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S. HRG. 107–772

THE MICROSOFT SETTLEMENT:

A LOOK TO THE FUTURE

HEARING

BEFORE THE

COMMITTEE ON THE JUDICIARY 

UNITED STATES SENATE

ONE HUNDRED SEVENTH CONGRESS

FIRST SESSION

DECEMBER 12, 2001

Serial No. J–107–53

Printed for the use of the Committee on the Judiciary

(

(II)

COMMITTEE ON THE JUDICIARY 

PATRICK J. LEAHY, Vermont, Chairman 

EDWARD M. KENNEDY, Massachusetts 

JOSEPH R. BIDEN, JR., Delaware 

HERBERT KOHL, Wisconsin 

DIANNE FEINSTEIN, California 

RUSSELL D. FEINGOLD, Wisconsin 

CHARLES E. SCHUMER, New York 

RICHARD J. DURBIN, Illinois 

MARIA CANTWELL, Washington 

JOHN EDWARDS, North Carolina 

ORRIN G. HATCH, Utah 

STROM THURMOND, South Carolina 

CHARLES E. GRASSLEY, Iowa 

ARLEN SPECTER, Pennsylvania 

JON KYL, Arizona 

MIKE DEWINE, Ohio 

JEFF SESSIONS, Alabama 

SAM BROWNBACK, Kansas 

MITCH MCCONNELL, Kentucky 

BRUCE A. COHEN, Majority Chief Counsel and Staff Director 

SHARON PROST, Minority Chief Counsel 

MAKAN DELRAHIM, Minority Staff Director 

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C O N T E N T S 

STATEMENTS OF COMMITTEE MEMBERS 

DeWine, Hon. Mike, a U.S. Senator from the State of Ohio ................................ 9

Hatch, Hon. Orrin G., a U.S. Senator from the State of Utah ............................ 4

Kohl, Hon. Herbert, a U.S. Senator from the State of Wisconsin ....................... 7

Kyl, Hon. Jon., a U.S. Senator from the State of Arizona ................................... 81

Leahy, Hon. Patrick J., a U.S. Senator from the State of Vermont .................... 1

McConnell, Hon. Mitch, a U.S. Senator from the State of Kentucky .................. 10

Sessions, Hon. Jeff, a U.S. Senator from the State of Alabama .......................... 111

WITNESS 

James, Charles A., Assistant Attorney General, Antitrust Division, Department of Justice, Washington, D.C. ..................................................................... 11

QUESTIONS AND ANSWERS 

Responses of Daniel J. Bryant, Assistant Attorney General, Office of Legislative Affairs to questions submitted by Senator Hatch ...................................... 24

Responses of Jay L. Himes to questions submitted by Senator Leahy ............... 32

Responses of Jay L. Himes to questions submitted by Senator Hatch ............... 36

Responses of Jay L. Himes to questions submitted by Senator DeWine ............ 37

Response of Jay L. Himes to a question submitted by Senator Kohl .................. 42

SUBMISSIONS FOR THE RECORD 

Association for Competitive Technology, Jonathan Zuck, President, Washington, D.C., statement ........................................................................................ 42

Barksdale, James L., Barksdale Group, Menlo Park, California, letter and 

attachment ............................................................................................................ 47

Bork, Robert H., Washington, D.C., letter ............................................................. 57

Catfish Software, Inc., Jerry Hilburn, President and Founder, San Diego, 

California, statement ........................................................................................... 59

Computing Technology Industry Association, Washington, D.C., statement ..... 60

Consumer Federation of America, Mark N. Cooper, Director of Research, 

Washington, D.C., statement .............................................................................. 66

Digital Data Resources, Inc., Mark Havlicek, President, Des Moines, Iowa, 

statement .............................................................................................................. 73

EarthLink, Inc., Dave Baker, Vice President for Law and Public Policy, Atlanta, Georgia, statement .................................................................................... 73

Himes, Jay L., Chief, Antitrust Bureau, Office of the Attorney General, State 

of New York, New York, New York .................................................................... 75

Lessig, Laurence, Esq., Stanford Law School, Stanford, California, statement . 82

Kertzman, Mitchell E., Chief Executive Officer, Liberate Technologies, San 

Carlos, California, statement .............................................................................. 87

Microsoft Corporation, Charles F. Rule, Counsel, Fried, Frank, Harris, Shriver & Jacobson, Washington, D.C., statement .................................................... 89

Nader, Ralph, Washington, D.C., letter and attachments ................................... 99

Red Hat, Inc., Matthew J. Szulik, President and CEO, Durham, North Carolina, statement ..................................................................................................... 109

Sorrell, Hon. William H., Attorney General, State of Vermont, Montpelier, 

Vermont, letter ..................................................................................................... 113

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THE MICROSOFT SETTLEMENT: A LOOK TO 

THE FUTURE 

WEDNESDAY, DECEMBER 12, 2001

UNITED STATES SENATE, COMMITTEE ON THE JUDICIARY, Washington, DC. 

The Committee met, pursuant to notice, at 10:08 a.m., in room 

SD–106, Dirksen Senate Office Building, Hon. Patrick J. Leahy, 

Chairman of the Committee, presiding. 

Present: Senators Leahy, Kohl, Cantwell, Hatch, Kyl, DeWine, 

Sessions, and McConnell. 

OPENING STATEMENT OF HON. PATRICK J. LEAHY, A U.S. 

SENATOR FROM THE STATE OF VERMONT 

Chairman LEAHY. Good morning. I just want to do a little housekeeping here. I want to make sure the Chairman and Ranking 

Member of the Antitrust Subcommittee are here, Senator Kohl and 

Senator DeWine, both of whom have done a superb job for years 

in handling antitrust matters. 

I told Senator DeWine earlier, and this will probably cause a recall petition from the Republican Party in Ohio, what a terrific job 

he did as Chairman and then what a terrific job Senator Kohl has 

done as Chairman on antitrust matters, and pointing out that they 

are issues of great complexity and great importance to everybody 

here in the Senate. 

I have looked at the proposed settlement the Department of Justice and nine States have transmitted to the district court that is 

a plan for the conclusion of what has been really landmark antitrust litigation. But now it has got to pass the legal test set out 

in the Tunney Act if it is going to gain court approval, and that 

test is both simple and broad. It requires an evaluation of whether 

the proposed settlement is in the public interest. 

There is significant difference of opinion over how well the proposed settlement passes this legal test. In fact, the States participating in the litigation against Microsoft are evenly split. Nine 

States joined in the proposed settlement and nine non-settling 

States presented the court with an alternative remedy. 

As the courts wrangle with the technical and complex legal 

issues at stake in this case, this Committee is conducting hearings 

to educate ourselves, but also to educate the public about what this 

proposed settlement really means for our high-tech industry and 

for all of us who use computers at work and at school and at home. 

Scrutiny of the proposed settlement by this Committee during 

the course of the Tunney Act proceeding is particularly important. 

2

The focus of our hearing today is to examine whether the proposed 

settlement is good public policy and not to go into the legal technicalities. The questions raised here and views expressed may help 

inform the court. I plan, with Senator Hatch, to forward to the 

court the record of this hearing for consideration as the courts goes 

about the difficult task of completing the Tunney Act proceedings 

and the remedy sought by the non-settling States. 

I am especially concerned that the district court take the opportunity seriously to consider the remedy proposal of the non-settling 

States, and to consider it before she makes her final determination 

on the other parties’ proposed settlement. The insights of the other 

participants in this complicated and hard-fought case are going to 

be valuable additions to the comments received in the Tunney Act 

proceeding. I would hope they would help inform the evaluation 

whether the settlement is in the public interest, a matter which for 

many people is still an open question. 

The effects of this case extend beyond simply the choices available in the software marketplace. The United States has long been 

the world leader in bringing innovative solutions to software problems, in creating new tools and applications for use on computers 

and the Web, and in driving forward the flow of capital into these 

new and rapidly growing sectors of the economy. 

This creativity is not limited just to Silicon Valley. I think of my 

own home area, Burlington, Vermont. It ranks seventh in the Nation in terms of patent filings. Burlington is 38,000 people and it 

is in a county of about 130,000 people. This is not per-capita; this 

is actual filings—seventh in the Nation. 

Whether the settlement proposal will help or hinder this process 

and whether the high-tech industries will play the important role 

they should in our Nation’s economy is a larger issue behind the 

immediate effects of this proposal. 

With that in mind, I intend to ask the representatives of the settling parties how their resolution of this conflict will serve the ends 

that the antitrust laws require. Our courts have developed a test 

for determining the effectiveness of a remedy in a Sherman Act 

case. The remedy must end the anticompetitive practices, it must 

deprive the wrongdoer of the fruits of the wrongdoing,and it must 

ensure that illegality never recurs. The Tunney Act also requires 

that any settlement of such a case serve the public interest. 

Now, these are all high standards, but they are reasonable ones 

and people have dealt with them for years. In this case, the D.C. 

Circuit, sitting en banc and writing unanimously, found that Microsoft had engaged in serious exclusionary practices, to the detriment 

of their competitors, and thus to all consumers. So we have to satisfy ourselves that these matters have been addressed and redressed, or if they have not, why not. 

I have noted my concern that the procedural posture of this case 

not jeopardize the opportunity of the non-settling States to have 

their day in court, and not deprive the district court of the value 

of their views on appropriate remedies in a timely fashion. 

In addition, I have two basic areas of concern about the proposed 

settlement. First, I find many of the terms of the settlement to be 

either confusingly vague, subject to manipulation, or, worse, both. 

Mr. Rule raised an important and memorable point when he last 

3

testified before this Committee in 1997 during the very important 

series of hearings that were convened by Senator Hatch on competition in the digital age, hearings that helped shape a lot of 

thinking in the Senate. 

Testifying about the first Microsoft-Justice Department consent 

decree, Mr. Rule said, ‘‘Ambiguities in decrees are typically resolved against the Government. In addition, the Government’s case 

must rise or fall on the language of the decree; the Government 

cannot fall back on some purported ‘spirit’ or ‘purpose’ of the decree 

to justify an interpretation that is not clearly supported by the language.’’ So we take seriously such counsel. We would worry if ambiguity in the proposed settlement would jeopardize its enforcement. 

Second, I am concerned that the enforcement mechanism described in the proposed decree lacks the power and the timeliness 

necessary to inspire confidence in its effectiveness. Particularly in 

light of the absence of any requirement that the decree be read in 

broad remedial terms, it is especially important that we inquire 

into the likely operation of the proposed enforcement scheme and 

its effectiveness. 

Any lawyer who has litigated cases—and, Mr. James, that would 

certainly include you—and any business person knows how distracting litigation of this magnitude can be. We all appreciate the 

value that reaching an appropriate settlement can have not only 

for the parties, but also for consumers who are harmed by anticompetitive conduct, and the economy. 

I am the first one to say we would like some finality so that everybody involved, all parties, can know what the standards are and 

all consumers can know what they are. Because of that, I don’t 

come to this hearing pre-judging the merits of this proposed settlement, but instead as one who is ready to embrace a good settlement that puts an end to the merry-go-round of Microsoft litigation 

over consent decrees. 

The serious questions that have been raised about the scope, enforceability and effectiveness of this proposed settlement leave me 

concerned that if it is approved in its current form, it may simply 

be an invitation for the next chapter of litigation. 

I want an end to this thing. I think everybody wants an end to 

it, but we want an end to it where we know what the rules are 

going to be. If we don’t know what the rules are going to be, as 

sure as the sun rising in the east we are going to face these issues 

again. On this point, I share the concern of Judge Robert Bork, 

who warns in his written submission that the proposed settlement 

‘‘contains so many ambiguities and loopholes as to make it unenforceable and likely to guarantee years of additional litigation.’’

So I look forward to hearing from the Department of Justice and 

the other witnesses here. I will put into the record a series of letters: one, a letter to myself and Senator Hatch from James 

Barksdale; another, a letter to Assistant Attorney General James 

from Senator Hatch; a letter from Senator Hatch from Assistant 

Attorney General James; letters to myself and Senator Hatch from 

Robert Bork; a letter to myself from Ralph Nader, with two enclosures; written testimony of Catfish Software, Inc; and written testimony of Mark Havlicek of Digital Data Resources, Inc. 

4

I yield to Senator Hatch, who did such superb hearings on this 

whole issue earlier. 

STATEMENT OF HON. ORRIN G. HATCH, A U.S. SENATOR FROM 

THE STATE OF UTAH 

Senator HATCH. Well, thank you, Mr. Chairman. As you know, 

we conducted a series of hearings, as you have mentioned, in this 

Committee in 1997 and 1998 to examine the policy implications of 

the competitive landscape of the then burgeoning high-tech economy and industry, which was about to explode with the advent of 

the Internet. 

Those hearings focused on competition in the industry, in general, and more specifically on complaints that Microsoft had been 

engaged in anticompetitive behavior that threatened competition 

and innovation, to the detriment of consumers. Our goal was, and 

I believe today, is to determine how best to preserve competition 

and foster innovation in the high-technology industry. 

Although the Committee and I, as its Chairman, was then criticized by some, I strongly believed then and continue to believe now 

that in a robust economy involving new technologies, effective antitrust enforcement today would prevent the need for heavy-handed 

Government regulation of business tomorrow. 

My interest in the competitive marketplace in the high-technology industry was animated by my strong opposition to regulation of the industry, whether by government or by one or few companies. As we may remember, the hearings before the Judiciary 

Committee developed an extensive record of Microsoft’s conduct 

and evidenced various efforts by the company to maintain and extend its operating system monopoly. These findings, I would note, 

were reaffirmed by a unanimous and ideologically diverse Court of 

Appeals. The Microsoft case and its ultimate resolution present one 

of the most important developments in antitrust law in recent history, certainly in my memory. 

As I have emphasized before, having a monopoly is not illegal 

under our laws. In fact, in a successful capitalistic system, striving 

to be one should be encouraged, as a matter of fact. However, anticompetitive conduct intended to maintain or extend this monopoly 

would harm competition and could possibly be violative of our laws. 

I believe no one would disagree that the D.C. Circuit Court’s decision reaffirmed the fundamental principle that a monopolist, even 

a monopolist in a high-tech industry like software, must compete 

on the merits to maintain its monopoly, which brings us to today’s 

hearing. We are here to examine the policy implications of the proposed settlement in the Government’s antitrust litigation against 

Microsoft. 

Mr. Chairman, rather than closing the book on the Microsoft inquiry, the proposed settlement appears to be only the end of the 

latest chapter. The settling parties are currently in the middle of 

the so-called Tunney Act process before the court, and the non-settling parties have chosen to further litigate this matter and last 

week filed their own proposed settlement. This has been a complex 

case with significant consequences for Microsoft, high-tech entrepreneurs, and the American public as well. 

5

The proposed settlement between Microsoft, the Justice Department, and nine of the plaintiff State attorneys general is highly 

technical. We have all been studying it and its impact with great 

interest. Each of us has heard from some, including some of our 

witnesses here today, that the agreement contains much that is 

very good. Not surprisingly, we have also heard and read much 

criticism of the settlement. These are complex issues, and I would 

hope today’s hearing will illuminate the many questions that we 

have. 

I should note that about 2 weeks ago I sent a set of detailed and 

extensive questions about the scope, interpretation, and intended 

effects of the proposed settlement to the Justice Department, naturally seeking further information on my part. 

First, I want to commend the Department for getting the responses to these questions to me promptly. We received them yesterday. I think the questions, which were made public, and the Department’s responses could be helpful to each member in forming 

an independent and fair analysis of the proposed settlement. 

To that end, and for the benefit of the Committee, Mr. Chairman, 

I would like to make both the questions and the Department’s answers part of the record for this hearing. So I would ask unanimous consent that they be made part of the record. 

As I noted in my November 29th letter to the Department, I have 

kept an open mind regarding this settlement and continue to do so. 

I have had questions regarding the practical enforceability of the 

proposed settlement and whether it will effectively remedy the unlawful practices identified by the D.C. Circuit and restore competition in the software marketplace. 

I am also cognizant of both the limitation of the claims contained 

in the original Justice Department complaint by the D.C. Circuit, 

as well as the standards for enforcement under settled antitrust 

law. I believe that further information regarding precisely how the 

proposed settlement will be interpreted, given D.C. Circuit case 

law, is necessary to any full and objective analysis of the remedies 

proposed therein. I hope that this hearing will result in the development of such information that would supplement the questions 

that I have put forth to the Department. 

Mr. Chairman, one important and critical policy issue that I 

would hope we can address today and that I would like all of our 

witnesses to consider, as they wait to be empaneled so that they 

can discuss, is the difficult issue of the temporal relation of antitrust enforcement in new high-technology markets. 

It cannot be overemphasized that timing is a critical issue in examining conduct in the so-called ‘‘new economy.’’ Indeed, the most 

significant lesson the Microsoft case has taught us is this fact. The 

D.C. Circuit found this issue noteworthy enough to discuss in the 

first few pages of its opinion, and I will quote from the unanimous 

court: 

‘‘[w]hat is somewhat problematic...is that just over 6 years have 

passed since Microsoft engaged in the first conduct plaintiffs allege 

to be anticompetitive. As the record in this case indicates, 6 years 

seems like an eternity in the computer industry. By the time a 

court can assess liability, firms, products, and the marketplace are 

likely to have changed dramatically. This, in turn, threatens enorVerDate Feb 1 2002 17:04 Jan 16, 2003 Jkt 082938 PO 00000 Frm 00009 Fmt 6633 Sfmt 6633 C:\HEARINGS\82938.TXT SJUD4 PsN: CMORC
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mous practical difficulties for courts considering the appropriate 

measure of relief in equitable enforcement actions.’’ The court goes 

on to say, ‘‘Innovation to a large degree has already rendered the 

anticompetitive conduct obsolete (although by no means harmless).’’ Now, this issue is one that is relevant for this Committee to consider as a larger policy matter, as well as how it relates to this case 

and the proposed settlement we are examining today. 

Let me just say that one of the things that worries me is what 

are the enforcement capabilities of this settlement agreement? It 

was only a few years before these matters arose that Microsoft had 

agreed to a consent, a conduct decree that many feel they did not 

live up to. I think it is a legitimate issue to raise as to how will 

the agreement that the Justice Department has worked out with 

Microsoft and nine of the plaintiffs be enforced if anticompetitive 

conduct continues. 

In that regard, let me just raise Mr. Barksdale’s letter, which I 

believe you put into the record. 

Chairman LEAHY. I did, I did. 

Senator HATCH. Well, let me just raise it because he does make 

some interesting comments in his letter and I can read them, I 

think they might be at least part of opening up the questions in 

this matter. I will just quote a few paragraphs. 

He says, ‘‘These developments have stiffened my resolve to do all 

I can to ensure that competition and consumer choice are reintroduced to the industry. It is vitally important that no company can 

do to a future Netscape what Microsoft did to Netscape from 1995 

to 1999. It is universally recognized that the 1995 consent decree 

was ineffective. I respectfully submit that the Proposed Final Judgment, PFJ, which is the subject of the hearing, will be even less 

effective, if possible, than the 1995 decree in restoring competition 

and stopping anticompetitive behavior. Accordingly, Senator Leahy, 

I am going to follow your suggestion that I help the Committee answer one of the central questions. If the PFJ had been in effect all 

along, how would it have affected Netscape? More important, how 

will it affect future Netscapes?’’ He describes the impact on future Netscapes as follows, and let 

me just read a couple of paragraphs in this regard. ‘‘As discussed 

in the attached document, the unambiguous conclusion is that if 

the PFJ agreed upon last month by Microsoft and the Department 

of Justice had been in existence in 1994, Netscape would have 

never been able to obtain the necessary venture capital financing. 

In fact, the company would not have come into being in the first 

place. The work of Mark Andreesen’s team at the University of Illinois in developing the Mosaic browser would likely have remained 

an academic exercise. An innovative, independent browser company 

simply could not survive under the PFJ, and such would be the effect on any company developing in the future technologies as innovative as the browser was in the mid-1990’s.’’ He goes on to characterize whether or not Microsoft could have 

developed this itself, but let me just read the last few paragraphs 

of this letter. 

‘‘If the PFJ provisions are allowed to go into effect, it is unrealistic to think that anybody would ever secure venture capital financing to compete against Microsoft. This would be a tragedy for 

7

our Nation. It makes a mockery of the notion that the PFJ is ‘good 

for the economy’ unquote. If the PFJ goes into effect, it will subject 

an entire industry to dominance by an unconstrained monopolist, 

thus snuffing out competition, consumer choice, and innovation in 

perhaps our Nation’s most important industry. And, worse, it will 

allow them to extend their dominance to more businesses such as 

financial services, entertainment, telecommunications, and perhaps 

many others. Four years ago, I appeared before the Committee and 

was able to demonstrate, with the help of the audience, that Microsoft undoubtedly had a monopoly. Now, it has been proven in the 

courts that Microsoft not only has a monopoly, but they have illegally maintained that monopoly through a series of abusive and 

predatory actions. I submit to the Committee that Microsoft is infinitely stronger in each of their core businesses than they were 4 

years ago, despite the fact that their principal arguments have 

been repudiated 8–0 by the Federal courts. I hope you will keep 

these thoughts in mind during your hearings.’’ Then he said, ‘‘A 

more detailed analysis of my views follows.’’ Well, the importance of that letter is basically Barksdale was one 

of the original complainants against Microsoft and was one of the 

very important witnesses before this Committee in those years 

when we were trying to figure what we are doing here. I don’t 

think you can ignore that, and so these questions have to be answered that he raises, plus the questions that I have given as well. 

So you have put that letter in the record? 

Chairman LEAHY. I have, and also I understood you wanted 

those letters that you had to Mr. James. Those are also part of the 

record. 

Senator HATCH. I appreciate it. 

Let me just say, Mr. Chairman, I am grateful that you are continuing the Committee’s important role in high-technology policy 

matters, as I would expect you to do because I know that you take 

a great interest in these matters, as does, I think, every individual 

person on the Committee. 

I certainly look forward to hearing our witnesses today, and I am 

going to keep an open mind on where we are going here. Hopefully 

we can resolve these matters in a way that is beneficial to everybody, including those who are against Microsoft and Microsoft 

itself. 

Thank you, Mr. Chairman. 

Chairman LEAHY. Thank you. 

Senator Kohl? 

STATEMENT OF HON. HERB KOHL, A U.S. SENATOR FROM THE 

STATE OF WISCONSIN 

Senator KOHL. Mr. Chairman, we thank you for holding this 

hearing here today. 

This is a crucial time for competition in the high-tech sector of 

our economy. After spending more than 3 years pursuing its 

groundbreaking antitrust case against Microsoft, the Government 

has announced a settlement. But the critical question remains, will 

this settlement break Microsoft’s stranglehold over the computer 

software industry and restore competition in this vital sector of our 

economy? I have serious doubts that it will. 

8

An independent Federal court, both the trial court and the Court 

of Appeals, found that Microsoft broke the law and that its violation should be fixed. This antitrust case was as big as they come. 

Microsoft crushed a competitor, illegally tried to maintain its monopoly, and stifled innovation in this market. 

Now, after all these years of litigation, of charges and countercharges, this settlement leaves us wondering, did we really accomplish anything. Or in the words of the old song, ‘‘is that all there 

is?’’ Does this settlement obey the Supreme Court mandate that it 

must deny the antitrust violator the fruits of its illegal conduct? 

It seems to me and to many, including nine of the States that 

joined the Federal Government in suing Microsoft, that this settlement agreement is not strong enough to do the job, to restore competition to the computer software industry. It contains so many 

loopholes, qualifications, and exceptions that many worry that 

Microsoft will easily be able to evade its provisions. 

Today, for the vast majority of computer users, the first thing 

they see when they turn on their machine is the now familiar 

Microsoft logo, placed on the Microsoft start menu, and all of their 

computer operations take place through the filter of Microsoft’s 

Windows operating system. Microsoft’s control over the market is 

so strong that today more than 95 percent of all personal computers run on the Windows operating system, a market share high 

enough to constitute a monopoly under antitrust law. 

Its share of the Internet browsing market is now over 85 percent, 

and it reported a profit margin of 25 percent in the most recent 

quarter, a very high number in challenging economic times. Microsoft has the power to dictate terms to manufacturers who wish to 

gain access to the Windows operating system and the ability to leverage its dominance into other forms of computer software. And 

Microsoft has never been shy about using its market power. 

Are we today really confident that in 5 years this settlement will 

have had any appreciable impact on these facts of life in the computer industry? I am not. 

We stand today on the threshold of writing the rules of competition in the digital age. We have two options. One option involves 

one dominant company controlling the computer desktop facing 

minor restraints that expire in 5 years, but acting as a gatekeeper 

to 95 percent of all personal computer users. The other model is the 

flowering of innovation and new products that resulted from the 

breakup of the AT&T telephone monopoly nearly 20 years ago. 

From cell phones to faxes, from long-distance price wars to the development of the Internet itself, the end of the telephone monopoly 

brought an explosion of new technologies and services that benefit 

millions of consumers everyday. We should insist on nothing less 

in this case. 

In sum, any settlement in this case should make the market for 

computer software as competitive as the market for computer hardware is today. While there is nothing wrong with settling, of 

course, we should insist on a settlement that has an immediate, 

substantial and permanent impact on restoring competition in this 

industry. 

I thank our witnesses for testifying today and we look forward 

to hearing your views. 

9

Chairman LEAHY. Thank you. 

Senator DeWine? 

STATEMENT OF HON. MIKE DEWINE, A U.S. SENATOR FROM 

THE STATE OF OHIO 

Senator DEWINE. Mr. Chairman, thank you very much for holding this very important hearing concerning the Department of Justice’s Proposed Final Judgment in its case against Microsoft. 

Mr. Chairman, as we examine this judgment and attempt to 

imagine what it will mean for the future of competition in this 

market, we must keep in mind the serious nature of this case. According to the D.C. Circuit Court, Microsoft did, in fact, violate our 

antitrust laws. Their behavior hurt the competitive marketplace. 

This is something that we must keep in mind as we examine the 

Proposed Final Judgment. 

This hearing is particularly important at this time because Federal law does require the District Court to examine the proposed 

settlement and determine if it is, in fact, in the public interest. 

Federal law clearly allows the public to be heard on such matters. 

I believe that this forum today will further that process of public 

discussion. 

The Court of Appeals in this case, relying on established Supreme Court case law, explained what an appropriate remedy in an 

antitrust case such as this one must seek to accomplish. It should 

unfetter the market from anticompetitive conduct, terminate the illegal monopoly, and deny the defendant the fruits of its violations. 

It is important, Mr. Chairman, that we examine whether the proposed decree would, in fact, accomplish these goals. 

There seems to be a great deal of disagreement about what the 

competitive impact of the decree will be. While the proposed settlement correctly, I believe, focuses primarily on the market for 

middleware, there has been a great deal of concern raised about 

the mechanism for enforcing such a settlement. Specifically, I think 

we need to discuss further whether the public interest would be 

better served with a so-called special master or some sort of other 

administrative mechanism, or whether the Justice Department 

could be more effective enforcing the decree on its own. 

In addition to the Department of Justice’s Proposed Final Judgment, we also have the benefit of another remedies proposal that 

has been submitted to the court by nine States that did not join 

with the Antitrust Division’s proposal. I would like to hear from 

our witnesses about the role they believe this alternative proposal 

should play in the ongoing Tunney Act proceedings. 

As I mentioned earlier, Mr. Chairman, the Court of Appeals directed that any remedy should seek to deny Microsoft the fruits of 

its illegal activities. One clear benefit Microsoft derived from its 

violations was the effective destruction of Netscape as a serious 

competitor and a decrease in Java’s market presence. It is obviously impossible to go back in time and resurrect the exact market 

structure that existed, but it is important to discuss how the proposed settlement deals with this problem. 

I would also like to note for the record that Microsoft will be represented today by one of their outside counsels, Rick Rule, rather 

than an actual employee of the company. Mr. Rule is an outVerDate Feb 1 2002 17:04 Jan 16, 2003 Jkt 082938 PO 00000 Frm 00013 Fmt 6633 Sfmt 6633 C:\HEARINGS\82938.TXT SJUD4 PsN: CMORC
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standing antitrust lawyer. He is well qualified to testify on this 

issue and we certainly look forward to hearing his testimony today. 

However, Mr. Chairman, I must say that I am disappointed that 

Microsoft chose not to send an actual officer of the company because it does not appear to represent, frankly, the fresh start that 

I think we were all hoping to begin today. 

Finally, I would like to thank you, Mr. Chairman, Ranking Member Hatch, and Antitrust Subcommittee Chairman Kohl for all of 

your hard work in putting this hearing together and all of your 

work on this issue generally over the last few years. 

I look forward to the testimony of our witnesses today and to the 

Committee’s continuing oversight of this very important issue. 

Chairman LEAHY. Mr. James, there is a vote on the floor. I think 

there are two or three minutes left in the roll call vote. We are 

going to suspend while we go to vote, but I think——

Senator MCCONNELL. Mr. Chairman, I have a really brief statement. Could I make that before you adjourn? 

Chairman LEAHY. You can. 

STATEMENT OF HON. MITCH MCCONNELL, A U.S. SENATOR 

FROM THE STATE OF KENTUCKY 

Senator MCCONNELL. Let me just say that this hearing and the 

accompanying media spectacle indicate the Microsoft case is the 

subject of significant public interest and debate. Some argue that 

the case itself should never have been filed to begin with, and now 

after nearly 4 years of litigation, Microsoft, the Department of Justice and nine States have reached a settlement. 

I just want to commend the parties for their tireless effort and 

countless hours spent in reaching the compromise. Settlement is 

nearly always preferable to litigation, and regulation by the market 

is nearly always better than regulation by litigation, or the Government for that matter. 

As far as what the public thinks, just this week a nationwide 

survey indicated that the U.S. Government and Microsoft agreed to 

settle the antitrust case. However, nine State AGs argued that the 

antitrust case against Microsoft should continue. Which statement 

do you agree with? 

The U.S. economy and consumers would be better off if the issue 

were settled as soon as possible: 70 percent. The court should continue to investigate whether Microsoft should be punished for its 

business activities: 24 percent. Not that the public is always determinative, but I thought that would be an interesting observation 

to add. 

Thank you very much, Mr. Chairman. 

Chairman LEAHY. Mr. James, I think you would note from the 

comments that they sort of go across the board here. The majority 

of people favor a settlement, but I must say that I don’t think the 

majority of people favor any settlement; they favor a good settlement, and that is what the questions will be directed at and that 

is why nine attorneys general have expressed concern. Nine agreed 

with the settlement, nine disagreed with the settlement. These are 

all very good, very talented people. So in your testimony when we 

come back, you have heard a number of the questions that have 

been raised and we look forward to you responding to them. 

11

We will stand in recess while we vote. 

[The Committee stood in recess from 10:40 a.m. to 11:14 a.m.] 

Chairman LEAHY. I should note for the record that Mr. James 

has served as the Assistant Attorney General for the Antitrust Division since June 2001. He previously served as Deputy Assistant 

Attorney General for the Antitrust Division for the first Bush administration from 1989 to 1992. He served as Acting Assistant Attorney General for several months in 1992, then was head of the 

antitrust practice at Jones, Day, Reavis and Pogue, in Washington. 

Not knowing what the Senate schedule might be, Mr. James, we 

will put your whole statement in the record, of course. I wonder if 

you might summarize it, but also with some reference to the charge 

made in the letter to Senator Hatch and myself by Mr. Barksdale, 

who said had these been the ground rules, he never would have 

been able to get Netscape off the ground. Had these been the 

ground rules at the time they started Netscape, they never would 

have been able to create Netscape. If that is accurate, of course, 

then we have got a real problem. 

So, Mr. James, it is all yours. 

STATEMENT OF CHARLES A. JAMES, ASSISTANT ATTORNEY 

GENERAL, ANTITRUST DIVISION, DEPARTMENT OF JUSTICE, 

WASHINGTON, D.C. 

Mr. JAMES. Thank you, Senator Leahy, and good morning to you 

and members of the Committee. I am pleased to appear before you 

today to discuss the proposed settlement of our still pending case 

against Microsoft Corporation. 

With me today are Deborah Majoras, my deputy, and Phil Malone, who has been the lead staff lawyer on the Microsoft case from 

the very beginning. I note their presence here because they were 

the ones who responded to the judge’s order that we negotiate 

around the clock and I think they have recovered now. 

As you know, on November 2 the Department and nine States 

entered into the proposed settlement. We are in the midst of the 

Tunney Act period and that will end at the end of January, at 

which point the district court will determine whether the settlement is in the public interest. We think that it is. 

I am somewhat limited in what I can say about the case because 

of the pendency of the Tunney Act proceeding. But, of course, I am 

happy to discuss this with the Committee for the purpose of public 

explication. 

When thinking about the Microsoft case, from my perspective it 

is always important to distinguish between Microsoft, the public 

spectacle, and Microsoft, the actual legal dispute. We look, in particular, to what the Department alleged in its complaint and how 

the court ruled on those allegations. 

The Antitrust Division’s complaint had four counts: attempted 

monopolization of the browser market, in violation of Section 2; individual anticompetitive acts and a course of conduct to maintain 

the operating system monopoly, in violation of Section 2 of the 

Sherman Act; tying the own browser to the operating system, in 

violation of Section 1; and exclusive dealing, in violation of Section 

1. 

12

I would note that a separate monopoly leveraging claim brought 

by the States was thrown out prior to trial, and that the States at 

one time had alleged in their complaint monopolization of the 

Microsoft Office market. That was eliminated by the States 

through an amendment. 

There was, of course, a trial before Judge Jackson, at the conclusion of which Judge Jackson found for the Government on everything but exclusive dealing. He ordered Microsoft to be split into 

separate operating system and applications businesses after a 1-

year transitional period under interim conduct remedies. 

On appeal, however, only the monopoly maintenance claim survived unscathed. The attempted monopoly claim was dismissed. 

The tying claim was reversed and remanded for further proceedings under a much more rigorous standard. And the remedy 

was vacated, with the court ordering remedial hearings before a 

new judge to address the fact that the liability findings had been, 

in their words, ‘‘drastically curtailed.’’ Even the monopoly maintenance claim was cut back in the Court 

of Appeals decision. The Court of Appeals found for Microsoft on 

some of the specific practices and ruled against the Government on 

the so-called course of conduct theory of liability. 

I recount all of this history to make two basic points that I think 

are important as we discuss the settlement. First, the case, even 

as initially framed by the Department of Justice, was a fairly narrow challenge. It was never a direct assault on the acquisition of 

the operating system monopoly itself. 

Second, and perhaps much more important, the case that 

emerged from the Court of Appeals was much narrower still, focusing exclusively on the middleware threat to the operating system 

monopoly and specific practices—not a course of conduct found to 

be anticompetitive. 

The Court of Appeals decision determined the reality of the case 

as we found it in the Department when I first arrived there in 

June, as you noted. The conduct found to be unlawful by the court 

was the sole basis for relief. 

It is probably worth talking just briefly about the monopoly 

maintenance claim. The complaint alleges that Microsoft engaged 

in various anticompetitive practices to impede the development of 

rival Web browsers and Java. These products came to be known as 

middleware and were thought to pose a threat to the operating system monopoly because they had the potential to become platforms 

for other software applications. The court noted that the 

middleware threat was nascent; that is to say that no one could 

predict when, if ever, enough applications would be written to 

middleware for it to significantly displace the operating system monopoly. 

A few comments about the settlement itself. In general terms, 

our settlement has several important points that we think fully 

and demonstrably remedy the middleware issues that were at the 

heart of the monopoly maintenance claim. 

In particular, our decree contains a very broad definition of 

middleware that specifically includes the forms of platform software that have been identified as potential operating system 

threats today and likely to emerge as operating system threats in 

13

1 New York, Ohio, Illinois, Kentucky, Louisiana, Maryland, Michigan, North Carolina, and 

Wisconsin 

the future. It prohibits in the broadest terms the types of contractual restrictions and exclusionary arrangements the Court of Appeals found to be unlawful. It fences in those prohibitions with appropriate non-discrimination and non-retaliation provisions, and it 

creates an environment in which middleware developers can create 

programs that compete with Microsoft on a function-by-function 

basis through a regime of mandatory API documentation and disclosure. 

In the most simple terms, we believe our remedy will permit the 

development and deployment of middleware products without fear 

of retaliation or economic disadvantage. That is what we believe 

and what the court found that consumers actually lost through 

Microsoft’s unlawful conduct, and that is what we think consumers 

will gain through our remedy. 

With specific reference to what Mr. Barksdale said, if I may, I 

have not reviewed Mr. Barksdale’s letter. I know that in this particular situation, with so much at stake in this particular settlement, I have seen lots of hyperbolic statements. I certainly 

wouldn’t necessarily characterize his in that vein without having 

read it in some detail. 

I would note, however, that——

Chairman LEAHY. Mr. James, we are going to give you an opportunity to do that because I want you to look at it. You can feel free 

to call it hyperbolic or however, but I would ask that you and your 

staff look at his letter, which does raise some serious questions, 

and I would like to see what response you have for the record. 

Mr. JAMES. I would be happy to do so. And with that, I would 

be happy to answer your questions. 

[The prepared statement of Mr. James follows.]

PREPARED STATEMENT OF CHARLES A. JAMES, ASSISTANT ATTORNEY GENERAL, 

ANTITRUST DIVISION, DEPARTMENT OF JUSTICE, WASHINGTON, D.C. 

Mr. Chairman and members of the Subcommittee, I am pleased to appear before 

you today to discuss the Department’s still-pending antitrust enforcement action 

against Microsoft Corporation. 

On November 2, 2001, the Department stipulated to entry of a proposed consent 

decree that would resolve the case. Nine states joined in the proposed settlement.1

We are in the midst of the 60-day public comment period under the Tunney Act, 

after which we will file a response to the comments, and the district court will rule 

on whether the proposed consent decree is in the public interest. Nine other states, 

and the District of Columbia, have not signed the proposed consent decree. 

The Department’s position regarding the proposed settlement is set forth in documents filed in the pending Tunney Act proceeding. Because of the pendency of the 

proceeding, and the somewhat remote possibility that the case will return to litigation, I am somewhat limited in what I can say about the case and settlement. Nonetheless, I am happy to appear before you today to dicuss in general terms how the 

settlement promotes the public interest by resolving the allegations sustained by the 

court of appeals. 

When we in the Department address the MIcrosoft case, it is important for us to 

ignore the media spectacle and clash-of-the-titans imagery and focus instead on the 

actual legal dispute presented to the court. In discussing the case and the proposed 

consent decree, it is important to keep in mind not only what the Department alleged in our complaint, but how the courts—in particular, the D.C. Circuit—ruled. 

As a result of the appeals court’s ruling, the case is in many important respects considerably narrower than the one the Department originally brought in the spring 

of 1998 and narrower still than Judge Jackson’s ruling in June of 2000. 

14

I would like to take a few minutes to refocus attention on the legal allegations 

charged in the complaint, how those allegations were resolved in the courts, and the 

remedies in the proposed consent decree presently undergoing Tunney Act review. 

I believe these proposed remedies fully and demonstrably resolve the monopoly 

maintenance finding that the D.C. Circuit affirmed. 

The complaints filed by the Department, the states, and the District of Columbia 

alleged: (1) that Microsoft had engaged in a series of specific anticompetitive acts, 

and a course of anticompetitive conduct, to maintain its monopoly position in the 

market for operating systems designed to run on Intel-compatible personal computers, in violation of Section 2 of the Sherman Act; (2) that Microsoft had attempted to monopolize the web browser market, also in violation of Section 2; (3) 

that Microsoft had illegally tied its web browser, Internet Explorer, to its operating 

system, in violation of Section 1; and (4) that Microsoft had entered into exclusive 

dealing arrangements that also violated Section 1. A separate monopoly leveraging 

claim advanced by the state plaintiffs was dismissed prior to trial. After a full trial 

on the merits, the district court ultimately sustained the first three claims, while 

finding that the exclusive dealing claim had not been proved. 

