Hi all

Here is the full text of the judgement against Microsoft.

John

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Full text of Conclusions of Law and Final Order 

UNITED STATES DISTRICT COURT 
FOR THE DISTRICT OF COLUMBIA
     

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 )   
   )   
UNITED STATES OF AMERICA,  )   
   )   
Plaintiff,  )   
   )   
v.  ) Civil Action No. 98-1232 (TPJ) 
   )   
MICROSOFT CORPORATION,  )   
   )   
Defendant.  )   
   )   

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   )   
STATE OF NEW YORK, et al.,  )   
   )   
Plaintiffs  )   
   )   
v.  )  
   )   
MICROSOFT CORPORATION,  )   
   )   
Defendant  )   
   )   

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 ) Civil Action No. 98-1233 (TPJ) 
   )   
MICROSOFT CORPORATION,  )   
   )   
v.  )   
   )   
Counterclaim-Plaintiff,  )   
   )   
ELLIOT SPITZER, attorney  )   
general of the State of  )   
New York, in his official  )   
capacity, et al.,  )   
   )   
Counterclaim-Defendants.  )   
   )   

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CONCLUSIONS OF LAW




The United States, nineteen individual states, and the District of Columbia
("the plaintiffs") bring these consolidated civil enforcement actions
against defendant Microsoft Corporation ("Microsoft") under the Sherman
Antitrust Act, 15 U.S.C. §§ 1 and 2. The plaintiffs charge, in essence, that
Microsoft has waged an unlawful campaign in defense of its monopoly position
in the market for operating systems designed to run on Intel-compatible
personal computers ("PCs"). Specifically, the plaintiffs contend that
Microsoft violated §2 of the Sherman Act by engaging in a series of
exclusionary, anticompetitive, and predatory acts to maintain its monopoly
power. They also assert that Microsoft attempted, albeit unsuccessfully to
date, to monopolize the Web browser market, likewise in violation of §2.
Finally, they contend that certain steps taken by Microsoft as part of its
campaign to protect its monopoly power, namely tying its browser to its
operating system and entering into exclusive dealing arrangements, violated
§ 1 of the Act. 

Upon consideration of the Court's Findings of Fact ("Findings"), filed
herein on November 5, 1999, as amended on December 21, 1999, the proposed
conclusions of law submitted by the parties, the briefs of amici curiae, and
the argument of counsel thereon, the Court concludes that Microsoft
maintained its monopoly power by anticompetitive means and attempted to
monopolize the Web browser market, both in violation of § 2. Microsoft also
violated § 1 of the Sherman Act by unlawfully tying its Web browser to its
operating system. The facts found do not support the conclusion, however,
that the effect of Microsoft's marketing arrangements with other companies
constituted unlawful exclusive dealing under criteria established by leading
decisions under § 1. 

The nineteen states and the District of Columbia ("the plaintiff states")
seek to ground liability additionally under their respective antitrust laws.
The Court is persuaded that the evidence in the record proving violations of
the Sherman Act also satisfies the elements of analogous causes of action
arising under the laws of each plaintiff state. For this reason, and for
others stated below, the Court holds Microsoft liable under those particular
state laws as well. 

I. SECTION TWO OF THE SHERMAN ACT 

A. Maintenance of Monopoly Power by Anticompetitive Means 

Section 2 of the Sherman Act declares that it is unlawful for a person or
firm to "monopolize . . . any part of the trade or commerce among the
several States, or with foreign nations . . . ." 15 U.S.C. § 2. This
language operates to limit the means by which a firm may lawfully either
acquire or perpetuate monopoly power. Specifically, a firm violates § 2 if
it attains or preserves monopoly power through anticompetitive acts. See
United States v. Grinnell Corp., 384 U.S. 563, 570-71 (1966) ("The offense
of monopoly power under § 2 of the Sherman Act has two elements: (1) the
possession of monopoly power in the relevant market and (2) the willful
acquisition or maintenance of that power as distinguished from growth or
development as a consequence of a superior product, business acumen, or
historic accident."); Eastman Kodak Co. v. Image Technical Services, Inc.,
504 U.S. 451, 488 (1992) (Scalia, J., dissenting) ("Our § 2 monopolization
doctrines are . . . directed to discrete situations in which a defendant's
possession of substantial market power, combined with his exclusionary or
anticompetitive behavior, threatens to defeat or forestall the corrective
forces of competition and thereby sustain or extend the defendant's
agglomeration of power."). 

1. Monopoly Power 

The threshold element of a § 2 monopolization offense being "the possession
of monopoly power in the relevant market," Grinnell, 384 U.S. at 570, the
Court must first ascertain the boundaries of the commercial activity that
can be termed the "relevant market." See Walker Process Equip., Inc. v. Food
Mach. & Chem. Corp., 382 U.S. 172, 177 (1965) ("Without a definition of [the
relevant] market there is no way to measure [defendant's] ability to lessen
or destroy competition."). Next, the Court must assess the defendant's
actual power to control prices in - or to exclude competition from - that
market. See United States v. E. I. du Pont de Nemours & Co., 351 U.S. 377,
391 (1956) ("Monopoly power is the power to control prices or exclude
competition."). 

In this case, the plaintiffs postulated the relevant market as being the
worldwide licensing of Intel-compatible PC operating systems. Whether this
zone of commercial activity actually qualifies as a market, "monopolization
of which may be illegal," depends on whether it includes all products
"reasonably interchangeable by consumers for the same purposes." du Pont,
351 U.S. at 395. See Rothery Storage & Van Co. v. Atlas Van Lines, Inc., 792
F.2d 210, 218 (D.C. Cir. 1986) ("Because the ability of consumers to turn to
other suppliers restrains a firm from raising prices above the competitive
level, the definition of the 'relevant market' rests on a determination of
available substitutes."). 

The Court has already found, based on the evidence in this record, that
there are currently no products - and that there are not likely to be any in
the near future - that a significant percentage of computer users worldwide
could substitute for Intel-compatible PC operating systems without incurring
substantial costs. Findings ¶¶ 18-29. The Court has further found that no
firm not currently marketing Intel-compatible PC operating systems could
start doing so in a way that would, within a reasonably short period of
time, present a significant percentage of such consumers with a viable
alternative to existing Intel-compatible PC operating systems. Id. ¶¶ 18,
30-32. From these facts, the Court has inferred that if a single firm or
cartel controlled the licensing of all Intel-compatible PC operating systems
worldwide, it could set the price of a license substantially above that
which would be charged in a competitive market - and leave the price there
for a significant period of time - without losing so many customers as to
make the action unprofitable. Id. ¶ 18. This inference, in turn, has led the
Court to find that the licensing of all Intel-compatible PC operating
systems worldwide does in fact constitute the relevant market in the context
of the plaintiffs' monopoly maintenance claim. Id. 

The plaintiffs proved at trial that Microsoft possesses a dominant,
persistent, and increasing share of the relevant market. Microsoft's share
of the worldwide market for Intel-compatible PC operating systems currently
exceeds ninety-five percent, and the firm's share would stand well above
eighty percent even if the Mac OS were included in the market. Id. ¶ 35. The
plaintiffs also proved that the applications barrier to entry protects
Microsoft's dominant market share. Id. ¶¶ 36-52. This barrier ensures that
no Intel-compatible PC operating system other than Windows can attract
significant consumer demand, and the barrier would operate to the same
effect even if Microsoft held its prices substantially above the competitive
level for a protracted period of time. Id. Together, the proof of dominant
market share and the existence of a substantial barrier to effective entry
create the presumption that Microsoft enjoys monopoly power. See United
States v. AT&T Co., 524 F. Supp. 1336, 1347-48 (D.D.C. 1981) ("a persuasive
showing . . . that defendants have monopoly power . . . through various
barriers to entry, . . . in combination with the evidence of market shares,
suffice[s] at least to meet the government's initial burden, and the burden
is then appropriately placed upon defendants to rebut the existence and
significance of barriers to entry"), quoted with approval in Southern Pac.
Communications Co. v. AT&T Co., 740 F.2d 980, 1001-02 (D.C. Cir. 1984). 

At trial, Microsoft attempted to rebut the presumption of monopoly power
with evidence of both putative constraints on its ability to exercise such
power and behavior of its own that is supposedly inconsistent with the
possession of monopoly power. None of the purported constraints, however,
actually deprive Microsoft of "the ability (1) to price substantially above
the competitive level and (2) to persist in doing so for a significant
period without erosion by new entry or expansion." IIA Phillip E. Areeda,
Herbert Hovenkamp & John L. Solow, Antitrust Law ¶ 501, at 86 (1995)
(emphasis in original); see Findings ¶¶ 57-60. Furthermore, neither
Microsoft's efforts at technical innovation nor its pricing behavior is
inconsistent with the possession of monopoly power. Id. ¶¶ 61-66. 

Even if Microsoft's rebuttal had attenuated the presumption created by the
prima facie showing of monopoly power, corroborative evidence of monopoly
power abounds in this record: Neither Microsoft nor its OEM customers
believe that the latter have - or will have anytime soon - even a single,
commercially viable alternative to licensing Windows for pre-installation on
their PCs. Id. ¶¶ 53-55; cf. Rothery, 792 F.2d at 219 n.4 ("we assume that
economic actors usually have accurate perceptions of economic realities").
Moreover, over the past several years, Microsoft has comported itself in a
way that could only be consistent with rational behavior for a
profit-maximizing firm if the firm knew that it possessed monopoly power,
and if it was motivated by a desire to preserve the barrier to entry
protecting that power. Findings ¶¶ 67, 99, 136, 141, 215-16, 241, 261-62,
286, 291, 330, 355, 393, 407. 

In short, the proof of Microsoft's dominant, persistent market share
protected by a substantial barrier to entry, together with Microsoft's
failure to rebut that prima facie showing effectively and the additional
indicia of monopoly power, have compelled the Court to find as fact that
Microsoft enjoys monopoly power in the relevant market. Id. ¶ 33. 

