Source: https://www.justice.gov/atr/direct-testimony-frederick-r-warren-boulton-us-v-microsoft-corp-and-state-new-york-ex-rel-v
Timestamp: 2019-04-19 06:37:01+00:00

Document:
Direct Testimony Of Frederick R. Warren-Boulton : U.S. V. Microsoft Corp. And State Of New York, Ex Rel. V. Microsoft Corp.
my Curriculum Vita, a copy of which is attached to this testimony as Attachment 1.
literature; and (5) filings made in these actions, including the reports of other expert witnesses.
the extent that is possible, seek to include it in my analysis.
market share in excess of 90%.2 This market share is protected by substantial barriers to entry.
users toward the dominant firm make displacing that firm difficult.
restrain effective competition between them.
significantly more difficult for Netscape and others to gain usage of their browser products.
exclusionary practices, Netscape's share of new browser users has declined even more.
14. Third, Microsoft's practices cannot be justified on efficiency grounds.
Microsoft's ISP, OLS, and ICP restrictions are not necessary to further pro-competitive purposes.
operating system monopoly would be further entrenched.
antitrust market within which Microsoft has, and has exercised, monopoly power.
Navigator; and injuring effective competition between them.
there is a dangerous probability that Microsoft will monopolize the browser market.
sufficient to encourage entry or expansion of competing operating systems.
efficiencies or are more restrictive than reasonably necessary to achieve such efficiencies.
the large costs it incurred.
may be regarded as a substitute for, or threat to, the Windows operating system.
conduct is unlikely significantly to harm consumer welfare.
number of applications available exclusivelyfor Microsoft operating systems.
significantly from eliminating the browser threat.
20. Personal computers are computers designed to be used by one person at a time.
vendors other than the OS vendor.
retail or pre-installed from an OEM.
known as the "smallest market principle."
will increase the market power of the merging firms.
without having its conduct constrained sufficiently to make that price increase unprofitable.
economist when the imposition of a particular price increase will be profitable.
of market participants and the characteristics of the industry in question.
substitute away from PC-compatible operating systems only by substituting away from PCs.
leading me to conclude that PC operating systems are a separate market.
my conclusion that Microsoft possesses monopoly power in a relevant market would still stand.
consistent with Microsoft possessing monopoly power.
the early 1990s and this dominance is forecast through at least 2001.
reduce the probability of, a successful challenge to Microsoft's market dominance.
subsequent negative cash flow could be recovered if the entrant were to exit the market.
at best very uncertain and long in coming.
local phone network serves, the more valuable that network is to each user.
convert) their software from one operating system to other operating systems.
applications for that operating system product.
applications that are written to it. This too is well-recognized by Microsoft. As observed by Dr.
leads users to select the same operating system product for use at home.
market with their product and constrain Microsoft's behavior. This, however, has not occurred.
because it would involve significant sunk costs, as explained above.
Microsoft's dominant share of the operating system market is indicative of monopoly power.
Microsoft's Senior Vice President for OEM Sales, explained in discussing what might "derail"
investor expectations regarding Microsoft's future growth in earnings.
sufficiently superior to overcome the entry barrier advantage that Microsoft enjoys.
evident effect, of reinforcing its monopoly power in the PC operating system market.
substitute for the Windows 95/98 platform to which applications developers can write.
developers can sell their applications to users of the Windows operating system.
operating systems to offer a complete and viable substitute for Windows.
Windows, it would eventually need to become an attractive platform for many applications.
95/98 and starts with very low market penetration and installed base.
by exposing APIs that other software developers may use to perform particular functions.
70. An issue of central concern in this case is whether IE is a "separate product"
and the Windows 95/98 operating system are a single integrated product.
have an anticompetitive motive to tie the monopolized product to a complementary product.
demand for one without the other and of the cost of providing them separately.
76. Internet browsers are currently provided separately from operating systems.
independently from any operating system.
Microsoft executives have explained, the company's decision to produce an "unintegrated"
other operating systems -- the Mac, Solaris, Win 3.1?
share of usage of IE?
Q. And it tracked that separately from usage of Windows?
Q. Why? Why did you track share of IE?
A. See how -- compare IE share with competitive products, competitive technologies.
Q. And what competitive technologies were you comparing IE usage to?
either case, the browsers were identified as separate products with their own brand names.