The D.C. Circuit, however, significantly narrowed the case, affirming the district 

court’s finding of liability only as to the monopoly maintenance claim, and even 

there only as to a smaller number of specified anticompetitive actions. Of the twenty 

anticompetitive acts the court of appeals reviwed, it reversed with respect to eight 

of the acts that the district court had sustained as elements of the monopoly maintenance claim. Additionally, the D.C. Circuit reversed the lower court’s finding that 

Microsoft’s ‘‘course of conduct’’ separately violated Section 2 of the Sherman Act. It 

reversed the district court’s ruling on the attempted monopolization and tying 

claims, remanding the tying claim for further proceedings under a much more difficult rule of reason standard. And, of course, it vacated the district court’s final 

judgment that had set forth the break-up remedy and interim conduct remedies. 

The antitrust laws do not prohibit a firm from having a monopoly, but only from 

illegally acquiring or maintaining a monopoly through interference with the competitive efforts of rivals. There has never been any serious contention that Microsoft 

acquired its operating system monopoly through unlawful means, and the existence 

of the operating system monopoly itself was not challenged in this case. 

With regard to the monopoly maintenance claim, the court of appeals upheld the 

conclusion that Microsoft had engaged in unlawful exclusionary conduct by using 

contractual provisions to prohibit computer manufacturers from supporting competing middleware products on Microsoft’s operating system; by prohibiting consumers and computer manufacturers from removing Microsoft’s middleware products from the desktop; and by reaching agreements with software developers and 

third parties to exclude or disadvantage competing middleware products—all to protect Microsoft’s monopoly in the operating system market. 

The Department proved that Microsoft had engaged in these anticompetitive practices to discourage the development and deployment of rival web browsers and Java 

technologies, in an effort to prevent them from becoming middleware threats to its 

operating system monopoly. Netscape had gained a respectable market share as a 

technology for navigating the then-burgeoning Internet, and Netscape proponents 

were touting the prospect of a new world of Internet computing that would make 

operating systems less relevant. Netscape touted its web browser as a new category 

of software that came to be known as ‘‘middleware,’’ a form of software that, like 

Microsoft’s Windows operating system, exposed a broad range of applications program interfaces (‘‘APIs’’) to which software developers could write applications. This 

created the potential that—if Netscape Navigator continued to gain market share 

and could run on operating systems other than Microsoft’s, and if large numbers 

of software developers wrote applications programs to it—computer users would 

have viable competitive alternatives to Microsoft. 

The middleware threat was nascent. That is, as both the district court and the 

court of appeals acknowledged, it was a potential threat to the operating system monopoly that had not yet become real. It could not be predicted when, if ever, enough 

applications programs would be written to middleware products for middleware to 

singificantly displace Microsoft operating systems. Microsoft took this nascent 

middleware threat to its operating system monopoly seriously. The trial record disclosed a corporate preoccupation with thwarting Netscape and displacing Netscape’s 

Navigator with Microsoft’s Internet Explorer as the prevailing web browser. This 

campaign featured a host of strong-arm tactics aimed at various computer manufacturers, Internet access providers, and independent software developers. Even the decision to integrate its own browser into the operating system—in effect, giving it 

away for free—had an element of impeding the growth of Netscape and once was 

described as taking away Netscape’s oxygen. Microsoft took similar actions against 

15

Java technologies. Among other things, Microsoft required software developers to 

promote its own version of Java technology exclusively and threatened developers 

if they assisted competing Java products. 

The district court ruled not only that Microsoft had engaged in various specified 

illegal exclusionary practices, but that these acts were part of an overall anticompetitive course of conduct. The D.C. Circuit agreed as to some of the specified 

practices, while ruling that others—for example, Microsoft’s practice of preventing 

computer manufacturers from substituting their own user interfaces over the Windows interface supplied by Microsoft—were justified and thus lawful. The D.C. Circuit also rejected the course-of-conduct theory, under which Microsoft’s specific practices could be viewed as parts of a broader, more general monopolistic scheme, ruling that Microsoft’s practices must be viewed individually. 

Following the appellate court’s instructions, we, in considering a possible remedy, 

focused on the specific practices that the court had ruled unlawfull. We took as a 

starting point the district court’s interim conduct remedies. Those remedies, however, were based on a much wider range of liability findings than had been affirmed 

on appeal. Accordingly, they had to be tailored to the findings that had actually 

been affirmed. Further, because the interim conduct remedies were designed to 

apply only as a stop-gap until the district court’s divestiture order was implemented, 

we broadened them in important respects to more fully address the remedial objectives of arresting the anticompetitive conduct, preventing its recurrence, and restoring lost competition to the marketplace. Finally, we updated the remedies to 

strengthen their long-term effectiveness in the face of the rapid technological innovation that continues to characterize the computer industry—so that they will be 

relevant to the Windows XP operating system world and beyond. 

Under the proposed consent decree, Microsoft will be required to disclose to other 

software developers the interfaces used by Microsoft’s middleware to interoperate 

with the operating system, enabling other software developers to create competing 

products that emulate Microsoft’s integrated functions. Microsoft will also have to 

disclose the protocols that are necessary for software located in a server computer 

to interoperate with Windows on a PC. 

Microsoft will have to permit computer manufacturers and consumers to substitute competing middleware software on the desktop. It will be prohibited from retaliating against computer manufacturers or software developers for supporting or 

developing certain competing software. To further guard against possible retaliation, 

Microsoft will be required to license its operating system to key computer manufacturers on uniform terms for five years. 

Microsoft will be prohibited from entering into agreements rerquiring the exclusive support or development of certain Microsoft software, so that software developers and computer manufacturers can continue to do business with Microsoft while 

also supporting and developing rival middleware products. And Microsoft will be required to license any intellectual property to computer manufacturers and software 

developers necessary for them to exercise their rights under the proposed decree, including, for example, using the middleware protocols disclosed by Microsoft to interoperate with the operating system. 

Any assumption that, had we litigated the remedy, we were certain to have secured all of this relief and possibly more misses the mark. The middleware definition, for example, was a very complex issue and would have been hard fought in 

a litigated remedy proceeding. The term had no generally accepted industry or technical meaning. At the time of trial, the term was used to describe software programs 

that exposed APIs. But in today’s world, by virtue of the extensive degree to which 

software programs interact with each other, a very broad range of programs—large 

and small, simple and complex—expose APIs. At the same time, middleware had to 

be defined more broadly than the browser, or it would not provide sufficient protection for the potential sources of competition that might emerge. So we developed a 

definition of middleware, designed to encompass all technologies that have the potential to be middleware threats to Microsoft’s operating system monopoly. It captures, in today’s market, Internet browsers, e-mail client software, networked audio/

video client software, and instant messaging software. On a going-forward basis, it 

also provides guidelines for what types of software will be considered middleware 

for purposes of the decree in the future. These guidelines are critical because, while 

it is important that future middleware products be captured by the proposed decree, 

those products will not necessarily be readily identified as such. 

The proposed decree protects competition in the middleware market through a variety of affirmative duties and prohibition, which I listed a minute ago. By requiring 

disclosure of a broad range of interfaces and protocols that will secure interoperability for rival software and servers, broadly banning exclusive dealing, giving computer manufacturers and consumers extensive control of the desktop and initial boot 

16

sequence, and prohibiting a broad range of retaliatory conduct, the proposed decree 

will require Microsoft to fundamentally change the way in which it deals with computer manufacturers, Internet access providers, software developers, and others. 

These prohibitions had to be devised keeping in mind that Microsoft will continue 

for the foreseeable future to have a monopoly in the operating systems market. 

While we recognized that not all forms of collaboration between Microsoft and others in the industry are anticompetitive, and that some actually benefit competition, 

we drafted the non-discrimination and non-retaliation provisions broadly enough to 

prevent Microsoft from using its monopoly power to apply anticompetitive pressure 

in this fashion. 

We concluded, particularly in light of intervening technological developments in 

the computer industry, that the remedial objective of restoring lost competition had 

to mean something different than attempting to restore Netscape and Java specifically to their previous status as potential nascent threats to Microsoft’s monopoly. 

Attempting to turn back the hands of time would likely prove futile and would risk 

sacrificing important innovations that have moved the industry beyond that point. 

So we focused instead on the market as it exists today, and where it appears to be 

heading over the next few years, and devised a remedy to recreate the potential for 

the emergence of competitive alternatives to Microsoft’s operating system monopoly 

through middleware innovations. With a reported 70,000-odd applications currently 

designed to run on Windows, the applications barrier to entry is quite formidable. 

The most effective avenue for restoring the competitive potential of middleware, we 

concluded, was to ensure that middleware developers had access to the technical information necessary to create middleware programs that could compete with Microsoft in a meaningful way—that is, by requiring Microsoft to disclose the APIs needed to enable competing middleware developers to create middleware that matches 

Microsoft’s in efficiency and functionality. 

API disclosure had apparently been a very difficult obstacle to resolution of the 

case at every stage. There had never been any allegation in the case that Windows 

was an essential facility, the proprietary technology for which had to be openly 

shared in the industry. So we are very pleased that we were able to secure this crucial provision in the proposed decree. 

Similarly, the proposed decree goes beyond the district court’s order in requiring 

Microsoft to disclose communications protocols for servers if they are embedded in 

the operating system, thereby protecting the potential for server-based applications 

to emerge as a competitive alternative to Microsoft’s operating systems monopoly. 

Although the issue of Microsoft’s potential use of its monopoly power to inhibit server-based competition was barely raised and never litigated in the district court, we 

believed it was an important concern to resolve in the final negotiations. 

The proposed decree also requires Microsoft to create and preserve ‘‘default’’ settings, such that certain of Microsoft’s integrated middleware functions will not be 

able to override the selection of a third-party middleware product, and requires 

Microsoft to create add/delete functionality to make it easier for computer manufacturers and users to replace Microsoft middleware functionality with independently 

developed middleware. These are other important respects in which, in light of intervening technological changes, the proposed decree goes beyond the relief contemplated in the district court’s interim relief order. By giving middleware developers the means of creating fully competitive products, requiring the creation of add/

delete functionality, and making it absolutely clear that computer manufacturers 

can, in fact, replace Microsoft middleware on the desktop, the decree will do as 

much as possible to restore the nascent threat to the operating system monopoly 

that browsers once represented. 

The proposed decree contains some of the most stringent enforcement provisions 

ever contained in any modern consent decree. In addition to the ordinary prosecutorial access powers, backed up by civil and criminal contempt authority, this decree 

has two other aggressive features. First, it requires a full-time, on-site compliance 

team—complete with its own staff and the power to hire consultants—that will 

monitor compliance with the decree, report violations to the Department, and attempt to resolve technical disputes under the disclosure provisions. The compliance 

team will have complete access to Microsoft’s source code, records, facilities, and 

personnel. Its dispute resolution responsibilities reflect the recognition that the market will benefit from rapid, consensual resolution of issues whenever possible, more 

so than litigation under the Department’s contempt powers. The dispute resolution 

process complements, but does not supplant, ordinary methods of enforcement. Complainants may bring their inquiries directly to the Department if they choose. 

The decree will be in effect for five years. It also contains a provision under which 

the term may be extended by up to two additional years in the event that the court 

finds that Microsoft has engaged in repeated violations. Assuming that Microsoft 

17

will want to get out from under the decree’s affirmative obligations and restrictions 

as soon as possible, the prospect that it might face an extension of the decree should 

provide an extra incentive to comply. 

Our practice with regard to enforcement is never influenced by the extent to 

which we ‘‘trust’’ a defendant. Rather, a decree must stand on its own as an enforcement vehicle to ensure effective relief and must contain enforcement provisions sufficient to address its inherent compliance issues. In this case, those compliance 

issues are complex, as the decree seeks to address Microsoft’s interactions with 

firms throughout the computer industry. Under the circumstances, I believe the extraordinary nature of the decree is warranted. 

Some have criticized the decree for not going far enough. Some have asked why 

we did not continue to pursue divestiture as a possible remedy. We had several reasons. First, the court of appeals made it clear that it viewed the break-up remedy 

with skepticism, to put it mildly. The court ruled that on remand the district court 

must consider whether Microsoft is a unitary company—i.e., one that could not easily be broken up—and whether plaintiffs established a significant causal connection 

between Microsoft’s anticompetitive conduct and its dominant position in the market 

for operating systems—a finding not reached by the prior judge. 

Second, the legal basis for the structural separation the Department had been 

seeking was undercut by the failure to sustain the two claims that had challenged 

Microsoft’s right to compete outside its operating system monopoly by integrating 

new functions into Windows, the attempted monopolization claim and the tying 

claim. The former was dismissed, and the latter was remanded under a much more 

difficult rule-of-reason standard. The court of appeals ruled that, albeit with some 

limits, Microsoft could lawfully integrate new functions into the operating system 

and use the advantages flowing from its knowledge and design of the operating system to compete in downstream markets. 

Third, and more generally, the relief in a section 2 case must have its foundation 

in the offending conduct. The monopoly maintenance finding, as modified by the 

court of appeals, and without the ‘‘course-of-conduct’’ theory, would not in our view 

sustain a broad-ranging structural remedy that went beyond what was necessary to 

address Microsoft’s unlawful responses to the middleware threat to its operating 

system monopoly. Indeed, our new district judge, Judge Kollar-Kotelly, stated in 

open court that she expected our proposed remedy to reflect the fact that portions 

of our case had not been sustained. 

Finally, from a practical standpoint, even assuming that we could have eventually 

secured a breakup of Microsoft—a very dubious assumption in light of what the 

court of appeals and Judge Kollar-Kotelly have stated—the time it would have 

taken to continue litigating the break-up and the inevitable appeals could easily 

have delayed relief for another several years. By taking structural relief off of the 

table at the outset of the remedy proceeding on remand, we were able to get favorable procedural rulings that were essential to moving quickly to a prompt resolution. 

More generally, a number of critics have suggested ways in which we could have 

further constrained Microsoft’s conduct in the marketplace—either by excluding it 

from markets outside the operating system market, restricting it from integrating 

functions into its products or collaborating with others, or requiring it to widely 

share its source code as an open platform. While it is certainly true that restrictions 

and requirements of this sort might be desirable and advantageous to Microsoft’s 

competitors, they would not necessarily be in the interest of competition and consumers overall; many would reduce consumer choice rather than increase it. Moreover, to the extent these restrictions go beyond what is needed to remedy proven 

antitrust violations, they are not legitimate remedial goals. The objectives of civil 

antitrust enforcement are remedial, and they focus on protecting and restoring competition for the benefit of consumers, not on favoring particular competitors. 

As to more complex questions regarding whether the decree has properly covered 

all the elements that will be needed for full relief, questions of that nature are entirely appropriate and hopefully will be raised and addressed in the Tunney Act 

process. 

But I believe the decree, by creating the opportunity for independent software 

vendors to develop competitive middleware products on a function by-function basis, 

by giving computer manufacturers the flexibility to place competing middleware 

products on Microsoft’s operating system, and by preventing retaliation by Microsoft 

against those who choose to develop or use competing rniddleware products, fully 

addresses the legitimate public goals of stopping Microsoft’s unlawful conduct and 

restoring competition lost on its account. 

Mr. Chairman, a vigorously competitive computer software industry is vital to our 

economy, and the Department is committed to ensuring that it remains competitive. 

18

I hope that my testimony has helped members of the Committee more fully understand why the Department is completely satisfied that the proposed consent decree 

now before the district court will provide a sufficient and effective remedy for the 

anticompetitive conduct in which Microsoft has been found to have engaged in violation of the Sherman Act. I would be happy to answer any questions you or other 

members of the Committee may have.

Chairman LEAHY. Did you have more that you wanted to say on 

the letter? 

Mr. JAMES. No, sir. I am happy to respond to what you folks 

want to talk about. 

Chairman LEAHY. The Department of Justice has been involved 

in litigation against Microsoft for more than 11 years. I am one of 

those who had hoped throughout that that the parties might come 

to some conclusion. I think that if you can have a fair conclusion, 

it is in the best interests of the consumers, the Government, Microsoft, competitors, and everybody else. I have no problem with that, 

but that presupposes the right kind of settlement. 

Over the course of those 11 years, the parties entered into one 

consent decree that just ended up with a whole lot more litigation 

over the terms of that consent decree. I mention that because you 

take this settlement and it is already being criticized by some for 

the vagueness of its terms and its loopholes. Judge Robert Bork 

warned, and I think I am quoting him correctly, ‘‘It is likely to 

guarantee years of additional litigation.’’ Now, what kind of assurances can you give or what kind of predictions can you give that if this settlement is agreed to by the 

court that we are going to see an end to this litigation and we are 

going to have a stop to this kind of merry-go-round of Microsoft litigation concerning compliance or even the meanings of the consent 

decree? 

I notice a lot of people in this room on both sides of the issue. 

I have a feeling that they are here solely because of their interest 

in Government and not because the meter is running. A lot of us 

would like to see this thing end, but why do you feel that this settlement is so good that that is going to end? 

Mr. JAMES. Senator, that is certainly a legitimate question and 

I understand the spirit in which it is asked. One of the reasons 

that we have so many antitrust lawyers, and perhaps why there 

are so many of them in this room, is that firms with substantial 

market positions very often are the subject of appropriate antitrust 

scrutiny. So it is with Microsoft and so it should be. 

Our settlement here is a settlement that resolves a fairly complex piece of litigation. By its terms it is going to be a complex settlement, inasmuch as it does cover a broad range of activities and 

has to look into the future prospectively in a manner that benefits 

consumers. And some of that consumer benefit certainly will come 

from the development of competing products. Some of that consumer benefit, however, will come from competition from Microsoft 

as it moves into other middleware products, et cetera. 

We think that the terms of the decree are certainly enforceable. 

I think so much of what have been called loopholes are things that 

are carve-outs necessary to facilitate pro-competitive behavior. We 

certainly think that the enforcement power embodied in this decree—an unprecedented level of enforcement power with three 

tiers—is sufficient to let the Department of Justice do its job. 

19

Chairman LEAHY. But keep in mind that usually in these kinds 

of decrees, if it is not specifically laid out, the courts tend to decide 

the vague questions against the Government, not for the Government. Fortune Magazine said even the loopholes have loopholes— a pretty strong statement from a very pro-business magazine. The 

settlement limits the types of retaliation Microsoft can take against 

PC manufacturers that want to carry or promote non-Microsoft 

software, but some would say that it gives a green light to other 

types of retaliation. 

Now, why doesn’t the settlement ban all types of retaliation? The 

Court of Appeals said twice that if you commingle the browser and 

operating system code, you violate Section 2 of the Sherman Act. 

The proposed settlement contains no prohibition on commingling 

code. There is no provision barring the commingling of browser 

code and the operating code. So you have got areas where they can 

retaliate. You don’t have the barring of this commingling of code. 

I mean, are Fortune Magazine, Judge Bork and others justified 

in thinking there are a few too many loopholes here, notwithstanding the levels of enforcement? 

Mr. JAMES. Let me take your points in order. First, on the subject of retaliation, retaliation is a defined term in this decree. It is 

a term that we are using to define a sort of conduct that Microsoft 

can engage in when it engages in ordinary commercial transactions. 

I don’t think that there is any basis in the bounds of this case 

to prohibit Microsoft from engaging in any form of collaborative 

conduct with anyone in the computer industry. Certainly, the types 

of collaborative conduct that are permitted, the so-called loopholes, 

are the type of conduct that is permitted under standard Supreme 

Court law embodied in decisions like Broadcast Music and NCAA, 

and also embodied in the Federal Trade Commission-Department 

of Justice joint venture guidelines as sanctioned forms of conduct. 

So we think that antitrust lawyers certainly can understand these 

types of issues and we think the courts can understand these types 

of issues. 

Secondly, with regard to your more particular point about commingling code, it is the case that the Court of Appeals, following 

upon the district court decision, found that Microsoft had engaged 

in an act of monopolization in that it commingled code for the purpose of preventing the Microsoft browser from being removed from 

the desktop. That is the finding of the Court of Appeals. 

Now, in the process of going through my preparation for this 

hearing, I went back and looked at the Department of Justice’s position with regard to this. Throughout the course of the case, and 

even in the contempt proceeding involving the former tying claims, 

it has always and consistently been the Department of Justice’s 

contention that it did not want to force Microsoft to remove code 

from the operating system. They have said that over and over 

again in every brief that has been filed in this case. 

What the Department of Justice wanted was an appropriate 

functionality that would give consumers the choice between 

middleware products. That is exactly the remedy that we have here 

and we think it is an effective remedy. We have gone beyond that 

particular aspect of this remedy by including in our decree a speVerDate Feb 1 2002 17:04 Jan 16, 2003 Jkt 082938 PO 00000 Frm 00023 Fmt 6633 Sfmt 6602 C:\HEARINGS\82938.TXT SJUD4 PsN: CMORC
20

cific provision that deals with the questions of defaults—that is, 

the extent to which a non-Microsoft middleware product can take 

over and be invoked automatically in place of a Microsoft 

middleware product. That is something that was not in the earlier 

decrees. It is a step beyond what was included in Judge Jackson’s 

order. 

We think that we have addressed the product integration aspects 

of the Microsoft monopoly maintenance claim in exactly the terms 

that the Department has always pursued with regard to this particular issue, and we are completely satisfied with that aspect of 

the relief. 

Chairman LEAHY. Well, I have a follow-up on that, as you probably expect, but my time is up and I want to yield to Senator 

DeWine. Actually, I have a follow-up on the retaliation, also, but 

I do appreciate your answer. 

Senator DeWine? 

Senator DEWINE. Thank you, Mr. Chairman. 

Mr. James, this case has been certainly very controversial and 

inspired a great deal of discussion regarding the effectiveness of 

the antitrust laws, especially within the high-tech industry. 

Netscape, for example, vocally opposed Microsoft during this litigation. Many of Netscape’s complaints really were validated by the 

courts, and yet Netscape ended up losing the battle. This sort of 

result has led some to question whether our antitrust laws can be 

effective in this particular industry. 

I personally believe that the antitrust laws are essential to promoting competition within the industry and throughout the country, but I would like to hear what your views are on this subject. 

What lessons do you think this case teaches us in regard to that 

and what do we say to people like Netscape? 

Mr. JAMES. Well, it is certainly the case that our judicial system 

very often can provide a crude tool for redressing particular issues 

quickly. I would note that this particular case was litigated on a 

very fast track and the people at the Department of Justice are to 

be commended for pushing this case along at the speed that it is 

has taken, considering the comparable speed of other cases. 

I think, however, that the case stands for an important proposition, and that is that the Department of Justice is up to meeting 

the challenge, that it has the tools at its disposal to investigate unlawful conduct, to understand and appreciate the implications of 

what complex technical matters involve, to bring the resources to 

bear in order to litigate these cases to a successful conclusion, and, 

where appropriate, to reach a settlement that is in the public interest. 

One of the things that I think is an important issue to note here 

is that there is certainly a time difference between litigating a matter of original liability and litigating a matter involving compliance 

with a term of a decree. 

We think that the enforcement powers that are involved here are 

appropriate ones. We think that enforcement by the Department of 

Justice is the appropriate way to proceed in these matters, and we 

are confident that this provides the best mechanism for dealing 

with a complex matter in complex circumstances. 

21

Senator DEWINE. One provision of the Proposed Final Judgment 

requires Microsoft to allow computer manufacturers to enable access to competing products. However, for a product to qualify for 

these protections, it must have had a million copies distributed in 

the United States within the previous year. This would seem to me 

to run contrary to the traditional antitrust philosophy of promoting 

new competition. 

Why are these protections limited to larger competitors? 

Mr. JAMES. I am actually glad you asked that question, Senator, 

because that is one of the prevailing misconceptions of the decree. 

The provisions of the decree that require Microsoft to allow an 

OEM to place a middleware product on the desktop apply without 

regard to whether or not that product has been distributed by one 

million people. That is an absolute requirement. 

The million-copy distribution provision relates solely to the question of when Microsoft must undertake these affirmative obligations to create defaults, for example, for a middleware product to 

provide other types of assistance to someone who has developed 

that product. 

The fact of the matter is that this is something that requires a 

great deal of work, particularly these complex matters of setting 

defaults, which are very important to the competitive circumstances here. And it would be very difficult to impose upon 

Microsoft the responsibility for making these alterations to the operating system and making them automatic for every subsequent 

release of the operating system in the case of any software company that just shows up and says, ‘‘I have a product that competes.’’

But I want to be very clear here, Senator. An OEM can place 

every qualifying middleware product on the desktop immediately, 

without regard to this one-million threshold. 

Quite frankly, in today’s world, one million copies distributed is 

not a substantial matter. I think in the last year I might have gotten a million copies of AOL 5.0 in the mail. So I don’t think that 

that is really a very large impediment. 

Senator DEWINE. Let me ask one last question. You have mentioned that a number of provisions in the settlement go beyond the 

four corners of the case, but Microsoft agreed to these conditions 

anyway. 

What are they, and what is the goal of these provisions? 

Mr. JAMES. Well, I think one of the most important ones is the 

default provision. As of the time of our original case, these 

middleware products were operated in a fairly simple way. You 

clicked on to that product, you invoked that product, and then you 

used it in whatever way was appropriate. 

In today’s world, software has changed. We see what they call a 

more seamless user interface, user experience, and it is necessary 

for people to operate deeply within the operating system on an integrated basis. There were allegations that Microsoft overrode consumer choice in these default mechanisms in the case. 

With regard to each and every one of those instances alleged by 

the Justice Department, the Justice Department lost. The court 

found for Microsoft. Notwithstanding that, as a matter of fencing 

22

in and improving the nature of this decree, we have included in it 

the subject of defaults. 

Another important area, I think, is the question of server interoperability, and that is a very, very important issue we see going 

forward. If you go back and read the complaint in this case, you 

will find that the word ‘‘server’’ almost never appears. There are 

no specific allegations that go to this issue. We thought this was 

an important alternative platform issue. We thought it was important to stretch for relief in this case, and we got relief that is very 

effective as people go into an environment of more distributed Web 

processing. So we think that is a very powerful thing. 

I think these are two issues that the Department of Justice 

would have had a very, very difficult time sustaining in court, to 

the extent the court was inclined to limit us to the proof that we 

put forward. So I think that these are very positive manifestations 

of the settlement. 

Senator DEWINE. Thank you, Mr. Chairman. 

Chairman LEAHY. We are checking one thing, and I mention this 

to Senator Kohl, Senator Sessions, and Senator Cantwell, who have 

been here waiting to ask questions. We are finding out from the 

floor. We have been notified that there may have been a move, as 

any Senator has a right to do under our Senate rules, to object to 

Committees meeting more than two hours after the Senate goes in 

session. 

We are on the farm bill and appropriations and other essential 

matters, so that I have been told that a Senator has objected, as 

every Senator has a right to do, to us continuing. As a result, because the Senators say they want us to concentrate on what is 

going on on the Senate floor, we have to respect the rules of the 

Senate. I do, and I am going to have to recess this hearing at this 

time. 

I am going to put into the record the statements of all those who 

have come here to testify. 

Senator Hatch and I will try to find a time we might reconvene 

this hearing, because both Senator Hatch and I feel this is a very 

important hearing. 

The record will be open for questions that might be submitted. 

I apologize to everybody. We did not anticipate this. But with 100 

Senators, every so often somebody exercises that rule. I would emphasize Senators have the right to exercise that rule, especially 

when we are in the last 3 weeks of the session. I think we are 

going to break for Christmas Day, but we are in the last 3 weeks 

of the session, and I think the Senator invoking the rule wants to 

make sure all Senators pay attention to the work on the floor. 

Senator HATCH. Mr. Chairman? 

Senator SESSIONS. Mr. Chairman? 

Chairman LEAHY. We really are technically out of time, but Senator Hatch? 

Senator HATCH. Mr. Chairman, we are out of time. Any Senator 

can invoke the two-hour rule and a Senator has done that. Fortunately, I think it was against the Finance Committee markup 

today, but we reported out the bill anyway right within the time 

constraint. That is where I went. 

23

Both Senator Leahy and I apologize to the witnesses who have 

put such an effort into being here today because this is an important hearing. These are important matters to both sides—to all 

sides, I should say; there are not just two sides here. These matters 

have a great bearing on just how positively impactful the United 

States is going to be in these areas. 

So I hope that we can reconvene within a relatively short period 

of time and continue this hearing because it is a very, very important hearing. We apologize to you that this has happened, but as 

Senator Leahy has said, a Senator can do that. 

Chairman LEAHY. Well, it is out of our hands, but I would note 

that normally I would have recessed it until tomorrow, but tomorrow we are using this time for an executive Committee meeting of 

the Judiciary Committee to do, as we have done many times already, to vote out a large number of judges. 

So with that, we stand in—Jeff, I am sorry. 

Senator SESSIONS. Just, Mr. Chairman, a matter of procedure. I 

am troubled by what I understand to be a decision to send this 

transcript to the court as an official document from Congress in the 

middle of a litigation that is ongoing. 

I would think that anybody’s statement that they gave could be 

sent to the court. Any Senator can write a letter to the court. I 

haven’t studied it fully, but just as a practitioner, it troubles me 

to have a meddling——

Chairman LEAHY. That record is open to anybody who wants to 

send anything in. Senator Hatch and I have made that decision 

and that will be the decision of the Committee. 

Senator SESSIONS. I would be recorded as objecting. 

Chairman LEAHY. Of course, I understand. 

We stand adjourned. 

[Whereupon, at 11:43 a.m., the Committee was adjourned.] 

[Questions and answers and submissions for the record follow.] 

[Additional material is being retained in the Committee files.] 

24

QUESTIONS AND ANSWERS 

Responses of Daniel J. Bryant to questions from Senator Hatch 

Question 1. An earlier decision by the Court of Appeals, United States v. Microsoft 

Corp., 147 F.3d 935 (D.C.Cir. 1998) (‘‘Microsoft II’’), relating to the interpretation 

of an earlier consent decree with Microsoft, has been interpreted by some as expressing the view that judges should not be involved in software design, and that 

the government simply has no business telling Microsoft or any other company what 

it can include in any of its products. In its most recent decision, however, the Court 

of Appeals said that to the extent that the decision in Microsoft II completely disclaimed judicial capacity to evaluate high-tech product design, it cannot be said to 

conform to prevailing antitrust doctrine. See United States v. Microsoft Corp., 253 

F.3d 34 (D.C. Cir. 2001) (‘‘Microsoft III’’). Is the law clear that the Department does 

have a responsibility to assess the competitive implications of software design, in 

bringing antitrust enforcement actions? And, if so, does the Department have the 

necessary technical expertise and resources to perform such an evaluation? 

Answer. In exercising its responsibility to enforce the antitrust laws, the Department routinely confronts complex issues, including economic and technical issues regarding software design. The Department has both the resources and capability to 

address such issues, as they affect enforcement matters, through internal means 

and, where appropriate, the retention of outside experts.

Question 2. To foster competition in ‘‘middleware’’ the PFJ requires disclosure of 

APIs and similar information, but it then limits this provision only to those instances where disclosure would be for ‘‘the sole purpose of interoperating with a 

Windows Operating System Product.’’ Except for the limitation, this provision is almost exactly like a comparable provision in Judge Jackson’s interim consent decree. 

Why did the Department decide to add this limitation to the PFJ, and what effect 

will the inclusion of the limitation have on restoring competition? Please explain the 

competitive significance of web-based services, and whether the PH guarantees 

interoperability with the servers that operate those web-based services? 

Answer. The insertion of ‘‘for the sole purpose of interoperating with a Windows 

Operating System Product’’ in Section III.D. of the proposed Final Judgment simply 

clarifies that the APIs must be used for the purpose intended under the settlement 

(and as intended in Judge Jackson’s order)—ensuring that developers of competing 

middleware products will have full access to the same information that Microsoft 

middleware uses to interoperate with the Windows operating system. That is, the 

disclosure is not intended to permit misappropriation of Microsoft’s intellectual 

property for other uses. The insertion of this clause will not change the provision’s 

ability to restore competition in any way. 

The concept of ‘‘web-based’’ services is constantly evolving as companies find new 

ways. to use the Internet. The ultimate competitive significance of such services remains to be determined. The Department’s case addressed the topic of web-based 

services only with respect to the middleware threat to the operating system. Section 

III.E. of the proposed Final Judgment ensures that software developers will have 

full access to, and be able to use, the communication protocols necessary for server 

operating system software located on a server computer to interoperate with the 

functionality embedded in the Windows operating system.

Question 3. The Department has concluded that the PFJ is in the ‘‘public interest,’’ as required by the Tunney Act. Are you aware of any other case where a Tunney Act ‘‘public interest’’ determination has occurred with respect to a settlement 

where the underlying liability on the merits already has been affirmed by the Court 

of Appeals? To what extent should the scope of the District Court’s deference to the 

Antitrust Division under the Tunney Act he affected by a Court of Appeals prior 

affirmance of Sherman Act liability? 

Answer. The Department is not aware of a case where a court has made a Tunney 

Act ‘‘public interest’’ determination with respect to a settlement where the underlying liability on the merits already had been affirmed by the Court of Appeals. Beyond the Department’s position set forth in its submissions to the Court, it would 

be inappropriate for the Department to comment on the appropriate scope of the 

Court’s discretion because the Court’s review of the proposed Final Judgment is 

pending under the Tunney Act.

Question 4. The Court of Appeals remanded the remedy issue because, among 

other reasons, the District Court failed to demonstrate how divestiture relief was 

designed to ‘‘ ‘unfetter [the] market from anticompetitive conduct,’. . . to ‘terminate the illegal monopoly, deny to the defendant the fruits of its statutory violation, 

and ensure that there remain no practices likely to result in monopolization in the 

25

future’ ’’ Microsoft III, 253 F.3d at 103 (quoting Ford Motor Co. V. United States, 405 U.S. 562, 577 (1972), United States v. United Shoe Mach. Corp., 391 U.S. 244, 

250 (1968)). Please describe how the PFJ meets this standard dictated by the appellate court. (a) How does the PFJ ‘‘terminate the monopoly’’ Microsoft was found by 

the Appellate Court to have unlawfully maintained over PC operating system software? (b) How does the PFJ ‘‘deny to Microsoft the fruits of its Section 2 violation?’’ and (c) How does the PFJ ‘‘ensure that there remain no practices likely to result 

in monopolization in the future?’’ Answer. In the two cases quoted above, the monopoly in question was obtained 

by unlawful means. It was never alleged in this case, however, that Microsoft unlawfully obtained its operating system monopoly. Further, as the Court of Appeals 

noted, ‘‘the District Court expressly did not adopt the position that Microsoft would 

have lost its position in the OS market but for its anticompetitive behavior.’’ U.S. 

v. Microsoft, 253 F.3d 34, 107 (D.C. Cir. 2001). The Court of Appeals also went on 

to hold that: ‘‘[s]tructural relief, which is ‘designed to eliminate the monopoly altogether . . . require[s] a clear indication of a significant causal connection between 

the conduct and creation or maintenance of the market power.’ Absent such causation, the antitrust defendant’s unlawful behavior should be remedied by ‘an injunction against continuation of that conduct.’ ’’ Id. at 106 (quoting 3 

AREEDA&HOVENKAMP, ANTITRUST LAW ¶653b, at 91–92, and ¶650a, at 67). 

The injunctive relief in this case, with no allegation Microsoft unlawfully obtained 

its operating system monopoly, is designed to stop the unlawful conduct, prevent its 

recurrence and restore lost competition in the market. See Microsoft, 253 F.3d at 

103 (quoting Ford Motor Co. v. United States, 405 U.S. 562, 577 (1972) and United 

States v. United Shoe Mach. Corp., 391 U.S. 244, 250 (1968)). 

The proposed Final Judgment stops the offending conduct by enjoining the unlawful actions that the District Court and the Court of Appeals sustained. The proposed 

Final Judgment enjoins exclusive and unlawful dealing, gives computer manufacturers and consumers extensive control of the desktop and initial boot sequence, ensures that developers can develop products that interoperate with the Windows operating system, and prohibits a broad range of retaliatory conduct. The proposed 

Final Judgment prevents the recurrence of the conduct identified as unlawful by addressing the broad range of potential strategies Microsoft might deploy to impede 

the emergence of competing middleware products. The proposed Final Judgment 

also seeks to restore lost competition posed by the potential middleware threat to 

Microsoft’s operating system monopoly by requiring Microsoft to, among other 

things: (i) disclose APIs that will give independent software developers the opportunity to match Microsoft’s middleware functionality; (ii) allow computer manufacturers and users to replace Microsoft middleware with independently developed 

middleware; and (iii) create and preserve ‘‘default’’ settings that will ensure that 

Microsoft’s middleware does not over-ride the selection of third-party middleware 

products.

Question 5. Are there findings by the appellate court against Microsoft that are 

not addressed by the PFJ? If so, what were the reasons why the Department chose 

not to address these findings? 

Answer. The proposed Final Judgment addresses each of the Court of Appeals’

findings, and even goes beyond them.

Question 6. The Court of Appeals held that it was illegal for Microsoft to bind 

products together with Windows by ‘‘commingling code’’ because this practice helped 

Microsoft unlawfully maintain its desktop operating system monopoly. The Court 

concluded that code commingling has an ‘‘anticompetitive effect’’ by deterring OEMs 

from pre-installing rival software, ‘‘thereby reducing the rivals’ usage share and, 

hence, developers’ interest in rivals’ APIs as an alternative to the API set exposed 

by Microsoft’s operating system.’’ Microsoft III, 153 F.3d at 66. How does the PFJ 

prevent Microsoft from future unlawful commingling of non-Windows code with 

Windows? 

Answer. The proposed Final Judgment addresses these issues by requiring Microsoft to redesign its operating system to include an effective add/remove function for 

all Microsoft middleware products and to permit competing middleware to take on 

a default status that will override middleware functions Microsoft has integrated 

into the operating system. The proposed Final Judgment does not contain an absolute prohibition on Microsoft commingling code within Windows, and the Department does not interpret the Court of Appeals decision as requiring such relief.

Question 7. You have said that Microsoft ‘‘won the right to sell integrated products,’’ and that ‘‘the tying claim was eliminated by the appeals court.’’ (Business 

Week, November 19, 2001, p. 116). Other observers, however, argue that the Court 

of Appeals simply vacated the per se findings of a tying law violation and remanded 

26

that issue for consideration under a ‘‘rule of reason’’ standard? Why did the Department conclude that the tying claim was ‘‘eliminated’’ and not simply remanded to 

be retried under a different standard? What are the circumstances, if any, under 

which the court or the Department could find it impermissible for Microsoft to ‘‘integrate’’ a product with its Windows operating system? 

Answer. The Court of Appeals reversed the per se tying claim and remanded it 

to the lower court for adjudication under a more rigorous legal standard. The Court 

also held that if the Department pursued the tying claim on remand it would be 

precluded from arguing any theory of harm relying on a precise definition of browsers or barriers to entry, even though the government would have the burden of 

showing an anticompetitive effect in the browser market. The Court of Appeals also 

invited an extensive and complex analysis of pricing, noting that other operating 

system manufacturers included Web browsers in their operating systems, and requiring the plaintiffs to show that any anticompetitive effects outweighed the procompetitive effects. In light of the Court’s decision and the desire to achieve prompt 

relief for consumers without protracted litigation and appeals, the Department and 

the state plaintiffs decided not to pursue the tying claim. 

Given the continuing pendency of this litigation and the possibility that these 

issues may arise in other contexts, it is not appropriate for the Department to speculate under what circumstances Microsoft’s conduct would be impermissible.

Question 8. The CIS acknowledges that the ‘‘users rarely switched from whatever 

browsing software was placed most readily at their disposal.’’ It has been suggested 

that the most effective way to restore competition and to prevent future misconduct 

would be to require Microsoft to sell a product that is simply an operating system 

without all of the various applications that are now incorporated into Windows. 

Without such a requirement, the argument goes, consumers would be forced to procure two products if they choose to use a non-Microsoft version of a product that 

has been included in the operating system—Microsoft’s version and the competitor’s 

version. If Microsoft middleware is preinstalled with Windows, how do you think the 

adoption rate by users of non-Microsoft middleware will be affected? Did the Department consider including in the PFJ a requirement that Microsoft sell a version of 

Windows that is solely an operating system without other applications bundled with 

it? 