2. Maintenance of Monopoly Power by Anticompetitive Means 

In a § 2 case, once it is proved that the defendant possesses monopoly power
in a relevant market, liability for monopolization depends on a showing that
the defendant used anticompetitive methods to achieve or maintain its
position. See United States v. Grinnell, 384 U.S. 563, 570-71 (1966);
Eastman Kodak Co. v. Image Technical Services, Inc., 504 U.S. 451, 488
(1992) (Scalia, J., dissenting); Intergraph Corp. v. Intel Corp., 195 F.3d
1346, 1353 (Fed. Cir. 1999). Prior cases have established an analytical
approach to determining whether challenged conduct should be deemed
anticompetitive in the context of a monopoly maintenance claim. The
threshold question in this analysis is whether the defendant's conduct is
"exclusionary" - that is, whether it has restricted significantly, or
threatens to restrict significantly, the ability of other firms to compete
in the relevant market on the merits of what they offer customers. See
Eastman Kodak, 504 U.S. at 488 (Scalia, J., dissenting) (§ 2 is "directed to
discrete situations" in which the behavior of firms with monopoly power
"threatens to defeat or forestall the corrective forces of competition").(1)


If the evidence reveals a significant exclusionary impact in the relevant
market, the defendant's conduct will be labeled "anticompetitive" - and
liability will attach - unless the defendant comes forward with specific,
procompetitive business motivations that explain the full extent of its
exclusionary conduct. See Eastman Kodak, 504 U.S. at 483 (declining to grant
defendant's motion for summary judgment because factual questions remained
as to whether defendant's asserted justifications were sufficient to explain
the exclusionary conduct or were instead merely pretextual); see also Aspen
Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585, 605 n.32 (1985)
(holding that the second element of a monopoly maintenance claim is
satisfied by proof of "'behavior that not only (1) tends to impair the
opportunities of rivals, but also (2) either does not further competition on
the merits or does so in an unnecessarily restrictive way'") (quoting III
Phillip E. Areeda & Donald F. Turner, Antitrust Law ¶ 626b, at 78 (1978)). 

If the defendant with monopoly power consciously antagonized its customers
by making its products less attractive to them - or if it incurred other
costs, such as large outlays of development capital and forfeited
opportunities to derive revenue from it - with no prospect of compensation
other than the erection or preservation of barriers against competition by
equally efficient firms, the Court may deem the defendant's conduct
"predatory." As the D.C. Circuit stated in Neumann v. Reinforced Earth Co., 

[P]redation involves aggression against business rivals through the use of
business practices that would not be considered profit maximizing except for
the expectation that (1) actual rivals will be driven from the market, or
the entry of potential rivals blocked or delayed, so that the predator will
gain or retain a market share sufficient to command monopoly profits, or (2)
rivals will be chastened sufficiently to abandon competitive behavior the
predator finds threatening to its realization of monopoly profits. 

786 F.2d 424, 427 (D.C. Cir. 1986). 

Proof that a profit-maximizing firm took predatory action should suffice to
demonstrate the threat of substantial exclusionary effect; to hold otherwise
would be to ascribe irrational behavior to the defendant. Moreover,
predatory conduct, by definition as well as by nature, lacks procompetitive
business motivation. See Aspen Skiing, 472 U.S. at 610-11 (evidence
indicating that defendant's conduct was "motivated entirely by a decision to
avoid providing any benefits" to a rival supported the inference that
defendant's conduct "was not motivated by efficiency concerns"). In other
words, predatory behavior is patently anticompetitive. Proof that a firm
with monopoly power engaged in such behavior thus necessitates a finding of
liability under § 2. 

In this case, Microsoft early on recognized middleware as the Trojan horse
that, once having, in effect, infiltrated the applications barrier, could
enable rival operating systems to enter the market for Intel-compatible PC
operating systems unimpeded. Simply put, middleware threatened to demolish
Microsoft's coveted monopoly power. Alerted to the threat, Microsoft strove
over a period of approximately four years to prevent middleware technologies
from fostering the development of enough full-featured, cross-platform
applications to erode the applications barrier. In pursuit of this goal,
Microsoft sought to convince developers to concentrate on Windows-specific
APIs and ignore interfaces exposed by the two incarnations of middleware
that posed the greatest threat, namely, Netscape's Navigator Web browser and
Sun's implementation of the Java technology. Microsoft's campaign succeeded
in preventing - for several years, and perhaps permanently - Navigator and
Java from fulfilling their potential to open the market for Intel-compatible
PC operating systems to competition on the merits. Findings ¶¶ 133, 378.
Because Microsoft achieved this result through exclusionary acts that lacked
procompetitive justification, the Court deems Microsoft's conduct the
maintenance of monopoly power by anticompetitive means. 

a. Combating the Browser Threat 

The same ambition that inspired Microsoft's efforts to induce Intel, Apple,
RealNetworks and IBM to desist from certain technological innovations and
business initiatives - namely, the desire to preserve the applications
barrier - motivated the firm's June 1995 proposal that Netscape abstain from
releasing platform-level browsing software for 32-bit versions of Windows.
See id. ¶¶ 79-80, 93-132. This proposal, together with the punitive measures
that Microsoft inflicted on Netscape when it rebuffed the overture,
illuminates the context in which Microsoft's subsequent behavior toward PC
manufacturers ("OEMs"), Internet access providers ("IAPs"), and other firms
must be viewed. 

When Netscape refused to abandon its efforts to develop Navigator into a
substantial platform for applications development, Microsoft focused its
efforts on minimizing the extent to which developers would avail themselves
of interfaces exposed by that nascent platform. Microsoft realized that the
extent of developers' reliance on Netscape's browser platform would depend
largely on the size and trajectory of Navigator's share of browser usage.
Microsoft thus set out to maximize Internet Explorer's share of browser
usage at Navigator's expense. Id. ¶¶ 133, 359-61. The core of this strategy
was ensuring that the firms comprising the most effective channels for the
generation of browser usage would devote their distributional and
promotional efforts to Internet Explorer rather than Navigator. Recognizing
that pre-installation by OEMs and bundling with the proprietary software of
IAPs led more directly and efficiently to browser usage than any other
practices in the industry, Microsoft devoted major efforts to usurping those
two channels. Id. ¶ 143. 

i. The OEM Channel 

With respect to OEMs, Microsoft's campaign proceeded on three fronts. First,
Microsoft bound Internet Explorer to Windows with contractual and, later,
technological shackles in order to ensure the prominent (and ultimately
permanent) presence of Internet Explorer on every Windows user's PC system,
and to increase the costs attendant to installing and using Navigator on any
PCs running Windows. Id. ¶¶ 155-74. Second, Microsoft imposed stringent
limits on the freedom of OEMs to reconfigure or modify Windows 95 and
Windows 98 in ways that might enable OEMs to generate usage for Navigator in
spite of the contractual and technological devices that Microsoft had
employed to bind Internet Explorer to Windows. Id. ¶¶ 202-29. Finally,
Microsoft used incentives and threats to induce especially important OEMs to
design their distributional, promotional and technical efforts to favor
Internet Explorer to the exclusion of Navigator. Id. ¶¶ 230-38. 

Microsoft's actions increased the likelihood that pre-installation of
Navigator onto Windows would cause user confusion and system degradation,
and therefore lead to higher support costs and reduced sales for the OEMs.
Id. ¶¶ 159, 172. Not willing to take actions that would jeopardize their
already slender profit margins, OEMs felt compelled by Microsoft's actions
to reduce drastically their distribution and promotion of Navigator. Id. ¶¶
239, 241. The substantial inducements that Microsoft held out to the largest
OEMs only further reduced the distribution and promotion of Navigator in the
OEM channel. Id. ¶¶ 230, 233. The response of OEMs to Microsoft's efforts
had a dramatic, negative impact on Navigator's usage share. Id. ¶ 376. The
drop in usage share, in turn, has prevented Navigator from being the vehicle
to open the relevant market to competition on the merits. Id. ¶¶ 377-78,
383. 

Microsoft fails to advance any legitimate business objectives that actually
explain the full extent of this significant exclusionary impact. The Court
has already found that no quality-related or technical justifications fully
explain Microsoft's refusal to license Windows 95 to OEMs without version
1.0 through 4.0 of Internet Explorer, or its refusal to permit them to
uninstall versions 3.0 and 4.0. Id. ¶¶ 175-76. The same lack of
justification applies to Microsoft's decision not to offer a browserless
version of Windows 98 to consumers and OEMs, id. ¶ 177, as well as to its
claim that it could offer "best of breed" implementations of functionalities
in Web browsers. With respect to the latter assertion, Internet Explorer is
not demonstrably the current "best of breed" Web browser, nor is it likely
to be so at any time in the immediate future. The fact that Microsoft itself
was aware of this reality only further strengthens the conclusion that
Microsoft's decision to tie Internet Explorer to Windows cannot truly be
explained as an attempt to benefit consumers and improve the efficiency of
the software market generally, but rather as part of a larger campaign to
quash innovation that threatened its monopoly position. Id. ¶¶ 195, 198. 

To the extent that Microsoft still asserts a copyright defense, relying upon
federal copyright law as a justification for its various restrictions on
OEMs, that defense neither explains nor operates to immunize Microsoft's
conduct under the Sherman Act. As a general proposition, Microsoft argues
that the federal Copyright Act, 17 U.S.C. §101 et seq., endows the holder of
a valid copyright in software with an absolute right to prevent licensees,
in this case the OEMs, from shipping modified versions of its product
without its express permission. In truth, Windows 95 and Windows 98 are
covered by copyright registrations, Findings ¶ 228, that "constitute prima
facie evidence of the validity of the copyright." 17 U.S.C. §410(c). But the
validity of Microsoft's copyrights has never been in doubt; the issue is
what, precisely, they protect. 

