufficient to moot the case. However, the Court also held -- and this is key -- the district court was in the best position to determine whether there was a "significant threat of [a] future violation," and it had not abused its discretion in refusing to award injunctive relief. Id. at 635-36. Far from supporting Massachusetts' argument, therefore, W.T. Grant confirms the district court's broad discretionary power to withhold equitable relief as it reasonably sees fit.

Massachusetts maintains the district court abused its discretion insofar as it found "no evidence that this deception, or any similar deception, has persisted." States' Remedy, at 190. Massachusetts here claims Microsoft's Chairman and Chief Software Architect, William Gates III, in testimony "admitted that Microsoft routinely makes knowingly inaccurate claims regarding its compliance with industry standards," into which the district court should have inquired further. The cited testimony in fact concerns Microsoft's efforts to comply with frequently changing standards.*fn7 Not surprisingly, nothing Gates said suggests anything in the least nefarious.

Despite its failure to demonstrate any continuing competitive threat from Microsoft's previous deception of Java software developers, Massachusetts presses the States' proposed "truth in standards" provision, which would regulate certain business practices that were not at issue in Microsoft III. Specifically, the States' proposal would require Microsoft to (1) continue supporting any industry standard it has publicly claimed to support "until it publicly disclaims such support or the standard itself expires or is rescinded by the standardsetting body," and (2) "continue to support an industry standard any time it makes a proprietary alteration to the standard." Id. at 190; see also SPR § 16, 6 J.A. (II) at 3183. As an initial matter, our holding the district court did not abuse its discretion in refusing to enjoin a recurrence of Microsoft's Java deception casts grave doubt upon the need for a broad provision applicable not only to Java but to all industry standards. Be that as it may, we address Massachusetts' arguments in favor of such a provision.

First Massachusetts claims the district court erred as a matter of law insofar as it regarded the proposed truth-instandards provision as being "unrelated to the violation found by th[is] court." That is not, however, how the district court saw the matter. Addressing only the first requirement quoted in the previous paragraph, the district court specifically referred to Microsoft's deception of Java developers in holding there was no showing a "broad order" prohibiting any similar deception was "either appropriate or necessary." See States' Remedy, at 190. It never said that requirement was "unrelated" to the violations found by this court in Microsoft III. That much we think is unarguable.

As Microsoft correctly points out, it was the second aspect of the truth-in-standards provision the district court deemed "unrelated to any finding of liability," id. at 190, 263-64, and correctly so. Indeed, this court held that Microsoft's development of the Windows Java Virtual Machine (JVM), which was incompatible with Sun's JVM, did not violate the antitrust laws. Microsoft III, at 75. It was only Microsoft's having misled software developers into thinking the two were compatible that had an anticompetitive effect. Id. at 76-77. We therefore hold the district court permissibly refused to require that Microsoft continue to support a standard after making a proprietary modification to it, even if the modification makes the standard incompatible with the original.

Massachusetts also complains the record does not support the district court's other reasons for rejecting the proposed truth-in-standards provision. We disagree. The district court found no evidence the "industry standard" provision would "enhance competition in the monopolized market" for Intel-compatible PC operating systems. States' Remedy, at 264 & n.134. Compliance with industry standards is "largely a subjective undertaking," i d. at 190, such that "full compliance with a standard is often a difficult and ambiguous process," id. at 264 (quoting Madnick ¶ 208, 5 J.A. (II) at 2905). Massachusetts points to no specific instance in which competition would have been or would be enhanced by compelling Microsoft to support an industry standard after it made a proprietary alteration thereto. Instead Massachusetts invokes expert testimony that Microsoft's proprietary control over "important interfaces" would make it "harder" for rival operating systems to compete with Windows. Direct Testimony of Dr. Carl Shapiro ¶ 185, 2 J.A. (II) at 860. This is far too general a statement from which to infer the proposed truth-in-standards provision would enhance competition rather than merely assist competitors -- and perhaps retard innovation. The district court found that industry standards can "vary widely in complexity and specificity, such that various implementations of a particular standard are often incompatible." States' Remedy, at 264 (quoting Madnick ¶ 207, 5 J.A. (II) at 2904). Microsoft, therefore, may not be able to comply with some of the industry standards contemplated by the States' proposal. And the States' own economic expert testified that "slow-moving standards bodies" are commonly unable to keep up with rapidly changing technology markets. 4/14/02 pm Tr. at 3677 (Shapiro trial testimony), 8 J.A. (II) at 4572; see also CARL SHAPIRO & HAL R. VARIAN, INFORMATION Rules 240 (1999) (advocating business strategy that does not "freeze . activities during the slow standard-setting process").

The district court aptly described the problems with the States' truth-in-standards proposal and correctly concluded the proposed remedy went beyond the liability contemplated by this court. The court did not abuse its discretion, therefore, in refusing to adopt the proposal.