Answer. The Department did consider, and ultimately, reject a remedy that would 

have required Microsoft to sell a version of its operating system that did not contain 

some or all of the applications that it typically includes with the Windows operating 

system. First, this relief would have been most appropriate to remedy the tying and 

attempted monopolization liability (which were not sustained by the Court of Appeals), rather than for monopoly maintenance. Second, the remedy would reduce 

consumer choice rather than increase it. The proposed Final Judgment provides 

computer manufacturers the option of featuring, and end users the option of selecting, alternative middleware products, which they may choose to use or replace. Even 

if Microsoft middleware is preinstalled on the computer, computer manufacturers 

will have the ability to remove access to it and replace it with independently developed middleware. In this way, competition for consumer patronage of middleware 

products, unfettered by artificial restrictions by Microsoft, will determine adoption 

rates.

Question 9. Some observers claim the Court of Appeals found that Microsoft’s 

technological tying, particularly its ‘‘commingling of code,’’ was a1 illegal act of monopolization under Section 2 of the Sherman Act, but that there was insufficient evidence to determine that the same conduct violated Section 1. Do you agree with 

this? Does the PFJ provide a remedy for such misconduct? In your analysis, does 

the failure to find that the conduct violated Section 1 obviate the need to provide 

a remedy for the violation the court found under Section 2? 

Answer. The Court of Appeals observed some overlap between the tying claim and 

the code integration issues under the monopoly maintenance claim. However, as the 

Court of Appeals noted, the District Court concluded that tying and commingling 

are two different things—‘‘[a]lthough the District Court also found that Microsoft 

commingled the operating system-only and browser-only routines in the same library files, it did not include this as a basis for tying liability despite plaintiffs’ request that it do so.’’ U.S. v. Microsoft, 253 F.3d 34, 85 (D.C. Cir. 2001). The Department believes that the proposed Final Judgment effectively addresses the integration issues of the monopoly maintenance claim by requiring Microsoft to redesign 

its operating system to include an effective add/remove function for all Microsoft 

middleware products and to permit competing middleware to be featured in its 

place, as well as take on a default status that will, if the consumer chooses, override 

middleware functions Microsoft has integrated into the operating system.

27

Question 10. Some Wall Street analysts have opined that the PFJ imposes no obligation on Microsoft to change its business practices or redesign its products. Instead, these analysts have concluded, the PFJ seeks to restore competition by permitting OEMs to add products to Microsoft’s desktop. Is this view of the PFJ accurate? Is it the Department’s position that OEMs are in the best economic position 

to restore competition in personal computing? If so, what is the basis for that position? Are there other entities that might be in a position to help restore competition? 

Answer. The Department fundamentally disagrees with this characterization of 

the proposed Final Judgment. The proposed Final Judgment will require Microsoft 

to fundamentally change the way in which it deals with computer manufacturers, 

Internet access providers, software developers and others within the computer industry with regard to the manner in which it designs, sells, and shares information 

regarding its operating system. The proposed Final Judgment does not reflect a position by the Department that computer manufacturers are the only distribution 

outlet for software or that they are the only ones in a position to help restore competition. In fact, consumers increasingly obtain software in various distribution 

channels apart from computer manufacturers. Rather, certain provisions in the proposed Final Judgment focus on computer manufacturers because the restrictions on 

computer manufacturers to distribute software was a primary focus of the case and 

the Court of Appeals concluded that computer manufacturers were a critical distribution channel for Windows, as well as for middleware and other software applications.

Question 11. A significant portion of the Microsoft III opinion was devoted to 

Microsoft’s conduct vis-a-vis Java technology. The Court found Microsoft unlawfully 

used distribution agreements to forestall competition with middleware manufacturers. See, e.g., Microsoft III, 253 F.3d at 74–78. The court found these agreements 

to be anticompetitive because they ‘‘foreclosed a substantial portion of the field for 

. . . distribution and because, in so doing, they protected Microsoft’s monopoly 

from a middleware threat’’ Id. at 76. Does the PFJ addressees such practices? 

Answer. The proposed Final Judgment addresses such conduct by prohibiting 

Microsoft from entering into agreements that require software developers and other 

industry participants to exclusively distribute, promote, use or support a Microsoft 

middleware or operating system product, and by prohibiting Microsoft from retaliating against software developers who support competing middleware products.

Question 12. The Supreme Court has said that in an antitrust remedy, ‘‘it is not 

necessary that all of the untraveled roads to that [unlawful] end be left open and 

that only the worn one be closed.’’ International Salt Co. v. United States, 332 U.S. 

392, 401 (1947). The Court also has made clear that injunctive relief which simply 

forbid[s] a repetition of the illegal conduct is not sufficient under Section 2, because 

defendants ‘‘could retain the full dividends of their monopolistic practices and profit 

from the unlawful restraints of trade which they had inflicted on competitors.’’

Schine Chain Theaters, Inc. v. United States, 334 U.S. 110, 128 (1948). Are the 

standards enunciated by the Court in International Salt and Schine Chain Theatres

applicable in the Microsoft case? If so, would you identify provisions in the PFJ that 

satisfy these standards? 

Answer. The obligations imposed on Microsoft in the proposed Final Judgment go 

considerably beyond merely stopping, and preventing the recurrence of, the specific 

acts found unlawful by the Court of Appeals. Specifically, the proposed Final Judgment goes further by: (i) applying a broad definition of middleware products, which 

goes well beyond the Web browser and Java technologies that were the focus of the 

Department’s case, to include all of the technologies that have the potential to be 

middleware threats to Microsoft’s operating system monopoly, including e-mail clients, media players, instant messaging software and future middleware developments; (ii) requiring the disclosure or licensing of middleware interfaces and server 

communications protocols not previously disclosed to ensure that non-Microsoft 

middleware and server software can interoperate with Microsoft’s operating system; 

(iii) ensuring that computer manufacturers and consumers have extensive control of 

the desktop and initial boot sequence; (iv) broadly banning certain exclusive dealing, 

retaliation and discrimination by Microsoft beyond the practices affirmed as anticompetitive by the Court of Appeals; (v) requiring Microsoft to license its operating 

system to key computer manufacturers on uniform terms; (vi) requiring Microsoft 

to license intellectual property to computer manufacturers and software developers 

necessary for them to exercise their rights under the proposed settlement; and (vii) 

implementing a panel of three independent, on-site, full-time experts to assist in enforcing the proposed Final Judgment.

28

Question 13. The Supreme Court also has held that a Section 2 monopolization 

remedy ‘‘must break up or render impotent the monopoly power found to be in violation of the Act.’’ United States v. Grinnelll Corp., 384 U.S. 563, 577 (1966). Does 

the PFJ ‘‘render impotent’’ Microsoft’s Windows monopoly and, if so, how? 

Answer. In the case against Microsoft there has never been any contention that 

Microsoft obtained its operating system monopoly through unlawful means. Instead, 

the allegation sustained by the Court of Appeals was that Microsoft engaged in specific unlawful acts, not a course of conduct, to maintain its monopoly in violation 

of Section 2. Because relief in a Section 2 case must have its foundation in the offending conduct, the Department’s view was that the monopoly maintenance finding, as modified by the Court of Appeals, and without the ‘‘course-of-conduct’’ theory, 

did not sustain a broad-ranging remedy, such as a ‘‘break up’’ of Microsoft’s operating system monopoly, that went beyond what was necessary to address Microsoft’s unlawful responses to the middleware threat. Thus, the proposed Final Judgment 

does not seek such break-up relief.

Question 14. There has been considerable discussion about Microsoft’s Windows 

XP product, with some critics arguing that Microsoft is repeating the same technical 

binding, bundling and monopoly maintenance tactics found by the court to be unlawful when used in the past against Microsoft’s competitors. If true, this allegation 

would be significant, given the appellate court’s instruction ‘‘that there remain no 

practices likely to result in monopolization in the future,’’ Microsoft III, 253 F.3d 

at 103 (quoting United States v. United Shore Mach. Corp., 391 U. S. 244, 250 

(1968)). Some critics have also charged that Microsoft’s broad .NET strategy is an 

effort to build upon the fruits of Microsoft’s past unlawful conduct and remake the 

Internet as a Microsoft-proprietary Internet. Does the PFJ apply to Windows XP or 

to Microsoft’s .NET strategy? If not, why has the Department decided not to apply 

the settlement to these products? Can competition in the operating system be restored without addressing these products? 

Answer. With the monopoly maintenance claim as the only surviving basis for relief, the proposed Final Judgment must focus on middleware or middleware-type 

threats to the operating system, not Microsoft’s participation in other markets in a 

way unrelated to the conduct by Microsoft found unlawful by the Court of Appeals. 

The proposed Final Judgment expressly applies to Windows XP and any successors 

during the term of the judgment (see definition of Windows Operating System Product). It also applies to a wide variety of current and future Microsoft middleware 

products. What has been labeled.NET is a relatively new, diverse initiative by 

Microsoft in the market. As parts of.NET come more fully to fruition, they will be 

evaluated under the proposed Final Judgment, as would any other software. For instance, parts of the.NET strategy are likely to be middleware, such as instant messaging clients. To the extent.NET software or conduct implicates the anticompetitive 

acts raised in the case, it would be addressed under the proposed Final Judgment 

or otherwise by the Department.

Question 15. Many of the provisions of the PFJ appear to assume that OEMs will 

act to aggregate operating system software and assume the role of desktop design 

and software packaging in the PC distribution chain. According to many observers, 

however, there simply is no financial incentive for OEMs to do anything but accept 

the full Microsoft software package. What is the Department’s position on this 

issue? Was any consideration given to reports that OEMs did not take advantage 

of an offer by Microsoft this past summer to replace icons in the Windows Xf desktop? 

Answer. During the trial, the Department showed, and the Court of Appeals 

found, that computer manufacturers are a key distribution channel for Windows, as 

well as for middleware and other software applications. Further, even before the 

proposed Final Judgment was executed, computer manufacturers were entering into 

agreements with non-Microsoft middleware suppliers to place their products on the 

Windows operating system. With the implementation of the proposed Final Judgment, which provides computer manufacturers with greater freedom with respect to 

replacing Microsoft middleware products, computer manufacturers should have even 

greater incentives to do so. The powers extend well beyond the limited rights Microsoft afforded when Windows XP was introduced this past summer. The true test will 

occur as the uncertainty surrounding the case is removed by the proposed Final 

Judgment, when the proposed Final Judgment’s anti-retaliation and anti-discrimination terms are in place, and when new middleware products emerge on the market.

Question 16. The Court of Appeals affirmed that Microsoft’s conduct with respect 

to Java, in which the Court found it to engage in a ‘‘campaign to deceive [Java] developers’’ and ‘‘polluted’’ the Java standard in order to defeat competition to its operVerDate Feb 1 2002 17:04 Jan 16, 2003 Jkt 082938 PO 00000 Frm 00032 Fmt 6621 Sfmt 6621 C:\HEARINGS\82938.TXT SJUD4 PsN: CMORC
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ating system monopoly violated Section 2 of the Sherman Act. The Court held 

‘‘Microsoft’s conduct related to its Java developer tools served to protect its 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. Unsurprisingly, Microsoft offers no procompetitive explanation for its 

campaign to deceive developers. Accordingly, we conclude this conduct is exclusionary, in violation of Section 2 of the Sherman Act.’’ Microsoft III, Slip Op. p. 101. 

As you know, the lower court decree included a provision designed to prevent deliberate sabotaging of competing products by Microsoft. Does the PFJ restrict 

Microsoft’s ability to modify, alter, or refuse to support computer industry standards, including Java, or to engage in campaigns to deceive developers of competitor 

platform, middleware or applications software? 

Answer. The proposed Final Judgment does not expressly restrict Microsoft’s ability to modify, alter, or refuse to support computer industry standards, or engage in 

campaigns to deceive software developers. The Department chose not to include the 

referenced provision because the term originally included in Judge Jackson’s order 

allowed Microsoft to take steps to change its operating system that would interfere 

with third-party’s middleware to interoperate as long as Microsoft informed the 

third party of the change and what, if anything, could be done to fix the problem. 

This would have, in effect, given Microsoft a license to interfere with competing 

middleware as long as it simply notified the competing developer. In addition, this 

provision would have been difficult for the Department to enforce in this case because of the constant changes Microsoft makes to its operating system, which while 

potentially procompetitive, may have the unintentional consequence of affecting a 

competing product’s interoperability. Therefore, implementing this provision would 

have resulted in unnecessary compliance disputes. 

The proposed Final Judgment hinders Microsoft’s ability to disadvantage competing middleware developers by making the means by which middleware products 

interoperate with the operating system more transparent. The proposed Final Judgment requires Microsoft to now disclose those APIs that its middleware products use 

to interoperate with the operating system. Disclosure of these APIs will make it 

harder for Microsoft to interfere with competing middleware. Further, to the extent 

computer industry standards are implemented in communications protocols, as often 

occurs, Microsoft must license those protocols in accordance with Section III.E., including any modifications or alterations to the industry standard protocols. When 

the industry standard is implemented between a Microsoft middleware product, 

such as its Java Virtual Machine, and the operating system, Microsoft must disclose 

that interface.

Question 17. The Court of Appeals found that Microsoft violated Section 2 of the 

Sherman Act by entering into an exclusive contract with Apple that required Apple 

to install Internet Explorer as the Macintosh browser. Microsoft III, 252 F.3d at 72–

74. Many observers accuse Microsoft of having forced Apple to enter into the contract by threatening to withhold the porting of Microsoft Office to the Macintosh operating system. Does the PFJ prohibit Microsoft from threatening to withhold development of Microsoft Office with respect to other platforms, such as hand-held devices, set-top boxes, and phones? If no, why did the Department choose not to address this concern in the PFJ? 

Answer. The proposed Final Judgment would prohibit Microsoft from threatening 

to withhold the development of Microsoft Office for other platforms, such as 

handheld devices, set-top boxes and phones, if it did so because the software or 

hardware developer was developing, using, distributing, promoting or supporting 

any software that competes with Microsoft’s middleware or operating system products (or any software that runs on any software that competes with Microsoft’s 

middleware or operating system products), or because the developer exercises any 

of the options or alternatives provided for under the proposed Final Judgment.

Question 18. You have been quoted as saying that various software and computer 

services companies are in the process of purchasing space on the desktop from 

Microsoft. (Business Week, November 19, 2001, p. 116). In the Department’s view, 

is the space on the desktop on computers manufactured by the OEMs owned by 

Microsoft or should that space be the property of the computer manufacturers? 

Answer. Whether the space on the desktop is owned by Microsoft or is the property of the computer manufacturers does not impact the effectiveness of the proposed Final Judgment in remedying the anticompetitive conduct by Microsoft. The 

Department does not have a view as to whether the space on the desktop should 

be viewed as the property of Microsoft or the computer manufacturers. The Department does have the view that Microsoft middleware and competing middleware 

30

should compete for the space, and the proposed Final Judgment ensures that this 

competition occurs.

Question 19. The CIS suggests the Department has embraced the goal of encouraging competitive development of ‘‘middleware’’ in order that such middleware can 

become the type of platform software that could challenge the operating system monopoly. The settlement requires Microsoft to allow OEMs to remove consumer ‘‘ac- cess’’ to the company’s ‘‘middleware.’’ It has been observed, however, that since the 

code for Microsoft’s ‘‘middleware’’ is commingled with Windows, OEMs are only allowed to remove the icon for a middleware application. The CIS seems to acknowledge that Microsoft understood that software developers would only write to the 

APIs exposed by Navigator in numbers large enough to threaten the applications 

barrier to entry if they believe that Navigator would emerge as the standard software employed to browse the web. Can you explain why you believe third-party application developers would write applications to non-Microsoft APIs if the Microsoft 

middleware APIs as well as the Windows APIs will be present on over 95% of the 

personal computers sold? 

Answer. The proposed Final Judgment will require Microsoft to do more than simply allow for the removal of its middleware icons. It requires that Microsoft allow 

end users and computer manufacturers to remove other means of access to, and 

override automatic invocations of, Microsoft middleware products and replace them 

with independently developed middleware products. Therefore, regardless of whether some portion of the Microsoft middleware code remains, end users and computer 

manufacturers can remove access to such middleware and replace it with alternative middleware. As the trial demonstrated, actual usage of a middleware product 

by the consumer, and not simply the presence of the product’s code on the computer, 

has competitive significance. The marketplace, however, will determine whether any 

particular middleware product becomes sufficiently ubiquitous. This will ensure that 

competing middleware products will have the opportunity to compete for placement 

on the personal computer and that consumers will have a choice.

Question 20. Concerns have been raised about the consequences of several ‘‘provisos’’ that have been included in the PFJ. For example, Section III. H.3 prohibits 

Microsoft from denying consumers the choice of using competing applications, but 

a proviso to this language states that Microsoft can challenge a consumer’s decision 

to choose an application other than its own after 14 days and encourage the consumer to switch back to the Microsoft product. What does the Department believe 

will be the impact of the messages that Microsoft will be able to send to consumers 

on their own computers? Are other companies permitted to send comparable messages to consumers who choose to utilize Microsoft products? Finally, why did the 

Department choose a period of 14 days as opposed to some other period of time? 

Answer. It is incorrect that the proposed Final Judgment allows Microsoft to 

‘‘challenge’’ a consumer’s decision to select a non-Microsoft middleware product. 

Some end users prefer to have icons readily available on the desktop; others prefer 

a ‘‘clean desktop.’’ In Windows XP, Microsoft has a Clean Desktop Wizard, which 

asks a user whether he or she would like to have unused icons (whether for Microsoft products or other products) taken off the desktop and placed in a folder, where 

they can still be easily accessed. The proposed Final Judgment allows Microsoft to 

continue providing this cleanup function, which the user can choose to take advantage of or not. The impact will be that end users can exercise choice. The proposed 

Final Judgment requires Microsoft to wait 14 days before it seeks confirmation from 

the end user because this will ensure that end users have a meaningful opportunity 

to determine which products, if any, they want to keep on the desktop.

Question 21. Under Sections III.H and VLN, a competing middleware application 

receives protection under the PFJ, but this protection applies only if the competitor 

ships at least one million units over the course of a year. Why did the Department 

choose that particular number? Did the Department give consideration to the argument that small innovators, who may be in the initial stages of product development 

and sales, might be in need of greater protection than a company capable of selling 

more than one million units? 

Answer. The one million copies figure is implicated only in the operative provision 

contained in Section III.H. of the proposed Final Judgment and only to a very limited extent in Section III.D. Section III.H. requires N4icrosoft to include in Windows 

an effective add/remove function to allow end users and computer manufacturers to 

enable or remove access to Microsoft and non-Microsoft middleware products, and 

to permit non-Microsoft middleware products to take on a default status that will 

override middleware functions Microsoft has integrated into the operating system. 

Distribution of only one million copies, rather than sales, installation or usage, is 

a relatively minor threshold in the software industry today, and including this limVerDate Feb 1 2002 17:04 Jan 16, 2003 Jkt 082938 PO 00000 Frm 00034 Fmt 6621 Sfmt 6621 C:\HEARINGS\82938.TXT SJUD4 PsN: CMORC
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ited qualification in Section III.H. will ensure that Microsoft’s affirmative obligations under these provisions will not be triggered by minor, or even nonexistent, 

products that have not established a competitive potential in the market and that 

might even be unknown to Microsoft development personnel. The one million copies 

figure applies in even a more limited fashion to Section III.D. That section requires 

Microsoft to disclose to software and hardware developers, computer manufacturers 

and others in the industry certain APIs and other technical information that 

Microsoft’s middleware products use to interoperate with the Windows operating 

system. The one million copy limitation applies only to disclosures of interfaces for 

future middleware that has not yet been developed or even conceived. The Department considered the competitive impact of smaller innovators. In fact, the proposed 

Final Judgment provides protection for nascent middleware products by prohibiting 

Microsoft from retaliating or discriminating against them, regardless of the number 

of copies that they distribute.

Question 22.[The letter skips this question.]

Question 23. Section 111.13 of the PH prohibits Microsoft from engaging in discriminatory pricing of its desktop operating system with OEMs. Does the PH also 

prohibit use of this same kind of discriminatory pricing against server operating systems and other non-Windows software? 

Answer. The proposed Final Judgment does not require Microsoft to use uniform 

terms and conditions when licensing its server operating system or other non-Windows software.

Question 24. The interim decree proposed by Judge Jackson included a provision 

precluding Microsoft from taking knowing action to disable or adversely affect the 

operation of competing middleware software. Does the PFJ contain a comparable 

provision? If not, what was the Department’s rationale for not including this prohibition in the proposed settlement? 

Answer. The proposed Final Judgment does not contain an express provision precluding Microsoft from taking knowing action to disable or adversely affect the operation of competing middleware products. As explained more fully in response to 

question 16, the Department chose not to include this type of provision because it 

would have given Microsoft a license to interfere with competing middleware as long 

as it simply notified the competing developer. In addition, it would have been difficult for the Department to enforce the provision because of the constant changes 

Microsoft makes to its operating system. Many of these changes would have been 

known by Microsoft to have the unintended consequence of affecting a competing 

product’s interoperability. Instead, the proposed Final Judgment contains provisions 

that require Microsoft to provide competing middleware with APIs needed to interoperate with the Windows operating system.

Question 25. Why did the Department choose not to present evidence to the District Court on current PC operating system market developments, including changes 

in the Internet browser market share since the trial began? Did the Department undertake an investigation of current market developments to determine the impact 

of the PFJ on the existing market realities? For example, was there an analysis of 

the impact of the proposed settlement on Microsoft’s proposed future products and 

services? 

Answer. Judge Kollar-Kotelly had scheduled an evidentiary hearing on remedy to 

take place in 2002. The Department would have had the opportunity to present evidence to the Court at that time. There was no opportunity to present evidence to 

the Court at air earlier date. . 

The Department conducted an ongoing evaluation of market developments and 

the impact of the proposed Final Judgment on existing market realities. One result 

of this evaluation was to broaden the definition of middleware to include new potential threats to the operating system, including e-mail clients, media players, instant 

messaging software and future middleware developments. The Department also 

analyzed the impact of the Court of Appeals’ decision and the proposed Final Judgment on Microsoft’s future products and services.

Question 26. The CIS suggests that the District Court’s role under the Antitrust 

Procedures and Penalties Act is limited to reviewing the remedy in relationship to 

the violations that the United States has alleged in its complaint. See CIS at p. 67. 

Yet the authorities cited for that proposition appear to be cases that were settled 

before trial. Some observers argue that in this case the District Court should review 

the settlement in relationship to the Court of Appeals ruling rather than to the violations alleged in the original complaint. Does the Department agree with that assessment? 

Answer. Beyond the Department’s position set forth in its submissions to the 

Court, the Department cannot comment on the appropriate review by the Court beVerDate Feb 1 2002 17:04 Jan 16, 2003 Jkt 082938 PO 00000 Frm 00035 Fmt 6621 Sfmt 6621 C:\HEARINGS\82938.TXT SJUD4 PsN: CMORC
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cause the Court’s review of the proposed Final Judgment is pending under the Tunney Act.

Question 27. Has the Department undertaken any studies to determine the effectiveness of its prior consent decree with Microsoft in restoring competition? How do 

you believe prior obstacles to enforcement of consent decrees with Microsoft are addressed in the PFJ? 

Answer. The Department has not conducted a formal study on the effectiveness 

of the prior consent decree with Microsoft. In its ongoing evaluation of the effectiveness of the proposed Final Judgment, however, the Department did consider the 

prior consent decree with Microsoft. There has been no determination by a court of 

obstacles to enforcement of consent decrees with Microsoft. Moreover, the proposed 

Final Judgment in this case contains some of the most stringent enforcement provisions contained in a modern consent decree. In addition to the ordinary prosecutorial access powers, the proposed Final Judgment requires an independent, fulltime, on-site technical compliance team and a provision under which the term of the 

judgment may be extended by up to two years in the event the Court finds serious, 

systemic violations.

Question 28. Do you believe that current antitrust law is sufficient to guarantee 

not only competition but timely enforcement in areas such as the software industry? 

Answer. The Department believes that the current antitrust laws are sufficient to 

guarantee not only competition, but timely enforcement in high-tech areas, such as 

the software industry.

Question 29. What steps, if any, should be taken, legislatively or otherwise, to ensure that the Department has the proper economic and technological resources to 

enforce the law in the software industry? 

Answer. The Department does not believe that any changes to the antitrust laws 

are needed to ensure that the Department has the proper economic and technological resources to enforce the law in the software industry or other high-tech 

areas. The Department should continue to have the adequate resources to enforce 

the laws as long as appropriately funded by the Congress. 

* * * *

Please do not hesitate to contact us if we can be of assistance on this or any other 

matter.

Responses of Jay L. Himes to Questions from by Senator Leahy 

f Question 1. A number of states are still litigating this case against Microsoft, and 

have submitted a remedy proposal to the district court. That proposal is stronger 

in significant respects than your proposed settlement. For example, they propose a 

court-appointed special master with the authority to gather evidence and conduct 

hearings as part of the enforcement mechanism. 

(a) Do you believe that the more stringent provisions sought by the litigating 

states are not in the public interest? 

(b) Did you consider restrictions similar to those sought by the non-settling parties or did you think that Microsoft would not agree to them? 

Answer. (a) Estimating the impact on the public interest of one set of provisions 

said to be ‘‘more stringent’’ than another set of provisions, and reducing that impact 

by the costs associated with trying to achieve the ‘‘more stringent’’ provisions, is not 

readily accomplished, and such a process may be fairly susceptible to differences of 

opinion. 

The Litigating States have proposed a final judgment (the ‘‘LSPFJ’’) in continuing 

litigation to which New York, among others, is a party, and in which New York may 

be called on to express positions relating to the remedy sought. Therefore, I do not 

believe it appropriate to comment on specific provisions in the LSPFJ.

(b) In participating in negotiations that led to the Revised Proposed Final Judgment, dated November 6, 2001 (the ‘‘PFJ’’), I acted on behalf of all the plaintiff 

states (including the District of Columbia) in the cases brought against Microsoft. 

Rules of law constrain me, as a representative of only one of the plaintiffs in the 

Microsoft cases, from disclosing the contents of communications among the plaintiffs 

regarding particular remedial provisions considered during the negotiations period 

that led to the PFJ. However, in the negotiations between the plaintiffs and Microsoft during this period, some of the provisions included in the LSPFJ (or similar provisions) were put forth but not acceptable to Microsoft, or were put forth but withdrawn as part of the negotiating process that culminated in the PFJ.

33

Question 2. The Court of Appeals found that Microsoft’s deception of Java developers and ‘‘pollution of the Java standard’’ constituted exclusionary practices in violation of Section 2 of the Sherman Act, and eliminated its competitive presence in 

the desktop realm. Unlike Navigator, Java may still be a viable competitive force, 

in other arenas. What provision, if any, in the settlement agreement prohibits 

Microsoft from repeating such an act? 

Answer. The Court of Appeals’ decision held that Microsoft violated section 2 of 

the Sherman Act by providing Java developers with tools that resulted in the developers writing programs that ran on the version of Java developed by Microsoft, but 

not on the version of Java developed by Sun, and that Microsoft knowingly failed 

to disclose this fact to the Java developers. United States v. Microsoft, 253 F.3d 34, 

76–77 (D.C. Cir. 2001). If Microsoft engaged in comparable conduct with respect to 

software that competes with Microsoft Platform Software, or with any software that 

runs on any software that competes with Microsoft Platform Software, § III–F of the 

PFJ is likely to reach such conduct. ‘‘Retaliation’’ prohibited by § III–F properly includes the scenario in which: (a) a person referred to in § III–F is (for example) developing software that is intended to work with an operating system that competes 

with Windows, or that is a middleware product; and (b) Microsoft, knowing that, 

provides that person with tools that Microsoft knows will result in software that is 

compatible with Windows, but not compatible with the competing operating system 

or middleware product under development.

Question 3. As I understand the proposed settlement, Microsoft need only disclose 

APIs and documentation to middleware developers when Microsoft itself has a competing product. Some critics say this would allow Microsoft to determine the pace 

of innovation on the desktop by simply deciding not to develop or market competing 

products until it is ready with its own product—or until it has swallowed up a likely 

competitor. Allowing Microsoft, in essence, to determine the pace of desktop innovation would not aid the software industry generally, and not benefit consumers. How 

do you respond to this criticism? 

Answer. The premise underlying this question is incorrect. In many circumstances—indeed, perhaps the large majority of the probable circumstances— Microsoft’s obligations to disclose and document APIs under § III–D arise whether 

or not there exists in the marketplace a middleware product that competes with one 

released or developed by Microsoft itself. Further, in those circumstances where 

Microsoft might not have an obligation to document and disclose APIs, business constraints on Microsoft should make the risk that it might use nondisclosure to attempt to determine the pace of invocation more theoretical than real. 

First, ‘‘Microsoft Middleware’’—the triggering term for purposes of API disclosure 

and documentation—currently includes (by virtue of the definitional reference to ‘‘Microsoft Middleware Product’’) ‘‘the functionality provided by Internet Explorer, 

Microsoft’s Java Virtual Machine, Windows Media Player, Windows Messenger, 

Outlook Express and their successors in the Windows Operating System Product 

[collectively, ‘‘§ VI–K(1) Middleware’’].’’ (PFJ § VI–L, K; emphasis added) These are 

the most important types of middleware in existence today, and API disclosure and 

documentation is required whether or not another company has developed a competing product. 

Second, the ‘‘successor’’ element of the part of the Microsoft Middleware Product 

definition quoted above should assure API disclosure and documentation for 

middleware subsequently developed by Microsoft whenever that subsequently developed middleware uses a more than insubstantial part of any of the § VI–K(1) 

Middleware in existence today. Again, another company need not market a competing product in order to trigger Microsoft’s disclosure obligations. 

If the ‘‘successor’’ element of the Microsoft Middleware Product definition does not 

apply, then the circumstance envisioned by this question could, in theory, arise. 

However, the likelihood of this circumstance resulting in Microsoft determining the 

pace of innovation at the PC level does not seem substantial. 

As one scenario implicitly posited by this question: (a) Microsoft might contemplate a new, presumably significant, middleware product for which there is no 

comparable product in the ’marketplace; and (b) Microsoft refrains from developing 

the product, or from releasing it after its development because, by hypothesis, 

Microsoft seeks to determine the pace of industry innovation. This scenario seems 

unlikely because it assumes that Microsoft would voluntarily chose to forego the 

very ‘‘first mover’’ advantages that companies in the software industry typically seek 

to capture. The intangible benefits that could arise from trying to control the pace 

of innovation would not seem sufficiently great to warrant giving up the opportunity 

to be the first to introduce a significant new product, while taking the risk that another company will be able to seize the first mover advantages even without API 

disclosure and documentation. 

34

Netscape, after all, introduced its Navigator browser before Microsoft offered one 

and achieved a significant usage share by virtue of being first in the marketplace. 

Thereafter, Microsoft attacked Navigator’s success by the various anti-competitive 

conduct at the heart of the DOJ and States’ cases. The notion that Microsoft would 

risk this very situation all over again by choosing to forego introducing a significant 

new middleware product seems remote. Furthermore, it is not clear how a judicial 

decree could address this particular scenario. It simply would not be practicable to 

order that Microsoft must develop new middleware products and then disclose and 

document their APIs so that others in the marketplace could develop competing 

products. 

A second alternative scenario implicitly posited by this question—one where there 

is a new and significant middleware product in the marketplace—seems even less 

probable. On this second scenario, the business risks that Microsoft would face if 

it refrained from developing or releasing a competing product would be even greater 

than in the first scenario. Microsoft would, indeed, be giving up the first mover advantages to another company in an effort to thwart the pace of innovation by not 

making the API disclosure and documentation that could benefit the marketplace 

product. Meanwhile, the developer of the marketplace product would have the opportunity to devise the means to enable its product either to work well enough on 

Windows to make the product successful in the market, or to make the product work 

on another piece of software that already works well on Windows. (Again, that was 

what Netscape did when it introduced its browser.) So, Microsoft would plainly act 

at its business peril if it chose such a course of action.

Question 4. A loophole seems to be created by the exception to the requirement 

of APIs and documentation disclosure. Microsoft is supposed to disclose APIs, documentation, and communications protocols to permit interoperability of middleware 

and servers with Windows operating systems. But Microsoft does not need to disclose such information if it would, in Microsoft’s opinion, compromise the security 

of various systems, which are very broadly defined. What do you say to the critics 

who fear that this loophole may swallow the API disclosure requirement? 

Answer. I believe this is a misconception. The provision to which this question relates is PFJ § 111J(1), which applies, to begin with, only to enumerated categories 

of software: ‘‘anti-piracy, antivirus, software licensing, digital rights management, 

encryption or authentication systems.’’ Further, for these enumerated categories of 

software, the exception from disclosure itself covers only ‘‘portions of APIs or Documentation or portions or layers of Communications Protocols the disclosure of which 

would compromise the security of a particular installation or group of installations’’

of this software. This narrow exception is limited to specific end-user implementations of security items, commonly referred to by such terms as ‘‘keys, authorization 

tokens or enforcement criteria.’’ The disclosure exception embodied by § III–J(1) is 

not only very narrow, but also essential to preserving the security of the software 

systems involved.

Question 5. The non-settling states’ proposed remedy requires Microsoft to release 

technical information necessary for middleware to be able to interoperate with Windows as soon as Microsoft gives its own developers that information. The proposed 

settlement only requires such disclosure when Microsoft puts out a major test 

version of a new Windows release. Presumably promotion of competition is the animating idea behind this provision, so why did you not insist that other non Microsoft developers have this information at the same time Microsoft developers did? 

Answer. This timing provision, part of § III–D, is intended to ensure that nonMicrosoft developers and others have disclosure in advance of the actual commercial 

releases of the relevant Microsoft software so that these third parties can make sure 

that their own competing products function on and interoperate with Windows. If 

disclosure is made too early in the product development process, non-Microsoft software developers may devote time and resources to writing potentially compatible 

software, while Microsoft may, as part of its normal product development process, 

change the software under development in ways that could have the effect of 

mooting all or part of the efforts of the non-Microsoft developer. The timing of disclosure takes these considerations into account.

Question 6. In 1995 the Department of Justice and Microsoft entered into a Consent Decree. Two years later the Department sued Microsoft for contempt of the Decree when Microsoft and the Department disagreed over the meaning and correct 

interpretation of certain provisions of the Decree, including the meaning of the word 

‘‘integrate’’ as that term was used in the Decree. Given the prior litigation between 

the Department and Microsoft over the proper interpretation of the 1995 Consent 

Decree, do you agree that Microsoft and the settling plaintiffs should have a comVerDate Feb 1 2002 17:04 Jan 16, 2003 Jkt 082938 PO 00000 Frm 00038 Fmt 6621 Sfmt 6621 C:\HEARINGS\82938.TXT SJUD4 PsN: CMORC
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mon, explicitunderstanding of the meaning and scope of this proposed Final Judgment before it is entered? 

Answer. Parties should have a common understanding of the meaning and scope 

of the terms of an agreement, including a consent decree and in particular the PFJ, 

as of the time that they accept the terms of that agreement.

Question 7. Do you agree that the meaning and scope of the proposed Final Judgment as agreed upon by the settling plaintiffs and Microsoft should be precise, unambiguous and fully articulated so that the public at large can understand and rely 

on your mutual understanding of the Judgment? 

Answer. I consider it most important that the terms of the PFJ be sufficiently 

clear that persons conversant in the business and its terminology—as opposed to the 

public at large—can understand the PFJ, and govern their affairs accordingly. I believe that the PFJ accomplishes this goal.

Question 8. If Microsoft were to disagree with the settling plaintiffs’ interpretation 

of one or more important provisions of the proposed Final Judgment, would you consider that to be a potentially seriousproblem? 

Answer. If Microsoft were to disagree with the settling plaintiffs’ ‘‘interpretation’’ (which I take to be synonymous with ‘‘understanding’’) of one or more important 

provisions of the PFJ, that could be a potentially serious problem, depending on 

such matters as: (a) the degree of disagreement; (b) whether the disagreement promoted or retarded the purposes of the provision involved; (c) whether Microsoft’s understanding retarded the purposes of the provision involved; (d) whether Microsoft 

intended to conform its conduct only to its own understanding of the provision; (e) 

whether the disagreement was soluble under the provisions governing the activities 

of the Technical Committee under the PFJ or under any other part of PFJ; and (f) 

the practical or foreseeable effect of the disagreement, if not resolved, in the real 

world.

Question 9. Do you agree that it would be highly desirable to identify any significant disagreement between Microsoft and the settling plaintiffs over the correct interpretation of the proposed Final Judgment now, before the Judgment is entered 

by the Court, rather than through protracted litigation as in the case of the 1995 

Consent Decree? 

Answer. If there were a disagreement over the terms of the PFJ between Microsoft and the settling plaintiffs—and if that disagreement could be termed ‘‘significant,’’ after taking into account sorts of considerations referred to in response to 

question 8—it would be desirable to identify that disagreement.

Question 10. Does the Competitive Impact Statement set forth the settling plaintiffs’ definitive interpretation of its proposed Final Judgment with Microsoft? 

Answer. The Competitive Impact Statement (‘‘CIS’’) is a document that the United 

States Department of Justice prepared and filed pursuant to 15 U.S.C. §§ 16(b)–(h). 

Although the document was not filed on behalf of New York, I am not aware of any 

views expressed by DOJ in the CIS that differ in a material respect from mine. I 

would not, however, characterize the CIS as a ‘‘definitive interpretation’’ of the PFJ, 

both because I do not understand what that expression refers to in this context, and 

because, in any event, the PFJ necessarily is best understood (or ‘‘interpreted’’) and 

applied with reference to a specific fact setting, involving specific conduct.

Question 11. Has Microsoft informed the settling plaintiffs that it has any disagreement with the interpretation of the Final Judgment as set forth in the Competitive Impact Statement? 

Answer. As suggested above in response to Question 10, I am uncertain whether 

the CIS is appropriately described as an ‘‘interpretation’’ of the PFJ. However, 

Microsoft has not expressed to me any disagreement with the contents of the CIS; 

nor have I been told that Microsoft has expressed any such disagreement to any 

other settling plaintiff.

Question 12. Can the public at large rely upon the Competitive Impact Statement 

as the definitive interpretation of the nature and scope of Microsoft’s obligations 

under the Final Judgment? 

Answer. The CIS is a document required to be filed by DOJ. For the reasons noted 

in response to question 10, I would not refer to the CIS as ‘‘the definitive interpretation of the nature and scope of Microsoft’s obligations’’ under the PFJ.

Question 13. If the public cannot rely on the interpretation of the proposed Final 

Judgment as set forth in the Competitive Impact Statement, then what is the mutually understood and agreed-upon interpretation of the meaning and scope of 

Microsoft’s obligations under the Final Judgment? 

Answer. Microsoft’s obligations under the settlement are set forth in the PFJ, the 

terms of which are to be interpreted in accordance with their general meaning in 

36

the industry. In addition, the parties that negotiated the settlement believe that 

there is a ‘‘mutual understanding’’ of the meaning and scope of the terms of the 

PFJ. Moreover, although the CIS is not a ‘‘definitive interpretation’’ of the settlement, as noted above, to my knowledge Microsoft has not indicated to any settling 

plaintiff any disagreement with the terms of that document.

Responses of Jay L. Himes to questions from Senator Hatch 

f Question 1. I realize that you support the Proposed Settlement on the basis that 

it compares favorably to the set of remedies that many predict have resulted from 

further litigation. However, setting that aside for the moment, could you tell us 

what particular merit—if any—you see in the Remedial Proposals filed by the nonsettling states? 

Answer. The Litigating States have proposed the LSPFJ in continuing litigation 

to which New York, among others, is a party, and in which New York may be called 

on to express positions relating to the remedy sought. Therefore, I do not believe 

it appropriate to comment on specific provisions in the LSPFJ or on the LSPFJ generally.