Microsoft has presented no evidence that the contractual (or the
technological) restrictions it placed on OEMs' ability to alter Windows
derive from any of the enumerated rights explicitly granted to a copyright
holder under the Copyright Act. Instead, Microsoft argues that the
restrictions "simply restate" an expansive right to preserve the
"integrity"of its copyrighted software against any "distortion,"
"truncation," or "alteration," a right nowhere mentioned among the Copyright
Act's list of exclusive rights, 17 U.S.C. §106, thus raising some doubt as
to its existence. See Twentieth Century Music Corp. v. Aiken, 422 U.S. 151,
155 (1973) (not all uses of a work are within copyright holder's control;
rights limited to specifically granted "exclusive rights"); cf. 17 U.S.C. §
501(a) (infringement means violating specifically enumerated rights).(2) 

It is also well settled that a copyright holder is not by reason thereof
entitled to employ the perquisites in ways that directly threaten
competition. See, e.g., Eastman Kodak, 504 U.S. at 479 n.29 ("The Court has
held many times that power gained through some natural and legal advantage
such as a . . . copyright, . . . can give rise to liability if 'a seller
exploits his dominant position in one market to expand his empire into the
next.'") (quoting Times-Picayune Pub. Co. v. United States, 345 U.S. 594,
611 (1953)); Square D Co. v. Niagara Frontier Tariff Bureau, Inc., 476 U.S.
409, 421 (1986); Data General Corp. v. Grumman Systems Support Corp., 36
F.3d 1147, 1186 n.63 (1st Cir. 1994) (a copyright does not exempt its holder
from antitrust inquiry where the copyright is used as part of a scheme to
monopolize); see also Image Technical Services, Inc. v. Eastman Kodak Co.,
125 F.3d 1195, 1219 (9th Cir. 1997), cert. denied, 523 U.S. 1094 (1998)
("Neither the aims of intellectual property law, nor the antitrust laws
justify allowing a monopolist to rely upon a pretextual business
justification to mask anticompetitive conduct."). Even constitutional
privileges confer no immunity when they are abused for anticompetitive
purposes. See Lorain Journal Co. v. United States, 342 U.S. 143, 155-56
(1951). The Court has already found that the true impetus behind Microsoft's
restrictions on OEMs was not its desire to maintain a somewhat amorphous
quality it refers to as the "integrity" of the Windows platform, nor even to
ensure that Windows afforded a uniform and stable platform for applications
development. Microsoft itself engendered, or at least countenanced,
instability and inconsistency by permitting Microsoft-friendly modifications
to the desktop and boot sequence, and by releasing updates to Internet
Explorer more frequently than it released new versions of Windows. Findings
¶ 226. Add to this the fact that the modifications OEMs desired to make
would not have removed or altered any Windows APIs, and thus would not have
disrupted any of Windows' functionalities, and it is apparent that
Microsoft's conduct is effectively explained by its foreboding that OEMs
would pre-install and give prominent placement to middleware like Navigator
that could attract enough developer attention to weaken the applications
barrier to entry. Id. ¶ 227. In short, if Microsoft was truly inspired by a
genuine concern for maximizing consumer satisfaction, as well as preserving
its substantial investment in a worthy product, then it would have relied
more on the power of the very competitive PC market, and less on its own
market power, to prevent OEMs from making modifications that consumers did
not want. Id. ¶¶ 225, 228-29. 

ii. The IAP Channel 

Microsoft adopted similarly aggressive measures to ensure that the IAP
channel would generate browser usage share for Internet Explorer rather than
Navigator. To begin with, Microsoft licensed Internet Explorer and the
Internet Explorer Access Kit to hundreds of IAPs for no charge. Id. ¶¶
250-51. Then, Microsoft extended valuable promotional treatment to the ten
most important IAPs in exchange for their commitment to promote and
distribute Internet Explorer and to exile Navigator from the desktop. Id. ¶¶
255-58, 261, 272, 288-90, 305-06. Finally, in exchange for efforts to
upgrade existing subscribers to client software that came bundled with
Internet Explorer instead of Navigator, Microsoft granted rebates - and in
some cases made outright payments - to those same IAPs. Id. ¶¶ 259-60, 295.
Given the importance of the IAP channel to browser usage share, it is fair
to conclude that these inducements and restrictions contributed
significantly to the drastic changes that have in fact occurred in Internet
Explorer's and Navigator's respective usage shares. Id. ¶¶ 144-47, 309-10.
Microsoft's actions in the IAP channel thereby contributed significantly to
preserving the applications barrier to entry. 

There are no valid reasons to justify the full extent of Microsoft's
exclusionary behavior in the IAP channel. A desire to limit free riding on
the firm's investment in consumer-oriented features, such as the Referral
Server and the Online Services Folder, can, in some circumstances, qualify
as a procompetitive business motivation; but that motivation does not
explain the full extent of the restrictions that Microsoft actually imposed
upon IAPs. Under the terms of the agreements, an IAP's failure to keep
Navigator shipments below the specified percentage primed Microsoft's
contractual right to dismiss the IAP from its own favored position in the
Referral Server or the Online Services Folder. This was true even if the IAP
had refrained from promoting Navigator in its client software included with
Windows, had purged all mention of Navigator from any Web site directly
connected to the Referral Server, and had distributed no browser other than
Internet Explorer to the new subscribers it gleaned from the Windows
desktop. Id. ¶¶ 258, 262, 289. Thus, Microsoft's restrictions closed off a
substantial amount of distribution that would not have constituted a free
ride to Navigator. 

Nor can an ostensibly procompetitive desire to "foster brand association"
explain the full extent of Microsoft's restrictions. If Microsoft's only
concern had been brand association, restrictions on the ability of IAPs to
promote Navigator likely would have sufficed. It is doubtful that Microsoft
would have paid IAPs to induce their existing subscribers to drop Navigator
in favor of Internet Explorer unless it was motivated by a desire to
extinguish Navigator as a threat. See id. ¶¶ 259, 295. More generally, it is
crucial to an understanding of Microsoft's intentions to recognize that
Microsoft paid for the fealty of IAPs with large investments in software
development for their benefit, conceded opportunities to take a profit,
suffered competitive disadvantage to Microsoft's own OLS, and gave outright
bounties. Id. ¶¶ 259-60, 277, 284-86, 295. Considering that Microsoft never
intended to derive appreciable revenue from Internet Explorer directly, id.
¶¶ 136-37, these sacrifices could only have represented rational business
judgments to the extent that they promised to diminish Navigator's share of
browser usage and thereby contribute significantly to eliminating a threat
to the applications barrier to entry. Id. ¶ 291. Because the full extent of
Microsoft's exclusionary initiatives in the IAP channel can only be
explained by the desire to hinder competition on the merits in the relevant
market, those initiatives must be labeled anticompetitive. 

In sum, the efforts Microsoft directed at OEMs and IAPs successfully
ostracized Navigator as a practical matter from the two channels that lead
most efficiently to browser usage. Even when viewed independently, these two
prongs of Microsoft's campaign threatened to "forestall the corrective
forces of competition" and thereby perpetuate Microsoft's monopoly power in
the relevant market. Eastman Kodak Co. v. Image Technical Services, Inc.,
504 U.S. 451, 488 (1992) (Scalia, J., dissenting). Therefore, whether they
are viewed separately or together, the OEM and IAP components of Microsoft's
anticompetitive campaign merit a finding of liability under § 2. 

iii. ICPs, ISVs and Apple 

No other distribution channels for browsing software approach the efficiency
of OEM pre-installation and IAP bundling. Findings ¶¶ 144-47. Nevertheless,
protecting the applications barrier to entry was so critical to Microsoft
that the firm was willing to invest substantial resources to enlist ICPs,
ISVs, and Apple in its campaign against the browser threat. By extracting
from Apple terms that significantly diminished the usage of Navigator on the
Mac OS, Microsoft helped to ensure that developers would not view Navigator
as truly cross-platform middleware. Id. ¶ 356. By granting ICPs and ISVs
free licenses to bundle Internet Explorer with their offerings, and by
exchanging other valuable inducements for their agreement to distribute,
promote and rely on Internet Explorer rather than Navigator, Microsoft
directly induced developers to focus on its own APIs rather than ones
exposed by Navigator. Id. ¶¶ 334-35, 340. These measures supplemented
Microsoft's efforts in the OEM and IAP channels. 

Just as they fail to account for the measures that Microsoft took in the IAP
channel, the goals of preventing free riding and preserving brand
association fail to explain the full extent of Microsoft's actions in the
ICP channel. Id. ¶¶ 329-30. With respect to the ISV agreements, Microsoft
has put forward no procompetitive business ends whatsoever to justify their
exclusionary terms. See id. ¶¶ 339-40. Finally, Microsoft's willingness to
make the sacrifices involved in cancelling Mac Office, and the concessions
relating to browsing software that it demanded from Apple, can only be
explained by Microsoft's desire to protect the applications barrier to entry
from the threat posed by Navigator. Id. ¶ 355. Thus, once again, Microsoft
is unable to justify the full extent of its restrictive behavior. 

b. Combating the Java Threat 

As part of its grand strategy to protect the applications barrier, Microsoft
employed an array of tactics designed to maximize the difficulty with which
applications written in Java could be ported from Windows to other
platforms, and vice versa. The first of these measures was the creation of a
Java implementation for Windows that undermined portability and was
incompatible with other implementations. Id. ¶¶ 387-93. Microsoft then
induced developers to use its implementation of Java rather than
Sun-compliant ones. It pursued this tactic directly, by means of subterfuge
and barter, and indirectly, through its campaign to minimize Navigator's
usage share. Id. ¶¶ 394, 396-97, 399-400, 401-03. In a separate effort to
prevent the development of easily portable Java applications, Microsoft used
its monopoly power to prevent firms such as Intel from aiding in the
creation of cross-platform interfaces. Id. ¶¶ 404-06. 

Microsoft's tactics induced many Java developers to write their applications
using Microsoft's developer tools and to refrain from distributing
Sun-compliant JVMs to Windows users. This stratagem has effectively resulted
in fewer applications that are easily portable. Id. ¶ 398. What is more,
Microsoft's actions interfered with the development of new cross-platform
Java interfaces. Id. ¶ 406. It is not clear whether, absent Microsoft's
machinations, Sun's Java efforts would by now have facilitated porting
between Windows and other platforms to a degree sufficient to render the
applications barrier to entry vulnerable. It is clear, however, that
Microsoft's actions markedly impeded Java's progress to that end. Id. ¶ 407.
The evidence thus compels the conclusion that Microsoft's actions with
respect to Java have restricted significantly the ability of other firms to
compete on the merits in the market for Intel-compatible PC operating
systems. 