3. Forward-looking provisions

The district court exercised its discretion to fashion appropriate relief by adopting what it called "forward-looking" provisions, which require Microsoft to disclose certain of its APIs and communications protocols. Although nondisclosure of this proprietary information had played no role in our holding Microsoft violated the antitrust laws, "both proposed remedies recommend[ed] the mandatory disclosure of certain Microsoft APIs, technical information, and communications protocols for the purposes of fostering interoperation." States' Remedy, at 171. In approving a form of such disclosure -- while, as discussed below, rejecting the States' proposal for vastly more -- the district court explained "the remedy [must] not [be] so expansive as to be unduly regulatory or provide a blanket prohibition on all future anticompetitive conduct." Id. (citing Zenith Radio Corp. v. Hazeltine Research, Inc., 395 U.S. 100, 133 (1969)). We are also mindful that, although the district court is "empowered to fashion appropriate restraints on [Microsoft's] future activities both to avoid a recurrence of the violation and to eliminate its consequences," NSPE, 435 U.S. at 697, the resulting relief must "represent[ ] a reasonable method of eliminating the consequences of the illegal conduct," id. at 698.

a. Disclosure of APIs

The district court recognized the "hallmark of the platform threat" to the Windows monopoly posed by rival middleware is the ability to run on multiple operating systems: The "ready ability to interoperate with the already dominant operating system will bolster the ability of such middleware to support a wide range of applications so as to serve as a platform." States' Remedy, at 172. In order to facilitate such interoperation the district court required Microsoft to disclose APIs "used by Microsoft Middleware to interoperate with a Windows Operating System Product." Id. § III.D, at 268.

Massachusetts objects to this provision on several grounds. First, the Commonwealth argues "the middleware covered by § III.D lacks the platform potential of the middleware threat that Microsoft thwarted" and, therefore, "will necessarily be inadequate to restore competition." The validity of Massachusetts' objection depends upon the meaning of "Microsoft Middleware."

Microsoft Middleware is defined as "software code" that:

1. Microsoft distributes separately from a Windows Operating System Product to update that Windows Operating System Product;

2. is Trademarked or is marketed by Microsoft as a major version of any Microsoft Middleware Product .; and

3. provides the same or substantially similar functionality as a Microsoft Middleware Product.

Id. § VI.J, at 275. A "Microsoft Middleware Product" includes, among other things, "the functionality provided by Internet Explorer, Microsoft's Java Virtual Machine, Windows Media Player, Windows Messenger, Outlook Express and their successors in a Windows Operating System Product." Id. § VI.K, at 275.

In support of its argument, Massachusetts notes that Microsoft's own experts "doubted the platform potential of several forms of middleware included in what became the remedy's definition."*fn8 In response, Microsoft points out that the definition of "Microsoft Middleware" adopted by the district court is not faulty simply because Microsoft's experts discounted as platform threats some of the middleware products it covers. The logic of that response is obvious, which makes it unsurprising that Massachusetts makes no reply.

Amici CCIA and SIIA take a different tack, claiming the definition is defective because Microsoft itself determines which software code to distribute separately. Microsoft responds that the amici "ignore[ ] the thousands of Windows APIs that Microsoft publicly discloses in the ordinary course of business," and cites testimony, most of it conclusory, extolling the adequacy of those APIs for software developers. See, e.g., Direct Testimony of Brent Frei of Onyx Software ¶¶ 18-22, 6 J.A. (II) at 3413-15; Direct Testimony of Chris Hofstader of Freedom Scientific ¶¶ 57-59, 9 J.A. (II) at 5453-55. Be that as it may, the district court considered arguments by the States similar to the one now advanced by the amici, and it rejected the related testimony of the States' witnesses. States' Remedy, at 116-17. The court instead found "Microsoft often distributes separately certain technologies which are included in new releases of Windows because such distribution enables users of previous Windows versions to take advantage of the latest improvements to these technologies." Id. at 117 (citing Direct Testimony of Microsoft's Christopher Jones ¶ 61, 5 J.A. (II) at 2532, and Will Poole ¶ 76, 5 J.A. (II) at 2493). The court explained:

Such distribution benefits Microsoft, as it permits Microsoft to continually improve the quality of its products, even after they are sold, and to expand the user base of new technology without waiting for consumers to purchase an entirely new operating system.

Id. These benefits would be lost to Microsoft if it were to "manipulate its products to exclude specific code from the definition" of middleware. Id.

The amici do not deny Microsoft has routinely distributed its middleware separately from Windows. Instead, they speculate Microsoft may henceforth avoid separate distribution in order to avoid the disclosure contemplated by ยง III.D. They claim an expanded definition of middleware, such as that proposed by the States, is necessary ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.