Question 2. Please expand specifically on the pros and cons of the various proposals for alternative enforcement mechanisms that were considered and rejected in 

the settlement discussions. In particular could you give us your view of the provision, contained in the non-settling parties’ Remedial Proposal, that would provide 

for a special master? 

Answer. The enforcement section of the PFJ (§ IV) includes: (a) relatively common ‘‘visitation’’ provisions empowering the DOJ and State enforcers to undertake enforcement activity (§ IV–A); (b) the establishment of an internal compliance officer 

at Microsoft with specified powers and responsibilities (§ IV–C and parts of § IV– D)—also a relatively common type of provision; and (c) the creation of what is referred to in the PFJ as the ‘‘Technical Committee’’ or ‘‘TC,’’ which is charged with 

the responsibility to assist the governments’ enforcement activity. (§ IV–B and parts 

of § IV–D) In my written testimony, I said that the PFJ contains ‘‘an enforcement 

mechanism that we believe is unprecedented in any antitrust case,’’ and that is 

‘‘probably the strongest ever crafted in an antitrust case.’’ (Testimony of Jay L. 

Himes, dated December 12, 2001, pp. 12, 14) In expressing that view, I had in mind 

the enforcement provisions in general, and particularly the addition of TC to the 

more common enforcement provisions found in the PFJ. Since the PFJ was announced in early November 2001, no one has called to my attention any antitrust 

case where a court adopted an enforcement mechanism comparable in strength to 

the one that DOJ and the Settling States negotiated. 

Most of the negotiations concerning the enforcement section related to what became the TC provisions. Therefore, I will focus my remarks on this aspect of the 

PFJ, bearing in mind that the TC is only part of the total enforcement mechanism. 

From my point of view (and I reiterate that I am speaking here only on behalf 

of New York), the central elements of this part of the enforcement mechanism, 

which I sought to achieve, were the following: 

(a) the creation of a body outside of the government enforcers, which would 

augment the resources of, and would have as its mission assisting, DOJ and the 

States in enforcement, 

(b) the on-site presence of this body at Microsoft; 

(c) the conferral of expansive powers on this body to assist the enforcement 

effort; and 

(d) the payment of this enforcement effort by Microsoft, together with provisions designed to discourage Microsoft from challenging expenses incurred. 

A review of the § IV of PFJ shows that, despite the need for negotiations with 

Microsoft, we secured each of the four central elements that I have described. The 

TC will be composed of persons with software expertise, who will have extensive, 

on-site authority to assist in enforcement of and compliance with the PFJ, and who 

will be independent of Microsoft. 

The negotiations also resulted in adding provisions to the TC mechanism. For example: 

1. The TC has a voluntary dispute resolution function, which could be thought of 

as going beyond typical law enforcement activity. (PFJ § IV–D) This function is designed to facilitate resolving issues that may arise under the PFJ in an expeditious 

fashion. The basic object here is to help assure that the PFJ achieves the marketplace effects that it is intended to achieve. 

37

2. The PFJ directs that ‘‘[n]o work product, findings or recommendations of the 

TC may be admitted in any enforcement proceeding before the Court,’’ and that ‘‘no member of the TC shall testify’’ in any proceeding regarding any matter relating to 

the PFJ. (PFJ § IV–D(4)(d)) These provisions are designed, in part, to reduce the 

need that Microsoft might otherwise feel to call on its attorneys immediately to become involved whenever the TC makes a request to speak with Microsoft employees, 

or to obtain documents or other information. These provisions are also designed to 

recognize that the extensive access to information afforded to the TC under the PFJ 

should be used only to further the TC’s enforcement and dispute resolution functions, and not to assist non-parties in other cases brought against Microsoft. 

In my written testimony to the Committee, I noted that the limitation on admission of TC material into evidence should not have a great impact. (Testimony of Jay 

L. Himes, dated December 12, 2001, p. 14) That is so because government enforcement officials still will be able to use the TC’s work. Moreover, § IV(A)(2) of the PFJ 

gives DOJ and the Settling States independent access to Microsoft documents (including source code), and employees. That authority, together with the TC’s work, 

should enable the government enforcers, working with their experts, promptly to 

evaluate and replicate the TC’s work for use in judicial proceedings. 

Beyond this, I am constrained to reiterate that the Litigating States have proposed the LSPFJ in continuing litigation to which New York, among others, is a 

party, and in which New York may be called on to express positions relating to the 

remedy sought. Therefore, I do not believe it appropriate to comment on the special 

master provisions in the LSPFJ.

Question 3. Please explain, from the perspectives of the settling State plaintiffs, 

whether and how the Proposed Settlement sufficiently protects against Microsoft 

leveraging its monopoly power in operating systems into the Internet-based services 

market and the server market? 

Answer. The ‘‘server/client interop’’ provision of the PFJ—§ III–E—will prevent 

Microsoft from incorporating into Windows features or functionality with which its 

own server software can interoperate, and then refusing to make available information about those features or functions that non-Microsoft servers need in order to 

have the same opportunities to interoperate with Windows. Thus, § III–E is designed to prevent Microsoft from using its Windows monopoly to gain advantages 

in the communications line between PCs and servers, which are not available to 

non-Microsoft servers. This is accomplished by mandating disclosure of Communications Protocols. The ultimate objective is to encourage developers to write 

middleware operating at the server level, which can provide functionality to PCs, 

and which may, in turn, erode the applications barrier to entry that protects 

Microsoft’s Windows operating system monopoly at the PC level. 

The district court dismissed the States’ monopoly leveraging claim in its 1998 

summary judgment ruling, and that ruling was not the subject of the appeal to the 

D.C. Circuit from the final judgment entered in June 2000. Accordingly, the possible 

‘‘leveraging’’ of Microsoft’s monopoly power in PC operating systems into ‘‘the Internet-based services market and the server market’’ involves matters that are not 

readily regarded as within either the scope of liability established by the D.C. Circuit or within the appropriate remedy in the case remanded by the Court of Appeals.

Responses of Jay L. Himes to questions from Senator DeWine 

f Question 1. The term of the proposed settlement is only five years, while many 

other antitrust consent decrees last for ten years. It has been suggested that a 

shorter time period is justified because this industry changes rapidly and a longer 

decree may not be warranted after five years. Given that the Department of Justice 

has the ability to go to the court and seek to modify a consent decree or terminate 

it if market conditions warrant such a change, why not impose a longer period of 

enforcement, and then decide later if it needs to be modified or abandoned? 

Answer. The term of the decree is appropriate in light of the rapidly changing 

character of the industry and the facts of this particular case. The alternative described in this question—a longer decree that could, on application to the court, be 

shortened based on market conditions—is not a common approach.

Question 2. As the Court of Appeals in this case noted, the Supreme Court has 

indicated that a remedies decree in an antitrust case must seek to ‘‘unfetter a market from anticompetitive conduct,’’ ‘‘terminate the illegal monopoly, deny to the defendant the fruits of its statutory violation, and ensure that there remain no pracVerDate Feb 1 2002 17:04 Jan 16, 2003 Jkt 082938 PO 00000 Frm 00041 Fmt 6621 Sfmt 6621 C:\HEARINGS\82938.TXT SJUD4 PsN: CMORC
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tices likely to result in monopolization in the future.’’ Do you believe that this is 

the appropriate standard to use? If so, does the proposed final judgment deny Microsoft the fruits of its illegal acts? Specifically, can you discuss whether Microsoft has 

been denied the fruits of its effort to maintain a monopoly in the operating system? 

Answer. The PFJ has been submitted in a continuing litigation in which New 

York may be required to take positions. Therefore, I do not believe it appropriate 

to comment on issues of law that may arise in this ongoing litigation. 

As to the second part of this question, I regard the ‘‘fruits’’ of Microsoft’s monopoly 

maintenance activity to be the fortification of the applications barrier to entry that 

protects Microsoft’s Windows monopoly at the PC level. Through a variety of different means—including conduct prohibitions, Windows pricing obligations, and affirmative design and disclosures obligations—the PFJ seeks to deny that fortification to Microsoft.

Question 3. The proposed settlement has some prohibitions against Microsoft retaliating against computer manufacturers that place competing software on their 

computers—these provisions are intended to allow manufacturers to offer nonMicrosoft products if they choose. I understand that Microsoft currently offers incentives to computer manufacturers if they can get computers to ‘‘boot up’’ quickly. 

Some believe that computer manufacturers will not want to slow down the startup time by placing additional software on the computer because they will risk losing 

the incentive payment. Does the proposed settlement deal with this problem. 

Answer. Based on my understanding, this should not be a meaningful problem. 

The types of middleware likely to be installed by OEMs should not have a material 

effect on the speed of the boot sequence. If Microsoft were to condition incentives 

on boot up standards that were so onerous as to discourage OEMs from installing 

competing middleware, that would suggest that the express purpose of the program 

is pretextual. Microsoft’s conduct would constitute prohibited retaliation under § III–

A.

Question 4. The Appellate Court noted that the applications barrier protects 

Microsoft’s operating system monopoly. The Court stated that this allows Microsoft 

the ability to maintain its monopoly even in the face of competition from potentially 

‘‘superior’’ new rivals. In what manner do you believe the proposed settlement addresses the applications barrier? 

Answer. Please see the second paragraph of my response to question 2 from Senator DeWine.

Question 5. Some believe that unless Microsoft is prevented from commingling operating system code with middleware code, competitors will not be able to truly compete in the middleware market. Because the code is commingled, the Microsoft products cannot be removed even if consumers don’t want them. This potentially deters 

competition in at least two respects. First, as the Appellate Court found, commingling deters computer manufacturers from pre-installing rival software. And second, 

it seems that software developers are more likely to write their programs to operate 

on Microsoft’s middleware if they know that the Microsoft middleware will always 

be on the computer whereas competing products may not be. Even if consumers are 

unaware that code is commingled, shouldn’t we be concerned about the market impact of commingling code? What is the upside of allowing it to be commingled, and 

on the other hand, what concerns are raised by removing the code? 

Answer. I do not read the D.C. Circuit’s decision as finding that commingling of 

code, standing alone, deters OEMs from pre-installing rival software. I also doubt 

that commingling code in the Windows operating system is, in itself, of competitive 

significance vis-a-vis the consumer. Rather, as the liability trial demonstrated, the 

consumer’s actual usage of middleware—not simply the presence of the product’s 

software code on the computer—has competitive significance. Thus, so far as I am 

aware, throughout this case both DOJ and the States did not argue that there was 

a need for Microsoft (or OEMs) to remove Windows software code in order to give 

choice to consumers. Accordingly, removing the visible means of end-user access to 

Microsoft middleware as a means of customizing the operating system, while not requiring that software code itself be removed, remediates the concerns expressed. 

As to the benefits and costs of removing code, I reiterate that the Litigating 

States have proposed the LSPFJ in continuing litigation to which New York, among 

others, is a party, and in which New York may be called on to express positions 

relating to the remedy sought. Therefore, I do not believe it appropriate to comment 

on specific provisions in the LSPFJ. 

I will, nevertheless, offer my own personal views generally on the subject of 

whether or not to remove software code. 

The principal benefit from non-removal of Windows code is that the code remains 

available if an enduser prefers to use the Microsoft product, instead of using the 

39

competing middleware installed by an OEM. That end-user may then choose to 

‘‘undo’’ the OEM’s installation decision with a minimum of effort. At the same time, 

I am not persuaded that there is a significant upside to requiring software code to 

be removed. As noted above, the presence or absence of software code on a PC probably is not, standing alone, competitively significant. Further, computer hardware 

capability is, today, sufficiently great that removing code is not likely to improve 

PC performance insignificant respects. Also, even if code were removed it could be 

readily restored via downloading the code over the Internet, as well as by reinstalling it using a CD. The ease with which a download can be accomplished is 

likely to increase over time. 

On the other hand, there are costs to removing code. Removal would require an 

engineering effort to identify specific places where the Windows operating system 

can be said to end, and middleware (or conceivably other applications) can be said 

to begin. The remaining operating system, and the code removed, would then need 

to be subjected to a battery of tests to make sure that both performed the way that 

they were intended to perform, and in fact previously performed, absent the removal. That could be a formidable task, depending on (among other things) the significance of the code removed and the number and type of non-Microsoft applications written to it. Moreover, any effort to remove code could implicate the court 

in reviewing difficult issues of software engineering, design and performance.

Question 6. Many believe that this settlement proposal merely requires Microsoft 

to stop engaging in illegal conduct, but does little in the way of denying Microsoft 

the benefits of its bad acts. First, how would you answer these critics? Is this just 

a built-in reality of civil antitrust remedies, i.e., that they don’t aim to punish? And 

second, do you believe the remedy here is strong enough to dissuade other potential 

monopolists from engaging in the type of conduct in which Microsoft engaged? 

Answer. My written testimony describes the various ways in which I believe the 

PFJ will promote competition in the computer and computer software industries. As 

noted above, I also believe that the PFJ denies Microsoft the fortification of the applications barrier to entry that Microsoft sought, by its anticompetitive conduct, to 

erect. I therefore believe that the PFJ offers a strong, effective remedy to the conduct that the Court of Appeals found to be unlawful. I similarly believe that the 

PFJ will have the effect of deterring other potential antitrust violators.

Question 7. Nine states didn’t join with the Department of Justice’s proposed final 

judgment because they didn’t believe it adequately addressed competitive problems. 

These states recently filed their own remedy proposals. These states assert that one 

fruit of Microsoft’s illegal conduct is Microsoft’s dominant share of the internet 

browser market. They propose to deny Microsoft this benefit of its violations by requiring it to open-source the code for Internet Explorer. What do you believe the 

competitive impact of such action would be? 

Answer. The Litigating States have proposed the LSPFJ in continuing litigation 

to which New York, among others, is a party, and in which New York may be called 

on to express positions relating to the remedy sought. Therefore, I do not believe 

it appropriate to comment on specific provisions in the LSPFJ.

Question 8. Given Microsoft’s monopoly power in the operating system, some believe that merely allowing computer manufacturers to place competing software and 

icons on the operating system will not impede Microsoft’s ability to capture a dominant share of any product that it binds to its operating system. Do you believe that 

media players, instant messaging services, and other companies products will be 

able to compete with similar MS products that are bound to the operating system? 

Answer. Yes. I believe that the PFJ will give developers of competing middleware 

the information needed to enable them to design software that works well with Windows, and that other parts of the PFJ will empower OEMs to add competing 

middleware to Windows. Further, the PFJ includes extensive provisions that will 

enable competing middleware to be substituted into the operating system in lieu of 

Microsoft middleware.

Question 9. Many have criticized the proposed final judgment saying it has loopholes in it that will allow Microsoft to continue operating as it has done in the past. 

For example, the proposed final judgment clearly seeks to prevent Microsoft from 

retaliating against computer manufacturers that install competing software onto the 

computer. However, because the provisions are limited to specific practices or types 

of software, and apply only to ‘‘agreements’’ between Microsoft and computer manufacturers, many believe that Microsoft will find alternative methods of controlling 

the practices of computer manufacturers. Do you believe competition would be better 

served if Microsoft were broadly prohibited from retaliating against computer manufacturers? 

40

Answer. I believe that the PFJ does broadly prohibit Microsoft from retaliating 

against OEMs. Section III–A, in pertinent part, provides that: 

‘‘Microsoft shall not retaliate against an OEM by altering Microsoft’s commercial relations with that OEM, or by withholding newly introduced forms of nonmonetary Consideration (including but not limited to new versions of existing 

forms of non-monetary Consideration) from that OEM, because it is known to 

Microsoft that the OEM is or is contemplating: 

1. developing, distributing, promoting, using, selling, or licensing any 

software that competes with Microsoft Platform Software or any product or 

service that distributes or promotes any Non-Microsoft Middleware; 

2. shipping a Personal Computer that (a) includes both a Windows Operating System Product and a non-Microsoft Operating System, or (b) will 

boot with more than one Operating System; or 

3. exercising any of the options or alternatives provided for under this 

Final Judgment. 

If an OEM seeks, for example, to add competing middleware to Windows, and 

Microsoft knows of that intention, any ‘‘alteration]’’ of Microsoft’s ‘‘commercial relations’’ with that OEM—regardless of the means or products used to alter those commercial relations—implicates the non-retaliation protections of § III–A. So too would 

Microsoft’s failure to offer that OEM ‘‘newly introduced forms of non-monetary Consideration.’’ ‘‘Consideration,’’ in this context, is itself broadly defined and embraces, 

in non-monetary form: 

‘‘provision of preferential licensing terms; technical, marketing, and sales support; enabling programs; product information; information about future plans; 

developer support; hardware or software certification or approval; or permission 

to display trademarks, icons or logos.’’

(PFJ § VIC) 

If Microsoft were to engage in any such acts, there would be a presumption of 

wrongful retaliation against the OEM. The burden would be on Microsoft to justify 

its conduct under a limited exception provided for in the PFJ to permit pro-competitive activity. 

It is important to note as well that, retaliation, for purposes of § III–A, is not limited to Microsoft’s use of any particular software as a retaliation device. Instead, it 

is the change in any commercial relation between Microsoft and the OEM—however 

accomplished—that is important. 

Also, insofar as the PFJ restricts certain ‘‘agreements’’ made by Microsoft (see, 

e.g., PFJ §§ III–C(6), F(2), G), the term ‘‘agreement’’ is not defined, and, therefore, 

takes on its ordinary usage in the antitrust context. Thus, under the PFJ, the term 

‘‘agreement’’ reaches all contracts, combinations, concerts of action or understandings—whether written or oral, and whether express or implied—that the antitrust laws ordinarily reach.

Question 10. The Court of Appeals ruled that Microsoft’s practices which undermined the competitive threat of Sun’s Java technology was an antitrust violation. 

The remedy proposed by the states that do not support the DOJ’s proposed settlement would require Microsoft to distribute Java with its browser as a means of restoring Java’s position in the market. Do you believe this would be beneficial to competition? What does the proposed final judgment do to restore this competition? 

Answer. The PFJ should enable OEMs to add Java to Windows, free from the risk 

of retaliation from Microsoft, if the OEMs believe that there is consumer demand 

for that software. 

The Litigating States have proposed the LSPFJ in continuing litigation to which 

New York, among others, is a party, and in which New York may be called on to 

express positions relating to the remedy sought. Therefore, I do not believe it appropriate to comment on specific provisions in the LSPFJ.

Question 11. Definition U. of the Proposed Final Judgment appears to allow 

Microsoft to determine in its sole discretion what constitutes the operating system. 

The Court of Appeals left open the possibility of a tying case against Microsoft. Will 

this provision essentially foreclose any opportunity of bringing a tying claim against 

Microsoft? Why do you give Microsoft the ability to make this determination? 

Answer. Definition U defines the term ‘‘Windows Operating System Product’’ for 

purposes of the PFJ only. Nothing in the PFJ confers on Microsoft immunity from 

any antitrust liability that would otherwise arise in the absence of the decree. 

Therefore, Microsoft’s conduct in adding software to Windows will remain subject 

to possible antitrust challenge on various grounds, one of which is unlawful tying. 

In my personal view, giving Microsoft the ability to determine the contents of the 

Windows Operating System Product for purposes of the PFJ was consistent with the 

41

notion that OEMs could add competing middleware to Windows, and that removal 

of Windows software code by either Microsoft or OEMs was not required. 

Parenthetically, let me emphasize that, under the PFJ, consequences to Microsoft 

can arise by virtue of its including software code in Windows. For example, code included in Windows can also meet the requirements of the Microsoft Middleware and 

Microsoft Middleware Product definitions. To that extent, code that is part of Windows can trigger the provisions of the PFJ obligating Microsoft to make API disclosure and to afford configuration options. Similarly, the ‘‘server/client interop provision’’—§ III–E—requires Microsoft to disclose and license any Communications Protocols used by any part of Windows to interoperate natively with a Microsoft server. 

So, including code in Windows can trigger these Microsoft obligations as well.

Question 12. It has been indicated that one motivation for entering into this settlement was to provide immediate relief and avoid lengthy court proceedings. At the 

same time, many of the provisions of the settlement don’t become active for up to 

12 months after the settlement is enacted. Given your belief that relief should be 

immediate, why wait so long for these provisions to become active? 

Answer. Under the PFJ, Microsoft is required to include in Windows an effective 

add/remove function to allow OEMS and end-users to enable or remove access to 

Microsoft and non-Microsoft middleware, as well as to permit non-Microsoft 

middleware to ‘‘override’’ (i.e., become the default for) middleware functions that 

Microsoft has integrated into the operating system. Microsoft also is required to disclose and document the APIs between Windows and Microsoft middleware. Lead 

time is necessarily to enable Microsoft to make the changes to Windows that are 

needed to discharge its obligations under the PFJ. 

The 12 month period that I believe is referred to in this question relates both to: 

(a) the ‘‘API disclosure provision’’—§ III–D—which obligates Microsoft to disclose 

and document APIs between ’Microsoft Middleware and a Windows Operating System Product; and (b) the ‘‘operating system configuration’’ provision—§ III–H—which 

ensures that OEMs will be able to choose to offer and promote, and consumers be 

able to choose to use, Non-Microsoft Middleware Products. Microsoft needed time to 

identify all the APIs subject to § III–D, and to create the documents associated with 

disclosing these APIs. The period given to do this is ‘‘the earlier of the release of 

Service Pack 1 for Windows XP or 12 months after the submission’’ of the PFJ to 

the Court. (§ III–D; emphasis added) The first service pack for a new operating system is typically released within a few months. But recognizing the additional burdens on Microsoft arising from the PFJ, a 12 months maximum period was agreed 

to. 

For a new version of the Windows Operating System Product, § III–D requires 

Microsoft to make disclosure ‘‘in a Timely Manner.’’ This latter term is defined to 

refer to the time that ‘‘Microsoft first releases a beta test version of a Windows Operating System Product that is distributed to 150,000 or more beta testers.’’ (PFJ 

§ VI–R) As noted in my response to question 5 by Senator Leahy, this particular 

time period is based on a point in the product development process at which the 

software product design probably will be sufficiently far along as to enable independent software developers to devote the time and resources to writing potentially 

compatible software with limited risk that Microsoft product changes could moot 

such efforts. 

Similarly, for a new Windows Operating System Product, § III–H obligates Microsoft to make the necessary operating system changes based on the ‘‘Microsoft 

Middleware Products which exist seven months prior to the last beta test version 

(i.e., the one immediately preceding the first release candidate) of that Windows Operating System Product.’’ The purpose of this time period is to ‘‘freeze,’’ as of a particular point in time, the group of Microsoft Middleware Products for which Microsoft must incorporate default settings into the Windows design. There has to be a 

specific point in time as of which Microsoft is permitted to identify the middleware 

for which it needs to make design accommodations, an assessment that itself needs 

to take into account the group of NonMicrosoft Middleware in the marketplace. 

(This is so because the term Microsoft Middleware Product depends, in certain circumstances, on the existence of a Non-Microsoft Middleware Product of similar 

functionality. PFJ § VI–K(2)(6)(ii).) It simply would not be realistic or fair to require 

Microsoft to base these design considerations on an ever-changing universe of nonMicrosoft middleware.

Question 13. One provision of the proposed final judgment requires Microsoft to 

allow consumers or computer manufacturers to enable access to competing products. 

However, it appears that III.H. of the Stipulation and VI.N. indicate that for a product to qualify for these protections it must have a million copies distributed in the 

United States within the previous year. This seems to run contrary to the tradiVerDate Feb 1 2002 17:04 Jan 16, 2003 Jkt 082938 PO 00000 Frm 00045 Fmt 6621 Sfmt 6621 C:\HEARINGS\82938.TXT SJUD4 PsN: CMORC
42

tional antitrust philosophy of promoting new competition. Is this in fact the case? 

And if so, why are these protections limited to larger competitors? 

Answer. The term Non-Microsoft Middleware Product is used (among other places) 

to identify software products that may be installed in lieu of a Microsoft Middleware 

Product, as provided in § III–H. One element of the definition of Non-Microsoft 

Middleware Product requires that one million copies be distributed in the United 

States within the previous year. This requirement refers only to copies distributed, 

not to copies sold, installed or used, and should not be difficult to meet, given the 

numerous distribution channels available today, including PC user-initiated 

download requests. This element is intended to strike a balance between triggering 

Microsoft’s affirmative obligations—including the API disclosures required by § III– D and the creation of the mechanisms required by § III–H—and the competitive potential of minor products that have not established a meaningful presence in the 

market and that might even be unknown to Microsoft development personnel.

Response of Jay L. Himes to a question from Senator Kohl 

f Question. Mr. Himes, as you know, nine of your fellow states that originally joined 

you and the federal government in suing Microsoft have refused to consent to this 

settlement, and, just last Friday, proposed additional remedies. Why did these other 

states split ranks with you and the federal government? Would you be willing to 

consider modifications to this proposed settlement in order to gain their assent? 

Answer. In participating in the negotiations that led to of the PFJ, I acted on behalf of all the plaintiff States (including the District of Columbia) in the cases 

brought against Microsoft. Rules of law constrain me, as a representative of only 

one of the plaintiffs in the Microsoft cases, from disclosing the contents of communications among the plaintiff States regarding possible courses of action, or the reasons for them, prior to the point that individual plaintiff States decided whether or 

not to accept the PFJ. Moreover, I do not believe it appropriate for me to speculate 

or offer my own interpretation of the reasons that nine plaintiff States decided not 

to accept the PFJ. 

With respect to possible modifications of the PFJ, if the Litigating States and 

Microsoft jointly sought the involvement of New York in a process designed to modify the PFJ, we would of course participate in such an effort.

SUBMISSIONS FOR THE RECORD

Statement of Jonathan Zuck, President, Association for Competitive 

Technology, Washington, D.C. 

INTRODUCTION

Good morning, Mr. Chairman and members of the Committee. I am Jonathan 

Zuck, President of the Association for Competitive Technology, or ACT. On behalf 

of our member companies, it is my sincere honor to testify before this Committee 

today. As a professional software developer and technology educator, I am grateful 

for this opportunity and appreciate greatly your interest in learning more about the 

effects of the proposed settlement entered into by the United States Department of 

Justice (DOJ), nine state attorneys general and Microsoft on our industry. ACT is 

a national, Information Technology (IT) industry group, founded by entrepreneurs 

and representing the full spectrum of technology firms. Our members include household names such as Microsoft, e-Bay and Orbitz. However, the vast majority of our 

members are small and midsize business, including software developers, IT trainers, 

technology consultants, dot-coms, integrators and hardware developers located in 

your states. The majority of ACT members cannot hire lawyers and lobbyists or fly 

to Washington to have their views heard. Therefore, they look to ACT to represent 

their interests. To be sure, to meet the needs of our broad constituency, we don’t 

always agree with our members, even Microsoft, on some policy issues. 

I have a great deal of respect and sympathy for the plight of these small technology companies, because I spent over fifteen years running similar companies. 

During this time, I’ve managed as many as 300 developers, taught over a hundred 

classes, and worked on some interesting projects. I was responsible for a loan evaluation application for Freddie Mac, an automated Fitness Report application for the 

Navy and a Regional Check Authentication system for the Department of Treasury. 

I have built software oil multiple platforms include DOS. DR–DOS, OS/2 and Windows using tools from many vendors including Microsoft, Oracle, Sybase, Powersoft, 

43

1DEMOletter, December 2001, at 5–6. 2 Id., at 5. 

IBM, Borland and others. I remain active as a technologist and last year designed 

a system to get to your corporate data wirelessly. I have also delivered keynotes and 

other presentations at technical conferences around the world. 

While ACT members vary in their size and businesses, they share a common desire to maintain the competitive character of today’s vibrant technology sector that 

has been responsible for America’s ‘‘new economy.’’ Unfortunately, for the last three 

years, the tens of thousands of small businesses in the IT industry have been virtually ignored during the government’s investigation and prosecution of Microsoft. 

I believe the settlement, on balance, is good not only for the bulk of the IT industry, but for consumers as well. Voters also see the value in the settlement. Voter 

Consumer Research conducted polls of 1,000 eligible voters last month in Utah and 

Kansas that are quite telling. In Utah and Kansas, when asked if their state attorney general should pursue the case after the DOJ settlement had been reached, the 

respondents said, by a 6 to 1 margin, that they should not. 

As one of the ‘‘techies’’ on this panel, I look forward to getting into more ‘‘real 

life’’ effects of the proposed settlement to prove this point. 

With that backdrop, my testimony today is focused on describing how the settlement will foster competition for thousands of America’s small IT companies and how 

that, in turn, will benefit consumers. 

THE STATE OF OUR INDUSTRY

Before we discuss life in a post Microsoft settlement world, I must speak to 

present-day competition and innovation. I want to begin by stating unequivocally

that, counter to the protestations of some ‘‘experts,’’ competition in the IT industry 

is alive and well. One demonstrable example is amount of capital investment by 

Venture Capitalists (VCs) and where that money is headed. Despite the recent 

downturn, VCs are still looking for the next ‘‘billion dollar deal.’’ I know because 

I have worked with many of them. I won’t get into the negative impact this ‘‘homerun or nothing’’ strategy has had on our industry but suffice it to say, billion dollar 

deals do not come from investing in mature markets with limited growth potential 

and large existing players. Billion dollar deals only come from investing in new markets with unlimited growth potential and those do not include office productivity 

software market or even the general PC software market. Indeed, a recent survey 

of VC’s conducted by the DEMOletter, showed that nearly a third of those surveyed will invest over $100 million in start-ups in 2002 and that nearly 20 per cent are 

planning to invest up to $250 million.1 The sectors of the IT industry receiving this 

money include software and digital media.2 These are precisely the sectors that 

would benefit from this settlement. Suggestions that opposing the settlement would 

encourage VC’s to change their stripes are ridiculous. 

In fact, the information technology world is experiencing a shift away from desktop computing and toward other devices such as personal digital assistants (PDA’s), 

cell phones, set top boxes/game consoles, web terminals and powerful servers that 

connect them all. In all these growth markets, competition is very strong even 

though Microsoft is present. As of the third quarter of this year, more than 52 percent of all PDA’s were shipped with the Palm operating system while only 18 percent carried a Microsoft operating system according to Gartner. With cell phone 

manufacturers rushing to integrate PDA functionality, there is are several large 

players including Symbian (a joint venture between Nokia, Motorola, Ericsson, 

Matsushita [Panasonic], and Psion), Palm, Linux and Research in Motion’s Blackberry operating system. In the game console/set-box arenas, Microsoft is just entering the picture with established companies like Sony and Nintendo standing on 

large installed user bases. 

The server market is probably the best example of this growing competition. According to IDC, Linux’s worldwide market share of new and upgraded operating systems for servers was 27 percent in 2000. It was second only to Microsoft, which 

stood at 42 percent. IDC predicts predicted Linux’s market share will expand to 41 

percent by 2005, while Microsoft’s will only grow to 46 percent. Things should only 

become more competitive with IBM putting a billion dollars into its Linux push this 

year. The vigorous competition in this space proves in the absence of government 

intervention, companies like Linux can thrive. 

BENEFITS OF THE SETTLEMENT

As the members of the Committee are doubtlessly aware, on November 2, 2001 

the DOJ and Microsoft tentatively agreed on a settlement (or consent decree) deVerDate Feb 1 2002 17:04 Jan 16, 2003 Jkt 082938 PO 00000 Frm 00047 Fmt 6621 Sfmt 6621 C:\HEARINGS\82938.TXT SJUD4 PsN: CMORC
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3 United States v. Microsoft, 253 F.3d 34 (D.C. Cir. 2001) at 102. 4The Court of Appeals noted ‘‘Because plaintiffs have not carried their burden on either 

prong, [of an attempted monopolization analysis] we reverse without remand.’’ Id., at 63. 5 ‘‘Microsoft Middleware Product’’ is a defined term, while inconsistent with common industry 

usage, has the meaning of ‘‘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.’’ Revised Proposed Final Judgment, Section VI.K. 6 Id., Section III.A. 

7 Id., Section III.G. 

8 Id., Section III.C. 

9 Id., Section III.C. 

10 Id., Section III.F. 

signed to end the federal antitrust suit. Soon thereafter, nine states attorneys general signed off on a revised settlement. The proposed settlement succeeds in striking 

a difficult compromise between the ‘‘drastically altered’’ finding of liability adopted 

by the Court of Appeals and the wishes of Microsoft competitors and critics for crippling sanctions against the company.3 Remarkably, the negotiators have worked out 

a settlement proposal that, while entirely satisfying to none, includes something for 

everyone. 

A number of Microsoft competitors and their advocates have suggested that this 

agreement is flawed in that it ‘‘does not prevent Microsoft from leveraging its monopoly into other markets.’’ This argument is based on an unfounded fear that 

Microsoft will attempt to monopolize other markets such as instant messaging and 

digital media. Undermining this argument is the fact that the Court of Appeals 

found unanimously that Microsoft did not use its monopoly in the browser (or 

middleware) market.4 The bottom line is that the settlement was focused on addressing the allegedly anticompetitive conduct of the past and preventing similar 

conduct in the future. It is entirely consistent with the basic tenet of antitrust law, 

which is to protect consumers and competition, not competitors. 

With that understanding, it is important to address the benefits the industry and 

consumer will derive from implementation of the proposed settlement. ACT believes 

that the benefits of the settlement can be classified as follows: 

1. Increased flexibility for Original Equipment Manufacturers (OEMs) 

2. Increased flexibility for third party IT companies 

3. Greater consumer choice 

4. Effective enforcement 

I will discuss each benefit in turn, paying particular attention to the positive effects on competition in our industry. 

1. Increased flexibility for Original Equipment Manufacturers (OEMs) 

OEMs play a pivotal role in ‘‘supply chain’’ of delivering a rich computing experience for consumers. They provide independent software vendors (ISVs), 

many of whom are small IT companies, a valuable conduit by which to sell their 

wares directly to consumers by vying for space on the computer desktop. Thus, 

it is critical that OEMs have the flexibility to meet market demands by negotiating with ISVs for this type of placement. This practice is known as ‘‘monetizing the desktop’’ and is consistent with market-based competition. Under the 

proposed settlement, OEMs will have the flexibility to develop, distribute, use, 

sell, or license any software that competes with Windows or Microsoft 

‘‘middleware 5’’ without restrictions or any kind of retaliation from Microsoft.6

Reinforcing this flexibility, the settlement prohibits Microsoft from even entering into agreements that obligate OEMs to any exclusive or fixed-percentage arrangements.7 This allows OEMs to negotiate with an array of ISVs through the 

use of any number of incentives. Moreover, OEMs obtain some control over the 

desktop space for such things as icons and shortcuts.8 Another critical element 

allowing the OEMs to create a competitive playing field is that they have the 

ability to have nonMicrosoft operating systems (e.g., Linux) and other Internet 

Access Providers (LAP) offerings (e.g., alternative Internet connections such as 

AOL) launch at boot-up.9

2. Increased flexibility for third party IT companies 

Like OEMs, ISVs and Independent Hardware Vendors (IHVs) gain the flexibility to develop, distribute, use, sell, or license any software that competes with 

Windows or Microsoft middleware without restrictions or any kind of retaliation 

from Microsoft.10 The importance of this fact cannot be overstated. ISVs and 

IHVs, especially the thousands of small and mid-size companies in these categories, make up a bulk of the IT industry and will be able to utilize this flexiVerDate Feb 1 2002 17:04 Jan 16, 2003 Jkt 082938 PO 00000 Frm 00048 Fmt 6621 Sfmt 6621 C:\HEARINGS\82938.TXT SJUD4 PsN: CMORC
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11 Id., Sections III.D., III.E. 12 Id., Sections III.G., III.F. 13 Id. III.H. 14 Id., Section III.I. 15 Id., Section IV.B. 

bility to innovate and deliver ‘‘consumer critical’’ products such as instant messaging and digital media to consumers. 

The ISVs and IHVs will obtain advance disclosure of Windows APIs, communications protocols, which will increase the quantity and quality of competitive 

product offerings.11 As with OEMs, Microsoft will be barred from thwarting 

competition by entering into agreements that obligate ISVs, IHVs, IAPs, or 

ICPs to any exclusive or fixed-percentage arrangements.12 It should be noted 

that the settlement restricts some freedoms in crafting contracts with Microsoft, 

and thus may discourage some companies that might otherwise like to sign on 

to ‘‘dance’’ with Microsoft. However, it also protects other companies from any 

efforts by Microsoft to prevent them from teaming up with Microsoft’s competitors like Sun Microsystems or AOL. 

3. Greater consumer choice 

Nothing is as important to our industry as giving consumers, or end users, 

the freedom to choose what products and services they want or need. To this 

end, the settlement ensures that consumers will have the ability to enable or 

remove access to Microsoft or non-Microsoft middleware, or substitute a nonMicrosoft middleware product for a Microsoft middleware product for a Microsoft middleware product.13 Microsoft’s detractors have generated much commotion with the notion that removal of icons or ‘‘automatic invocations’’ is not 

enough, and that to give consumers ‘‘real’’ choice, underlying code would have 

to be removed. This is nonsensical for two reasons. First, it is a known fact that 

removal of visible access (e.g., an icon) to middleware or an application is a very 

effective means of getting the end user to forget about it. Think about how 

many icons reside on the average user’s desktop that serve to ‘‘remind’’ him of 

what product to use for a certain task. It is a simple case of ‘‘out of sight, out 

of mind.’’ Second, it is also a known fact that removal of the underlying does 

nothing to enhance consumer choice, and actually could destabilize the platform, increasing costs to consumer software developers who could no longer 

count on programming interfaces within the Windows operating system. The 

net result of these provisions is that consumers will be in the position to pick 

the products they consider to best meet their needs—whether it be downloading 

music, sharing pictures over the Web, or chatting with friends via instant messaging applications. 

Another myth propagated by Microsoft’s competitors is that Microsoft gets to 

reset the desktop to its preferred configuration 14 days after the consumer buys 

it no matter what steps the OEM or the consumer have actually taken to try 

to exercise the choice to use a non-Microsoft product. This is absolutely false. 

The desktop would not be reset and consumers will always retain choice. For 

example, consumers can choose among the OEM’s configuration, their own configuration and Microsoft’s configuration. 

4. Effective Enforcement 

The final element of the settlement that will ensure competition is the enforcement provisions. Microsoft must license its intellectual property to the extent necessary for OEMs and other IT companies to exercise any of the flexibility provided in the agreement.14 In an unprecedented move, the decree creates a jointly appointed Technical Committee (TC) to monitor compliance.15 The 

TC will have three members and unspecified staff, and be granted unfettered 

access to Microsoft staff and documents. While the TC is a better enforcement 

mechanism than having to apply to a court for each software design element, 

it is not without some flaws. For example, there are no restrictions on how the 

TC can be utilized as a tool by Microsoft’s competitors to delay shipment of an 

operating system or middleware product. While this may cause Microsoft some 

heartburn if it is used for such delay, it will be a fatal malady to the thousands 

of small and mid-size ISVs, IHVs, training firms and consultants that depend 

on a timely product launch. I am not a lawyer, so I can only propose a practical 

solution to this problem. Perhaps the competitors (or anyone else with the view 

that Microsoft is not complying with the consent decree) should be required to 

bring their problems to the TC at specified times during the development life 

cycle. This would prevent ‘‘last minute’’ delays. 

46

16 Id., Section IV.C. 17 Remarks of Assistant Attorney Charles James, Department of Justice press conference, November 2, 2001. 

Finally, Microsoft is required to implement an internal Compliance Officer to 

be responsible for handling complaints and compliance issues.16 This is yet another safeguard that aggrieved parties can use to ensure Microsoft’s compliance 

with the consent decree. 