Microsoft's actions to counter the Java threat went far beyond the
development of an attractive alternative to Sun's implementation of the
technology. Specifically, Microsoft successfully pressured Intel, which was
dependent in many ways on Microsoft's good graces, to abstain from aiding in
Sun's and Netscape's Java development work. Id. ¶¶ 396, 406. Microsoft also
deliberately designed its Java development tools so that developers who were
opting for portability over performance would nevertheless unwittingly write
Java applications that would run only on Windows. Id. ¶ 394. Moreover,
Microsoft's means of luring developers to its Java implementation included
maximizing Internet Explorer's share of browser usage at Navigator's expense
in ways the Court has already held to be anticompetitive. See supra, §
I.A.2.a. Finally, Microsoft impelled ISVs, which are dependent upon
Microsoft for technical information and certifications relating to Windows,
to use and distribute Microsoft's version of the Windows JVM rather than any
Sun-compliant version. Id. ¶¶ 401-03. 

These actions cannot be described as competition on the merits, and they did
not benefit consumers. In fact, Microsoft's actions did not even benefit
Microsoft in the short run, for the firm's efforts to create incompatibility
between its JVM for Windows and others' JVMs for Windows resulted in fewer
total applications being able to run on Windows than otherwise would have
been written. Microsoft was willing nevertheless to obstruct the development
of Windows-compatible applications if they would be easy to port to other
platforms and would thus diminish the applications barrier to entry. Id. ¶
407. 

c. Microsoft's Conduct Taken As a Whole 

As the foregoing discussion illustrates, Microsoft's campaign to protect the
applications barrier from erosion by network-centric middleware can be
broken down into discrete categories of activity, several of which on their
own independently satisfy the second element of a § 2 monopoly maintenance
claim. But only when the separate categories of conduct are viewed, as they
should be, as a single, well-coordinated course of action does the full
extent of the violence that Microsoft has done to the competitive process
reveal itself. See Continental Ore Co. v. Union Carbide & Carbon Corp., 370
U.S. 690, 699 (1962) (counseling that in Sherman Act cases "plaintiffs
should be given the full benefit of their proof without tightly
compartmentalizing the various factual components and wiping the slate clean
after scrutiny of each"). In essence, Microsoft mounted a deliberate assault
upon entrepreneurial efforts that, left to rise or fall on their own merits,
could well have enabled the introduction of competition into the market for
Intel-compatible PC operating systems. Id. ¶ 411. While the evidence does
not prove that they would have succeeded absent Microsoft's actions, it does
reveal that Microsoft placed an oppressive thumb on the scale of competitive
fortune, thereby effectively guaranteeing its continued dominance in the
relevant market. More broadly, Microsoft's anticompetitive actions trammeled
the competitive process through which the computer software industry
generally stimulates innovation and conduces to the optimum benefit of
consumers. Id. ¶ 412. 

Viewing Microsoft's conduct as a whole also reinforces the conviction that
it was predacious. Microsoft paid vast sums of money, and renounced many
millions more in lost revenue every year, in order to induce firms to take
actions that would help enhance Internet Explorer's share of browser usage
at Navigator's expense. Id. ¶ 139. These outlays cannot be explained as
subventions to maximize return from Internet Explorer. Microsoft has no
intention of ever charging for licenses to use or distribute its browser.
Id. ¶¶ 137-38. Moreover, neither the desire to bolster demand for Windows
nor the prospect of ancillary revenues from Internet Explorer can explain
the lengths to which Microsoft has gone. In fact, Microsoft has expended
wealth and foresworn opportunities to realize more in a manner and to an
extent that can only represent a rational investment if its purpose was to
perpetuate the applications barrier to entry. Id. ¶¶ 136, 139-42. Because
Microsoft's business practices "would not be considered profit maximizing
except for the expectation that . . . the entry of potential rivals" into
the market for Intel-compatible PC operating systems will be "blocked or
delayed," Neumann v. Reinforced Earth Co., 786 F.2d 424, 427 (D.C. Cir.
1986), Microsoft's campaign must be termed predatory. Since the Court has
already found that Microsoft possesses monopoly power, see supra, § I.A.1,
the predatory nature of the firm's conduct compels the Court to hold
Microsoft liable under § 2 of the Sherman Act. 

B. Attempting to Obtain Monopoly Power in a Second Market by Anticompetitive
Means 

In addition to condemning actual monopolization, § 2 of the Sherman Act
declares that it is unlawful for a person or firm to "attempt to monopolize
. . . any part of the trade or commerce among the several States, or with
foreign nations . . . ." 15 U.S.C. § 2. Relying on this language, the
plaintiffs assert that Microsoft's anticompetitive efforts to maintain its
monopoly power in the market for Intel-compatible PC operating systems
warrant additional liability as an illegal attempt to amass monopoly power
in "the browser market." The Court agrees. 

In order for liability to attach for attempted monopolization, a plaintiff
generally must prove "(1) that the defendant has engaged in predatory or
anticompetitive conduct with (2) a specific intent to monopolize," and (3)
that there is a "dangerous probability" that the defendant will succeed in
achieving monopoly power. Spectrum Sports, Inc. v. McQuillan, 506 U.S. 447,
456 (1993). Microsoft's June 1995 proposal that Netscape abandon the field
to Microsoft in the market for browsing technology for Windows, and its
subsequent, well-documented efforts to overwhelm Navigator's browser usage
share with a proliferation of Internet Explorer browsers inextricably
attached to Windows, clearly meet the first element of the offense. 

The evidence in this record also satisfies the requirement of specific
intent. Microsoft's effort to convince Netscape to stop developing
platform-level browsing software for the 32-bit versions of Windows was made
with full knowledge that Netscape's acquiescence in this market allocation
scheme would, without more, have left Internet Explorer with such a large
share of browser usage as to endow Microsoft with de facto monopoly power in
the browser market. Findings ¶¶ 79-89. 

When Netscape refused to abandon the development of browsing software for
32-bit versions of Windows, Microsoft's strategy for protecting the
applications barrier became one of expanding Internet Explorer's share of
browser usage - and simultaneously depressing Navigator's share - to an
extent sufficient to demonstrate to developers that Navigator would never
emerge as the standard software employed to browse the Web. Id. ¶ 133. While
Microsoft's top executives never expressly declared acquisition of monopoly
power in the browser market to be the objective, they knew, or should have
known, that the tactics they actually employed were likely to push Internet
Explorer's share to those extreme heights. Navigator's slow demise would
leave a competitive vacuum for only Internet Explorer to fill. Yet, there is
no evidence that Microsoft tried - or even considered trying - to prevent
its anticompetitive campaign from achieving overkill. Under these
circumstances, it is fair to presume that the wrongdoer intended "the
probable consequences of its acts." IIIA Phillip E. Areeda & Herbert
Hovenkamp, Antitrust Law ¶ 805b, at 324 (1996); see also Spectrum Sports,
506 U.S. at 459 (proof of "'predatory' tactics . . . may be sufficient to
prove the necessary intent to monopolize, which is something more than an
intent to compete vigorously"). Therefore, the facts of this case suffice to
prove the element of specific intent. 

Even if the first two elements of the offense are met, however, a defendant
may not be held liable for attempted monopolization absent proof that its
anticompetitive conduct created a dangerous probability of achieving the
objective of monopoly power in a relevant market. Id. The evidence supports
the conclusion that Microsoft's actions did pose such a danger. 

At the time Microsoft presented its market allocation proposal to Netscape,
Navigator's share of browser usage stood well above seventy percent, and no
other browser enjoyed more than a fraction of the remainder. Findings ¶¶ 89,
372. Had Netscape accepted Microsoft's offer, nearly all of its share would
have devolved upon Microsoft, because at that point, no potential
third-party competitor could either claim to rival Netscape's stature as a
browser company or match Microsoft's ability to leverage monopoly power in
the market for Intel-compatible PC operating systems. In the time it would
have taken an aspiring entrant to launch a serious effort to compete against
Internet Explorer, Microsoft could have erected the same type of barrier
that protects its existing monopoly power by adding proprietary extensions
to the browsing software under its control and by extracting commitments
from OEMs, IAPs and others similar to the ones discussed in § I.A.2, supra.
In short, Netscape's assent to Microsoft's market division proposal would
have, instanter, resulted in Microsoft's attainment of monopoly power in a
second market. It follows that the proposal itself created a dangerous
probability of that result. See United States v. American Airlines, Inc.,
743 F.2d 1114, 1118-19 (5th Cir. 1984) (fact that two executives "arguably"
could have implemented market-allocation scheme that would have engendered
monopoly power was sufficient for finding of dangerous probability).
Although the dangerous probability was no longer imminent with Netscape's
rejection of Microsoft's proposal, "the probability of success at the time
the acts occur" is the measure by which liability is determined. Id. at
1118. 

This conclusion alone is sufficient to support a finding of liability for
attempted monopolization. The Court is nonetheless compelled to express its
further conclusion that the predatory course of conduct Microsoft has
pursued since June of 1995 has revived the dangerous probability that
Microsoft will attain monopoly power in a second market. Internet Explorer's
share of browser usage has already risen above fifty percent, will exceed
sixty percent by January 2001, and the trend continues unabated. Findings ¶¶
372-73; see M&M Medical Supplies & Serv., Inc. v. Pleasant Valley Hosp.,
Inc., 981 F.2d 160, 168 (4th Cir. 1992) (en banc) ("A rising share may show
more probability of success than a falling share. . . . [C]laims involving
greater than 50% share should be treated as attempts at monopolization when
the other elements for attempted monopolization are also satisfied.")
(citations omitted); see also IIIA Phillip E. Areeda & Herbert Hovenkamp,
Antitrust Law ¶ 807d, at 354-55 (1996) (acknowledging the significance of a
large, rising market share to the dangerous probability element). 