Unfortunately these provisions are not enough to satiate some bent on seeing 

that this settlement never gets approved. For example, they question why the 

settlement lasts for only 5 years rather than the customary 10. This inquiry 

fails to acknowledge the realities of the IT industry and the speed at which we 

innovate. One need only think about the number and types of products that 

have emerged since 1998 to see why applying static conduct restrictions are out 

of step with our industry and provide no added value. Further, I believe seeking 

extended application of the settlement only exposes a bias against Microsoft 

Because of the significant impact on our industry, I must also address the additional remedies proposed by the nine state attorneys general who did not sign the 

consent decree. While their aim to ‘‘restore competition’’ is a valid and important 

antitrust principle—as long as it is limited to the elimination of competitive barriers—their proposal ignores the Court of Appeals ruling and runs counter to established antitrust jurisprudence. The DOJ settlement agreement was wise to avoid the 

dangerous temptation to redesign and regulate market outcomes. I’ll point out two 

defects of the state’s proposal. First, requiring that Windows ‘‘must carry’’ Java does 

nothing for consumers who can download it with one click and only serves to thwart 

competition by giving Sun Microsystems a special government-mandated monopoly 

with which other middleware companies will have to compete. While I believe 

‘‘must-carry’’ provisions are inherently anticompetitive, if the attorneys general were 

really trying to stand on principle they would have to ask for the same provisions 

for other middleware providers as well. Second, requiring Microsoft to port its Office 

product to Linux is tantamount to making it a ‘‘ward of the state.’’ There are already several office productivity suites available to users of Linux and some are 

even free. It would stand to reason that if attorneys general are actually interested 

in removing any ‘‘applications barrier to entry’’ that may exist, they should force the 

developers of ALL popular software products to port them to Linux. It is clear that 

from the extreme nature of these proposals that the settlement must encompass all 

reasonable mechanisms to restore competition. The respondents to the Voter Consumer Research polls mentioned above also question the need for the far-reaching 

remedies that would hamper Microsoft’s ability to innovate. In Utah for example, 

nearly 70% of voters believe that Microsoft’s products have helped consumers and 

over 80% of these voters feel that that Microsoft has benefited the computer industry. These numbers beg the question: Where’s the harm that would justify the nine 

state’s harsh remedies. 

Conclusion 

For ACT member companies, the IT industry and for me, it has been a very long 

three and a half years. This settlement reflects a balanced resolution to this litigation and a welcome end to the uncertainty that has hung over our industry at a 

time when certainty is what we need most. It addresses the anticompetitive actions 

articulated by a unanimous Court of Appeals. I believe Assistant Attorney Charles 

James when he said ‘‘This settlement . . . has the advantages of immediacy and 

certainty.’’17 It my sincere hope that the District Court will approve the settlement 

at the conclusion of the public comment period. There is no doubt in my mind that 

it is in the public interest to do so. 

Again, I thank the Committee for the opportunity to include the views of ACT’s 

member companies at this important hearing.

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Statement of Robert H. Bork, Washington, D.C. 

f Dear Chairman Leahy and Senator Hatch: 

The Proposed Final Judgment (PFJ) in U.S. v. Microsoft is a woefully inadequate 

end to more than 11 years of investigation and litigation against Microsoft Corporation. There is no longer a debate over Microsoft’s liability under the antitrust laws. 

Microsoft has been found liable before the District Court. Microsoft lost its appeal 

to the United States Court of Appeals for the District of Columbia Circuit sitting 

en banc in a 7–0 decision. Microsoft’s petition for a rehearing before the Court of 

Appeals was refused. Microsoft’s petition for certiorari before the Supreme Court 

was also denied. The courts have decided that Microsoft possesses monopoly power 

and has used that power unlawfully to protect its monopoly. 

The case now turns back to the District Court for review under the Antitrust Procedures and Penalties Act—the so-called Tunney Act. Under the Tunney Act the 

Court must reach an independent judgment on whether or not the settlement is in 

the ‘‘public interest.’’ The District Court finds itself in an interesting posture in that 

in the 30 years since the Tunney Act was enacted, it has never been applied in a 

case which has been litigated and affirmed. What is unique about the application 

of the Tunney Act in U.S. v. Microsoft is that rather than some ambiguous ‘‘public 

interest’’ standard, the District Court will now be obligated to reach a decision on 

whether or not the settlement corresponds to the clear guidance of the Court of Appeals. 

The court of appeals set out a simple standard for measuring the legal sufficiency 

of any remedy selected in the Microsoft litigation: the remedy must ‘‘seek to 

‘unfetter [the] market from anticompetitive conduct,’ * * * to ‘terminate the illegal monopoly, deny to the defendant the fruits of its statutory violation, and ensure 

that there remain no practices likely to result in monopolization in the future.’ ’’

United States v. Microsoft Corp., 253 F.3d 34, 103 (D.C. Cir. 2001) (‘‘Microsoft III’’) 

(quoting Ford Motor Co. v. United States, 405 U.S. 562, 577 (1972), and United 

States v. United Shoe Machinery Corp., 391 U.S. 244, 250 (1968)). The Court of Appeals was very deliberate in its handling of this case, and its finely crafted opinion 

manifestly chose its words and precedents with care. In citing the Ford Autolite and 

United Shoe cases, the D.C. Circuit underscored the clear guidance of the Supreme 

Court in monopolization cases. 

The D.C. Circuit provided equally straightforward guidance in explaining 

Microsoft’s liability for illegal monopolization. At the core of the case was Microsoft’s 

successful campaign to eliminate the dual threats of Netscape’s Navigator web 

browser and the Java programming language. Both Navigator and Java were ‘‘platform threats’’ to Microsoft’s underlying operating system. Both Navigator and Nava 

served as ‘‘middleware.’’ ‘‘Middleware’’ means that these programs exposed applications programming interfaces (APIs) so that third party applications developers 

could write applications to Navigator and Java in lieu of the underlying Windows 

operating system. And because both Navigator and Java ran on operating systems 

other than Windows they fundamentally threatened the Windows operating system, 

Microsoft’s core source of monopoly power. The D.C. Circuit could not have been 

clearer on these points. See Microsoft III, 253 F.3d at 53–56. 60. At a minimum any 

proposed settlement must effectively remedy this problem. 


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Unfortunately, the remedy accepted by the Antitrust Division of the Justice Department ignores most of the key findings by both the Court of Appeals and the District Court. The PFJ falls far short of the standards for relief clearly articulated by 

the Court of Appeals and the United States Supreme Court. The PFJ includes provisions that potentially make the competitive landscape of the software industry 

worse. And, the PFJ contains so many ambiguities and loopholes as to make it unenforceable, and likely to guarantee years of additional litigation. 

That the PFJ will hamper Microsoft’s illegal behavior not at all is shown by the 

reactions of the investment community: ‘‘We have review the Settlement Agreement between MSFT and the DOJ . . . 

the states (and to a lesser degree the DoJ) had talked tough and set expectations 

for a knock-out victory, and now must accept criticism that they walked away with 

too little concessions from Microsoft.’’ Goldman Sachs, 11/2/01 ‘‘As we have stated before, we believe a settlement is a best case scenario for 

Microsoft. And, this settlement in particular seems like a win for Microsoft being 

that it would preserve Microsoft’s ability to bundle its Internet assets with Windows 

XP and future operating systems—a plus for the company. In fact, it appears that 

Internet assets such as Passport are untouched. Also, as is typical with legal judgments, this settlement is backward looking, not forward looking. In other words, it 

looks at processes in the past, but not potential development of the future.’’ Morgan 

Stanley, 11/02/01 ‘‘The deal . . . appears to be ‘more, better, and faster’ than we expected in a 

settlement deal between Microsoft and DoJ. The deal will apparently require few 

if any changes in Windows XP and leave important aspects of Microsoft’s market 

power intact.’’ Prudential Financial, 11/01/01 ‘‘With a dramatic win last week, Microsoft appears to be on its way to putting 

the U.S. antitrust case behind it. The PFJ between the Department of Justice and 

Microsoft gives little for Microsoft’s competitors to cheer about. . . . There is very 

little chance that competitors could prove or win effective relief from violation of this 

agreement, in our view.’’ Schwab Capital Markets, 11/6/01

This takes on particular importance given the state of the software market. Since 

the end of the trial before the District Court the market has changed substantially: • Microsoft’s monopolies are stronger in each of its core markets with both the 

Windows operating system and the Office suite now higher than 92 percent and 

95 percent, respectively; • Microsoft has achieved a new monopoly in web browsers; • Competitive forces that may have existed in the past—most notably the Linux 

operating system—now clearly pose no threat to Microsoft’s monopoly; and • Microsoft has made clear it intends to further protect and extend its monopoly 

through a series of initiatives including, Hailstorm (web-services); Windows XP, 

and .NET. 

Some policy makers have adopted the view that settling this case could somehow 

revive the slowing U.S. economy. This is an absurd proposition. The problem with 

the PC sector today is that demand has slowed and prices for PC hardware have 

plummeted (as opposed to Microsoft’s software which has effectively increased in 

price). It is simply incorrect to equate slowing PC demand with Microsoft’s legal 

problems. Also, we are unaware of any economic theory that suggests that monopolies maintained by predatory conduct—as opposed to competition and innovation—

can spur economic growth. As the Precursor Group recently pointed out: ‘‘investor 

lament about the lack of broadband and the absence of killer applications is the 

‘other side of the coin’ to investor glee with the market power and profits of incumbent Bell, Cable, and Microsoft monopolies . . . having legal monopolies on the 

major access points to the Internet is unlikely to maximize innovation and growth 

that investors are counting on.’’

The briefing memorandum offered in support of these views documents general 

problems with the PFJ and specific section-by-section analysis of the PFJ’s provisions. However, this memorandum is meant to be illustrative—not comprehensive—

to give policy makers a preview of the issues to be examined under the Tunney Act. 

The Antitrust Division and Microsoft will continue to insist that the PFJ sufficiently 

remedies the issues in the case. 

Yet these arguments simply cannot be squared with the fact that every independent investment analyst and industry analyst has concluded that this remedy 

will have no material impact on Microsoft’s business. 

Policy makers also need to pay attention to the precedent this case establishes. 

In settling the most important antitrust case in decades through a remedy that will 

have not impact on the current or future competitive landscape, and absolutely no 

deterrent effect on the defendant, the Department of Justice has effectively repealed 

a major segment of the nation’s antitrust laws. Moreover, any potential witness with 

59

knowledge of anticompetitive conduct in a monopolized market has to weigh the potential benefit of his or her testimony against the likely response of the defendant 

monopolist. The DOJ’s proposed meaningless remedy would insure that no witness 

would ever testify against Microsoft in any future enforcement action. 

The PFJ, in short, places this defendant in a position of effectively being above 

the antitrust laws, and does so by surrendering the government’s victory in the District Court and the unanimous seven-member Court of Appeals. That is a result 

that should not be countenanced.

Statement of Jerry Hilburn, President and Founder, Catfish Software, Inc., 

San Diego, California 

f I am very pleased to provide a written statement for your hearing on ‘‘The Microsoft Settlement: A Look to the Future.’’ Thank you, Chairman Leahy and Members 

of the Committee, for the opportunity to deliver a small businessperson’s perspective 

on the case before this distinguished group. 

I would like to tell you my point of view on the Microsoft case. I am a small businessman in San Diego, California. Catfish Software, Inc. started operations in 1994 

providing network services and custom database applications for small business. In 

1998, Catfish Software launched an E-mail Application Services branch providing 

double opt-in mail list service and web-based customer support applications and 

today, Catfish Software provides support to 300+ companies reaching 2,000,000+ 

subscribers of its software services. 

One of my firm’s top competitors is Microsoft’s bCentral. So you may ask why I 

speak in favor of the Microsoft settlement. 

Businesses large and small have mortgaged their futures against the impact of 

the terrorist war. Some smaller businesses—technology and otherwise—have already found themselves strangled by a lack of consumer demand and by slowdowns 

in corporate and consumer spending. Most of us are finding it is time to shore up 

resources and protect our assets from the impact of the war. 

In this time of so much uncertainty, we need the promise of a brighter day and 

the knowledge that the government—from the federal level on down—is doing everything possible to invigorate our flagging economy. 

Competition and consumer preference should decide the direction of the marketplace and meanwhile, the government should not rush to intervene in the New 

Economy. The last thing our economy needs at this time is the burden of remedies 

which do nothing but slow the pace of development and limit the choices of consumers. 

The Justice Department handled this case admirably, and the settlement they 

agreed upon is sound. The settlement outlines how Microsoft can operate, but more 

importantly it provides some assurances to an industry that has been on unstable 

ground lately. 

Microsoft’s ability to design and produce new software in turn creates opportunities for small and medium-sized developers to write applications which operate on 

a Windows-based platform. 

As the old saying goes, a high tide floats all ships. Calls for break-up of the company did not help the already tenuous situation. And when Microsoft looked like it 

might be pulled under, the Nasdaq was hit as well as the stocks of many high-tech 

companies. 

But when announcements of the settlement were made public around the beginning of November 2001, everyone got a nice little bump. Consumers and other technology entrepreneurs were hopeful that this case could be put to bed and that the 

tech sector could get back to business. 

This litigation that has been an albatross around all our necks for so long—and 

ending the string of lawsuits associated with it—will have a positive effect on the 

tech economy. With a little luck, that will ripple out to America’s economy as a 

whole. 

With so many technologies poised to enter the marketplace, Microsoft and many 

others, including Catfish Software are looking for ways to enhance the computing 

experience. The Internet has become a center of most everyone’s daily lives—from 

toddlers typing their first strokes with learning games to seniors learning how to 

send and receive e-mail. Untapped markets and unimagined ideas abound, but we 

must not harness the creativity or the ability of software firms to bring those products to bear in the marketplace. 

60

The olive branch of settlement was extended, and it is a solution that is good for 

the economy and good for the tech industry. Allow us the opportunity to get back 

to work and earn money with our products and ideas once again. 

This concludes my testimony. Once again, I thank the Committee and its distinguished Members for the opportunity to provide written testimony on this important 

issue.

Statement of the Computing Technology Industry Association, Washington, 

fD.C. 

STATEMENT OF INTEREST

The Computing Technology Industry Association (CompTIA) is the world’s largest 

trade association in the information technology and communications sector. 

CompTIA represents over 8,000 hardware and software manufacturers, distributors, 

retailers, Internet, telecommunications, IT training and other service companies in 

over 50 countries. The overwhelming majority of CompTIA members are resellers—

companies that resell software and hardware to consumers, businesses, or other resellers. These resellers are vendor-neutral and their objective is to be able to sell 

whatever products their customers wish to buy. In that sense they believe that antitrust laws should focus primarily on consumer impact rather than competitor impact. Microsoft is a member of CompTIA as are many of Microsoft’s competitors. 

In 1998, CompTIA’s Board of Directors adopted a formal policy statement on antitrust. That statement supports sensible antitrust enforcement that is based on demonstrable economic effects in the marketplace. CompTIA believes that market 

forces typically correct any temporary market imperfections and that government 

regulators should only intervene in the technology marketplace when there is overwhelming evidence of a substantial and pervasive market failure. Pursuant to its 

policy statement, CompTIA has written and spoken frequently on antitrust issues 

of relevance to the technology sector. In June 1998, CompTIA filed an amicus brief 

in the Intel v. Intergraph litigation in the U.S. Court of Appeals for the Federal Circuit. In that case CompTIA urged the court to reject a lower court’s finding that 

antitrust allegations could be a basis for ordering a company to disclose its valuable 

intellectual property. 

CompTIA filed an amicus brief in the United States Court of Appeals for the District of Columbia Circuit in the United States v. Microsoft case in November 2000. 

The amicus brief urged the Court of Appeals to reverse the District Court’s order 

breaking Microsoft into two separate companies and further urged the Court of Appeals to reverse the liability findings against Microsoft. The basis for CompTIA’s 

participation as amicus and submission of this testimony to the Committee is its 

interest in the overall health and prosperity of the technology sector. 

The antitrust case against Microsoft and the final remedies that will be imposed 

upon Microsoft have a direct effect on the overall health and prosperity of the technology sector. First, because Microsoft is such a large and important participant in 

the technology industry, any remedy that affects the company’s operations necessarily affects the industry, Microsoft’s vendors, and all companies that rely on 

Microsoft products. A remedial order that goes beyond the issues in the case may 

have a significantly detrimental effect upon innovation and growth in the industry. 

Second, the precedent established in this case has important ramifications for future 

activities in the technology sector. Overly restrictive sanctions imposed upon Microsoft may act to inhibit competitive behavior by other companies throughout the industry thereby deterring conduct that promotes innovation and technological development. 

INTRODUCTION

On November 6, 2001 the United States Department of Justice and nine States 

entered into a Proposed Final Judgment with the Microsoft Corporation that resolves the antitrust charges brought by those governmental entities against the 

company. In the days after the settlement was announced, the nine non-settling 

States and the District of Columbia expressed their intention to continue litigation 

against Microsoft in an effort to convince the United States District Court that more 

extensive remedies should be ordered. On December 7, 2001 the non-settling States 

filed their remedy proposal with the District Court. 

61

This testimony analyzes the Court of Appeals opinion, the November 6, 2001 Proposed Final Judgment, and the non-settling States’ remedy proposal and arrives at 

the following conclusions: • The U.S. Court of Appeals June 28, 2001 opinion reaffirmed that the central 

goal of the U.S. antitrust laws is not to protect competitors from competition 

nor is it to penalize a defendant. The central goal of the antitrust laws is to 

promote competition in order to enhance consumer welfare. • In order to support its remedy in the remand proceeding now before the District 

Court, the Court of Appeals opinion requires that the government show a significant causal connection between Microsoft’s anticompetitive conduct and actual injury to competition and consumers in the marketplace. If the government 

fails to prove a causal connection, then the remedy imposed can be no more 

broad than an order enjoining the specific anticompetitive conduct at issue. 

• Given the risks to both sides from further litigation, the November 6 Proposed 

Final Judgment is a reasonable settlement of the remaining disputed issues in 

the case that insures that Microsoft’s anticompetitive conduct will not be repeated, and insures that every market participant has a fair opportunity to 

compete. The settlement also insures that the technology industry will not be 

encumbered with excessive regulation that would stifle innovation and growth. 

• The additional remedies proposed by the non-settling States on December 7 are 

not likely to enhance competition or promote consumer welfare. The vast majority of the States’ proposals go far beyond the scope of the liability found by the 

Court of Appeals and are thus legally unsupportable. Further, the proposed 

remedies would likely interfere with natural market forces, impose higher costs 

on consumers, impair innovation, and benefit Microsoft’s competitors at the expense of consumers. 

I. SUMMARY OF THE COURT OF APPEALS OPINION

A. Background 

On June 28, 2001 the United State Court of Appeals for the District of Columbia 

Circuit (‘‘Court of Appeals’’) issued its ruling in United States v. Microsoft. The 

Court of Appeals found that Microsoft had violated Section 2 of the Sherman Act 

by taking anticompetitive actions to protect its monopoly in the computer operating 

system market. The Court, however, reversed the District Court rulings entered adverse to Microsoft regarding tying, attempted monopolization, and imposition of a 

break-up remedy. The case has been remanded to the District Court for proceedings 

on the appropriate remedy to address the monopoly maintenance findings. 

While much of the Court of Appeal’s opinion focuses on issues that are specific 

to Microsoft, the Court made two preliminary yet important observations with respect to antitrust enforcement activities in the high-tech sector. First, the Court 

noted that despite the relatively fast pace of the Microsoft proceedings, the speed 

at which technologically dynamic markets undergo change is even faster. The consequences of the speed at which the market changes has significant implications for 

the conduct of antitrust cases. This rapid change ‘‘threatens enormous practical difficulties for courts considering the appropriate measure of relief in equitable enforcement actions, both in crafting injunctive remedies in the first instance and reviewing those remedies in the second.’’ Opinion at 10–11. 

Because technology moves so quickly there is little likelihood that a company with 

large market share at any given time can engage in anticompetitive exclusionary 

behavior that causes consumer injury. In many instances a more desirable successor 

technology may very rapidly displace a large market share company before that 

company is even able to attempt to exercise monopoly power. 

Second, the Court also noted that competition in the technology marketplace is 

frequently ‘‘competition for the market’’ rather than ‘‘competition in the market.’’

This means that there is intense competition between firms when a new product is 

introduced, but once consumers choose the firm that makes the best product, that 

firm will likely garner the vast majority of market share. This ‘‘network effect’’ phenomenon means that as more users utilize a compatible and inter-operable system 

or service, the value to each user increases. Opinion at 11–12. Thus, the Court of 

Appeals made clear that lawful monopolies and companies with large market shares 

are frequently desirable and highly beneficial to consumers. Opinion at 11. 

The Court of Appeal’s inclusion of this theoretical discussion is a broad response 

to the question that many have asked since the beginning of the Microsoft case—

that is, do the antitrust laws, written and applied predominantly in a brick-andmortar era, have the same level of relevance in the information technology era? The 

answer is mixed. The antitrust laws do apply to the new economy, but the application of the rules must take into account economic realities and to insure that the 

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1Shortly after the Court of Appeals issued its ruling, Microsoft asked the court to reconsider 

the finding that Microsoft had unlawfully ‘‘commingled’’ code from Internet Explorer and Windows. Microsoft argued that as a factual matter the District Court was incorrect in finding that 

Microsoft actually had placed Windows code and Internet Explorer code in the same libraries 

in order to prevent IE from being removed. The Court of Appeals denied Microsoft’s petition for 

rehearing on this issue but wrote that Microsoft could raise this issue on remand with respect 

to the appropriate remedy in the case. Microsoft’s actions in allowing OEM’s and/or consumers 

to remove the Internet Explorer icon and program link (and the inclusion of that concession in 

the settlement agreement) appears to address the Court’s concerns regarding exclusion of rival 

browsers. Thus, any interpretation of the Court of Appeals decision to require that Microsoft 

re-engineer Windows to duplicate shared code functions and then remove the lE code (as the 

non-settling States interpretation does) would be inconsistent with the language and policy of 

the opinion as a whole. Further, the Court of Appeals found that shared library files that perform functions for both the operating system and the browser enhance efficiency. Opinion at 73. 

objectives of antitrust are achieved: the protection and enhancement of competition 

as measured by consumer welfare. 

The most dramatic illustration of the application of antitrust to the new economy 

was in the Court’s rulings on the tying claim and in reversing the lower court’s remedial order. The Court’s application of a rule of reason analysis (rather than per 

se treatment) for tying claims while at the same time rejecting the ‘‘separate products’’ test marks a significant recognition that product integration in the technology 

sector is likely to have benefits to consumers that outweigh any harms to competition. Additionally, the Court’s analysis in rejecting the lower court’s break-up order 

suggests that absent a strong showing of a causal connection between anticompetitive acts and Microsoft’s dominant position in the operating system market, radical 

structural relief or extensive conduct restrictions that go beyond the challenged conduct would be unsupportable. 

B. Monopoly Maintenance 

The Court of Appeals affirmed in large measure the District Court’s ruling that 

Microsoft acted unlawfully to maintain its monopoly in the operating system market. The Court found that Microsoft viewed Netscape Navigator Internet browser as 

a potential threat to the Windows operating system because it could conceivably 

have become an intermediate platform (with exposed application programming 

interfaces or API’s) for the development of software applications. In order to promote Internet Explorer and retard the distribution of Netscape Navigator, Microsoft 

placed restrictions on original equipment manufacturers (OEM’s). OEM’s were not 

permitted to remove the Internet Explorer icon or install a Navigator icon on the 

desktop. 

The Court also found that the way in which Internet Explorer was integrated into 

Windows was unlawful. Beginning with the release of Windows 98, Microsoft removed Internet Explorer from the list of programs that could be accessed using in 

the add/delete program feature. The Court found that this had the effect of impeding the inclusion of rival browsers on a computer because OEM’s were reluctant to 

place two Internet browsers on the desktop. Because Microsoft did not offer any procompetitive justification for preventing the removal of Internet Explorer, the Court 

found this feature unlawful. The Court also found that Microsoft’s dealings with 

some independent software vendors, Apple Computer Corp., Java, and Intel were 

designed solely to protect its operating system monopoly and therefore those dealings violated Section 2 of the Sherman Act. 

Shortly after the Court of Appeals decision was released, Microsoft announced 

that it would modify its release of Windows XP to respond to the Court of Appeals 

rulings in the monopoly maintenance section of the opinion. Thus, OEM’s now are 

permitted to have more control over the appearance of the Windows desktop; they 

may add icons for competing software and on-line services and delete the Internet 

Explorer icon from the desktop. OEM’s and consumers also have the ability to remove Internet Explorer icon from a computer using the add/delete function.1

C. Attempted Monopolization 

The Court of Appeals reversed and dismissed the District Court’s finding that 

Microsoft unlawfully attempted to monopolize the Internet browser market. Opinion 

at 62–68. The District Court had found that Microsoft’s 1995 proposal to divide the 

browser market with Netscape created a dangerous probability of monopoly and 

that Microsoft’s aggressive marketing of Internet Explorer after June 1995 also created a dangerous probability of monopoly. But the Court of Appeals found that the 

government had failed to properly identify the relevant market including reasonable 

substitutes for Internet browsers. Further, the Court also found that there was no 

showing of significant barriers to entry in any putative browser market. 

63

The Court’s ruling on attempted monopolization has significant implications for 

future business activities in the technology sector. If the District Court rule had 

been upheld, the resulting rule would have made it virtually per se unlawful for successful firms to explore collaborative relationships with emerging competitors. Further, it would permit a ‘‘dangerous probability of success’’ to be proven simply by 

showing that a firm has secured a 50–60 percent market share without requiring 

any showing that the firm will ever be in a position to exercise market power—that 

is, the power to raise price and exclude competitors. Both propositions would have 

had serious adverse repercussions for the IT industry and would have likely blocked 

countless pro-competitive competitor collaborations that would benefit consumers. 

D. Tying 

The District Court found that Microsoft’s inclusion of Internet Explorer with Windows was a per se unlawful tying arrangement. The Court of Appeals reversed this 

conclusion and ruled that per se analysis was inappropriate for arrangements involving platform software products. Because the inclusion of added functionality into 

software products has the potential to be pro-competitive and generate vast consumer benefits, integration in this area must be judged under the rule of reason. 

The Court of Appeals remanded the tying claim to the District Court for analysis 

under the rule of reason. Opinion at 68–90. Under the rule of reason, however, future antitrust plaintiffs must bear a heavy burden to prove that software integration unlawful. 

Historically tying arrangements have been deemed per se unlawful. But the Court 

properly recognized that software products are ‘‘novel categories of dealings’’ and 

that this case provided the ‘‘first up-close look at the technological integration of 

added functionality into software that serves as a platform for third-party applications. There being no close parallel in prior antitrust cases, simplistic application 

of per se tying rules carries a serious risk of harm.’’ Opinion at 69. The Court also 

noted the benefits from software integration: ‘‘Bundling obviously saves distribution 

and consumer transaction costs.’’ Opinion at 73. 

In recognizing the potential benefits from integration, the Court then determined 

that the ‘‘separate products’’ test under Jefferson Parish Hosp. Dist. No. 2 v. Hyde, 

466 U.S. 2 (1984)—that is, if the tying and tied products are ‘‘separate products’’

then the integration is unlawful—was not appropriate for platform software analysis. 

Finally, the Court of Appeals issued precise instructions to the District Court in 

considering the tying in the event the government were to pursue the claim on remand. Those instructions preclude the plaintiffs from arguing any theory of anticompetitive harm based on a precise definition of the browser market or barriers 

to entry in the putative browser market. Opinion at 87. Faced with this new legal 

standard, the United States, on September 6, 2001, announced that it would not 

pursue the tying claim on remand. 

In sum, adding new functions to existing software is a nearly universal form of 

innovation in the software industry and is essential in persuading customers to upgrade from their existing software to a new, improved version. For example, word 

processing programs have incorporated formerly separate spell-checkers and 

outliners, personal finance programs have incorporated tax functions, internet service providers have incorporated instant messaging features, database software companies are integrating their databases with their applications server, and e-mail 

programs have incorporated contact managers. If companies that gain a ‘‘dominant’’

position in a given field were barred from innovating in this manner, consumers 

would be denied new benefits that result from integration, and the software industry would stagnate. The Court of Appeals rejection of a per se rule for platform software integration, and the government’s subsequent decision to drop that claim on 

remand, insures that technological innovation will be permitted to continue and provide consumers additional benefits. 

E. Remedy 

The Court of Appeals fundamentally altered the basis of liability found by the District Court and thus the structural and conduct remedies imposed by the lower court 

were reversed. Opinion at 106. The Court of Appeals correctly noted that an antitrust remedy must focus on restoring competition and the District Court must explain how its remedy will do so. Opinion at 99–100. Central to the inquiry of how 

to restore competition is the identification of specific injury to the competitive process by the defendant’s behavior. Thus, the Court of Appeals directed the District 

Court on remand to make a finding of a ‘‘causal connection’’ when assessing an appropriate remedy. Opinion at 105. 

64

While the Court of Appeals left the District Court with a large measure of discretion in fashioning an appropriate remedy on remand, there are repeated and clear 

directions that the evidence necessary to sustain a structural remedy or extensive 

conduct remedy must be very strong. Opinion at 105–06. Faced with this language, 

the United States announced on September 6, 2001 that it would no longer seek 

break up of Microsoft. The individual States have also dropped their demand for a 

structural remedy. 

The remaining issue for the new District Court judge on remand, Colleen KollarKotelly, is to fashion an appropriate remedy for the monopoly maintenance findings 

that were affirmed by the Court of Appeals. Here too the Court of Appeals has provided some general guidance. The appropriate remedy for Microsoft’s antitrust violations may be ‘‘an injunction against continuation of that conduct.’’ Opinion at 105. 

The language cited by the non-settling States that the unlawful monopoly ‘‘must be 

terminated’’ would only apply in the context of a demand for structural relief. The 

non-settling States have not made a demand for structural relief, nor have they 

made a showing of a causal connection between Microsoft’s unlawful behavior and 

actual harm in the marketplace. 

II. SUMMARY OF THE PROPOSED FINAL JUDGMENT

After the November 6, 2001 Proposed Final Judgment was announced many of 

Microsoft’s competitors complained that the settlement was too lenient. The settlement, however, should not be designed as a wish list for Microsoft’s competitors. 

The settlement should fairly address the areas of liability found by the Court of Appeals. Anything less would encourage Microsoft and other companies to engage in 

anticompetitive conduct in the future; anything more would inappropriately imperil 

the technology marketplace, cause harm to consumers, and likely be struck down 

by the Court of Appeals. Additionally, the settlement necessarily takes into account 

the fact that the issue of causation has not yet been decided by the Court. In light 

of the scope of the Court of Appeals decision and the uncertainty facing both sides 

from further litigation, the November 6 Proposed Final Judgment is a reasonable 

compromise of the antitrust litigation. 

The November 6 Proposed Final Judgment addresses the liability issues in the 

monopoly maintenance section of the Court of Appeals decision, and correctly does 

not seek to impose a remedy related to other areas in which Microsoft prevailed on 

appeal—attempted monopolization and tying. 

First, the settlement prohibits Microsoft from retaliating against any OEM because of the OEM’s participation in promoting or developing non-Microsoft 

middleware or a non-Microsoft operating system. This provision takes the ‘‘club’’ out 

of Microsoft’s hand and prevents the company from using anticompetitive means to 

discourage OEM’s from promoting or preventing rival software from being developed 

or installed on Windows desktop. This anti-retaliation provision deals head on with 

most of the conduct the Court of Appeals found to be illegal in the monopoly maintenance section of its June 28, 2001 opinion. 

Second, Microsoft is obligated to adhere to one uniform license agreement for Windows with all OEM’s and the royalty for the license shall be made publicly available 

on a web site accessible by all OEM’s. The price schedule may vary for volume discounts and for those OEM’s who are eligible for market development allowances in 

connection with Windows products. This allows Microsoft to continue to compete in 

the middleware market with other middleware manufacturers and this competition 

will continue to benefit consumers. 

Third, OEM’s are permitted to alter the appearance of the Windows desktop to 

add icons, shortcuts and menu items for non-Microsoft middleware, and they may 

establish non-Microsoft programs as default programs in Windows. Consumers also 

have the option of removing the interface with any Microsoft middleware product. 

Fourth, Microsoft must reveal the API’s used by Microsoft middleware to interoperate with the Windows operating system. Microsoft must also offer to license its 

intellectual property rights to any entity who has need for the intellectual property 

to insure that their products will interoperate with the Windows operating system. 

These central features of the settlement insure that other companies have the 

ability to challenge Microsoft products, both in the operating system and 

middleware / applications markets. Consumers and OEM’s have far greater freedom 

to install and use non-Microsoft products, Microsoft is prohibited from retaliating 

against any entity who promotes non-Microsoft programs, and all companies have 

equal access to Microsoft API’s and technical information so that non-Microsoft 

middleware has the same opportunity to perform as well as Microsoft middleware. 

The enforcement mechanisms of the settlement will enable the plaintiffs to insure 

Microsoft’s compliance with the agreement. Representatives of the United States 

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and the States may inspect Microsoft’s books, records, source code or any other item 

to insure compliance with the settlement terms. In addition, an independent three 

person technical Committee will be established to insure that Microsoft complies 

with all terms of the settlement agreement. The technical Committee will have full 

access to all Microsoft source code, books and records, and personnel and can report 

to the United States and/or the States any violation of the settlement by Microsoft. 

III. SUMMARY OF THE NON-SETTLING STATES’ DECEMBER 7 PROPOSAL

While the November 6 Proposed Final Judgment goes beyond the liability found 

by the Court of Appeals in some areas (i.e., by requiring Microsoft to disclose its 

confidential technical information to software developers), the non-settling States’

proposal filed on December 7, 2001 goes so far beyond the judgment as to bear little 

relationship to the Court of Appeals decision. 

The centerpiece of the states’ remedy demand is that Microsoft be compelled to 

create and market a stripped down version of its Windows operating system that 

would not include many of the features that current versions of Windows do include. 

Since consumers can now easily remove Microsoft features from their desktop and 

OEM’s are free to place non-Microsoft programs on the desktop, it is difficult to see 

how this requirement would benefit consumers. 

Instead of giving consumers more choices of software products, this unwarranted 

intrusion into marketing and design decision by the non-settling States would cause 

further delays in the development of software created to run on XP, with developers 

waiting to see which version would become the standard. Such delays would further 

postpone the salutary effects of XP on the computer market. It would also hamper 

programmers’ ability to take full advantage of technological improvements in Windows, creating a marketplace in which the same software applications would not 

perform equally. This remedy would balkanize the computing industry and would 

undermine the benefits consumers obtain from a standardized operating platform. 

In addition to the stripped down version of Windows, the December 7 proposal 

would also require Microsoft to continue licensing and supporting prior versions of 

Windows for five years after the introduction of a new version of Windows. The primary effect of this requirement is to impose unnecessary costs upon Microsoft (that 

would likely be passed on to consumers) and reduce the incentives for Microsoft to 

improve the operating system. This disincentive to Microsoft to make technological 

advances would ripple throughout the software industry as applications developers 

would not have an advancing platform to write software to. 

The non-settling States remedy proposal also includes a variety of restrictions 

that will have little if any quantifiable benefit to consumers but which will simply 

advance the interests of Microsoft competitors. Consumers and OEM’s currently 

have full ability and freedom to include Java software on their computers; the 

States’ requirement that Microsoft carry Java on all copies of Windows does not provide consumers or OEM’s with any more choice than they already have. Similarly, 

the requirement that Microsoft continue to produce an Office Suite for Macintosh 

interferes with natural market forces that direct resources to the best use and may 

actually preclude the success of competing applications software. Directing Microsoft 

to produce and support any software without regard for market forces is likely to 

harm consumers, not help them. Moreover, the November 6 Proposed Judgment 

fully addresses and prevents Microsoft from retaliating or taking any anticompetitive actions against Apple. 

Advances in technology are frequently made as a result of joint ventures between 

competitors. The Department of Justice and the Federal Trade Commission have recently released guidelines for the formation of such joint ventures. Notwithstanding 

the recognition by these enforcement agencies that most joint ventures are pro-competitive, the non-settling States seek to restrict Microsoft from entering into joint 

ventures whereby the parties to the joint venture agree not to compete with the 

product that is the subject of the joint venture. This restriction will chill innovation 

and prohibit countless consumer welfare enhancing arrangements. Further, this proposal flatly ignores the fact that the Court of Appeals found in Microsoft’s favor on 

the issue of the alleged illegality of its joint venture proposal to Netscape. 

The most harmful of the remaining remedy proposals include those that require 

the extensive and mandatory sharing of Microsoft’s intellectual property. The nonsettling States proposals in this regard go well beyond those in the November 6 Proposed Final Judgment and appear to be aimed at benefitting Microsoft’s competitors 

rather than insuring a level playing field for all participants in the software industry. 1n the absence of compelling justification for wholesale and forced disclosure of 

a company’s intellectual property, the harm caused by such disclosure is unwarranted and harmful to the entire technology marketplace. The vigorous protection 

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1The Consumer Case Against Microsoft (October 1998); The Consumer Cost of the Microsoft 

Monopoly: $10 Billion and Counting (January 1999); Economic Evidence in the Antitrust Trial: 

The Microsoft Defense Stumbles Over the Facts (March 18, 1999); Facts Law and Antitrust Remedies: Time for Microsoft to be Held Accountable for its Monopoly Abuses (May 2000) (Attachment A); Mark Cooper, ‘‘Antitrust as Consumer Protection in the New Economy: Lessons from 

the Microsoft Case,’’ Hasting Law Journal, 52 (April 2001) (see Attachment B); Windows XP/

.NET: Microsoft’s Expanding Monopoly, How it Can Harm Consumers and What the Courts Must 

Do to Preserve Competition (September 26, 2001) (see Attachment C). 

of intellectual property has fueled the rapid and dynamic growth of the technology 

industry. Actions that erode protections for intellectual property should be viewed 

with great trepidation. 

The long term effects of the conduct restrictions proposed by the non-settling 

States encourage continued litigation, rather than competition in the marketplace. 

CONCLUSION

The Microsoft settlement and any remedies imposed must be judged in the context 

of the Court of Appeals opinion. The non-settling States remedial proposals go well 

beyond the liability found by the Court of Appeals. The Microsoft case, and this 

Committee hearing, should not be a forum for any government actor, no matter how 

well-intentioned, to try to reconfigure the marketplace based on guesswork and supposition. History has told us time and time again that government’s efforts to micromanage markets are far more likely to fail than to succeed. Consumers stand to lose 

the most. 

The Plaintiffs have never challenged Microsoft’s acquisition of its dominant position in the operating system market. Microsoft was propelled into this position as 

a result of consumer choice. Consumers derive great benefit from the adoption of 

a standardized operating system platform. State antitrust officials and the courts 

should be wary of imposing remedies that would interfere with the positive network 

effects resulting from the large number of consumers who choose Windows. 

Government intervention in the marketplace can only be justified if the intervention is a reasonably accurate proxy for the actions that would occur in a competitive 

market. Otherwise, the unintended consequences of well-meaning government intervention are very likely to do more harm than good. It is simply beyond the capability of the courts and regulators to predict the direction and development of almost 

any market, let alone the highly dynamic markets in the technology industry. This 

counsels against the extensive and rigid conduct restrictions proposed by the nonsettling States.

Statement of Dr. Mark N. Cooper, Director of Research, Consumer 

Federation of America, Washington, D.C. 

f Mr. Chairman and Members of the Committee, 

My name is Dr. Mark Cooper. I am Director of Research of the Consumer Federation of America. The Consumer Federation of America is the nation’s largest consumer advocacy group, composed of two hundred and seventy state and local affiliates representing consumer, senior citizen. low-income, labor, farm, public power, 

and cooperative organizations, with more than fifty million individual members. 

I greatly appreciate the opportunity to appear before you today. This hearing on 

‘‘The Microsoft Settlement: A Look To the Future’’ focuses public policy attention on 

exactly the right questions. What should the software market look like? Does the 

Court of Appeals’ ruling provide an adequate legal foundation for creating that market? Is it worth the effort? What specific remedies are necessary to get the job done? 

Our analysis of the Microsoft case over four years leads us to clear answers.1

• We reject the claim that consumers must accept monopoly in the software industry. Real competition can work in the software market, but it will never get 

a chance if Microsoft is not forced to abandon the pervasive pattern of anticompetitive practices it has used to dominate product line after product line. 

• The antitrust case has revealed a massive violation of the antitrust laws. A 

unanimous decision of the Appeals Court points the way to restoring competition. 

• The public interest demands that we try. 

• The proposed Microsoft-Department of Justice settlement is far too weak to accomplish that goal. The litigating states’ remedial proposals are now the only 

67

2 Richard Schmalensee, ‘‘Antitrust Issues in Schumpeterian Industries,’’ 90 American Economic Review 192–194 (2000). 3Mark Cooper, Antitrust and Consumer Protection, pp. 863–880. 4The Consumer Case Against Microsoft, pp. 53–59. 5 U.S. v. Microsoft, 253 F.3d 34, 103 (D.C. Cir. 2001) (en banc). 

chance that consumers have of enjoying the benefits of competition in the industry. 

Real Competition In The Software Industry Is The Goal 

The defenders of the Microsoft monopoly say that consumers cannot hope for competition within software markets because this is a winner-take-all, new economy industry. In this product space companies always win the whole market or most of 

it, so anything goes. In fact. Microsoft’s expert witness has written in a scholarly 

journal that: 

With ‘‘winner take most’’ markets. . . [If] there can be only one healthy survivor, the incumbent market leader must exclude its competition or die. . . 

There is no useful nonexclusion baseline, which the traditional test for predation requires. . . 

As to intent, in a struggle for survival that will have only one winner, any 

firm must exclude rivals to survive. . . . In a winner take most market, evidence that A intends to kill B merely confirms A’s desire to survive.2

By that standard, if a monopolist burned down the facilities of a potential competitor, it might be guilty of arson and other civil crimes, but it would not be guilty 

of violating the antitrust laws. Consumers should be thankful that both the trial 

court and the Appeals Court flatly rejected this theory of the inevitability of monopoly and upheld the century old standard of competition. 

In fact, the products against which Microsoft has directed its most violent anticompetitive attacks represent the best form of traditional competition—compatible 

products that operate on top of existing platforms seeking to gain market share by 

enhancing functionality and expanding consumer choice.3 Microsoft fears these products and seeks to destroy them, not compete against them, precisely because they 

represent uncontrolled compatibility, rampant interoperability and, over the longterm, potential alternatives to the Windows operating system. 

That is why we concluded over three years ago that this case is not about new 

high tech industries in which you have to live with a monopoly, it is about old dirty 

business practices that drive up prices, deny consumers choice and slow innovation 

by allowing the monopolist to control the pace of product development.4 If a monopoly were really the natural state of affairs in this market, then Microsoft would not 

have had to engage in so many unnatural acts to preserve it. 

More importantly. we concluded that consumers need not fear real competition in 

the software industry. We can expect a competitive market to be far more efficient 

and consumer friendly than the Microsoft monopoly. There are a variety of very real 

consumer costs associated with the Windows operating system monopoly—from 

product complexity and PC homogeneity to viruses, privacy threats and an endless 

cycle of costly upgrades—even apart from the substantial overcharges Microsoft has 

for years imposed on consumers. There is every reason to believe that consumers 

would receive better products at lower prices if the anticompetitive practices were 

eliminated. The ability of developers to create products that are compatible, but 

driven out of the market by Microsoft’s anticompetitive tactics, undermines the 

claim and lays to rest any fears that competition will cause computing to become 

more difficult or confusing. 

An Effective Remedy is Fully Supported and is Required by the Trial 

Record 

The claim by Microsoft and others that the court record will not support a strong 

remedy is simply wrong. The Court of Appeals not only reaffirmed our belief in real 

competition, but it pointed the way to competition by using the strongest terms possible to describe what the remedy must do. 

The Supreme Court has explained that a remedies decree in an antitrust case 

must seek to ‘unfetter a market from anticompetitive conduct,’ Ford Motor Co., 

405 U.S. at 577, to ‘terminate the illegal monopoly, deny to the defendant the 

fruits of its statutory violation, and ensure that there remain no practices likely 

to result in monopolization in the future,’ United States v. United Shoe Mach. 

Corp., 391 U.S. 244, 250 (1968): see also United States v. Grinnell Corp., 384 

U.S. 563, 577 (1966).5

A unanimous en banc Court of Appeals upheld the charge of monopolization. It 

explicitly affirmed Microsoft’s liability under Section 2 of the Sherman Act, the vast 

68

6Facts, Law and Remedies

7 Cooper, Antitrust as Consumer Protection, pp. 840–862. 8The Consumer Case Against Microsoft, p. 54, see also pp. 34–39 for a discussion of Microsoft’s 

attack on the Internet, a theme that is picked up in Windows XP/.NET. 

bulk of the specific conduct challenged by the Department of Justice, and nearly 

every one of the trial court’s hundreds of factual findings. As a result, it held a broad 

array of anticompetitive Microsoft practices to be illegal, constituting a massive violation of the antitrust law. Table 1 identifies those anticompetitive practices that 

were directly linked to the violations of law. 

Soon after the district court’s Conclusions of Law were released, we considered 

possible remedies.6 While we preferred a break up, we also identified a series of conduct remedies that would address the anticompetitive problems. The litigating 

states have risen to the task admirably. As described in Table 2, the litigating 

states’ remedial proposals link each relief measure directly to a finding of fact and 

a conclusion of law. They included virtually every measure we deemed necessary. 

An Effective Remedy is Well Worth Fighting For 

Based on the record of the lower court and the ruling of the D.C. Circuit, this 

case demands a strong remedy. Claims that a weak remedy sooner is better than 

a strong remedy later, or that the cost of pursuing a strong remedy are too great, 

are absurd. 

Our analysis leads us to conclude that an unfettered software market will produce 

a flowering of innovations and consumer-friendly products that are well worth waiting for. More importantly, we have estimated that monopoly pricing by Microsoft 

has cost consumers between $10 and $20 billion.7 An amicus brief filed with the 

court put the figure at $25 to $30 billion. 

Of equal importance are the non-economic and indirect ways in which Microsoft’s 

anticompetitive practices become burdens on the consumer. The trial record demonstrates. with extensive evidence. repeated instances in which Microsoft’s anticompetitive practices have the effect of denying consumers choice, impairing quality, 

and slowing innovation. 

Microsoft forces computer manufacturers to buy one bundle with all of its programs preloaded. It biases the screen location. start sequences and default options 

making it difficult if not impossible to choose non-Microsoft products. Products tailored to meet individual consumer needs (consumer friendly configurations and 

small bundles) are unavailable. Because of Microsoft’s leveraging of the operating 

system, superior products are delayed or driven from the marketplace. Existing libraries of content (documents, movies, audio files) are rendered obsolete. Resources 

are denied, investment in competing products is chilled, and technology is slowed. 

Valuable products never get to market because of the barriers erected by Microsoft 

and eventually competing products disappear from the market. 

Past overcharges cannot be recovered in the Federal case nor can innovations that 

were slowed or stopped, but future abuse must be prevented. We are convinced that 

an effective remedy will trigger an explosion of innovation and economic activity 

from thousands of companies that have been shackled by the fear of retribution or 

expropriation by Microsoft. Unleashing these companies to innovate in a vigorously 

competitive market is the best way to stimulate economic activity and to put this 

industry on a solid long-term growth path. Settling for a short term fix, in the name 

of economic stimulus, that fails to address the underlying problem will create a 

chronic condition of underperformance, leaving the industry far short of achieving 

it true potential. 

We are also certain that the Microsoft-DOJ settlement will not do the job but 

make matters worse. Our review of Windows XP, from a competitive point of view, 

confirms our conclusion from four years ago that ‘‘the threat to the public has grown 

with each subsequent conquest of a market.’’8

There is no doubt that effective law enforcement is definitely in the consumer’s 

best interest and that the Microsoft-Department of Justice settlement is not. Based 

on the legal record, the weakness of the remedy, and the stakes for consumers, the 

court must find that the proposed Microsoft-Department of Justice settlement is not 

in the public interest. The court should certainly not reach any conclusion about the 

remedy that would best serve the public before the litigating states’ remedial proposal has been fully vetted through the trial process. 

Anticompetitive Practices Must Be Rooted Out At All Stages Of the Software Value Chain—Creation, Distribution And Use 

To describe what must be done in practical terms, I like to use the business school 

concept of the value chain. To unfetter the market from anticompetitive conduct, 

69

terminate the illegal monopoly and ensure that there remain no practices likely to 

result in monopolization in the future, the remedy must address the creation, distribution and use of software. In order for new software to have a fair chance to 

compete the remedy must 

• create an environment in which independent software vendors and alternative 

platform developers are free to develop products that compete with Windows 

and with other Microsoft products, 

• free computer manufacturers to install these products without fear of retaliation, and 

• enable consumers to choose among them with equal ease as with Microsoft 

products. 

The Microsoft-Department of Justice settlement is an abysmal failure at all three 

levels. Under the proposed Microsoft-Department of Justice settlement, Microsoft 

will be undeterred from continuing its anticompetitive business practices. 

Independent software vendors and competing platform developers will get 

little relief from Microsoft’s continual practice of hiding and manipulating interfaces. 

Microsoft has the unreviewable ability under the proposed settlement to define Windows itself, and. therefore to control whether and how independent software developers will be able to write programs that run on top of the operating system. The 

definitions of software products and functionalities and the decisions about how to 

configure applications programming interfaces are left in the hands of Microsoft to 

such an extent that it will be encouraged to embed the critical technical specifications deeply into the operating system and thereby prevent independent software 

developers from seeing them. To the extent that Microsoft would actually be required to reveal anything, it would be so late in the product development cycle that 

independent software developers would never be able to catch up to Microsoft’s favored developers. Furthermore, the Court of Appeals recognized that the Microsoft 

monopoly is protected by a large barrier to entry, because many crucial applications 

are available only for Windows. The proposed settlement does nothing to undermine 

this ‘‘applications barrier to entry,’’ for instance by requiring the porting of Microsoft 

Office to other PC platforms. Thus, the DOJ proposal won’t restore competition; it 

all but legalizes Microsoft’s previous anticompetitive strategy and, in reality, institutionalizes the Windows monopoly 

Computer manufacturers will not be shielded from retaliation by Microsoft. 

The restriction on retaliation against computer manufacturers leaves so many loopholes that any OEM who actually went against Microsoft’s wishes would be committing commercial suicide. Microsoft is given free reign to favor some, at the expense 

of others through incentives and joint ventures. It is free to withhold access to its 

other two monopolies (the browser and Office) as an inducement to favor the applications that Microsoft is targeting at new markets, which invites a repeat of the fiasco in the browser wars. Retaliation in any way, shape, fit, form, or fashion should 

be illegal. The prohibition on retaliation must specifically identify price and nonprice discrimination and apply to all monopoly products. 

Consumer sovereignty is not restored by the settlement. Because the settlement does not require removal of applications, only the hiding of icons, Microsoft 

preserves the ability to neuter consumer choice. The boot screen and desktop remain 

entirely tilted against competition. Microsoft still is allowed to be the pervasive default option and allowed to harass consumers who switch to non-Microsoft applications and still gets to sweep those applications off the desktop, forcing consumers 

to choose them over and over. 

Given Microsoft’s Past Behavior, Enforcement Must Be Swift and Punishment for non-Compliance Must be Substantial 

After the court identifies remedies that can address these problems, it must enforce them swiftly and aggressively. Microsoft has shown through a decade of investigations, consent decrees and litigation that it will not be easily deterred from defending and extending its monopoly. It behaves as though it believes its expert witness and has the right to do whatever it wants to kills off its competition. Every 

one of the illegal acts that led to the District Court findings and the unanimous appeals court ruling of liability took place after Microsoft signed the last consent decree. 

With three monopolies to use against its potential competitors (the Windows operating system, the Internet Explorer browser, and Office in desktop applications), enforcement must be swift and sure, or competition will never have a chance to take 

root. The proposed settlement offers virtually nothing in this regard. The technical 

Committee that is set up to (maybe) hear complaints can be easily tied up in knots 

by Microsoft because of the vague language of the settlement. If Microsoft violates 

70

9 Id., p. 1. 

the settlement nothing happens to the company, except that it must ‘‘endure’’ the 

annoyance of putting up with this weak settlement for a couple more years. 

The Future of Effective Antitrust Demands A Strong Remedy 

I pointed out several months before the Court of Appeals ruled that we fully support a rule of reason for tying in the software industry. as long as the rules are 

reasonable.9 The Microsoft-Department of Justice settlement is not worthy of the 

thoughtful ruling of the Court of Appeals. Indeed, this Committee should be deeply 

troubled by the proposed settlement. By proposing such a weak remedy for such a 

strong case and well-articulated ruling, it could do permanent damage to the antitrust laws. ‘shy bother to bring a case if law enforcement is going to drop the ball 

at the last moment? 

The Consumer Federation of America is procompetitive when it comes to market structure 

and generally argues for a rule of reason based on fundamentals of economic cost-benefits analysis. However, good consumer economic analysis demands that the rule of reason be based on 

reasonable rules. The analytic framework must be able to comprehend basic empirical facts in 

a manner that coherently and realistically integrates economic structure, conduct and performance. There should be no presumptions in favor of, or against business. The discount rate should 

reflect the real rate of interest that consumers can earn. The value of a person’s time and risk 

of harm should reflect the economic and intrinsic value of life. The Microsoft case rewards this 

pragmatic approach to policy analysis handsomely. 

I greatly appreciate the opportunity to appear before you today. I look forward 

to coming back after the trial court hands down a serious remedy based on the proposal laid before it by the litigating Attorneys General. I am confident that the court 

will reject the Microsoft-Department of Justice settlement because it does not do justice to competition, consumers or the clear and insightful conclusions of the Court 

of Appeals Court—in short it is not in the public interest.

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Statement of Mark Havlicek, Digital Data Resources, Inc., Des Moines, Iowa 

Thank you, Chairman Leahy and distinguished Members of the Committee including my own Senator Grassley. I am pleased to contribute my comments to your 

hearing on ‘‘The Microsoft Settlement: A Look to the Future.’’ My name is Mark 

Havlicek and I am the President of Digital Data Resources, Inc. in Des Moines, 

Iowa. I have been actively involved in the technology industry for several years, and 

it is my hope that the Microsoft case will be settled. 

The economic outlook for 2002 is very concerning. From coast to coast, revenue 

growth has slowed, spending is exceeding budgeted levels, and many states are looking at large budget cuts. My own state of Iowa is in the middle of a terrible budget 

crisis. 

After the events of September 11, we saw a dramatic plunge in the technology 

sector. Instead of being tied up in court, technology entrepreneurs should at work 

developing products and charting new territory with never before imagined products 

and services. Given the opportunity and free of unnecessary hurdles to progress, 

technology companies can build our economy back up to record levels. 

Giants like Apple, IBM, and Microsoft provide a stable environment for the myriad small firms, like mine, to create, develop, and release new cutting-edge technologies and employ additional people in good paying careers. Small companies like 

my own, work in concert, and competition at times, with these giants. This mutually 

dependent relationship is the lifeblood of our industry and a driving force behind 

our growth. 

Over the past 20 years, we have seen computers go from the size of a refrigerator 

to the size of a deck of cards. And in tandem with those leaps forward, we have 

seen declining prices, better and faster technology, and increasingly more efficient 

methods of delivery to consumers. 

It takes a competitive, entrepreneurial spirit to survive in this exceptionally aggressive industry of ours, especially in the case of small or emerging businesses. We 

spend our days watching competitors, finding markets, and keeping a watchful eye 

on the economy. And it seemed the storm has passed, both figuratively and in the 

eyes of the stock market, when a settlement was announced last month. 

But the states, including my own state of Iowa, which remain involved have argued for tougher enforcement provisions, including a court-appointed ‘‘special master’’ to oversee Microsoft’s compliance. And we have found through experience that 

there is no remedy discrete to Microsoft when it’s the nucleus of a tech sector that 

operates as its own economy. 

These states are not right to push ahead for further prosecution of Microsoft. The 

proposed settlement is sufficient to address the concerns of business people like me 

who are in the technology industry and are most affected. Companies like mine 

strive to be similar to Microsoft and we are discouraged by the hold-out states position on further action. It seems to me to be a strong disincentive to progress and entrepreneurial achievement. The time to take a hard line on successful companies like Microsoft is over. The 

hold-out states are holding out to the detriment of their state economies and our 

national economy at a time when actions like this are not at all useful. 

It is a frightening prospect to see another dollar of precious development resources diverted to paying attorney’s fees instead of rippling through our industry. 

Money that could have launched a new product or created new opportunities for a 

small business on the brink instead has disappeared into the abyss of this lawsuit. 

The settlement is a positive step in putting it all behind us and opening a new chapter in the life of the technology industry. 

I applaud Assistant Attorney General Charles James for his role in bringing the 

case this far. The settlement agreement is a strong one. It will have an enormous, 

positive impact on the future of my company and the entire software industry. My 

colleagues and I hope we can rely on your support. Thank you, Senators, for the 

opportunity to provide this statement at such a critical for our nation. 

Thank You.

Statement of Dave Baker, Vice President for Law and Public Policy 

EarthLink Inc., Atlanta, Georgia 

f My name is Dave Baker and I am Vice President for Law and Public Policy with 

EarthLink. EarthLink is the nation’s 3rd largest Internet Service Provider, bringing 

reliable high-speed internet connections to approximately 4.8 million subscribers 

every day. Headquartered in Atlanta, EarthLink provides a full range of innovative 

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access, hosting and e-commerce solutions to thousands of communities over a nationwide network of dial-up points of presence, as well as high-speed access and 

wireless technologies. 

EarthLink is concerned with the potential for Microsoft to use its affirmed monopoly position in operating systems to leverage its position in innovative Internet services provided by Internet Service Providers (ISPs) including Internet access and associated services. 

The proposed Justice Department settlement with Microsoft allows them to continue to restrict competition and choice in ISP services by failing to classify e-mail 

client software and Internet access software as ‘‘middleware’’. By not including email client and internet access software in the definition of middleware, this proposed settlement allows Microsoft to force OEMs to carry Microsoft’s own ISP service, Microsoft Network (MSN), while restricting them from carrying competing email client software or internet access software. The federal settlement also allows 

Microsoft to prohibit OEMs from removing the MSN from their products. 

The alternate settlement proposed by nine States and the District of Columbia 

would define middleware to include e-mail client software and Internet access software, thereby preserving competition in these markets. This distinction in the definition of middleware makes a huge difference given the diverse nature of the ISP 

marketplace. Many ISPs will never find a place on the Microsoft desktop if Microsoft 

can prohibit OEMs from including competing e-mail client software and Internet access software, or if Microsoft is able to make such software incompatible with the 

Windows operating system. 

ISPs provide distinct and valuable services beyond mere Internet connectivity. For 

example, ISPs provide specialized content, web hosting, e-commerce, content specialized for wireless access, and other innovative new products. ISPs provide free local 

computer and Internet classes for their customers, include local content on their 

home page, or provide free connections for community groups. EarthLink, while 

serving a broad range of users across the country, has made greater privacy protection a distinguishing feature of its ISP service. This diverse choice of service and 

source of future innovation is at risk if Microsoft is able to leverage its existing monopoly power in operating systems to all but force consumers to use its Internet access service, MSN, at the expense of other choices in internet service. 

Over the past few years, Microsoft has bundled its internet service more and more 

closely with succeeding versions of the Windows operating system. This has allowed 

Microsoft to constrict consumer choice in Internet access providers. In Windows 98, 

consumers had a choice of several ISPs from which to select for Internet access. 

Each ISP was listed in the same manner, with equal sized boxes on a referral server 

screen. In Windows Me, the MSN butterfly icon was the only ISP icon featured right 

on the desktop, giving it an advantage shared by no other ISP. Consumer had to 

click down through several screens to find other ISPs. Now, Windows XP has a dialogue boxes that pops up and several times to try to sway consumers to sign up for 

MSN internet service. While it is possible to select another ISP, this choice is buried 

and requires greater effort and diligence on the part of the consumer. This illustrates how Microsoft can use its control of the desktop to promote its own Internet 

access and related content, applications and services. 

Under the proposed federal settlement, even this limited choice can be eliminated 

by Microsoft, since they would be free to restrict OEMs from offering other ISPs on 

the desktop or from removing Microsoft’s own icons from the desktop. 

On a related topic, Microsoft recently offered to settle numerous lawsuits by donating computer equipment to schools. Apple Computer has raised concerns that 

this donation would give Microsoft an inappropriate advantage in gaining greater 

market share for its operating system in the competitive school marketplace. 

EarthLink is also concerned that Microsoft would use the proposed computer donations (a good thing) to access with equipment and operating software. This would 

again unfairly steer consumers, including as here those least able to exercise choice 

in their internet applications, into using just associated Microsoft products. 

We note that the E-Rate, the federal grant program for school connectivity, requires that schools be allowed to purchase Internet access from a range of competitive providers. The government’s clear intent is for schools to have a choice of competitive Internet access providers, in order to promote the broadest selection of services, diversity and choice of features, and lowest prices for Internet access. This intent would be undermined if Microsoft uses its proposed computer donations as a 

‘‘Trojan horse’’ to install yet more of its own e-mail client and Internet access software. We encourage the preservation of choice for these schools and their students 

in their selection of Internet access and related services. 

EarthLink is concerned that just as Microsoft used its Windows operating system 

monopoly to force consumers to use the Microsoft browser, Internet Explorer, at the 

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1Subsequently, one State (South Carolina) dropped out, and another (New Mexico) settled earlier this year. 

expense of competitors such as Netscape Navigator, Microsoft is now seeking to use 

the same leverage to force consumers to use their Internet service providers, MSN. 

EarthLink supports the alternate settlement proposed by the nine States to preserve competition in the market for email client software and Internet access software by including these services in the definition of middleware. As it considers the 

future of the Internet marketplace, we encourage the Committee not to allow Microsoft to leverage its existing monopoly into new and evolving Internet services. 

Thank you for giving us the opportunity to share our views with the Committee.

Statement of Jay L. Himes, Chief, Antitrust Bureau, Office of the Attorney 

General, State of New York, New York, N.Y. 

f Chairman Leahy and distinguished Members of this Committee, thank you for inviting me to testify before you today on the important issues relating to the settlement of the case against Microsoft, brought by the Antitrust Division of the United 

States Department of Justice, 18 States and the District of Columbia. New York is 

one of the lead States in this lawsuit, and we have had a central role in the matter 

going back to the investigation that led to the filing of the case. 

As the members of the Committee know, on Friday, November 2, 2001, the DOJ 

and Microsoft reached a proposed settlement of the lawsuit, which was then publicly 

announced. After further negotiations between Microsoft and the States, a revised 

settlement was reached on Tuesday, November 6, 2001. New York—together with 

the States of Illinois, Kentucky, Louisiana, Maryland, Michigan, North Carolina, 

Ohio and Wisconsin—agreed to the revised settlement. The remaining State plaintiffs—California, Connecticut, Florida, Iowa, Kansas, Massachusetts, Minnesota, 

Utah, West Virginia and the District of Columbia—are seeking a judicially ordered 

remedy, as is their right. 

I, together with an Assistant Attorney General from the State of Ohio, were the 

principal representatives of the States in the lengthy negotiations that led to the 

proposed final judgment embodying the settlement. Therefore, I believe that we in 

New York see the Microsoft settlement from a vantage point that others who were 

notin the negotiating room may lack. I will do my best to try to share our observations with the Committee. I will begin by presenting an overview of the lawsuit and 

the settlement reached. After that, I will address in more detail several of the central features of the settlement. Then, I wish to turn to the settlement process itself, 

particularly insofar as it bears on criticism of the proposed final judgment. 

1. Overview of the Case and the Settlement 

In May 1998, New York, 18 other States and the District of Columbia began a 

lawsuit against Microsoft, alleging violations of federal and state antitrust laws.1

The States’ case was similar to an antitrust case commenced that same day by DOJ, 

and the two cases proceeded on a consolidated basis. In summary, the litigation 

against Microsoft charged that the company unlawfully restrained trade and denied 

consumers choice by: (1) monopolizing the market for personal computer (‘‘PC’’) operating systems; (2) bundling (or ‘‘tying’’) Internet Explorer—Microsoft’s web browser—into the Windows operating system used on most PCs; (3) entering into arrangements with various industry members that excluded competitive software; and (4) 

attempting to monopolize the market for web browsers. 

After a lengthy trial, the District Court upheld the governments’ claims that 

Microsoft had unlawfully: (1) maintained a monopoly in the PC operating system 

market; (2) tied Internet Explorer to its Windows operating system monopoly; and 

(3 ) attempted to monopolize the browser market. The District Court issued a final 

judgment breaking up Microsoft into two separate businesses, and ordering certain 

conduct remedies intended to govern Microsoft’s business activities pending completion of the break-up. These remedies were stayed while Microsoft appealed. 

In June of this year, the Court of Appeals for the District of Columbia Circuit 

issued its decision on appeal. United States v. Microsoft Corp., 253 F.3d 34 (D.C. 

Cir. 2001). The Court of Appeals broadly upheld the lower court’s monopolization 

maintenance ruling, although it rejected a few of the acts of monopolization found 

by the District Court including the Court’s determination that Microsoft’s overall 

course of conduct itself amounted to monopoly maintenance. On the tying claim, the 

Court of Appeals reversed the lower court’s holding of an antitrust violation, and 

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2Parenthetical references are to Revised Proposed Final Judgment attached to the Stipulation, dated November 6, 2001 (the ‘‘November 6 Stipulation’’), in United States v. Microsoft 

Corp., Civil Action No. 98–1232 (CKK)(D.D.C.), and State of New York v. Microsoft Corp., Civil 

Action No. 98–1233 (CKK)(D.D.C.) (together ‘‘Microsoft’’). 

ordered a new trial under the rule of reason—a standard more favorable to Microsoft than the standard previously used by the trial court. In view of these rulings, 

the Circuit Court vacated the final judgment, including the break-up provisions. Finally, the Court of Appeals disqualified the trial judge from hearing further proceedings. Thereafter, the Court of Appeals denied a rehearing petition by Microsoft, 

and the Supreme Court declined to hear an appeal by Microsoft concerning the 

Court of Appeals’ disqualification ruling. 

The Court of Appeals returned the case to the District Court in late August of 

this year. At that point, a new judge—Hon. Colleen Kollar-Kotelly—was assigned. 

Shortly after that, DOJ and the States announced their intention, in the forthcoming proceedings before the District Court, to refrain from seeking another break 

up order—and to focus instead on conduct remedies modeled on those included in 

the earlier District Court judgment. DOJ and the States also announced that they 

would not retry the tying claim under the rule of reason test that the Court of Appeals had adopted. These decisions by the government enforcers were made in an 

effort to jump-start the process of promptly obtaining a strong and effective remedy 

for Microsoft’s anticompetitive conduct, as upheld by the Court of Appeals’ decision. 

The parties appeared before Judge Kollar-Kotelly for the first time at a conference 

held on September 28, 2001. The Court directed the parties to begin a settlement 

negotiation and mediation process, which would end on November 2. Specifically, 

the Court noted that ‘‘ I expect [the parties] to engage in settlement discussions 

seven days a week around the clock in order to see if they can resolve this case.’’

(Transcript of September 28, 2001 proceedings, page 5) The Court also adopted a 

detailed schedule governing the proceedings leading to a hearing on remedies, which 

the Court tentatively set for March 2002, if no settlement could be reached. 

The settlement process that the District Court thus set in motion resulted in a 

proposed final judgment agreed to by Microsoft, DOJ and nine of the plaintiff 

States. The overarching objective of this settlement is to increase the choices available to consumers (including business users) who seek to buy PCs by promoting 

competition in the computer and computer software industries. More specifically 

(and as 1 will explain further below), the proposed final judgment includes the following means to increase consumer choice and industry competition: 

• Microsoft will be prohibited from using various forms of conduct to punish or 

discourage industry participants from developing and offering products that 

compete or could compete with the Windows operating system, or with Microsoft 

software running on Windows. 

• Microsoft will be prohibited from restricting the ability of computer manufacturers to make significant changes to Windows, thereby encouraging manufacturers to offer consumers more choice in the features included in PCs available for 

purchase. 

• Microsoft will be required to disclose significant technical information that will 

help industry participants to develop and offer products that work well with 

Windows, and, in this way, potentially aid in the development of products that 

will compete with Windows itself. 

• Microsoft will be subject to on-site scrutiny by a specially selected three person 

Committee, charged with responsibility to assist in enforcing Microsoft’s obligations under the settlement, and to help resolve complaints and inquiries that 

arise by virtue of the settlement. 

New York decided to settle the Microsoft case because we believe that the deal 

hammered out over the many weeks of negotiations will generate a more competitive marketplace for consumers and businesses throughout the country, and, indeed, 

throughout the world. In summary, the settlement that the parties have submitted 

to the District Court for approval will accomplish the following: 

2. Empowering Computer Manufacturers to Offer Choices to Consumers 

First, the proposed final judgment will empower computer manufacturers—the 

‘‘OEMs’’—to offer products that give consumers choice. Under the settlement, OEMs 

have the opportunity to add competing middleware to the Windows operating system in place of middleware included by Microsoft. (Section III, paragraphs C and 

H)2 Middleware here refers not only to software like the Netscape browser, one of 

the subjects of the liability trial, but also to other important PC functions, such as 

email, instant messaging, or the media players that enable consumers to receive 

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3For ease of exposition, I refer in this testimony to ‘‘middleware’ as a generic term. In the 

proposed final judgment itself, there are four related middleware definitions, which are associated with various substantive provisions in the decree. (See Section VI, paragraphs J, K, M, N; 

Section IV(A) of the Competitive Impact Statement, dated November 15, 2001, filed in Microsoft.) 

4PC users themselves will have a similar ability to customize Windows. 

audio and visual content from the Internet. (Section VI, paragraphs K and M)3

Middleware is important, in the context of this case, because it may help break 

down barriers that protect Microsoft’s Windows monopoly. 

The government negotiators insisted on, and eventually obtained, a broad definition of middleware so that the proposed decree covers both existing middleware and 

middleware not currently in existence, but which Microsoft and its competitors may 

develop during the term of the decree. The reason for our pressing a broad definition 

is plain enough: the broader the definition of middleware, the more software covered 

by the settlement, and the greater the opportunity for a software product to develop 

in a fashion that challenges the Windows monopoly. 

Under the proposed decree, OEMs will have the ability to customize the PC’s that 

they offer. They may, for example, add icons launching both competing 

middleware—and products that use competing middleware—to the Windows desktop 

or Start menu, and to other places in the Windows operating system. OEMs also 

will have the ability to suppress the existence of the competing middleware that 

Microsoft included in the Windows operating system licensed to the OEM. Microsoft 

itself will have to redesign Windows to the extent needed to permit this sort of substitution of middleware, and to ensure that the OEMs’ customization of Windows 

is honored. (Section III, paragraphs C and H)4

The options available to OEMs under the settlement mean that the Windows 

desktop is up for sale. Companies offering a package of features that includes 

middleware, and middleware developers themselves, who desire to put their product 

into the hands of consumers can go to OEMs and buy a part of the real estate that 

the Windows desk top represents. This opportunity for additional revenue should 

further empower OEMs to develop competing computer products that offer choice to 

consumers. The OEMs’ ability to offer consumers competing middleware is backed up by a 

broad provision that prohibits Microsoft from ‘‘retaliating’’ against OEMs for any decision to install competing middleware (as well as any operating system that competes with Windows). (Section III, paragraph A) This provision forbids Microsoft 

from altering any of its commercial relations with an OEM, or from denying an 

OEM a wide array of product support or promotional benefits, based on the OEM’s efforts to offer competitive alternatives. (Section VI, paragraph C) 

Then, to back up the non-retaliation provision, Microsoft also is required to license 

Windows to its 20 largest OEMs (who comprise roughly 70% of new PC sales) under 

uniform, non-discriminatory terms. (Section III, paragraph B) Microsoft also is prohibited from terminating any of its 20 largest OEMs for Windows licensing violations without first giving the OEM notice and an opportunity to cure the alleged 

violation. (Section III, paragraph A) 

3. Empowering Software Developers and Others to Offer Competing 

Middleware 

Second, the proposed final judgment seeks to encourage independent software developers—referred to as ‘‘ISVs’’—to write competing middleware. This is accomplished by forbidding Microsoft from retaliating against any IS V based on the ISV’s efforts to introduce competing middleware or a competing operating system into the 

market. (Section III, paragraph F) The literally thousands of ISVs in the industry 

are protected by this additional non-retaliation provision, and they are protected 

whether or not they have an on-going business relationship with Microsoft. 

ISVs, and many other industry participants, are further protected by provisions 

that prohibit Microsoft from entering into exclusive dealing arrangements relating 

to middleware or operating systems. Exclusive dealing arrangements are a device 

that Microsoft used to deny competitors access to the distribution lines needed to 

enable their products to gain acceptance in the marketplace. (Section III, paragraphs F, G) We have effectively closed off that practice to Microsoft. 

4. Requiring Microsoft to Disclose Information to Facilitate Interoperation 

Third, the proposed final judgment requires Microsoft to provide the technical information—‘‘interfaces’’ and ‘‘protocols’’—that industry members need to enable competing middleware to work well with Windows. Middleware uses functions of the 

Windows operating system through connections or ‘‘hooks’’ called ‘‘applications programming interfaces’’—‘‘APIs’’ for short. Microsoft will now be required to disclose 

78

5Strictly speaking, if Microsoft refrains from separately distributing a particular middleware 

product included in Windows, it need not disclose the APIs used by that middleware product. 

But powerful business considerations militate against Microsoft adopting a strategy in which 

only purchasers of new PCs, or of boxpackaged versions of Windows, receive a middleware product offered by Microsoft. Under such a strategy, Microsoft would be unable to supply the 

middleware product to any of the millions of Windows users worldwide who comprise its installed user base. Microsoft would thereby put itself at a competitive disadvantage as suppliers 

of competing middleware offered attractive product features to the installed base of Windows 

users. 

the APIs that its own middleware uses to interoperate with Windows, and to provide technical documents relating to those APIs, so that ISVs who wish to develop 

competing middleware will have the information needed to make their products 

work well with Windows. (Section III, paragraph D) 

This is, again, a place where the broad definition of middleware, covering both 

existing and yet to be developed products, matters. (Section VI, paragraph J) The 

broader the definition, the greater the number of APIs that Microsoft must disclose 

and document. The greater the technical information made available, the greater 

the likelihood that industry participants will be able to develop competing 

middleware that works well on Windows.5

The proposed decree goes beyond requiring disclosure of APIs between Windows 

and Microsoft middleware. More and more, at-home consumers and computer users 

in the workplace can obtain functionality that they need from either the Internet 

or from network servers operating in a business setting. This trend means that computer applications running on servers may be an emerging location for developing 

middleware that could challenge the Windows monopoly at the PC level. Thus, the 

settlement is designed to prevent Microsoft from using Windows to gain competitive 

advantages in the way that PCs talk to servers. This is accomplished by requiring 

Microsoft to disclose, via a licensing mechanism, what are called ‘‘protocols’’ used 

to enable PCs and servers to communicate with each other. (Section III, paragraph 

E) 

This particular provision—sometimes referred to as the ‘‘client/server interoperability’’ section—was especially important to the States. The provision included in 

the November 2 version of the final judgment between the DOJ and Microsoft did 

not seem to us in New York to go quite as far as we felt it needed to go. As a result, 

this was a place that we and other States focused on in the negotiations leading 

to the revised settlement signed on November 6. The changes that resulted did not 

involve many words, but we believe that they enhanced Microsoft’s disclosure obligations in this critical area. 

5. The Enforcement Mechanism 

The subject matter of the Microsoft lawsuit is complex, and so too are many parts 

of the remedy embodied in the final judgment. This complexity creates the potential 

for good faith disagreement, as well as for intentional evasion. For this reason, from 

the outset of the settlement negotiations, New York held to the view that enforcement provisions going beyond those typically found in antitrust decrees would be 

needed here. We worked closely with DOJ to achieve this objective. What you find 

in the proposed final judgment is an enforcement mechanism that we believe is unprecedented in any antitrust case. 

The proposed consent decree expressly recognizes the ‘‘exclusive responsibility’’ of 

the United States DOJ and the antitrust officials of the settling States to enforce 

the final judgment against Microsoft. (Section IV, paragraph A (1)) To assist this 

federal and state enforcement and compliance effort, the proposed decree will create 

a three person body, the ‘‘Technical Committee’’ or ‘‘TC.’’ (Section IV, paragraph B) 

The TC is empowered, among other things: (1) to interview any Microsoft personnel; 

(2) to obtain copies of any Microsoft documents—including Microsoft’s source code— and access to any Microsoft systems, equipment and physical facilities; and (3) to 

require Microsoft to provide compilations of documents, data and other information, 

and to prepare reports for the TC. (Section IV, paragraph B(8)(b), (c)) The TC itself 

is authorized to hire staff and consultants to carry out its responsibilities. (Section 

IV, paragraph B(8)(h)) Microsoft also is required to provide permanent office space 

and office support facilities for the TC at its Redmond, Washington campus. (Section 

IV, paragraph B(7)) 

In other words, for the five year term of the decree, the TC will be the on-site 

eyes and ears of the government enforcers. The TC and government enforcers may 

communicate with each other as often as they need to, and the TC may obtain advice or assistance from the enforcers on any matter within the TC’s purview. In addition, the TC is subject to specific reporting requirements—every six months, or immediately if the TC finds any violation of the decree. (Section IV, paragraph B(8)(e), 

79

(f)) The TC further will be expected to field and promptly resolve complaints and 

inquiries from industry members, or from government enforcers themselves. (Section IV, paragraph B(8)(d), paragraph D) 

All of this will be paid for by Microsoft, subject to possible review by federal and 

state officials, or the Court. To discourage Microsoft from mounting dubious court 

challenges to the TC’s costs and expenses, the proposed decree authorizes the TC 

to recover its litigation expenses, including attorneys’ fees, unless the Court expressly finds that the TC’s opposition was ‘‘without substantial justification.’’ (Section IV, paragraph B(8)(i)) 

These enforcement provisions are probably the strongest ever crafted in an antitrust case. Federal and state enforcers will have at their disposal their regular enforcement powers, which may be invoked at any time independent of anything that 

the TC may do. (Section IV, paragraph A(2), (4)) Meanwhile, the TC will augment 

these traditional powers in significant respects. In addition, Microsoft itself is required to appoint an internal compliance officer to assist in assuring discharge of 

the company’s obligations under the settlement. (Section IV, paragraph C) 

I am mindful that concern has been expressed regarding the enforcement provision that ‘‘[n]o work product, findings or recommendations of the TC may be admitted in any enforcement proceeding before the Court ....’’ (Section IV, paragraph D(4)(d)) But the impact of this provision should not be great. As noted, the 

TC may report to the government enforcers, who may use the TC’s work to seek 

from Microsoft a consensual resolution of, for example, any non-compliant conduct, 

to initiate (and inevitably shortcut) enforcement-looking activity, to pursue leads, 

and for other enforcement purposes. Moreover, the TC’s work product, once known, 

should be readily susceptible of prompt replication by enforcement officials for use 

in judicial proceedings. 

6. The Settlement Process 

As the very fact of these hearings attests, the proposed settlement of the Microsoft 

case is a subject of significant public interest and debate. For years, many have asserted that the case itself should never have been filed to begin with. For these individuals, the government should be satisfied to get any remedy at all. We in New 

York profoundly disagree with this view. As the liability trial and appeal confirmed, 

this case was properly brought to remedy serious anticompetitive activity by Microsoft. The trial and appellate proceedings further confirmed that the antitrust laws 

are alive and well in technological industries, just as they are in other parts of our 

nation’s economy. Accordingly, the public is entitled to a strong, effective remedy. 