II. SECTION ONE OF THE SHERMAN ACT 

Section 1 of the Sherman Act prohibits "every contract, combination . . . ,
or conspiracy, in restraint of trade or commerce . . . ." 15 U.S.C. § 1.
Pursuant to this statute, courts have condemned commercial stratagems that
constitute unreasonable restraints on competition. See Continental T.V.,
Inc. v. GTE Sylvania Inc., 433 U.S. 36, 49 (1977); Chicago Board of Trade v.
United States, 246 U.S. 231, 238-39 (1918), among them "tying arrangements"
and "exclusive dealing" contracts. Tying arrangements have been found
unlawful where sellers exploit their market power over one product to force
unwilling buyers into acquiring another. See Jefferson Parish Hospital
District No. 2 v. Hyde, 466 U.S. 2, 12 (1984); Northern Pac. Ry. Co. v.
United States, 356 U.S. 1, 6 (1958); Times-Picayune Pub. Co. v. United
States, 345 U.S. 594, 605 (1953). Where agreements have been challenged as
unlawful exclusive dealing, the courts have condemned only those contractual
arrangements that substantially foreclose competition in a relevant market
by significantly reducing the number of outlets available to a competitor to
reach prospective consumers of the competitor's product. See Tampa Electric
Co. v. Nashville Coal Co., 365 U.S. 320, 327 (1961); Roland Machinery Co. v.
Dresser Industries, Inc., 749 F.2d 380, 393 (7th Cir. 1984). 

A. Tying 

Liability for tying under § 1 exists where (1) two separate "products" are
involved; (2) the defendant affords its customers no choice but to take the
tied product in order to obtain the tying product; (3) the arrangement
affects a substantial volume of interstate commerce; and (4) the defendant
has "market power" in the tying product market. Jefferson Parish, 466 U.S.
at 12-18. The Supreme Court has since reaffirmed this test in Eastman Kodak
Co. v. Image Technical Services, Inc., 504 U.S. 451, 461-62 (1992). All four
elements are required, whether the arrangement is subjected to a per se or
Rule of Reason analysis. 

The plaintiffs allege that Microsoft's combination of Windows and Internet
Explorer by contractual and technological artifices constitute unlawful
tying to the extent that those actions forced Microsoft's customers and
consumers to take Internet Explorer as a condition of obtaining Windows.
While the Court agrees with plaintiffs, and thus holds that Microsoft is
liable for illegal tying under § 1, this conclusion is arguably at variance
with a decision of the U.S. Court of Appeals for the D.C. Circuit in a
closely related case, and must therefore be explained in some detail.
Whether the decisions are indeed inconsistent is not for this Court to say. 

The decision of the D.C. Circuit in question is United States v. Microsoft
Corp., 147 F.3d 935 (D.C. Cir. 1998) ("Microsoft II") which is itself
related to an earlier decision of the same Circuit, United States v.
Microsoft Corp., 56 F.3d 1448 (D.C. Cir. 1995) ("Microsoft I"). The history
of the controversy is sufficiently set forth in the appellate opinions and
need not be recapitulated here, except to state that those decisions
anticipated the instant case, and that Microsoft II sought to guide this
Court, insofar as practicable, in the further proceedings it fully expected
to ensue on the tying issue. Nevertheless, upon reflection this Court does
not believe the D.C. Circuit intended Microsoft II to state a controlling
rule of law for purposes of this case. As the Microsoft II court itself
acknowledged, the issue before it was the construction to be placed upon a
single provision of a consent decree that, although animated by antitrust
considerations, was nevertheless still primarily a matter of determining
contractual intent. The court of appeals' observations on the extent to
which software product design decisions may be subject to judicial scrutiny
in the course of § 1 tying cases are in the strictest sense obiter dicta,
and are thus not formally binding. Nevertheless, both prudence and the
deference this Court owes to pronouncements of its own Circuit oblige that
it follow in the direction it is pointed until the trail falters. 

The majority opinion in Microsoft II evinces both an extraordinary degree of
respect for changes (including "integration") instigated by designers of
technological products, such as software, in the name of product
"improvement," and a corresponding lack of confidence in the ability of the
courts to distinguish between improvements in fact and improvements in name
only, made for anticompetitive purposes. Read literally, the D.C. Circuit's
opinion appears to immunize any product design (or, at least, software
product design) from antitrust scrutiny, irrespective of its effect upon
competition, if the software developer can postulate any "plausible claim"
of advantage to its arrangement of code. 147 F.3d at 950. 

This undemanding test appears to this Court to be inconsistent with the
pertinent Supreme Court precedents in at least three respects. First, it
views the market from the defendant's perspective, or, more precisely, as
the defendant would like to have the market viewed. Second, it ignores
reality: The claim of advantage need only be plausible; it need not be
proved. Third, it dispenses with any balancing of the hypothetical
advantages against any anticompetitive effects. 

The two most recent Supreme Court cases to have addressed the issue of
product and market definition in the context of Sherman Act tying claims are
Jefferson Parish, supra, and Eastman Kodak, supra. In Jefferson Parish, the
Supreme Court held that a hospital offering hospital services and
anesthesiology services as a package could not be found to have violated the
anti-tying rules unless the evidence established that patients, i.e.
consumers, perceived the services as separate products for which they
desired a choice, and that the package had the effect of forcing the
patients to purchase an unwanted product. 466 U.S. at 21-24, 28-29. In
Eastman Kodak the Supreme Court held that a manufacturer of photocopying and
micrographic equipment, in agreeing to sell replacement parts for its
machines only to those customers who also agreed to purchase repair services
from it as well, would be guilty of tying if the evidence at trial
established the existence of consumer demand for parts and services
separately. 504 U.S. at 463. 

Both defendants asserted, as Microsoft does here, that the tied and tying
products were in reality only a single product, or that every item was
traded in a single market.(3) In Jefferson Parish, the defendant contended
that it offered a "functionally integrated package of services" - a single
product - but the Supreme Court concluded that the "character of the demand"
for the constituent components, not their functional relationship,
determined whether separate "products" were actually involved. 466 U.S. at
19. In Eastman Kodak, the defendant postulated that effective competition in
the equipment market precluded the possibility of the use of market power
anticompetitively in any after-markets for parts or services: Sales of
machines, parts, and services were all responsive to the discipline of the
larger equipment market. The Supreme Court declined to accept this premise
in the absence of evidence of "actual market realities," 504 U.S. at 466-67,
ultimately holding that "the proper market definition in this case can be
determined only after a factual inquiry into the 'commercial realities'
faced by consumers." Id. at 482 (quoting United States v. Grinnell Corp.,
384 U.S. 563, 572 (1966)).(4) 

In both Jefferson Parish and Eastman Kodak, the Supreme Court also gave
consideration to certain theoretical "valid business reasons" proffered by
the defendants as to why the arrangements should be deemed benign. In
Jefferson Parish, the hospital asserted that the combination of hospital and
anesthesia services eliminated multiple problems of scheduling, supply,
performance standards, and equipment maintenance. 466 U.S. at 43-44. The
manufacturer in Eastman Kodak contended that quality control, inventory
management, and the prevention of free riding justified its decision to sell
parts only in conjunction with service. 504 U.S. at 483. In neither case did
the Supreme Court find those justifications sufficient if anticompetitive
effects were proved. Id. at 483-86; Jefferson Parish, 466 U.S. at 25 n.42.
Thus, at a minimum, the admonition of the D.C. Circuit in Microsoft II to
refrain from any product design assessment as to whether the "integration"
of Windows and Internet Explorer is a "net plus," deferring to Microsoft's
"plausible claim" that it is of "some advantage" to consumers, is at odds
with the Supreme Court's own approach. 

The significance of those cases, for this Court's purposes, is to teach that
resolution of product and market definitional problems must depend upon
proof of commercial reality, as opposed to what might appear to be
reasonable. In both cases the Supreme Court instructed that product and
market definitions were to be ascertained by reference to evidence of
consumers' perception of the nature of the products and the markets for
them, rather than to abstract or metaphysical assumptions as to the
configuration of the "product" and the "market." Jefferson Parish, 466 U.S.
at 18; Eastman Kodak, 504 U.S. at 481-82. In the instant case, the
commercial reality is that consumers today perceive operating systems and
browsers as separate "products," for which there is separate demand.
Findings ¶¶ 149-54. This is true notwithstanding the fact that the software
code supplying their discrete functionalities can be commingled in virtually
infinite combinations, rendering each indistinguishable from the whole in
terms of files of code or any other taxonomy. Id. ¶¶ 149-50, 162-63, 187-91.


Proceeding in line with the Supreme Court cases, which are indisputably
controlling, this Court first concludes that Microsoft possessed
"appreciable economic power in the tying market," Eastman Kodak, 504 U.S. at
464, which in this case is the market for Intel-compatible PC operating
systems. See Jefferson Parish, 466 U.S. at 14 (defining market power as
ability to force purchaser to do something that he would not do in
competitive market); see also Fortner Enterprises, Inc. v. United States
Steel Corp., 394 U.S. 495, 504 (1969) (ability to raise prices or to impose
tie-ins on any appreciable number of buyers within the tying product market
is sufficient). While courts typically have not specified a percentage of
the market that creates the presumption of "market power," no court has ever
found that the requisite degree of power exceeds the amount necessary for a
finding of monopoly power. See Eastman Kodak, 504 U.S. at 481. Because this
Court has already found that Microsoft possesses monopoly power in the
worldwide market for Intel-compatible PC operating systems (i.e., the tying
product market), Findings ¶¶ 18-67, the threshold element of "appreciable
economic power" is a fortiori met. 

Similarly, the Court's Findings strongly support a conclusion that a "not
insubstantial" amount of commerce was foreclosed to competitors as a result
of Microsoft's decision to bundle Internet Explorer with Windows. The
controlling consideration under this element is "simply whether a total
amount of business" that is "substantial enough in terms of dollar-volume so
as not to be merely de minimis" is foreclosed. Fortner, 394 U.S. at 501; cf.
International Salt Co. v. United States, 332 U.S. 392, 396 (1947)
(unreasonable per se to foreclose competitors from any substantial market by
a tying arrangement). 

Although the Court's Findings do not specify a dollar amount of business
that has been foreclosed to any particular present or potential competitor
of Microsoft in the relevant market,(5) including Netscape, the Court did
find that Microsoft's bundling practices caused Navigator's usage share to
drop substantially from 1995 to 1998, and that as a direct result Netscape
suffered a severe drop in revenues from lost advertisers, Web traffic and
purchases of server products. It is thus obvious that the foreclosure
achieved by Microsoft's refusal to offer Internet Explorer separately from
Windows exceeds the Supreme Court's de minimis threshold. See Digidyne Corp.
v. Data General Corp., 734 F.2d 1336, 1341 (9th Cir. 1984) (citing Fortner).