In this regard, however, some have criticized the settlement for not going far 

enough, or for having exceptions and limitations. We reject this view as well. 

In announcing the decision by New York and eight other States to settle the case, 

New York Attorney General Eliot Spitzer noted that ‘‘a settlement is never perfect.’’

A settlement is an agreed-upon resolution of competing positions and objectives. Do 

I wish that the DOJ and the States had gotten more? Of course I do. Do our counterparts on the Microsoft side wish that they had given up less? There is no doubt 

about the answer. So, asking these questions does not take us very far. Settlement 

necessarily means compromise. It is in the nature of the beast. 

This particular settlement is the product of roughly five weeks of consuming negotiations, much of which took place under the guidance of two experienced mediators. 

I am unaware of any calculation of the total person-hours consumed by this effort. 

Certainly it was in the thousands, if not tens of thousands, of hours. The process 

required the two sides to explore, both internally and in face-to-face negotiations, 

a host of factors that bear on terms of the settlement eventually reached, such as: 

(1) the competitive consequences of varying courses of action; (2) the design, engineering and practical implications and limitations of various remedy approaches, as 

well as their impact on innovation incentives; (3) the issues actually framed for trial 

in the liability phase of the case and their resolution by the Court of Appeals; (4) 

the law governing remedies for the monopoly maintenance violation that the Court 

of Appeals upheld, which the District Court would be called on to apply in the absence of a settlement; and (5) the resources, effort and time otherwise needed to resolve the sharp factual disputes that would be presented in a full-blown remedies 

hearing. New York and the other States, as well as the DOJ, were aided in this 

process by experienced staff and retained experts. 

In the final analysis, the DOJ, New York and the other settling States concluded 

that the benefits to consumers and to the competitive process that are likely to result from the negotiated settlement reached here outweigh the uncertain remedy 

that a contested remedies proceeding might bring. In assessing the soundness of 

that conclusion, the members of the Committee should recall that the settlement’s 

critics have a luxury that those of us who settled did not have: they have the settleVerDate Feb 1 2002 17:04 Jan 16, 2003 Jkt 082938 PO 00000 Frm 00083 Fmt 6621 Sfmt 6621 C:\HEARINGS\82938.TXT SJUD4 PsN: CMORC
80

ment floor created by the final judgment that we have offered. Absent this settlement, however, a judicial remedies hearing had not simply potential rewards, but 

significant risks as well. 

During the September 28 court conference, the District Court expressed its views 

regarding the appropriate scope of the conduct remedies that might emerge from a 

judicial hearing on relief. Among other things, the District Court stated the following: 

The Supreme Court long ago stated that it’s entirely appropriate for a district 

court to order a remedy which goes beyond a simple prescription against the 

precise conduct previously pursued . . . . The Supreme Court has vested 

this court with large discretion to fashion appropriate restraints both to avoid 

a recurrence of the violation and to eliminate its consequences. Now, case law 

in the antitrust field establishes that the exercise of discretion necessitates 

choosing from a range of alternatives. 

***

So the government’s first and most obvious task is going to be to determine 

which portions of the former judgment remain appropriate in light of the appellate court’s ruling and which portions are unsupported following the appellate 

court’s narrowing of liability. 

Now, the scope of any proposed remedy must be carefully crafted so as to ensure that the enjoining conduct falls within the number [sic, penumbra] of behavior which was found to be anticompetitive. The government will also have 

to be cautiously attentive to the efficacy of every element of the proposed relief. 

(Transcript of September 28, 2001 proceedings, pages 9, 8) 

These remarks highlight risks that both sides confronted if the decision were 

made to press for a court-ordered remedy. Several concrete examples, from the settlement actually reached, will further drive home this point. 

• Microsoft’s API disclosure obligations, and its obligations to permit OEMs to 

customize the Windows desktop and operating system more generally, revolve 

around a series of related middleware definitions that the parties agreed to. Absent a settlement, there could no assurance that the courts would adopt 

middleware definitions as broad as those that DOJ and the settling States negotiated. 

• The liability trial in the case centered on Microsoft’s conduct directed to efforts 

by Netscape and Sun to get Netscape’s web browser and Sun’s Java technologies installed on individual PCs. Plaintiffs’ theory of the case—which the 

trial and appellate courts upheld—was that these forms of middleware could, 

if sufficiently pervasive at the PC level, erode the applications barrier to entry 

that protects Microsoft’s Windows monopoly. Microsoft therefore set out to exclude this middleware from PCs. In the settlement negotiations leading to the 

client/server interoperability provision, the government negotiators argued that 

applications running at the server level can be analogous to middleware running at the PC level. On this approach, middleware developed at the server 

level could also break down the applications barrier to entry into the PC operating system market. Therefore, the remedy in this case requires Microsoft to 

disclose ways that PCs running Windows talk to servers running Microsoft software. Absent a settlement, however, there could be no assurance that the courts 

would order disclosure of this PC/server line of communications. Microsoft resisted this provision during the settlement negotiations, and would similarly 

have opposed it at a remedies hearing. 

• Finally, as I noted above, there does not seem to be any antitrust precedent for 

an enforcement mechanism that puts a monitor on site, with full access to the 

defendant’s documents, employees, systems and physical facilities—all at the 

defendant’s expense. Absent a settlement, Microsoft would have vigorously opposed such a far-reaching enforcement regime, and there plainly could be no assurance that the courts would have ordered comparable relief. 

As these examples reflect, I believe that the proposed final judgment compares favorably to—and in some respects may well exceed—the remedy that might have 

emerged from a judicial hearing. 

The existence of a settlement has also accelerated the point in time at which a 

remedy will begin to take effect. Microsoft has agreed to begin complying with the 

proposed final judgment starting on December 16, 2001. (November 6 Stipulation, 

paragraph 2) Assuming further that the District Court approves the proposed final 

judgment in Tunney Act proceedings in early 2002, there will be a remedy in place 

a year or more before the trial and appellate level proceedings, needed to resolve 

the appropriate remedy in the absence of a settlement, would be concluded. In this 

81

rapidly changing sector of the industry, the timeliness of a remedy is an important 

consideration. 

7. Conclusion 

In sum, the settlement in the Microsoft case promotes competition and consumer 

choice. It is proportionate to the monopoly maintenance violations that the Court 

of Appeals for the District of Columbia Circuit sustained. The settlement represents 

a fair and reasonable vindication of the public interest in assuring the free and open 

competition that our nation’s antitrust laws guarantee. 

Microsoft is reported recently to have issued a company-wide email stating its 

commitment to making the settlement ‘‘a success’’ and to ‘‘ensuring that everyone 

at Microsoft complies fully with the terms’’ of the decree. D. ]an Hopper, Associated 

Press State & Local Wire (Nov. 30, 2001). We expect nothing less, and we intend 

to see to it that Microsoft honors that commitment. New York is one of the members 

of the States’ enforcement Committee, created under the proposed decree. Our State 

Antitrust Bureau will be vigilant in monitoring Microsoft’s discharge of its obligations, and we look forward to working closely with the DOJ to make sure that the 

settlement is, indeed, a success. The American public is entitled to nothing less.

Statement of Hon. Jon Kyl, a U.S. Senator from the State of Arizona 

f Mr. Chairman: 

The five-year judicial proceeding in the United States v. Microsoft litigation may 

be approaching a conclusion. Final briefs have been submitted and final arguments 

have been heard by Judge Colleen Kollar-Kotelly of the U.S. District Court of the 

District of Columbia on the issue of whether to affirm, reject, or modify the settlement reached between Microsoft, the Department of Justice, and nine settling 

states. 

It is unclear when a decision will be handed down, or whether the decision, whatever it may be, will be appealed by any or all of the parties. However, it is important to note that Judge Kotelly, a Clinton appointee, has from the bench expressed 

strong support for a settlement. 

I offer my view as a U.S. Senator and as a member of the legislative branch of 

our government, a government in which the constitutional separation of legislative, 

judicial, and executive powers is scrupulously maintained. My purpose is not to influence the ongoing judicial process; rather, it is to offer my views to the Committee 

in a hearing which could be viewed as one-sided in opposition to the settlement. 

My view is that the parties have reached a balanced remedy for Microsoft’s anticompetitive conduct. I believe this settlement is in the public interest because it will 

promote vigorous competition to the benefit of all consumers, and will advance the 

public policy codified in the Sherman Anti-Trust Act, which is to protect competition—not competitors. 

This settlement will, by its terms, effectively force Microsoft to reform how it conducts its business through comprehensive oversight and enforcement provisions. 

Those terms seem appropriate to the court’s findings. 

Specifically, I am persuaded by the testimony of Assistant Attorney General for 

Antitrust, Charles James, that this is a timely settlement which remedies 

Microsoft’s antitrust violations within the scope of the appellate court’s ruling that 

Microsoft illegally maintained its Windows operating system monopoly. ‘‘We wanted 

to stop the violations now, not after years of further proceedings and appeals,’’ said 

Mr. James. 

The settlement forces several key concessions upon Microsoft for violating Section 

2 of the Sherman Act. For instance, under its terms, the settlement affords makers 

of personal computers wide latitude to install non-Microsoft software on new computers, and to remove access to Microsoft icons and features, such as Internet 

browsers. It also forbids retaliation against companies that utilize this new latitude. 

The settlement also prohibits exclusive contracts, and requires that Microsoft disclose proprietary hardware and software design-code information so that competing 

products can be manufactured that are completely compatible with the Windows operating system. Significantly, the five-year settlement also establishes an independent technical compliance Committee that will assume permanent residency on 

the Microsoft campus to monitor compliance with the terms of this settlement. 

This compliance Committee will have full access to the facilities, personnel, 

records, and intellectual property of Microsoft. And, it is important to note that 

82

1See <http://cyberlaw.stanford.edu/lessig/content/testimony/ab/ab.pdf>. 

oversight of the independent compliance Committee is complementary to, not in 

place of, the ongoing oversight of the Department of Justice and the settling states. 

Mr. Chairman, in sum, I believe this settlement will protect and cultivate a vigorous and competitive computer soft and hardware industry. Such competition is integral to the health and vitality of the U.S. economy, and is in the clear interests 

of the American consumer. 

I will readily accept the final judicial resolution of this case, whatever it may be. 

Thank you, Mr. Chairman.

Statement of Professor Lawrence Lessig, Esq., Stanford Law School, 

Stanford, California 

f Four years after the United States government initiated legal action against the 

Microsoft Corporation, Microsoft, the federal government, and nine states have 

agreed upon a consent decree (‘‘the proposed decree’’) to settle the finding of antitrust liability that the Court of Appeals for the D.C. Circuit has unanimously affirmed. In my view, that consent decree suffers from a significant, if narrow, flaw. 

While it properly enlists the market as the ultimate check on Microsoft’s wrongful 

behavior, it fails to provide an adequate mechanism of enforcement to implement 

its requirements. If it is adopted without modification, it will fail to achieve the objectives that the government had when it brought this case. 

Yet while it is important that an adequate and effective remedy be imposed 

against Microsoft, in my view it equally important that any remedy not be extreme. 

Microsoft is no longer the most significant threat to innovation on the Internet. Indeed, as I explain more fully below, under at least one understanding of its current 

Internet strategy, Microsoft could well play a crucial role in assuring a strong and 

neutral platform for innovation in the future. Thus, rather than retribution, a remedy should aim to steer the company toward this benign and beneficial strategy. Obviously, this benign understanding of Microsoft’s current strategy is not the only understanding. Nor do I believe that anyone should simply trust Microsoft to adopt 

it. But its possibility does suggest the importance of balance in any remedy. The 

proposed decree does not achieve that balance, but neither, in my view, does the 

alternative. 

I am a law professor at Stanford Law School and have written extensively about 

the interaction between law and technology. My most recent book addresses directly 

the effect of law and technology on innovation. I have also been involved in the proceedings of this case. In 1997, I was appointed special master in the action to enforce the 1995 consent decree. That appointment was vacated by the Court of Appeals when it concluded that the powers granted me exceeded the scope of the special master statute. United States v. Microsoft Corporation, 147 F.3d 935, 953–56 

(D.C. Cir 1998) (‘‘Microsoft II’’). I was then invited by the District Court to submit 

a brief on the question of using software code to ‘‘tie’’ two products together.1 I have 

subsequently spent a great deal of time studying the case and its resolution. 

In this testimony, I outline the background against which I draw my conclusions. 

I then consider the proposed decree, and some of the strengths and weaknesses of 

the alternative proposed to the District Court by the nine remaining states (the ‘‘alternative’’). Finally, I consider two particular areas in which this Committee may 

usefully consider action in light of the experience in this case. 

BACKGROUND

In June, 2001, the Court of Appeals for the D.C. Circuit unanimously affirmed 

Judge Jackson’s conclusion that Microsoft used its power over Windows to protect 

itself against innovation that threatened its monopoly power. United States v. 

Microsoft Corporation, 253 F.3d 54 (D.C. Cir 2001) (Microsoft III). That behavior, 

the Court concluded, violated the nation’s antitrust laws. The Court therefore ordered the District Court to craft a remedy that would ‘‘ ‘unfetter [the] market from 

anticompetitive conduct,’ to ‘terminate the illegal monopoly, deny to the defendant 

the fruits of its statutory violation, and ensure that there remain no practices likely 

to result in monopolization in the future.’ ’’ Microsoft III, 253 F.2d at 103 (citations 

omitted). 

Integral to the Court’s conclusion was its finding that Microsoft had ‘‘commingled 

code’’ in such a way as to interfere with the ability of competitors to offer equivalent 

83

2See <http://www.fcc.gov/Speeches/Powell/2001/spmkp110.html> (suggesting ‘‘re-examining 

the copyright laws’’ and comparing freedom assured by decision permitting VCRs). 3See End to End Arguments in System Design, <http://web.mit.edu/Saltzer/www/publications/

>. 

products on an even playing field. As the District Court found, and the Court of Appeals affirmed, Microsoft had designed its products in such a way as to inhibit the 

substitution of certain product functionality. This design, the district court concluded, served no legitimate business interest. The Court’s conclusion was therefore 

that Microsoft had acted strategically to protect its market power against certain 

forms of competition. 

In my view, this holding by the Court of Appeals is both correct and important. 

It vindicates a crucial principle for the future of innovation generally, and in particular, on the Internet. By affirming the principle that no company with market 

power may use its power over a platform to protect itself against competition, the 

Court has assured competitors in this and other fields that the ultimate test of success for their products is not the decision by a platform owner, but the choice of 

consumers using the product. To the extent that Microsoft’s behavior violated this 

principle, and continues to violate this principle, it is appropriate for the District 

Court to craft a remedy that will stop that violation. 

An appropriate remedy, however, must take into account the competitive context 

at the time the remedy is imposed. And in my view, it is crucially important to see 

that Microsoft does not represent the only, or even the most significant, threat to 

innovation on the Internet. If the exercise of power over a platform to protect that 

platform owner from competition is a threat to innovation (as I believe the Court 

of Appeals has found), then there are other actors who also have significant power 

over aspects of the Internet platform who could also pose a similarly dangerous 

threat to the neutral platform for innovation that the Internet as has been. For example, broadband cable could become a similar threat to innovation, if access to the 

Internet through cable is architected so as to give cable the power to discriminate 

among applications and content. Similarly, as Chairman Michael Powell suggested 

in a recent speech about broadband technology, overly protective intellectual property laws could well present a threat to broadband deployment.2

Microsoft could play a significant role in resisting this kind of corruption of the 

Internet’s basic values, and could therefore play an important role in preserving the 

environment for innovation on the net. In particular, under one understanding of 

Microsoft’s current Internet strategy (which I will refer to generally as the ‘‘.NET 

strategy’’), Microsoft’s architecture would push computing power and network control to the ‘‘edge’’ or ‘‘ends’’ of the network, and away from the network’s core. This 

is consistent with a founding design principle of the early network—what network 

architects Jerome Saltzer, David Clark, and David Reed call ‘‘the end-to-end argument.’’3 .NET’S possible support of this principle would compete with pressures that 

now encourage a compromise of the end-to-end design. To the extent Microsoft’s 

strategy resists that compromise, it could become a crucial force in preserving the 

innovation of the early network. 

This is not to say that this benign, pro-competitive design is the only way that 

Microsoft could implement its .NET strategy. There are other implementations that 

could certainly continue Microsoft’s present threat to competition. And obviously, I 

am not arguing that anyone should trust Microsoft’s representation that it intends 

one kind of implementation over another. Trust alone is not an adequate remedy 

to the current antitrust trial. 

My point instead is that there is little reason to vilify a company with a strong 

and powerful interest in a strategy that might well reinforce competition on the 

Internet—especially when, excepting the open source and free software companies 

presently competing with Microsoft, few of the other major actors have revealed a 

similarly proInternet strategy. Thus, rather than adopting a remedy that is focused 

exclusively on the ‘‘last war,’’ a proper remedy to the current antitrust case should 

be sufficient to steer Microsoft towards its benign strategy, while assuring an adequate response if it fails to follow this procompetitive lead. 

Such a remedy must be strong but also effectively and efficiently enforceable. The 

fatal weakness in the proposed decree is not so much the extent of the restrictions 

on Microsoft’s behavior, as it is the weaknesses in the proposed mechanisms for enforcement. Fixing that flaw is no doubt necessary to assure an adequate decree. In 

my view, it may also be sufficient. 

84

THE PROPOSED DECREE

While the proposed decree is not a model of clarity, the essence of its strategy 

is simply stated: To use the market to police Microsoft’s monopoly. The decree does 

this by assuring that computer manufacturers and software vendors remain free to 

bundle and support non-Microsoft software without fear of punishment by Microsoft. 

Dell or Compaq are thus guaranteed the right to bundle browsers from Netscape 

or media players from Apple regardless of the mix that Microsoft has built into Windows. Autonomy from Microsoft is thus the essence of the plan—the freedom to include any ‘‘middleware’’ software with an operating system regardless of whether or 

not it benefits Microsoft. 

If this plan could be made to work, it would be the ideal remedy to this four year 

struggle. Government regulators can’t know what should or should not be in an operating system. The market should make that choice. And if competitors and computer manufacturers could be assured that they can respond to the demands of the 

market without fear of retaliation by Microsoft, then in my view they would play 

a sufficient role in checking any misbehavior by Microsoft. 

The weakness in the proposed decree, however, is its failure to specify any effective mechanism for assuring that Microsoft complies. The central lesson that regulators should have learned from this case is the inability of the judicial system to 

respond quickly enough to violations of the law. 

Thus the first problem that any proposed decree should have resolved is a more 

efficient way to assure that Microsoft complies with the decree’s requirements. 

Under the existing system for enforcement, by the time a wrong is adjudicated, the 

harm of the wrong is complete. 

Yet the proposed decree does nothing to address this central problem. The decree 

does not include provision for a special master, or panel of masters, to assure that 

disagreements about application could be quickly resolved. Nor does it provide an 

alternative fast-track enforcement mechanism to guarantee compliance. 

Instead the decree envisions the creation of a Committee of technical experts, 

trained in computer programming, who will oversee Microsoft’s compliance. But 

while such expertise is necessary in the ongoing enforcement of the decree, equally 

important will be the interpretation and application of the decree to facts as they 

arise. This role cannot be played by technical experts, and yet in my view,this is 

the most important role in the ongoing enforcement of the decree. 

For example, the decree requires that Microsoft not retaliate against an independent software vendor because that vendor develops or supports products that 

compete with Microsoft’s. Proposed Decree, § III.B. By implication, this means 

Microsoft would be free to retaliate for other reasons unrelated to the vendor’s competing software. Whether a particular act was ‘‘retaliation’’ for an improper purpose 

is not a technical question. It is an interpretive question calling upon the skills of 

a lawyer. To resolve that question would therefore require a different set of skills 

from those held by members of the technical Committee. 

The remedy for this weakness is a better enforcement mechanism. As the nine 

remaining states have suggested, a special master with the authority to interpret 

and apply the decree would assure a rapid and effective check on Microsoft’s improper behavior. While I suggest some potential problems with the appointment of 

a special master in the final section of this testimony, this arrangement would assure effective monitoring of Microsoft, subject to appeal to the District Court. 

The failure to include an effective enforcement mechanism is, in my view, the 

fatal weakness in the proposed decree. And while I agree with the nine remaining 

states that there are other weaknesses as well, in my view these other weaknesses 

are less important than this single flaw. More specifically, in my view, were the decree modified to assure an effective enforcement mechanism, then it may well suffice to assure the decree’s success. Without this modification, there is little more 

than faith to assure that this decree will work. With this modification, even an incompletely specified decree may suffice. 

The reason, in my view, is that even a partial, yet effectively enforced decree, 

could be sufficient to steer Microsoft away from strategic behavior harmful to competition. Even if every loophole is not closed, if the decree can be effectively enforced, then it could suffice to push Microsoft towards a benign, pro-competitive 

strategy. The proposed decree has certainly targeted the most important opportunity 

for strategic, or anti-competitive, behavior. If the chance to act on these without consequence is removed, then in my view, Microsoft has a strong incentive to focus its 

future behavior towards an implementation of its .NET strategy that would reinforce rather than weaken the competitive field. An effective, if incomplete, decree 

could, in other words, suffice to drive Microsoft away from the pattern of strategic 

behavior that has been proven against it in the Court of Appeals. 

85

4This is the argument of David Bank’s Breaking Windows: How Bill Gates Fumbled the Future of Microsoft (New York: Free Press, 2001). 

There are those who believe Microsoft will adopt this benign strategy whether or 

not there is a remedy imposed against them. Indeed, some within Microsoft apparently believe that supporting a neutral open platform is in the best interests of the 

company.4 Given the significant findings of liability affirmed by the Court of Appeals, I do not believe it is appropriate to leave these matters to faith. But I do believe that a remedy can tilt Microsoft towards this better strategy, at least if the 

remedy can be efficiently enforced. 

THE NINE STATES’ ALTERNATIVE

On Friday, December 7, 2001, the nine states that have not agreed to the proposed consent decree outlined an alternative remedy to the one proposed by the Justice Department. In many ways, I believe this alternative is superior to the Justice 

Department’s proposed decree. This alternative more effectively protects against a 

core strategy attacked in the District Court—the commingling of code designed to 

protect Microsoft’s monopoly power. It has an effective enforcement provision, envisioning the appointment of a special master. The alternative has a much stronger 

mechanism for adding competition to the market—by requiring that Microsoft continue to market older versions of its operating system in competition with new 

versions. And finally, the alternative requires that Microsoft continue to distribute 

Java technologies as its has in prior Windows versions. 

The alternative, however, goes beyond what in my view is necessary. And while 

in light of the past, erring on the side of overly protective remedies might make 

sense, I will describe a few areas where the alternative may have gone too far, after 

a brief description of a few of the differences that I believe are genuine improvements. 

Areas of Common Strategy 

Both the proposed decree and the alternative agree on a common set of strategies 

for restoring competition in the market place. Both seek to assure autonomy for 

computer manufacturers and software vendors to bundle products on the Microsoft 

platform differently according to consumer demand. Both decrees aim at that end 

by guaranteeing nondiscriminatory licensing practices, and restrictions on retaliation against providers who bundle or support non-Microsoft products. The alternative specifies this strategy more cleanly than the proposed decree. It is also more 

comprehensive. But both are aiming rightly at the same common end: to empower 

competitors to check Microsoft’s power. 

Improvements of the Alternative 

The alternative remedy adds features to the proposed decree that are in my view 

beneficial. Central among these is the more effective enforcement mechanism. The 

alternative proposes the establishment of a special master, with sufficient authority 

to oversee compliance. This, as I’ve indicated, is a necessary condition of any successful decree, and may also be sufficient. 

Beyond this significant change, however, there are a number of valuable additions 

in the states’ alternative. By targeting the ‘‘binding’’ of middleware to the operating 

system, the alternative more effectively addresses a primary concern of the Court 

of Appeals. This restriction assures that Microsoft does not architect its software in 

a way that enables it strategically to protect itself against competition. Such binding 

was found by the courts to make it costly for users to select competing functionality, 

without any compensating pro-competitive benefit. 

The alternative also assures much greater competition with new versions of the 

Windows operating system by requiring that prior versions continue to be licensed 

by Microsoft. This competition would make it harder for Microsoft to use its monopoly power to push users to adopt new versions of the operating system that advance 

Microsoft’s strategic objectives, but not consumer preferences. 

Finally, the alternative addresses a troubling decision by Microsoft to refuse to 

distribute Java technologies with Windows XP. This decision by Microsoft raises a 

significant concern that Microsoft is determined to continue to play strategically to 

strengthen the applications barrier to entry. 

Concerns about the proposed alternative 

While I believe the alternative represents a significant improvement over the proposed consent decree, I am concerned that the alternative may go beyond the proper 

scope of the remedy. 

86

Open Sourcing Internet Explorer: While I am a strong supporter of the free and 

open source software movements, and believe software of both varieties is unlikely 

ever to pose any of the same strategic threats that closed source software does, I 

am not convinced the requirement of open sourcing Internet Explorer is yet required, or even effective. Both proposed remedies have a strong requirement that 

application interfaces be disclosed, and until that remedy proves incomplete, I don’t 

believe the much more extreme requirement of full disclosure of source code is merited. 

The definition of Middleware Products: The central target of the litigation was 

Microsoft’s behavior with respect to middleware software. Understood in terms relevant to this case, middleware software is software that lowers the applications barrier to entry by reducing the cost of cross-compatibility. Java tied to the Netscape 

browser is an example of middleware so understood; had it been successfully and 

adequately deployed, it would have made it easier for application program developers to develop applications that were operating system agnostic, and therefore 

would have increased the demand for other competing operating systems. 

This definition is consistent with the alternative definition of ‘‘middleware.’’ But 

the specification of ‘‘middleware products’’ reaches, in my view, beyond the target 

of ‘‘middleware.’’ Middleware is not properly understood as software that increases 

the number of cross-platform applications; middleware is software that increases the 

ease with which cross-platform programs can be written. Thus, for example, Office 

is not middleware simply because it is a cross-platform program. It would only qualify as middleware if it made it easier for programmers to write platform-agnostic 

code. 

The requirement that Office be ported: For a similar reason, I am not convinced 

of the propriety of requiring that Office be ported. While Office for the Macintosh 

is certainly a crucial application for the continued viability of the Macintosh OS, 

having Office on many platforms does not significantly affect the applications barrier to entry. No doubt if Microsoft strategically pulled the development of Office 

in order to defeat another operating system, or if it aggressively resisted applications that were designed to be compatible with Office (such as Sun’s Star Office), 

that could raise antitrust concerns. But the failure simply to develop office for another platform would not itself respond to the concerns of the Court of Appeals. 

No doubt, each of these additional remedies might be conceived of as necessary 

prophylactics given a judgment that Microsoft is resolved to continue its strategic 

anticompetitive behavior. And after a fair and adequate hearing in the District 

Court, such a prophylactic may well prove justified. At this stage, however, I am 

not convinced these have been proven necessary. 

APPROPRIATE CONGRESSIONAL ACTION

It is obviously inappropriate for Congress to intervene in an ongoing legal dispute 

with the intent to alter the ultimate judgment of the judicial process. Thus while 

I believe it is extremely helpful and important that this Committee review the matters at stake at this time, there is a limit to what this Committee can properly do. 

In a system of separated powers, Congress does not sit in judgment over decisions 

by Courts. 

Yet there are two aspects to this case that do justify a greater concern by Congress. Both aspects are intimately tied to earlier decisions by the Court of Appeals. 

First, in light of the Court of Appeals’ judgment in the 1995 Microsoft litigation, 

United States v. Microsoft Corporation, 56 F.3d 1448 (D.C. Cir. 1995) (Microsoft I), 

it is clear that the Tunney Act proceedings before the District Court are extraordinarily narrow. Second, in light of the Court of Appeals’ judgment in 1998 Microsoft litigation, Microsoft II, it is not clear that, absent consent of the parties, the 

District Court has the power to appoint a special master with the necessary authority to assure enforcement of any proposed remedy. Both concerns may justify this 

Committee taking an especially active role to assure a proper judgment can be 

reached—in the first case through its consultation with the executive, and the second, possibly with clearer legislative authority. 

The Tunney Act Proceedings 

In Microsoft I, the Court of Appeals for the D. C. Circuit held that the District 

Court’s authority under the Tunney Act to question a consent decree proposed by 

the government was exceptionally narrow. Though that statute requires that the 

District Court assure that any consent decree is ‘‘within the public interest,’’ the 

Court read that standard to be extremely narrow. If the decree can be said to be 

within ‘‘the reaches of the public interest,’’ Microsoft I, 56 F.3d at 1461, then it is 

to be upheld. 

87

The consequence of this holding is that it will be especially hard for the District 

Court to question the government’s proposed decree. Absent a showing of corruption, 

the decree must be affirmed. It is hard for me to imagine that the proposed decree 

would fail this extremely deferential standard. Thus any weaknesses in the proposed decree would have to be resolved in the parallel proceedings being pursued 

by the nine states. 

This deference may be a reason for Congress in the future to revisit the standard 

under the Tunney Act. Such a review could not properly affect this case, but concerns about this case may well suggest the value in future contexts. 

But the concern about this decree may well be relevant to this Committee’s view 

about the appropriateness of the government’s cooperation with any ongoing prosecution by the nine states. The federal government may well have decided its remedy is enough; it wouldn’t follow from that determination that the federal government has a reason to oppose the stronger remedies sought by the states. At a minimum, the government should free advisors or consultants it has worked with to aid 

the continuing states as they may desire. 

The power to appoint a ‘‘special master’’

In Microsoft II, the Court of Appeals interpreted a District Court’s power to appoint a special master quite narrowly. While the Court acknowledged the strong tradition of using special masters to enforce judgments, it raised doubt about the power 

of the special master to act beyond essentially ministerial tasks. In particular, the 

task of interpreting and applying a consent decree to contested facts was held by 

the Court of Appeals to be beyond the statute’s power—at least where the District 

Court did not reserve to itself de novo review of the special master’s determination. 

Microsoft II, 147 F.3d at 953–56. 

This narrow view of a special master’s power was a surprise to many. It may well 

interfere with the ability of District Courts to utilize masters in highly technical or 

complex cases. This Committee may well need to consider whether more expansive 

authority should be granted the District Courts. Especially in the context of highly 

technical cases, a properly appointed master can provide invaluable assistance to 

the District Court judge. 

These limitations would not, of course, restrict the appointment of a master in 

any case to which the parties agreed. And it may well be that the simplest way for 

Microsoft to achieve credibility in the context of this case would be for it to agree 

to the appointment of a master with substantial authority to interpret and apply 

the decree, subject to de novo review by the District Court. Such a master should 

be well trained in the law, but also possess a significant degree of technical knowledge. But beyond the particulars of this case, it may well be better if the District 

Court had greater power to call upon such assistance if such the Court deemed such 

assistance necessary.

Statement of Mitchell E. Kertzman, Chief Executive Officer, Liberate 

Technologies, San Carlos, California 

f Introduction 

Mr. Chairman, Senator Hatch, and other members of the Committee, thank you 

for the chance to speak on this critical topic. The Proposed Final Judgment is woefully inadequate. It is a backward-looking document that fails to prevent Microsoft 

from abusing its monopoly position to increase costs and stifle new technologies—

not just for personal computers, but also for new technologies like digital televisions, 

cellular phones, game consoles, and personal digital assistants. 

Microsoft has already announced its intent to expand its dominance beyond PC 

operating systems, servers, and applications to new devices and even personal information via its ‘‘eHome’’ and ‘‘Passport’’ initiatives. According to comments made by 

Microsoft President Steve Ballmer just last week, Microsoft is pursuing a ‘broader 

concept’’ for its client devices like the xBox and set-top box software. In his words, 

‘‘[T]here’s a bigger play we hope to get over time’’ by annexing all of these devices 

into the Microsoft empire. Microsoft’s own demos and white papers show that it 

plans to establish its operating system as the software that would collect information streaming into the home and distribute it to each new device. 

Microsoft has used and will continue to use its monopoly over desktop operating 

systems to deny competition in each new computing market as it evolves: first desktop applications, then internet browsers and servers, and now alternative devices 

ranging from smart phones to television set-top boxes. 

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By dealing only with a narrow category of Windows products, and failing even 

there to impose any significant restrictions, the Proposed Final Judgment fails to 

check Microsoft’s demonstrated willingness to exploit its power over the operating 

system in order to dominate other market segments. 

Background 

By way of personal background, I am the CEO of Liberate Technologies, a company making middleware software that enables interactive and enhanced television. 

Before joining Liberate, I was Chairman and CEO of Sybase, then one of the world’s ten largest independent software companies, founder and CEO of Powersoft, an enterprise software company, and Chairman of both the American Electronics Association and the Massachusetts Software Council. I am also currently a director of 

CNET, Handspring, and TechNet. 

Throughout my career, I have both partnered with and competed against Microsoft. I have been impressed by the power of its dominant platforms, but also concerned about the abuses that resulted from that dominance. I have seen Microsoft 

consistently use its power to block competition in new markets through at least 

three types of misconduct that the PFJ does nothing to deter: (1) Preventing original 

equipment manufacturers from supporting new technologies; (2) Tying commercial 

restrictions to investments; and (3) Blocking non-Windows-based industry standards. 

(1) Preventing Original Equipment Manufacturers from Supporting New Technologies 

My current company, Liberate, was originally Network Computer Incorporated, 

promoting computers and software that would operate via a network to significantly 

reduce the cost of computing. This model, like the Netscape browser, threatened the 

dominance of the Windows platform. But because the manufacturers of many new 

devices also manufacture desktop PCs, Microsoft was able to exploit its desktop 

OEM relationships to discourage competition. For example, Network Computer had 

an active relationship with Digital Equipment Corporation to develop a device running our software. Microsoft and Mr. Gates simply threatened the CEO of DEC that 

they would port Microsoft’s NT operating system to DEC hardware only if DEC 

stopped development of a network computer, an offer DEC couldn’t refuse. It’s clear, 

and the courts have reaffirmed, that a monopoly simply cannot engage in this kind 

of conduct. 

Such tactics forced us to exit this business, and the price of PC operating systems 

and applications remains as high as ever when all other computing costs have plummeted. 

The Proposed Final Judgment focuses only on Windows products for desktop PCs 

and includes broad and ambiguous exceptions to its limits on retaliation. These loopholes would apparently let Microsoft get away with the kind of misconduct it perpetrated against Network Computer. The result would be to block or delay the development of new competitive devices and technologies. The remedy proposed by the 

non-settling states would, on the other hand, prevent Microsoft from engaging in 

this type of retaliation and unfairly extending its desktop monopoly to a wider array 

of software and devices. 

Tying Commercial Restrictions to Investments 

Second, in investing the considerable proceeds of its desktop monopoly in new 

markets, Microsoft has extracted, or attempted to extract, exclusive or near-exclusive commercial distribution arrangements to block out competitors. In the interactive television industry alone, Microsoft has invested billions of dollars with leading cable and satellite networks. As recently as this week, Microsoft has again aggressively pursued this strategy with leading operators both here and in Europe. 

The strings attached to these investments often require networks to buy Microsoft’s 

middleware, making it difficult or impossible for them to buy competitive products. 

Microsoft’s money is a heavy thumb on the scale, biasing choices of future technologies in its favor. As new-generation computers and small consumer devices often 

rely on networks for their interconnections, these investments in network companies 

set the stage for continued dominance of these new platforms as they evolve. 

Again, the PFJ fails to even address the issue of such restrictive dealings outside 

the scope of desktop products. In contrast, the remedies filed last week by the nonsettling states, while not barring new investments, would at least require that 

Microsoft give 60 days notice to permit a review of anti-competitive effects. 

(3) Refusing to Support Non-Windows-Based Industry Standards 

Microsoft has also abused its monopoly position by blocking industry-wide standards essential to the evolution of a new generation of network-based devices. In our 

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1 15 U.S.C. § 16(b)–(h). 

industry, Microsoft has undermined Java as a standard for digital television, lobbying heavily to prevent U.S. and European standards bodies from standardizing on 

Java. As you know, Java lets developers ‘‘write once, run anywhere’’, permitting content to run across a wide variety of platforms rather than just on Microsoft’s proprietary code. 

As a second prong of this strategy to block, co-opt, or ‘‘embrace and extend’’ standards, Microsoft has refused to join with other technology companies in pooling its 

intellectual property, instead indicating that it will sue to block the implementation 

of standards wherever it can find a violation of one of its patents. Microsoft certainly has the right not to support a standard. However, they are exploiting their 

dominance in the PC market to distort standards elsewhere. 

Third, by removing the Java Virtual machine from its PC operating systems while 

the JVM is common elsewhere, Microsoft discourages developers from creating new 

‘‘write-once, run-anywhere’’ content, undermines support for uniform standards, and 

drives developers to write to proprietary Microsoft platforms. 

It is clear that Microsoft’s foot-dragging and affirmative interference has slowed 

the deployment of digital television in the United States. Cable companies and television manufacturers both say that a gating issue has been the lack of a definitive 

standard for digital television, a standard that Microsoft’s tactics have delayed and 

undermined. Microsoft’s approach stands in direct opposition to the clearly expressed will of Congress and the interests of all Americans interested in richer and 

more varied television programming. 

Yet again, the PFJ would do nothing to prevent these abuses. The remedies recently filed by the non-settling states—by making available Microsoft APIs and certain types of code, opening access to the personal identification data captured by 

Microsoft Passport, and requiring the distribution of the Java Virtual Machine—

would promote technology interoperability and the development of universally beneficial standards while maintaining relatively open alternatives to Microsoft software 

and services. 

Conclusion 

The PFJ is a disappointment. Disappointing because it is weaker than the facts 

and the law of the case support, and disappointing because it will not limit 

Microsoft’s plans to dominate new markets in the same way it has dominated operating systems, applications, and servers in the past. 

I welcome this hearing, and hope that this Committee will continue to exercise 

vigorous oversight of this case to assure that the final outcome is in the best interests of American consumers.

Statement of Charles F. (Rick) Rule, Counsel, Fried, Frank, Harris, Shriver 

& Jacobson, Counsel for Microsoft Corporation, Washington, D.C. 

f Mr. Chairman and members of the Committee, good morning. It is a pleasure to 

appear before you today on behalf of Microsoft Corporation to discuss the proposed 

consent decree or Revised Proposed Final Judgment (the ‘‘PFJ’’) to which the U.S. 

Department of Justice and nine of the plaintiff states have agreed. As this Committee is aware, I am counsel to Microsoft in the case and was one of the principal 

representatives for the company in the negotiations that led to the proposed consent 

decree. 

The PFJ was signed on November 6th after more than a month of intense, around 

the clock negotiations with the Department and representatives of all the plaintiff 

states. The decree is currently subject to a public interest review by Judge KollarKotelly under the Tunney Act 1. Because we are currently in the midst of that review and because nine states and the District of Columbia have chosen to continue 

the litigation, I must be somewhat circumspect in my remarks. However, what I 

can—indeed, must—stress is that, in light of the Court of Appeals’ decision last 

summer to ‘‘drastically’’ reduce the scope of Microsoft’s liability and in light of the 

legal standards for imposing injunctive relief, the Department and the settling 

states were very effective in negotiating for broad, strong relief. As the chart in the 

appendix depicts, ever since the Department and the plaintiff states first filed their 

complaints in May 1998, the case has been shrinking. What began with five claims, 

was whittled down to a single monopoly maintenance claim by a unanimous Court 

of Appeals. Even with respect to that surviving claim, the appellate court affirmed 

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2 Initially the plaintiff states included an additional section 2 claim based on Microsoft Office; 

however, they voluntarily dropped that claim in their amended complaint. 

Judge Jackson’s findings on only about a third (12 of 35) of the specific acts which 

the district court had found support that claim. 

Given that history and the law, there is no reasonable argument that the PFJ is 

too narrow or that it fails to achieve all the relief to which the Department was entitled. In fact, as these remarks explain, the opposite is true—faced with tough, determined negotiators on the other side of the table, Microsoft agreed to a decree that 

goes substantially beyond what the plaintiffs were likely to achieve through litigation. Quite frankly, the PFJ is the strongest, most regulatory conduct decree ever 

obtained (through litigation or settlement) by the Department. 