The facts of this case also prove the elements of the forced bundling
requirement. Indeed, the Supreme Court has stated that the "essential
characteristic" of an illegal tying arrangement is a seller's decision to
exploit its market power over the tying product "to force the buyer into the
purchase of a tied product that the buyer either did not want at all, or
might have preferred to purchase elsewhere on different terms." Jefferson
Parish, 466 U.S. at 12. In that regard, the Court has found that, beginning
with the early agreements for Windows 95, Microsoft has conditioned the
provision of a license to distribute Windows on the OEMs' purchase of
Internet Explorer. Findings ¶¶ 158-65. The agreements prohibited the
licensees from ever modifying or deleting any part of Windows, despite the
OEMs' expressed desire to be allowed to do so. Id. ¶¶ 158, 164. As a result,
OEMs were generally not permitted, with only one brief exception, to satisfy
consumer demand for a browserless version of Windows 95 without Internet
Explorer. Id. ¶¶ 158, 202. Similarly, Microsoft refused to license Windows
98 to OEMs unless they also agreed to abstain from removing the icons for
Internet Explorer from the desktop. Id. ¶ 213. Consumers were also
effectively compelled to purchase Internet Explorer along with Windows 98 by
Microsoft's decision to stop including Internet Explorer on the list of
programs subject to the Add/Remove function and by its decision not to
respect their selection of another browser as their default. Id. ¶¶ 170-72. 

The fact that Microsoft ostensibly priced Internet Explorer at zero does not
detract from the conclusion that consumers were forced to pay, one way or
another, for the browser along with Windows. Despite Microsoft's assertion
that the Internet Explorer technologies are not "purchased" since they are
included in a single royalty price paid by OEMs for Windows 98, see
Microsoft's Proposed Conclusions of Law at 12-13, it is nevertheless clear
that licensees, including consumers, are forced to take, and pay for, the
entire package of software and that any value to be ascribed to Internet
Explorer is built into this single price. See United States v. Microsoft
Corp., Nos. CIV. A. 98-1232, 98-1233, 1998 WL 614485, *12 (D.D.C., Sept. 14,
1998); IIIA Philip E. Areeda & Herbert Hovenkamp, Antitrust Law ¶ 760b6, at
51 (1996) ("[T]he tie may be obvious, as in the classic form, or somewhat
more subtle, as when a machine is sold or leased at a price that covers
'free' servicing."). Moreover, the purpose of the Supreme Court's "forcing"
inquiry is to expose those product bundles that raise the cost or difficulty
of doing business for would-be competitors to prohibitively high levels,
thereby depriving consumers of the opportunity to evaluate a competing
product on its relative merits. It is not, as Microsoft suggests, simply to
punish firms on the basis of an increment in price attributable to the tied
product. See Fortner, 394 U.S. at 512-14 (1969); Jefferson Parish, 466 U.S.
at 12-13. 

As for the crucial requirement that Windows and Internet Explorer be deemed
"separate products" for a finding of technological tying liability, this
Court's Findings mandate such a conclusion. Considering the "character of
demand" for the two products, as opposed to their "functional relation," id.
at 19, Web browsers and operating systems are "distinguishable in the eyes
of buyers." Id.; Findings ¶¶ 149-54. Consumers often base their choice of
which browser should reside on their operating system on their individual
demand for the specific functionalities or characteristics of a particular
browser, separate and apart from the functionalities afforded by the
operating system itself. Id. ¶¶ 149-51. Moreover, the behavior of other,
lesser software vendors confirms that it is certainly efficient to provide
an operating system and a browser separately, or at least in separable form.
Id. ¶ 153. Microsoft is the only firm to refuse to license its operating
system without a browser. Id.; see Berkey Photo, Inc. v. Eastman Kodak Co.,
603 F.2d 263, 287 (2d Cir. 1979). This Court concludes that Microsoft's
decision to offer only the bundled - "integrated" - version of Windows and
Internet Explorer derived not from technical necessity or business
efficiencies; rather, it was the result of a deliberate and purposeful
choice to quell incipient competition before it reached truly minatory
proportions. 

The Court is fully mindful of the reasons for the admonition of the D.C.
Circuit in Microsoft II of the perils associated with a rigid application of
the traditional "separate products" test to computer software design. Given
the virtually infinite malleability of software code, software upgrades and
new application features, such as Web browsers, could virtually always be
configured so as to be capable of separate and subsequent installation by an
immediate licensee or end user. A court mechanically applying a strict
"separate demand" test could improvidently wind up condemning "integrations"
that represent genuine improvements to software that are benign from the
standpoint of consumer welfare and a competitive market. Clearly, this is
not a desirable outcome. Similar concerns have motivated other courts, as
well as the D.C. Circuit, to resist a strict application of the "separate
products" tests to similar questions of "technological tying." See, e.g.,
Foremost Pro Color, Inc. v. Eastman Kodak Co., 703 F.2d 534, 542-43 (9th
Cir. 1983); Response of Carolina, Inc. v. Leasco Response, Inc., 537 F.2d
1307, 1330 (5th Cir. 1976); Telex Corp. v. IBM Corp., 367 F. Supp. 258, 347
(N.D. Okla. 1973). 

To the extent that the Supreme Court has spoken authoritatively on these
issues, however, this Court is bound to follow its guidance and is not at
liberty to extrapolate a new rule governing the tying of software products.
Nevertheless, the Court is confident that its conclusion, limited by the
unique circumstances of this case, is consistent with the Supreme Court's
teaching to date.(6) 

B. Exclusive Dealing Arrangements 

Microsoft's various contractual agreements with some OLSs, ICPs, ISVs,
Compaq and Apple are also called into question by plaintiffs as exclusive
dealing arrangements under the language in § 1 prohibiting "contract[s] . .
. in restraint of trade or commerce . . . ." 15 U.S.C. § 1. As detailed in
§I.A.2, supra, each of these agreements with Microsoft required the other
party to promote and distribute Internet Explorer to the partial or complete
exclusion of Navigator. In exchange, Microsoft offered, to some or all of
these parties, promotional patronage, substantial financial subsidies,
technical support, and other valuable consideration. Under the clear
standards established by the Supreme Court, these types of "vertical
restrictions" are subject to a Rule of Reason analysis. See Continental
T.V., Inc. v. GTE Sylvania Inc., 433 U.S. 36, 49 (1977); Jefferson Parish,
466 U.S. at 44-45 (O'Connor, J., concurring); cf. Business Elecs. Corp. v.
Sharp Elecs. Corp., 485 U.S. 717, 724-26 (1988) (holding that Rule of Reason
analysis presumptively applies to cases brought under § 1 of the Sherman
Act). 

Acknowledging that some exclusive dealing arrangements may have benign
objectives and may create significant economic benefits, see Tampa Electric
Co. v. Nashville Coal Co., 365 U.S. 320, 333-35 (1961), courts have tended
to condemn under the § 1 Rule of Reason test only those agreements that have
the effect of foreclosing a competing manufacturer's brands from the
relevant market. More specifically, courts are concerned with those
exclusive dealing arrangements that work to place so much of a market's
available distribution outlets in the hands of a single firm as to make it
difficult for other firms to continue to compete effectively, or even to
exist, in the relevant market. See U.S. Healthcare Inc. v. Healthsource,
Inc., 986 F.2d 589, 595 (1st Cir. 1993); Interface Group, Inc. v.
Massachusetts Port Authority, 816 F.2d 9, 11 (1st Cir. 1987) (relying upon
III Phillip E. Areeda & Donald F. Turner, Antitrust Law ¶ 732 (1978), Tampa
Electric, 365 U.S. at 327-29, and Standard Oil Co. v. United States, 337
U.S. 293 (1949)). 

To evaluate an agreement's likely anticompetitive effects, courts have
consistently looked at a variety of factors, including: (1) the degree of
exclusivity and the relevant line of commerce implicated by the agreements'
terms; (2) whether the percentage of the market foreclosed by the contracts
is substantial enough to import that rivals will be largely excluded from
competition; (3) the agreements' actual anticompetitive effect in the
relevant line of commerce; (4) the existence of any legitimate,
procompetitive business justifications offered by the defendant; (5) the
length and irrevocability of the agreements; and (6) the availability of any
less restrictive means for achieving the same benefits. See, e.g., Tampa
Electric, 365 U.S. at 326-35; Roland Machinery Co. v. Dresser Industries,
Inc., 749 F.2d 380, 392-95 (7th Cir. 1984); see also XI Herbert Hovenkamp,
Antitrust Law ¶ 1820 (1998). 

Where courts have found that the agreements in question failed to foreclose
absolutely outlets that together accounted for a substantial percentage of
the total distribution of the relevant products, they have consistently
declined to assign liability. See, e.g., id. ¶ 1821; U.S. Healthcare, 986
F.2d at 596-97; Roland Mach. Co., 749 F.2d at 394 (failure of plaintiff to
meet threshold burden of proving that exclusive dealing arrangement is
likely to keep at least one significant competitor from doing business in
relevant market dictates no liability under § 1). This Court has previously
observed that the case law suggests that, unless the evidence demonstrates
that Microsoft's agreements excluded Netscape altogether from access to
roughly forty percent of the browser market, the Court should decline to
find such agreements in violation of § 1. See United States v. Microsoft
Corp., Nos. CIV. A. 98-1232, 98-1233, 1998 WL 614485, at *19 (D.D.C. Sept.
14, 1998) (citing cases that tended to converge upon forty percent
foreclosure rate for finding of § 1 liability). 