Why then, one might ask, would Microsoft consent to such a decree? There are 

two reasons. First, the company felt strongly that it was important to put this matter behind it and to move forward constructively with its customers, its business 

partners, and the government. For four years, the litigation has consumed enormous 

resources and been a serious distraction. The constant media drumbeat has obscured the fact that the company puts a premium on adhering to its legal obligations and on developing and maintaining excellent relationships with its partners 

and customers. Litigation is never a pleasant experience, and given the magnitude 

of this case and the media attention it attracted, it is hard to imagine any more 

costly, unpleasant civil litigation. 

Second, while the Department pushed Microsoft to make substantial, even excessive concessions to get a settlement, there were limits to how far the company was 

willing or able to go (limits, by the way, which the Department and the settling 

states managed to reach). Microsoft was fighting for an important principle—the 

ability to innovate and improve its products and services for the benefit of consumers. To that end, Microsoft insisted that the decree be written in a way to allow 

the company to engage in legitimate competition on the merits. Despite the substantial burdens the decree will impose on Microsoft and the numerous ways in which 

Microsoft will be forced to alter its conduct, the decree does preserve Microsoft’s 

ability to innovate, to improve its products, and to engage in procompetitive business conduct that is necessary for the company to survive. 

In short, at the end of the negotiations, Microsoft concluded that the very real 

costs that the decree imposes on the company are outweighed by the benefits, not 

just to Microsoft but to the PC industry and consumers generally. 

The Court of Appeals’ ‘‘Road Map’’for Relief 

In order to evaluate the decree, one must first appreciate the history of this case 

and how drastically the scope of Microsoft’s liability was narrowed at the appellate 

level. When this case began with the filing of separate complaints by the Department and the plaintiff states in May of 1998, it was focused on Microsoft’s integration of browsing functionality called Internet Explorer or IE into Windows 98, which 

the plaintiffs alleged to be an illegal tying arrangement. 

The complaints of the Department and the states included five separate claims: 

(1) a claim under section 1 of the Sherman Act that the tie-in was per se illegal; 

(2) another claim under section I that certain promotion and distribution agreements with Internet service providers (ISPs), Internet content providers (ICPs), and 

on-line service providers (OSPs) constituted illegal exclusive dealing; (3) a claim 

under section 2 of the Sherman Act that Microsoft had attempted to monopolize 

Web browsing software; (4) a catch-all claim under section 2 that the alleged conduct that underlay the first three claims amounted to illegal maintenance of 

Microsoft’s monopoly in PC operating systems; and (5) a claim by the plaintiff states 

(but not part of the Department’s complaint) under section 2 that Microsoft illegally 

‘‘leveraged’’ its monopoly in PC operating systems.2 As discovery got underway, the 

case dramatically expanded as the plaintiffs indiscriminately began identifying all 

manner of Microsoft conduct as examples of the company’s illegal efforts to maintain 

its monopoly. But then, the case began to shrink. 

• In response to Microsoft’s motion for summary judgment, the district court dismissed the states’ Monopoly leveraging claim (claim 5). 

• After trial, Judge Jackson held that the plaintiffs failed to prove that 

Microsoft’s arrangements with ISPs, ICPs, and OSPs violated section 1 (claim 

2). 

• Judge Jackson did, however, conclude that the plaintiffs had sustained their 

claims that Microsoft illegally tied IE to Windows (claim 1), illegally attempted 

to monopolize the browser market (claim 3), and illegally maintained its monopoly (claim 4), basing his decision on 35 different actions engaged in by Microsoft. 

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3 As indicated above, all that remained for the tie-in claim was the recognition by the plaintiffs that they could not establish the unreasonableness of Microsoft’s integration of IE into Windows under the appellate court’s rule of reason test. That recognition came when the Department informed Microsoft on September 6, that the plaintiffs would not be pursuing the tie-in 

claim on remand. At the same time, the plaintiffs informed the court that, in light of the Court 

of Appeals’ decision, they would not be seeking divestiture. 4 United States v. Microsoft, 253 F.3d 34, 105 (D.C.Cir. 2001). 

• In a unanimous decision of the Court of Appeals sitting en banc, the court reversed the trial court on the attempted monopolization claim (claim 3) and remanded with instructions that judgment be entered on that claim in favor of 

Microsoft. 

• The unanimous court also reversed Judge Jackson’s decision with respect to the 

tie-in claim (claim 1). The appellate court held that, in light of the prospect of 

consumer benefit from integrating new functionality into platform software such 

as Windows, Microsoft’s integration of IE into Windows had to be judged under 

the rule of reason rather than the per se approach taken by Judge Jackson. The 

Court of Appeals refused to apply the per se approach because of ‘‘our qualms 

about redefining the boundaries of a defendant’s product and the possibility of 

consumer gains from simplifying the work of applications developers [by ensuring the ubiquitous dissemination of compatible APIs].’’ The court’s decision did 

allow the plaintiffs on remand to pursue the tie-in claim on a rule of reason 

theory; however, shortly after the remand, the plaintiffs announced they were 

dropping the tie-in claim. 

• With respect to the only remaining claim (monopoly maintenance—claim 4), the 

Court of Appeals affirmed in part and reversed in part the lower court and substantially shrank Microsoft’s liability. After articulating a four-step burdenshifting test that is highly fact intensive, the appellate court reviewed the 35 

different factual bases for liability and rejected nearly two-thirds of them. 

• In the case of seven of those 35 findings (concerning such conduct as 

Microsoft’s refusal to allow OEMs to replace the Windows desktop, Microsoft’s 

design of Windows to ‘‘override the user’s choice of a default browser,’’ and 

Microsoft’s development of a Java virtual machine (JVM) that was incompatible 

with Sun’s JVM), the appellate court specifically reversed Judge Jackson’s decision. 

• The Court of Appeals dismissed sixteen of the remaining findings by reversing Judge Jackson’s holding that Microsoft had engaged in a general ‘‘course of 

conduct’’ that amounted to illegal monopoly maintenance—the so-called ‘‘monopoly broth’’ theory. 

• With respect to the remaining twelve findings (concerning such things as 

Microsoft’s refusal to allow PC manufacturers (OEMs) to remove end-user access to IE, Microsoft’s exclusive arrangements with ISPs, and its ‘‘commingling’’

of software code to frustrate OEMs ability to hide access to IE), the court did 

affirm Judge Jackson’s findings as not being ‘‘clearly erroneous.’’ And even as 

to those twelve, a number were practices—for example, the arrangements with 

ISPs—that Microsoft had already ceased. 

As a result, when the case was remanded to the district court and reassigned to 

Judge Kollar-Kotelly, four-fifths of the original claims were all but gone.3 With respect to the sole surviving claim, nearly two-thirds of the supporting findings had 

been rejected by the Court of Appeals. In the words of the Court of Appeals, its decision ‘‘drastically altered the scope of Microsoft’s liability.’’4

The Relevance of the Drastic Narrowing of Liability 

The Court of Appeals’ decision makes clear the critical significance of the drastic 

reduction in the scope of Microsoft’s liability in terms of the relief to which the 

plaintiffs are entitled. As the court noted in instructing the lower court on how the 

remand for remedy should be handled, 

‘‘A court . . . must base its relief on some clear ‘indication of a significant 

causal connection between the conduct enjoined or mandated and the violation 

found directed toward the remedial goal intended.’ 3 PHILLIP E. AREEDA & 

HERBERT HOVENKAMP, ANTITRUST LAW ¶ 653(b), at 91–92 (1996). In a 

case such as the one before us where sweeping equitable relief is employed to 

remedy multiple violations, and some—indeed most—of the findings of remedial 

violations do not withstand appellate scrutiny, it is necessary to vacate the remedy decree since the implicit findings of causal connection no longer exist to 

warrant our deferential affirmance. . . . In particular, the [district] court 

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5 Id. (emphasis added). 6This hearing, it should be noted, occurred after the plaintiffs had dropped their request for 

divestiture relief. 7Transcript of Scheduling Conference before the Honorable Colleen Kollar-Kotelly, September 

28, 2001, at 8. 8 Id. 9 Id. 10The Declaration of Kenneth J. Arrow was attached as an exhibit to the Memorandum of 

the United States in Support of Motion to Enter Final Judgment, filed on January 18, 1995, 

with the District Court in support of the Department’s 1994 consent decree with Microsoft. 

should consider which of the decree’s conduct restrictions remain viable in light 

of our modification of the original liability decision.’’5

At the time Judge Kollar-Kotelly ordered the parties into intensive negotiations, 

she clearly recognized the importance of the drastic alteration to the scope of 

Microsoft’s liability.6 The judge informed the government that its ‘‘first and most obvious task is going to be to determine which portions of the former judgment remain 

appropriate in light of the appellate court’s ruling and which portions are unsupported following the appellate court’s narrowing of liability.’’7 The judge went on to 

note that ‘‘the scope of any proposed remedy must be carefully crafted so as to ensure that the enjoining conduct falls within the [penumbra] of behavior which was 

found to be anticompetitive.’’8 The judge also stated that ‘‘Microsoft argues that 

some of the terms of the former judgment are no longer appropriate, and that is 

correct. I think there are certain portions where the liability has been narrowed.’’9

Before discussing the negotiations and the decree itself, I would like to make 

three other points about the crafting of antitrust remedies that also are relevant to 

considering the relief to which the plaintiffs were entitled. First, the critics of the 

PFJ routinely ignore the fact that the Department has long acknowledged that 

Microsoft lawfully acquired its monopoly position in PC operating systems. Indeed, 

the Department retained a Nobel laureate in the first Microsoft case in 1994 to submit an affidavit to the district court opining that Microsoft had reached its position 

in PC operating systems through luck, skill, and foresight.10 It is true of course that 

Microsoft has now been found liable for engaging in conduct that amounted to illegal efforts to maintain that position; however, there is precious little in the record 

establishing any causal link between the twelve illegal acts of ‘‘monopoly maintenance’’ and Microsoft’s current position in the market for PC operating systems. 

Thus, contrary to the critics’ overheated rhetoric, there is no basis for relief designed 

to terminate an ‘‘illegal monopoly.’’

Second, decrees in civil antitrust cases are designed to remedy, not to punish. All 

too often, the critics of this decree speak as though Microsoft was convicted of a 

crime. It was not. This is a civil case, subject to the rules of civil rather than criminal procedure. To the extent the plaintiffs tried to get relief that could be deemed 

punitive, that relief would have been rejected. 

Third, a decree must serve the purposes of the antitrust laws, which is a ‘‘consumer welfare prescription.’’ I realize we are in the ‘‘season of giving,’’ but an antitrust decree is not a Christmas tree to fulfill the wishes of competitors, particularly 

where that fulfillment comes at the expense of consumer welfare. Calls for royaltyfree licensing of Microsoft’s intellectual property, or for imposing obligations on 

Microsoft to distribute third party software at no charge, or for Microsoft to facilitate the distribution of an infinite variety of bastardized versions of Windows (and 

make sure they all run perfectly) are great for a small group of competitors who 

know that such provisions will quickly destroy Microsoft’s incentives and ability to 

compete (not to mention violate the Constitution’s proscription against ‘‘takings’’). 

Such calls, however, are anathema to consumers’ interests in a dynamic, innovative 

computer industry. Twenty years ago, my old boss and antitrust icon, Bill Baxter, 

warned about the anticompetitive consequences of antitrust decrees designed simply 

to ‘‘add sand to the saddlebags’’ of a particularly fleet competitor like Microsoft. It’s 

a warning the courts would certainly heed today. 

To their credit, the negotiators for the Department and the settling states understood these three fundamental antitrust principles. While we may have had to remind the other side of these principles from time to time, we did not have to negotiate for their adherence to them. Taxpayers and consumers can be proud that their 

interests were represented by honorable men and women with the utmost respect 

for the rule of law. For others to insinuate that, by agreeing to a decree that honors 

these three fundamental principles, the Department and the settling states ‘‘caved’’

or settled for inadequate relief is as offensive as it is laughable. 

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11 Eric D. Green and Jonathan B. Marks, How We Mediated the Microsoft Case, Boston Globe, 

at A23 (November 15, 2001). 12Mr. O’Connor, as well as attorneys in the office of the New York Attorney General, had 

served as counsel of record for the states in the litigation. 13Green and Marks, supra fn. 11. 

The Negotiations 

It is against the background I have sketched that, on September 27th, Judge 

KollarKotelly ordered the parties into intensive, ‘‘around the clock’’ negotiations. 

Microsoft had already indicated publicly its strong desire to try to settle the case, 

and so it welcomed the judge’s order. As has been widely reported, all the parties 

in the case took the court’s order very seriously. Microsoft assembled in Washington, 

D.C., a core team of in-house and outside lawyers who have been living with this 

case for years, and who spent virtually all of the next five weeks camped out in my 

offices down the street. Microsoft’s top legal officer was in town during much of the 

period directing the negotiations. Back in Redmond, the company’s most senior executives devoted a great deal of time and energy to the process, and we were all 

supported by a large group of dedicated lawyers, businesspeople, and staff. 

From my vantage point, the Department and the states (at least those that settled) made an equivalent effort. As the mediator wrote after the process ended, ‘‘No 

party was left out of the negotiations. . . . Throughout most of the mediation the 

19 states (through their executive Committee representatives) and the federal government (through the staff of the antitrust division) worked as a combined ‘plaintiffs’ team.’’11 Jay Himes from the office of the New York Attorney General Eliot 

Spitzer and Beth Finnerty from the office of the Ohio Attorney General Betty Montgomery represented the states throughout the negotiations, putting in the same long 

hours as the rest of us. At various points Mr. Himes and Ms. Finnerty were joined 

by representatives from other states, including Kevin O’Connor from the office of 

Wisconsin Attorney General James Doyle.12

The negotiations began on September 28th and continued virtually non-stop until 

November 6th. During the first two weeks, we negotiated without the benefit of a 

mediator. As they say in diplomatic circles, the discussions were ‘‘full and frank.’’ The Department lawyers and the state representatives in the negotiation were extremely knowledgeable, diligent, and formidable. 

Microsoft certainly hoped to be able to reach a settlement quickly and before a 

mediator was designated. However, the views on all sides were sufficiently strong 

and the need to pay attention to every sentence, phrase, and punctuation mark so 

overwhelming that reaching agreement proved impossible in those first two weeks. 

Eric Green, a prominent mediation specialist, was appointed by the court and with 

the help of Jonathan Marks spent the next three weeks helping the parties find 

common ground. As Professor Green and Mr. Marks wrote after the mediation 

ended, ‘‘Successful mediations are ones in which mediators and parties work to 

identify and overcome barriers to reaching agreement. Successful mediations are 

ones in which all the parties engage in reasoned discussions of issues that divide 

them, of options for settlement, and of the risks, opportunities, and costs that each 

party faces if a settlement isn’t reached. Successful mediations are ones in which, 

settle or not, senior representatives of each party have made informed and intelligent decisions. The Microsoft mediation was successful.’’ 13

Working day and night virtually until the original November 2 deadline set by 

the judge, Microsoft and the Department agreed to and signed a decree early on November 2. The representatives of the states also tentatively agreed, subject to an 

opportunity from November 2 until November 6 to confer with the other states that 

were more removed from the case and negotiations. During that period, the states 

requested several clarifying modifications to which Microsoft (and the Department) 

agreed. From press reports, it appears that during this period the plaintiff states 

also were being subjected to intense lobbying by a few of Microsoft’s competitors 

who were desperate either to get a decree that would severely cripple if not eventually destroy Microsoft or at least to keep the litigation (and the attendant costs imposed on Microsoft) going. Notwithstanding that pressure, New York, Wisconsin, 

and Ohio—the states that had made the largest investment in litigating against 

Microsoft and in negotiating a settlement—along with six other plaintiff states represented by a bipartisan group of state attorneys general signed onto the Revised 

PFJ on November 6. 

The Proposed Final Judgment 

Throughout the negotiations, Microsoft was confronted by a determined and tough 

group of negotiators for the Department and the states. They made clear that there 

would be no settlement unless Microsoft went well beyond the relief to which, MicroVerDate Feb 1 2002 17:04 Jan 16, 2003 Jkt 082938 PO 00000 Frm 00097 Fmt 6621 Sfmt 6621 C:\HEARINGS\82938.TXT SJUD4 PsN: CMORC
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14Transcript of Status Conference before the Honorable Colleen Kollar-Kotelly, November 2, 

2001, at 5. 

soft believes, the Court of Appeals opinion and the law entitles the plaintiffs. Once 

that became clear, Microsoft relented in significant ways, subject only to narrow language that preserved Microsoft’s ability to innovate and engage in normal, clearly 

procompetitive activities. Professor Green, the one neutral observer of this drama, 

has noted the broad scope of the prohibitions and obligations imposed on Microsoft 

by the PFJ, stating during the status conference with Judge Kollar-Kotelly that ‘‘the 

parties have not stopped at the outer limits of the Court of Appeals’ decision, but 

in some important respects the proposed final judgment goes beyond the issues affirmed by the Court of Appeals to deal with issues important to the parties in this 

rapidly-changing technology.’’14

I do not intend today to provide a detailed description of each provision of the 

PFJ; the provisions speak for themselves. It may come as something of a surprise 

in light of some of the uninformed criticism hurled at the decree, but one of 

Microsoft’s principal objectives during the negotiations was to develop proscriptions 

and obligations that were sufficiently clear, precise and certain to ensure that the 

company and its employees would be able to understand and comply with the decree 

without constantly engendering disputes with the Department. This is an area of 

complex technology and the decree terms on which the Department insisted entailed 

a degree of technical sophistication that is unprecedented in an antitrust decree. 

Drafting to these specifications was not easy, but the resulting PFJ is infinitely 

clearer and easier to administer than the conduct provisions of the decree that 

Judge Jackson imposed in June 2000. 

If, as one might suspect would be the outcome in a case such as this, the PFJ 

were written to proscribe only the twelve practices affirmed by the Court of Appeals, 

the decree would be much shorter and simpler. The Department and settling states, 

however, insisted that the decree go beyond just focused prohibitions to create much 

more general protections for a potentially large category of software, which the PFJ 

calls ‘‘middleware.’’ But even these expansive provisions to foster middleware competition were not sufficient to induce the Department and the states to settle; rather, they insisted that Microsoft also agree to additional obligations that bear virtually no relationship to any of the issues addressed by the district court and the 

Court of Appeals. And lastly they insisted on unprecedented enforcement provisions. 

I will briefly describe each of these three sets of provisions. 

1. Protections for ‘‘Middleware’’

The case that the plaintiffs tried and the narrowed liability that survived appellate review all hinged on claims that Microsoft took certain actions to exclude 

Netscape’s Navigator browser and Sun’s Java technology from the market in order 

to protect the Windows operating system monopoly. The plaintiffs successfully argued that Microsoft feared that Navigator and Java, either alone or together, might 

eventually include and expose a broad set of general purpose APIs to which software 

developers could write as an alternative to the Windows APIs. Since Navigator and 

Java can run on multiple operating systems, if they developed into general purpose 

platforms, Navigator and Java would provide a means of overcoming the ‘‘applications barrier’’ to entry and threaten the position of the Windows operating system 

as platform software. 

A person might expect that a decree designed to address such a monopoly maintenance claim would provide relief with respect to Web-browsing software and Java 

or, at most, to other general purpose platform software that exposes a broad set of 

APIs and is ported to run on multiple operating systems. The PFJ goes much further. The Department insisted that obligations imposed on Microsoft by the decree 

extend to a range of software that has little in common with Navigator and Java. 

The decree applies to ‘‘middleware’’ broadly defined to include, in addition to Webbrowsing software and Java, instant messaging software, media players, and even 

email clients—software that, Microsoft believes, has virtually no chance of developing into broad, general purpose platforms that might threaten to displace the 

Windows platform. In addition, there is a broad catch-all definition of middleware 

that in the future is likely to sweep other similar software into the decree. 

This sweeping definition of middleware is significant because of the substantial 

obligations it imposes on Microsoft. Those obligations—a number of which lack any 

correspondence to the monopoly maintenance findings that survived appellate review—are intended to create protections for all the vendors of software that fits 

within the middleware definition. Taken together, the decree provisions provide the 

following protections and opportunities: 

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• Relations with Computer Makers. Microsoft has agreed not to retaliate against 

computer makers who ship software that competes with anything in its Windows operating system. 

• Computer Maker Flexibility. Microsoft has agreed to grant computer makers 

broad new rights to configure Windows so as to promote non-Microsoft software 

programs that compete with features of Windows. Computer makers will now 

be free to remove the means by which consumers access important features of 

Windows, such as Internet Explorer, Windows Media Player, and Windows Messenger. Notwithstanding the billions of dollars Microsoft invests developing such 

cool new features, computer makers will now be able to replace access to them 

in order to give prominence to non-Microsoft software such as programs from 

AOL Time Warner or RealNetworks. (Additionally, as is the case today, computer makers can provide consumers with a choice—that is to say access to 

Windows features as well as to non-Microsoft software programs.) 

• Windows Design Obligations. Microsoft has agreed to design future versions of 

Windows, beginning with an interim release of Windows XP, to provide a mechanism to make it easy for computer makers, consumers and software developers 

to promote nonMicrosoft software within Windows. The mechanism will make 

it easy to add or remove access to features built in to Windows or to non-Microsoft software. Consumers will have the freedom to choose to change their configuration at any time. 

• Internal Interface Disclosure. Even though there is no suggestion in the Court 

of Appeals’ decision that Microsoft fails to disclose APIs today and even though 

the Court of Appeals’ holding on monopoly power is predicated on the idea that 

there are tens of thousands of applications written to call upon those APIs, 

Microsoft has agreed to document and disclose for use by its competitors various 

interfaces that are internal to Windows operating system products. 

• Relations with Software Developers. Microsoft has agreed not to retaliate 

against software or hardware developers who develop or promote software that 

competes with Windows or that runs on software that competes with Windows. 

• Contractual Restrictions. Microsoft has agreed not to enter into any agreements 

obligating any third party to distribute or promote any Windows technology exclusively or in a fixed percentage, subject to certain narrow exceptions that 

apply to agreements raising no competitive concern. Microsoft has also agreed 

not to enter into agreements relating to Windows that obligate any software developer to refrain from developing or promoting software that competes with 

Windows. 

These obligations go far beyond the twelve practices that the Court of Appeals 

found to constitute monopoly maintenance. One of the starkest examples of the extent to which these provisions go beyond the Court of Appeals decision relates to 

Microsoft’s obligations to design Windows in such a way as to give third parties the 

ability to designate non-Microsoft middleware as the ‘‘default’’ choice in certain circumstances in which Windows might otherwise be designed to utilize functionality 

integrated into Windows. As support for his monopoly maintenance conclusion, 

Judge Jackson had relied on several circumstances in which Windows was designed 

to override the end users’ choice of Navigator as their default browser and instead 

to invoke IE. The Court of Appeals, however, reviewed those circumstances and reversed Judge Jackson’s conclusion on the ground that Microsoft had ‘‘valid technical 

reasons’’ for designing Windows as it did. Notwithstanding this clear victory, Microsoft acceded to the Department’s demands that it design future versions of Windows 

to ensure certain default opportunities for non-Microsoft middleware. 

2. Uniform Prices and Server Interoperability 

Nevertheless, agreeing to this wide range of prohibitions and obligations designed 

to encourage the development of middleware broadly defined was not enough to get 

the plaintiffs to settle. Instead, they insisted on two additional substantive provisions that have absolutely no correspondence to the findings of monopoly maintenance liability that survived appeal. 

• Uniform Price List. Microsoft has agreed to license its Windows operating system products to the 20 largest computer makers (who collectively account for 

the great majority of PC sales) on identical terms and conditions, including 

price (subject to reasonable volume discounts for computer makers who ship 

large volumes of Windows). 

• Client/Server Interoperability. Microsoft has agreed to make available to its 

competitors, on reasonable and non-discriminatory terms, any protocols implemented in Windows desktop operating systems that are used to interoperate natively with any Microsoft server operating system. 

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In the case of the sweeping definition of middleware and the range of prohibitions 

and obligations imposed on Microsoft, there is at least a patina of credibility to the 

argument that the penumbra of the twelve monopoly maintenance practices affirmed by the Court of Appeals can be stretched to justify those provisions, at least 

as ‘‘fencing in’’ provisions. There is no sensible reading of the Court of Appeals decision that would provide any basis for requiring Microsoft to charge PC manufacturers uniform prices or to make available the proprietary protocols used by Windows 

desktop operating systems and Windows server operating systems to communicate 

with each other. Nevertheless, because the plaintiffs insisted that they would not 

settle without those two provisions, Microsoft also agreed to them. 

Before turning to the enforcement provisions of the PFJ, I want to say a word 

about the few provisos included in the decree that provide narrow exceptions to the 

various prohibitions and obligations imposed on Microsoft. Those exceptions were 

critical to Microsoft’s willingness to agree to the sweeping provisions on which the 

plaintiffs insisted. Without these narrowly tailored exceptions, Microsoft could not 

innovate or engage in normal procompetitive commercial activities. The public can 

rest assured that the settling plaintiffs insisted on language to ensure that the exceptions only apply when they promote consumer welfare. For example, some companies that compete with Microsoft for the sale of server operating systems apparently have complained about the so-called ‘‘security carve-out’’ to Microsoft’s obligation to disclose internal interfaces and protocols. That exception is very narrow and 

only allows Microsoft to withhold encryption ‘‘keys’’ and the similar mechanisms 

that must be kept secret if the security of computer networks and the privacy of 

user information is to be ensured. In light of all the concern over computer privacy 

and security these days, it is surprising that there is any controversy over such a 

narrow exception. 

3. Compliance and Enforcement 

The broad substantive provisions of the PFJ are complemented by an unusually 

strong set of compliance and enforcement provisions. Those provisions are unprecedented in a civil antitrust decree. The PFJ creates an independent three-person 

technical Committee, resident on the Microsoft campus, with extraordinary powers 

and full access to Microsoft facilities, records, employees and proprietary technical 

data, including Windows source code, which is the equivalent of the ‘‘secret formula’’

for Coke. The technical Committee provides a level of technical oversight that is far 

more substantial than any provision of any other antitrust decree of which I am 

aware. At the insistence of the plaintiffs, the technical Committee does not have 

independent enforcement authority; rather, reports to the plaintiffs and, through 

them, to the court. The investigative and oversight authority of the technical Committee in no way limits or reduces the enforcement powers of the DOJ and states; 

rather, the technical Committee supplements and enhances those powers. Each of 

the settling states and DOJ have the power to enforce the decree and have the ability to monitor compliance and seek a broad range of remedies in the event of a violation. 

Microsoft also agreed to develop and implement an internal antitrust compliance 

program, to distribute the decree and educate its management and employees as to 

the various restrictions and obligations. In recent years, Microsoft has assembled inhouse one of the largest, most talented groups of antitrust lawyers in corporate 

America. They are already engaged in substantial antitrust compliance counseling 

and monitoring. The decree formalizes those efforts, and quite frankly adds very 

substantially to the in-house lawyers’ work. As we speak, that group, together with 

key officials from throughout the Microsoft organization, are working to implement 

the decree and to ensure the company’s compliance with it. 

As with the substantive provisions, Microsoft agreed to these unprecedented compliance and enforcement provisions because of the adamance of the plaintiffs and 

because of the highly technical nature of the decree. Microsoft, the Department, and 

the settling states recognized that it was appropriate to include mechanisms—principally, the technical Committee—that will facilitate the prompt and expert resolution of any technical disputes that might be raised by third parties, without in any 

way derogating from the government’s full enforcement powers under the decree. Although the enforcement provisions are unprecedented in their stringency and scope, 

they are not necessitated or justified by any valid claim that Microsoft has failed 

to comply with its decree obligations in the past. In fact, Microsoft has an exemplary 

record of complying with the consent decree to which the company and the Department agreed in 1994. In 1997, the Department did question whether Microsoft’s integration of IE into Windows 95 violated a ‘‘fencing in’’ provision that prohibited 

contractual tie-ins, but Microsoft was ultimately vindicated by the Court of ApVerDate Feb 1 2002 17:04 Jan 16, 2003 Jkt 082938 PO 00000 Frm 00100 Fmt 6621 Sfmt 6621 C:\HEARINGS\82938.TXT SJUD4 PsN: CMORC
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15 United States v. Microsoft, 147 F.3d 935 (D.C.Cir. 1998). 

peals.15 Microsoft has committed itself to that same level of dedication in ensuring 

the company’s compliance with the PFJ. 

Conclusion 

The PFJ strikes an appropriate balance in this complicated case, providing opportunities and protections for firms seeking to compete while allowing Microsoft to 

continue to innovate and bring new technologies to market. The decree is faithful 

to the fact that the antitrust laws are a ‘‘consumer protection prescription,’’ and it 

ensures an economic environment in which all parts of the PC-ecosystem can thrive. 

Make no mistake, however, the PFJ is tough. It will impose substantial new obligations on the company, and it will require significant changes in the way Microsoft 

does business. It imposes heavy costs on the company and entails a degree of oversight that is unprecedented in a civil antitrust case. For some competitors of Microsoft, however, apparently nothing short of the destruction of Microsoft—or at least 

the ongoing distraction of litigation—will be sufficient. But if the objective is to protect the interests of consumers and the competitiveness process, then this decree 

more than achieves that goal. 

Finally, for all those who are worried about the future and what unforeseen developments may not be covered by this case and the decree, remember that the Court 

of Appeals decision now provides guideposts, which previously did not exist, for 

judging Microsoft’s behavior, and that of other high technology companies, going forward. Those guidelines, it is true, are not always easy to apply ex ante to conduct; 

however, now that the Court of Appeals has spoken, we all have a much better idea 

of the way in which section 2 of the Sherman Act applies to the software industry. 

In short, what antitrust law requires of Microsoft is today much clearer than it was 

when this case began. We have all learned a lot over the last four years, and Microsoft has every incentive to ensure that history does not repeat itself.

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Statement of Matthew J. Szulik, President and CEO, Red Hat, Inc., 

Durham, North Carolina 

f Good morning. 

I would like to thank the members of the Committee for allowing me to contribute 

my views on a topic that I feel is of vital importance to the future of our nation. 

I stand before you today as Winston Churchill said, ‘‘only to fight while there is a 

chance, so we don’t have to fight when there is non.’’ Through your actions, members of the Committee can affect a remedy that many members of the growing, global technical community hope will restore balance and inspire competitiveness in a 

networked society free of monopolistic practices. 

I stand before you today as a representative of the open source community. And 

as the CEO of Red Hat, Inc., generally regarded as the most successful company 

that sells and supports open source software. The Red Hat Linux operating system 

software we sell is created by a global community of volunteers. Volunteers who 

share their creation of intellectual property. The basis for their work is an open license that requires improvements to the technology be shared with others. Programmers submit their software code, their creations to the scrutiny of a very critical 

community of peers. The best code wins and is included in the next version of the 

software. This open communication strikes me as so perfectly American. I envision 

the early leaders of this country drawing up the tenets of our constitution in much 

the same way—in the open, in pursuit of a solution that is fair and of benefit to 

all. 

Some have called this the technology equivalent of a barn-raising. Through this 

approach Linux software has grown, improved and become one of the most stable, 

cost-effective operating systems in the world. It continues to improve every day. 

The values and practices of Red Hat are in most ways antithetical to those of the 

monopolist I am here to reference. 

Much testimony has been provided on the practices by the monopolist, which in 

my view have placed a technical and financial stranglehold on the technology industry. Mr. McNealy and Mr. Barksdale and others that have come before me have 

done a good job of presenting the issues to the Committee. I support their conclusions that the software industry needs government intervention. I support their requests for strong enforcement of antitrust laws. 

I would like to reaffirm their case, that innovation will occur when there is a competitive environment free of monopolistic practices. 


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Open source software arose because of a lack of alternatives that allowed the individual to choose the best tool for the job. Over the past 5 years, projects created 

by Red Hat and the open source community have become solutions of choice in areas 

of standards-based Internet software development, areas that the monopolist does 

not yet control. 

The growth of the Linux operating system is an example of this acceptance. The 

Apache web server is another, it now holds a market-leading position. 

However, the Internet browser, desktop operating system and office productivity 

software are areas that have continued to be influenced by one vendor alone. 

One of the reasons I am. so deeply troubled by the consent decree in this case 

is that it seems to run counter to things that are fundamental to our identity as 

Americans. We value fair play, ethical competition, abiding by the rules and fostering innovation. The consent decree throws all of this away. It acknowledges that 

my competitor has broken the law; that through these violations it has built one 

of the most formidable businesses in the world. Yet the consent decree does little 

to prevent future misconduct. I feel if the antitrust laws are not enforced, the will 

and spirit of the true innovators will suffer. 

Lengthy legal critiques of the consent decree are already on record. In the interest 

of time I will not subject you to more this morning. I am sure you’ve heard enough 

legal arguments in considering this topic. Rather, I want to make a few key points: 

First, their growing monopoly power has seriously warped the technology market. 

Now that my competitor is a convicted monopolist, the world can see in the public 

record what those in technology companies have known for years: they don’t compete fairly, they use their dominance in one market to dominate others, and they 

stifle innovation in the name of competition. The only way to stop this—to restore 

fairness to the market—is a settlement of this case that denies the monopolist the 

fruits of its past actions and provides remedial measures on the monopolist for its 

violations of the law. 

Second, the consent decree as it stands today, falls far short of this requirement. 

Given the monopolist’s history of skating up to the edge, or over the edge, in not 

fully complying with prior settlements, it will take very strong measures to change 

their behavior. In the words of Massachusetts Attorney General Thomas F. Reilly, 

commenting on the consent decree: ‘‘Five minutes after any agreement is signed 

with Microsoft, they’ll be thinking of how to violate the agreement. They’re predators. They crush their competition. They crush new ideas. They stifle innovation. 

That’s what they do.’’

Microsoft is deeply concerned about open source software and has already making 

overtures on how it will use dominance rather than technical expertise to crush it. 

The CEO of the monopolist said, quote, ‘‘Linux is a cancer that attaches itself in 

an intellectual property sense to everything it touches.’’

The head of the monopolist’s Windows Platform Group has similar beliefs: He said 

publicly, quote, ‘‘Open source is an intellectual property destroyer. I can’t imagine 

something that could be worse than this for the software business.’’ He goes on further to say, ‘‘I’m an American, I believe in the American way. I worry if the government encourages open source, and I don’t think we’ve done enough education of policymakers to understand the threat.’’

In my view, the consent decree should create a level playing field between Windows and Linux. Because of their comments, and their past actions, I believe the 

current consent decree is not strong enough. They will circumvent it. 

Third, we have all heard of the Digital Divide. It’s the gap in information and 

computing access between the haves and have nots in our society. As many states 

struggle with declining revenues, I believe these shortfalls will have a material impact on the public funding of K–12 and higher education. The path to the development of an information economy can not be limited to a sole supplier, who in my 

view has seen education up to this point, relative to its financial position as a market—not as a responsibility. I believe the lack of choices and high recurring costs 

is in part responsible for this growing chasm between the two Americas. 

I’m involved with North Carolina Central University—an historically black university that cannot afford the monopolist’s restrictive licenses and forced upgrades. 

I see this sad experience in schools throughout our country. Walk the halls of 

schools in East Roxbury, MA or Snow Hill, NC and question how we can expect, 

as a nation, to improve the future for our youth when schools must allocate 30–40% 

of their IT budget for software and hardware upgrades. Provided choice, these same 

dollars could be put into teacher training and acquiring more technology. 

The Chinese government understands this. The French and German governments 

as well. They have stated that proprietary software will not be used to develop government and educational infrastructure. 

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But the monopolist has more than 90% of the desktop operating system market 

and more than 70% of the Internet browser market. What choices do our schools 

have? What choices do our citizens have? As the monopolist extends its monopoly 

into additional markets, largely unfettered by the legal system and apparently immune to the consequences of their actions—the Digital Divide widens. 

Biologists know that an unbalanced ecosystem, one dominated by a single species, 

is more vulnerable to collapse. I think we’re seeing this today. Under the consent 

decree, it will continue and probably get worse. 

In America, history has taught us that there is no mechanism more logical and 

efficient and than a free and open market. Our competitor’s illegal monopolistic actions have significantly reduced the open market in information technology. I believe that in extreme cases like this, it is the role of the government to step in and 

restore balance. 

Statement of Hon. Jeff Sessions, a U.S. Senator from the State of Alabama 

Thank you.

f I am troubled by the decision of Committee, acting in its official capacity, to send 

a transcript of this hearing to the federal district court that will determine the outcome of this pending litigation. By taking the apparently unprecedented step of 

sending a transcript of a hearing on pending litigation to the judge that is deciding 

the case, this Committee may have unintentionally traversed the critical boundary 

between attempting to inform the court and attempting to influence it. 

The Constitution vests the legislative power in the Congress, Article I, § 1, the executive power in the President, Article II, § 1, and the judicial power in the Supreme 

Court and lower federal courts, Article III, § 1. Thus, Congress has the power to 

make law pursuant to its enumerated powers, the President has the power to enforce these laws, and the courts have the separate power to ‘‘say what the law is’’—

‘‘to rule on cases . . . to decide them,’’ Marbury v. Madison, 5 U.S. (1 Cranch) 137, 

177 (1803); Plaut v. Spendthrift Farm, Inc., 514 U.S. 211, 218 (1995). 

The separation of powers principle not only outlines the distinct spheres of operation of the three branches of government but also guides the branches in their 

dealings with each other. It is crystal clear that the Framers of our Constitution 

intended to have a judiciary that is independent of Congress. The provision for 

judges to hold office during good behavior in Article III, § 1, for example, was said 

by Alexander Hamilton to constitute an ‘‘excellent barrier to the encroachments and 

oppressions of the representative body.’’ THE FEDERALIST NO. 78, at 465 (Hamilton) (Clinton Rossiter ed;, 1961). Thus, with respect to this case, Congress, the 

Senate, and this Committee, should defer to the court to decide the case by exercising its independent judgement. A publicized congressional hearing and a transcript submission to the court can only be perceived as an attempt to create for senators a status at a Tunney hearing that neither the court nor the Tunney Act permits. 

While the Tunney Act provides that a district court should accept comments from 

the public on a proposed antitrust settlement agreement, it does not provide for any 

role by the legislative branch in such a hearing. See Pub. L. No. 93–528 (1974). Indeed, the Congressional Research Service has informed me that it has found ‘‘no instances in which any comments—whether Hearing transcripts, summaries of Hearing transcripts, or other written communications—were sent to’’ the district court 

in a Tunney Act hearing. Congressional Research Service, Memorandum 2 (Dec. 18, 

2001). 

While any senator may file comments on a proposed settlement agreement as a 

private citizen, it infringes upon the separation of powers principle for the Senate 

or this Committee officially to do so. It is the litigants and the public that inform 

the court in a Tunney Act hearing, not the Congress. See Pub. L. No. 93–528. For 

this Committee to submit its views on the merits of pending litigation creates the 

appearance of an attempt to influence the Article III federal court in the exercise 

of its independent judicial power. 

In addition to my constitutional concern, I have an underlying prudential concern. 

This transcript will include several statements from Senators opining on the merits 

of the Microsoft settlement agreement. A case such as this one involves a complex 

body of law and a extraordinary amount of evidence. Neither I nor, to the best of 

my knowledge, any other member of this Committee or of the Senate has had an 

opportunity to thoroughly review the law and the facts of this case. Consequently, 

our opinion with respect to this non-legislative matter is worth no more than that 

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of any other reasonably informed citizen who may submit information to the court. 

There is no legitimate rationale for any court to give more weight to our opinions, 

whether stamped with the imprimatur of this Committee or not, than to the opinions of others. Accordingly, I respectfully object to the Chairman and Ranking Member’s decision, without a vote of the Committee, to submit on behalf of the Committee, a copy of the transcript of this hearing to the district court.

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