The only agreements revealed by the evidence which could be termed so
"exclusive" as to merit scrutiny under the § 1 Rule of Reason test are the
agreements Microsoft signed with Compaq, AOL and several other OLSs, the top
ICPs, the leading ISVs, and Apple. The Findings of Fact also establish that,
among the OEMs discussed supra, Compaq was the only one to fully commit
itself to Microsoft's terms for distributing and promoting Internet Explorer
to the exclusion of Navigator. Beginning with its decisions in 1996 and 1997
to promote Internet Explorer exclusively for its PC products, Compaq
essentially ceased to distribute or pre-install Navigator at all in exchange
for significant financial remuneration from Microsoft. Findings ¶¶ 230-34.
AOL's March 12 and October 28, 1996 agreements with Microsoft also
guaranteed that, for all practical purposes, Internet Explorer would be
AOL's browser of choice, to be distributed and promoted through AOL's
dominant, flagship online service, thus leaving Navigator to fend for
itself. Id. ¶¶ 287-90, 293-97. In light of the severe shipment quotas and
promotional restrictions for third-party browsers imposed by the agreements,
the fact that Microsoft still permitted AOL to offer Navigator through a few
subsidiary channels does not negate this conclusion. The same conclusion as
to exclusionary effect can be drawn with respect to Microsoft's agreements
with AT&T WorldNet, Prodigy and CompuServe, since those contract terms were
almost identical to the ones contained in AOL's March 1996 agreement. Id. ¶¶
305-06. 

Microsoft also successfully induced some of the most popular ICPs and ISVs
to commit to promote, distribute and utilize Internet Explorer technologies
exclusively in their Web content in exchange for valuable placement on the
Windows desktop and technical support. Specifically, the "Top Tier" and
"Platinum" agreements that Microsoft formed with thirty-four of the most
popular ICPs on the Web ensured that Navigator was effectively shut out of
these distribution outlets for a significant period of time. Id. ¶¶ 317-22,
325-26, 332. In the same way, Microsoft's "First Wave" contracts provided
crucial technical information to dozens of leading ISVs that agreed to make
their Web-centric applications completely reliant on technology specific to
Internet Explorer. Id. ¶¶ 337, 339-40. Finally, Apple's 1997 Technology
Agreement with Microsoft prohibited Apple from actively promoting any
non-Microsoft browsing software in any way or from pre-installing a browser
other than Internet Explorer. Id. ¶¶ 350-52. This arrangement eliminated all
meaningful avenues of distribution of Navigator through Apple. Id. 

Notwithstanding the extent to which these "exclusive" distribution
agreements preempted the most efficient channels for Navigator to achieve
browser usage share, however, the Court concludes that Microsoft's multiple
agreements with distributors did not ultimately deprive Netscape of the
ability to have access to every PC user worldwide to offer an opportunity to
install Navigator. Navigator can be downloaded from the Internet. It is
available through myriad retail channels. It can (and has been) mailed
directly to an unlimited number of households. How precisely it managed to
do so is not shown by the evidence, but in 1998 alone, for example, Netscape
was able to distribute 160 million copies of Navigator, contributing to an
increase in its installed base from 15 million in 1996 to 33 million in
December 1998. Id. ¶ 378. As such, the evidence does not support a finding
that these agreements completely excluded Netscape from any constituent
portion of the worldwide browser market, the relevant line of commerce. 

The fact that Microsoft's arrangements with various firms did not foreclose
enough of the relevant market to constitute a § 1 violation in no way
detracts from the Court's assignment of liability for the same arrangements
under § 2. As noted above, all of Microsoft's agreements, including the
non-exclusive ones, severely restricted Netscape's access to those
distribution channels leading most efficiently to the acquisition of browser
usage share. They thus rendered Netscape harmless as a platform threat and
preserved Microsoft's operating system monopoly, in violation of § 2. But
virtually all the leading case authority dictates that liability under § 1
must hinge upon whether Netscape was actually shut out of the Web browser
market, or at least whether it was forced to reduce output below a
subsistence level. The fact that Netscape was not allowed access to the most
direct, efficient ways to cause the greatest number of consumers to use
Navigator is legally irrelevant to a final determination of plaintiffs' § 1
claims. 

Other courts in similar contexts have declined to find liability where
alternative channels of distribution are available to the competitor, even
if those channels are not as efficient or reliable as the channels
foreclosed by the defendant. In Omega Environmental, Inc. v. Gilbarco, Inc.,
127 F.3d 1157 (9th Cir. 1997), for example, the Ninth Circuit found that a
manufacturer of petroleum dispensing equipment "foreclosed roughly 38% of
the relevant market for sales." 127 F.3d at 1162. Nonetheless, the Court
refused to find the defendant liable for exclusive dealing because
"potential alternative sources of distribution" existed for its competitors.
Id. at 1163. Rejecting plaintiff's argument (similar to the one made in this
case) that these alternatives were "inadequate substitutes for the existing
distributors," the Court stated that "[c]ompetitors are free to sell
directly, to develop alternative distributors, or to compete for the
services of existing distributors. Antitrust laws require no more." Id.;
accord Seagood Trading Corp. v. Jerrico, Inc., 924 F.2d 1555, 1572-73 (11th
Cir. 1991). 

III. THE STATE LAW CLAIMS 

In their amended complaint, the plaintiff states assert that the same facts
establishing liability under §§ 1 and 2 of the Sherman Act mandate a finding
of liability under analogous provisions in their own laws. The Court agrees.
The facts proving that Microsoft unlawfully maintained its monopoly power in
violation of § 2 of the Sherman Act are sufficient to meet analogous
elements of causes of action arising under the laws of each plaintiff
state.(7) The Court reaches the same conclusion with respect to the facts
establishing that Microsoft attempted to monopolize the browser market in
violation of § 2,(8) and with respect to those facts establishing that
Microsoft instituted an improper tying arrangement in violation of § 1.(9) 

The plaintiff states concede that their laws do not condemn any act proved
in this case that fails to warrant liability under the Sherman Act. States'
Reply in Support of their Proposed Conclusions of Law at 1. Accordingly, the
Court concludes that, for reasons identical to those stated in § II.B,
supra, the evidence in this record does not warrant finding Microsoft liable
for exclusive dealing under the laws of any of the plaintiff states. 

Microsoft contends that a plaintiff cannot succeed in an antitrust claim
under the laws of California, Louisiana, Maryland, New York, Ohio, or
Wisconsin without proving an element that is not required under the Sherman
Act, namely, intrastate impact. Assuming that each of those states has,
indeed, expressly limited the application of its antitrust laws to activity
that has a significant, adverse effect on competition within the state or is
otherwise contrary to state interests, that element is manifestly proven by
the facts presented here. The Court has found that Microsoft is the leading
supplier of operating systems for PCs and that it transacts business in all
fifty of the United States. Findings ¶ 9.(10) It is common and universal
knowledge that millions of citizens of, and hundreds, if not thousands, of
enterprises in each of the United States and the District of Columbia
utilize PCs running on Microsoft software. It is equally clear that certain
companies that have been adversely affected by Microsoft's anticompetitive
campaign - a list that includes IBM, Hewlett-Packard, Intel, Netscape, Sun,
and many others - transact business in, and employ citizens of, each of the
plaintiff states. These facts compel the conclusion that, in each of the
plaintiff states, Microsoft's anticompetitive conduct has significantly
hampered competition. 

Microsoft once again invokes the federal Copyright Act in defending against
state claims seeking to vindicate the rights of OEMs and others to make
certain modifications to Windows 95 and Windows 98. The Court concludes that
these claims do not encroach on Microsoft's federally protected copyrights
and, thus, that they are not pre-empted under the Supremacy Clause. The
Court already concluded in § I.A.2.a.i, supra, that Microsoft's decision to
bundle its browser and impose first-boot and start-up screen restrictions
constitute independent violations of § 2 of the Sherman Act. It follows as a
matter of course that the same actions merit liability under the plaintiff
states' antitrust and unfair competition laws. Indeed, the parties agree
that the standards for liability under the several plaintiff states'
antitrust and unfair competition laws are, for the purposes of this case,
identical to those expressed in the federal statute. States' Reply in
Support of their Proposed Conclusions of Law at 1; Microsoft's Sur-Reply in
Response to the States' Reply at 2 n.1. Thus, these state laws cannot
"stand[] as an obstacle to" the goals of the federal copyright law to any
greater extent than do the federal antitrust laws, for they target exactly
the same type of anticompetitive behavior. Hines v. Davidowitz, 312 U.S. 52,
67 (1941). The Copyright Act's own preemption clause provides that
"[n]othing in this title annuls or limits any rights or remedies under the
common law or statutes of any State with respect to . . . activities
violating legal or equitable rights that are not equivalent to any of the
exclusive rights within the general scope of copyright as specified by
section 106 . . . ." 17 U.S.C. § 301(b)(3). Moreover, the Supreme Court has
recognized that there is "nothing either in the language of the copyright
laws or in the history of their enactment to indicate any congressional
purpose to deprive the states, either in whole or in part, of their
long-recognized power to regulate combinations in restraint of trade."
Watson v. Buck, 313 U.S. 387, 404 (1941). See also Allied Artists Pictures
Corp. v. Rhodes, 496 F. Supp. 408, 445 (S.D. Ohio 1980), aff'd in relevant
part, 679 F.2d 656 (6th Cir. 1982) (drawing upon similarities between
federal and state antitrust laws in support of notion that authority of
states to regulate market practices dealing with copyrighted subject matter
is well-established); cf. Hines, 312 U.S. at 67 (holding state laws
preempted when they "stand[] as an obstacle to the accomplishment and
execution of the full purposes and objectives of Congress"). 

The Court turns finally to the counterclaim that Microsoft brings against
the attorneys general of the plaintiff states under 42 U.S.C. § 1983. In
support of its claim, Microsoft argues that the attorneys general are
seeking relief on the basis of state laws, repeats its assertion that the
imposition of this relief would deprive it of rights granted to it by the
Copyright Act, and concludes with the contention that the attorneys general
are, "under color of" state law, seeking to deprive Microsoft of rights
secured by federal law - a classic violation of 42 U.S.C. § 1983. 

Having already addressed the issue of whether granting the relief sought by
the attorneys general would entail conflict with the Copyright Act, the
Court rejects Microsoft's counterclaim on yet more fundamental grounds as
well: It is inconceivable that their resort to this Court could represent an
effort on the part of the attorneys general to deprive Microsoft of rights
guaranteed it under federal law, because this Court does not possess the
power to act in contravention of federal law. Therefore, since the conduct
it complains of is the pursuit of relief in federal court, Microsoft fails
to state a claim under 42 U.S.C. § 1983. Consequently, Microsoft's request
for a declaratory judgment against the states under 28 U.S.C. §§ 2201 and
2202 is denied, and the counterclaim is dismissed. 
  

Thomas Penfield Jackson 
U.S. District Judge 
Date: 



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UNITED STATES DISTRICT COURT 
FOR THE DISTRICT OF COLUMBIA
     

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 )   
   )   
UNITED STATES OF AMERICA,  )   
   )   
Plaintiff,  )   
   )   
v.  ) Civil Action No. 98-1232 (TPJ) 
   )   
MICROSOFT CORPORATION,  )   
   )   
Defendant.  )   
   )   

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   )   
STATE OF NEW YORK, et al.,  )   
   )   
Plaintiffs  )   
   )   
v.  )  
   )   
MICROSOFT CORPORATION,  )   
   )   
Defendant  )   
   )   

----------------------------------------------------------------------------
----
 ) Civil Action No. 98-1233 (TPJ) 
   )   
MICROSOFT CORPORATION,  )   
   )   
v.  )   
   )   
Counterclaim-Plaintiff,  )   
   )   
ELLIOT SPITZER, attorney  )   
general of the State of  )   
New York, in his official  )   
capacity, et al.,  )   
   )   
Counterclaim-Defendants.  )   
   )   

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ORDER




In accordance with the Conclusions of Law filed herein this date, it is,
this ______ day of April, 2000, 

ORDERED, ADJUDGED, and DECLARED, that Microsoft has violated §§ 1 and 2 of
the Sherman Act, 15 U.S.C. §§ 1, 2, as well as the following state law
provisions: Cal Bus. & Prof. Code §§ 16720, 16726, 17200; Conn. Gen. Stat.
§§ 35-26, 35-27, 35-29; D.C. Code §§ 28-4502, 28-4503; Fla. Stat. chs.
501.204(1), 542.18, 542.19; 740 Ill. Comp. Stat. ch. 10/3; Iowa Code §§
553.4, 553.5; Kan. Stat. §§ 50-101 et seq.; Ky. Rev. Stat. §§ 367.170,
367.175; La. Rev. Stat. §§ 51:122, 51:123, 51:1405; Md. Com. Law II Code
Ann. § 11-204; Mass. Gen. Laws ch. 93A, § 2; Mich. Comp. Laws §§ 445.772,
445.773; Minn. Stat. § 325D.52; N.M. Stat. §§ 57-1-1, 57-1-2; N.Y. Gen. Bus.
Law § 340; N.C. Gen. Stat. §§ 75-1.1, 75-2.1; Ohio Rev. Code §§ 1331.01,
1331.02; Utah Code § 76-10-914; W.Va. Code §§ 47-18-3, 47-18-4; Wis. Stat. §
133.03(1)-(2); and it is 

FURTHER ORDERED, that judgment is entered for the United States on its
second, third, and fourth claims for relief in Civil Action No. 98-1232; and
it is 

FURTHER ORDERED, that the first claim for relief in Civil Action No. 98-1232
is dismissed with prejudice; and it is 

FURTHER ORDERED, that judgment is entered for the plaintiff states on their
first, second, fourth, sixth, seventh, eighth, ninth, tenth, eleventh,
twelfth, thirteenth, fourteenth, fifteenth, sixteenth, seventeenth,
eighteenth, nineteenth, twentieth, twenty-first, twenty-second,
twenty-fourth, twenty-fifth, and twenty-sixth claims for relief in Civil
Action No. 98-1233; and it is 

FURTHER ORDERED, that the fifth claim for relief in Civil Action No. 98-1233
is dismissed with prejudice; and it is 

FURTHER ORDERED, that Microsoft's first and second claims for relief in
Civil Action No. 98-1233 are dismissed with prejudice; and it is 

FURTHER ORDERED, that the Court shall, in accordance with the Conclusions of
Law filed herein, enter an Order with respect to appropriate relief,
including an award of costs and fees, following proceedings to be
established by further Order of the Court. 
  
  

Thomas Penfield Jackson 
U.S. District Judge 
  
  
  
  

1. Proof that the defendant's conduct was motivated by a desire to prevent
other firms from competing on the merits can contribute to a finding that
the conduct has had, or will have, the intended, exclusionary effect. See
United States v. United States Gypsum Co., 438 U.S. 422, 436 n.13 (1978)
("consideration of intent may play an important role in divining the actual
nature and effect of the alleged anticompetitive conduct"). 

2. While Microsoft is correct that some courts have also recognized the
right of a copyright holder to preserve the "integrity" of artistic works in
addition to those rights enumerated in the Copyright Act, the Court
nevertheless concludes that those cases, being actions for infringement
without antitrust implications, are inapposite to the one currently before
it. See, e.g., WGN Continental Broadcasting Co. v. United Video, Inc., 693
F.2d 622 (7th Cir. 1982); Gilliam v. ABC, Inc., 538 F.2d 14 (2d Cir. 1976). 

3. Microsoft contends that Windows and Internet Explorer represent a single
"integrated product," and that the relevant market is a unitary market of
"platforms for software applications." Microsoft's Proposed Conclusions of
Law at 49 n.28. 

4. In Microsoft II the D.C. Circuit acknowledged it was without benefit of a
complete factual record which might alter its conclusion that the "Windows
95/IE package is a genuine integration." 147 F.3d at 952. 

5. Most of the quantitative evidence was presented in units other than
monetary, but numbered the units in millions, whatever their nature. 

6. Amicus curiae Lawrence Lessig has suggested that a corollary concept
relating to the bundling of "partial substitutes" in the context of software
design may be apposite as a limiting principle for courts called upon to
assess the compliance of these products with antitrust law. This Court has
been at pains to point out that the true source of the threat posed to the
competitive process by Microsoft's bundling decisions stems from the fact
that a competitor to the tied product bore the potential, but had not yet
matured sufficiently, to open up the tying product market to competition.
Under these conditions, the anticompetitive harm from a software bundle is
much more substantial and pernicious than the typical tie. See X Phillip E.
Areeda, Einer Elhauge & Herbert Hovenkamp, Antitrust Law ¶1747 (1996). A
company able to leverage its substantial power in the tying product market
in order to force consumers to accept a tie of partial substitutes is thus
able to spread inefficiency from one market to the next, id. at 232, and
thereby "sabotage a nascent technology that might compete with the tying
product but for its foreclosure from the market." III Phillip E. Areeda &
Herbert Hovenkamp, Antitrust Law ¶ 1746.1d at 495 (Supp. 1999). 

7. See Cal. Bus. & Prof. Code §§ 16720, 16726, 17200 (West 1999); Conn. Gen.
Stat. § 35-27 (1999); D.C. Code § 28-4503 (1996); Fla. Stat. chs.
501.204(1), 542.19 (1999); 740 Ill. Comp. Stat. 10/3 (West 1999); Iowa Code
§ 553.5 (1997); Kan. Stat. §§ 50-101 et seq. (1994); Ky. Rev. Stat. §§
367.170, 367.175 (Michie 1996); La. Rev. Stat. §§ 51:123, 51:1405 (West
1986); Md. Com. Law II Code Ann. § 11-204 (1990); Mass. Gen. Laws ch. 93A, §
2; Mich. Comp. Laws § 445.773 (1989); Minn. Stat. § 325D.52 (1998); N.M.
Stat. § 57-1-2 (Michie 1995); N.Y. Gen. Bus. Law § 340 (McKinney 1998); N.C.
Gen. Stat. §§ 75-1.1, 75-2.1 (1999); Ohio Rev. Code §§ 1331.01, 1331.02
(Anderson 1993); Utah Code § 76-10-914 (1999); W.Va. Code § 47-18-4 (1999);
Wis. Stat. § 133.03(2) (West 1989 & Supp. 1998). 

8. See Cal. Bus. & Prof. Code § 17200 (West 1999); Conn. Gen. Stat. § 35-27
(1999); D.C. Code § 28-4503 (1996); Fla. Stat. chs. 501.204(1), 542.19
(1999); 740 Ill. Comp. Stat. 10/3(3) (West 1999); Iowa Code § 553.5 (1997);
Kan. Stat. §§ 50-101 et seq. (1994); Ky. Rev. Stat. §§ 367.170, 367.175
(Michie 1996); La. Rev. Stat. §§ 51:123, 51:1405 (West 1986); Md. Com. Law
II Code Ann. § 11-204(a)(2) (1990); Mass. Gen. Laws ch. 93A, § 2; Mich.
Comp. Laws § 445.773 (1989); Minn. Stat. § 325D.52 (1998); N.M. Stat. §
57-1-2 (Michie 1995); N.Y. Gen. Bus. Law § 340 (McKinney 1988); N.C. Gen.
Stat. §§ 75-1.1, 75-2.1 (1999); Ohio Rev. Code §§ 1331.01, 1331.02 (Anderson
1993); Utah Code § 76-10-914 (1999); W.Va. Code § 47-18-4 (1999); Wis. Stat.
§ 133.03(2) (West 1989 & Supp. 1998). 

9. See Cal. Bus. & Prof. Code §§ 16727, 17200 (West 1999); Conn. Gen. Stat.
§§ 35-26, 35-29 (1999); D.C. Code § 28-4502 (1996); Fla. Stat. chs.
501.204(1), 542.18 (1999); 740 Ill. Comp. Stat. 10/3(4) (West 1999); Iowa
Code § 553.4 (1997); Kan. Stat. §§ 50-101 et seq. (1994); Ky. Rev. Stat. §§
367.170, 367.175 (Michie 1996); La. Rev. Stat. §§ 51:122, 51:1405 (West
1986); Md. Com. Law II Code Ann. § 11-204(a)(1) (1990); Mass. Gen. Laws ch.
93A, § 2; Mich. Comp. Laws § 445.772 (1989); Minn. Stat. § 325D.52 (1998);
N.M. Stat. § 57-1-1 (Michie 1995); N.Y. Gen. Bus. Law § 340 (McKinney 1988);
N.C. Gen. Stat. §§ 75-1.1, 75-2.1 (1999); Ohio Rev. Code §§ 1331.01, 1331.02
(Anderson 1993); Utah Code § 76-10-914 (1999); W.Va. Code § 47-18-3 (1999);
Wis. Stat. § 133.03(1) (West 1989 & Supp. 1998). 

10. The omission of the District of Columbia from this finding was an
oversight on the part of the Court; Microsoft obviously conducts business in
the District of Columbia as well. 
 


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