81. Mal Ransom of Packard Bell expressed the same point in a recent deposition.
Mr. Ransom stated: "In the commercial end of the business depending upon what part . . .
the utility to remove IE.
without the ready means of invoking IE.
protect its desktop operating system monopoly.
network effects. Websites can be written to standards that favor one browser over another.
preservation of Microsoft's monopoly in the PC operating system market.
provides the browser with the operating system in a single "package" at no additional cost.
rival browsers on fewer machines.
has thus significantly, although not completely, deterred OEMs from doing so.
second browser, the costs of including a second browser along with IE may be significant.
A. I believe we have.
distribute another browser because they already have Internet Explorer?
Internet Service Providers, which are firms that provide PC users with access to the Internet.
(a) To promote and distribute Internet Explorer as the "exclusive"
browsers from an important channel for acquiring new users and maintaining existing users.
Microsoft has not relaxed those restrictions in Windows 98.
competing browsers and tend to exclude those browsers from the market.
value for itself of being the first to recommend ISPs to new users.
cross-platform threat that, as explained above, rival browsers might pose.
reimpose all the ISP restrictions.
Connection Wizard, Microsoft by late 1996 had entered into more than 2,500 "IE preferred"
reflect consumer demand and impaired distribution of other browsers.
are certainly users out there that prefer browsers and e-mail clients that are not Microsoft.
respond to consumer preferences in determining which browser to ship at any point in time.
of important ICP partners and revenues from promoting those ICPs.
118. Both of these effects are illustrated by Netscape's experience with Intuit.
Windows-specific standards reduces consumer demand for other browsers.
120. In April 1998, Microsoft relaxed most of these exclusionary restrictions.
"start-up" or "boot-up" screens or sequence, is a user's first point of "contact" with his PC.
123. The principal reason why it is advantageous to have a "first-to-market"
[browsers]."101 The same conclusion emerges from market research conducted by Microsoft.
OEMs cannot modify the "sequence or appearance of any screens"
effectiveness of any such offering.
other Microsoft-created distribution barriers to Netscape.
agreements, OEMs must distribute Windows with the Internet Explorer icon on the desktop.
non-Microsoft browsers on the Windows desktop.
the second browser and thus create a greater incentive to preinstall a second browser.
displayed on the standard Desktop. The Active Desktop, which is layered over the "standard"
133. Microsoft allows OEMs to customize the Active Desktop to some degree.
appearance of a second browser and, therefore, inhibit them from pre-installing a second browser.
ability to compete in the browser market.
these types of evidence below.
actual share of browser users through 1997 and its projections are shown in Pl. Ex. 14.
by people who are using any browser for the first time or by those replacing an old browser.
share, the installed base share will rise toward the flow share.
over the same period, and is well above its stock-based share of the installed base.
will gain monopoly power in the browser market.
OLSs that did not agree to make IE the default browser.
AdKnowledge, a company that markets web advertising management services.
cases, the information about a user's domain name may be used to determine the user's ISP.
just below Microsoft's share. This is shown graphically in Pl. Ex. 4.
that period to 49 percent.
monopoly power in the browser market.
a small share of the browser market.
commercial opportunities of competing browsers and thereby serve to blunt this threat.
not further efficiency objectives or are not reasonably necessary to achieve them.
with all the features they desire.
combination of Internet Explorer and Windows.
preserves its ability to offer ISVs a consistent platform to which they can write applications.
an increase in its cost.
more likely to distribute other browsers to users who would rather purchase such a browser.
Removal of IE in this sense thus removes an obstacle to the distribution of other browsers.
or any of the platform files found in either Windows 95 or Windows 98.
libraries" upon which IE might rely, will not impair or fragment the Windows platform.
running earlier Windows releases that lack the latest versions of Windows 95 or Windows 98.
distribute and, therefore, that the effect of an OEM removing certain parts of the "platform"
is likely to be small.
with a very different appearance.
items of various different shapes and sizes.
Internet Connection Wizard with ISPs of the OEMs' choice.
experiences, a fact conceded by Microsoft.135 I therefore conclude that preserving "the same"
restrictions on customizing the desktop.
Microsoft likely would not permit it.
unnecessary obstacle to the efficient distribution of non-Microsoft browsers.
the concern with ensuring delivery of a quality product.
of ISVs to access the APIs provided by the Windows operating system product.
could simply be required to advise customers of the modification.
demonstrates that selling desktop real estate does not involve prohibitive transaction costs.
restriction is to impede Netscape.
intent in engaging in this course of conduct, when considered as a whole, was predatory.
my opinion that the answer to this question is no.
could only reduce the value of its operating system to consumers.
the conduct examined here as instrumental in blunting that threat.
that brought the market price of the browser down to zero, but rather Microsoft's actions.
almost any cost as being of overwhelming strategic importance.
Microsoft expected to gain from the exclusion of browser rivals and therefore was predatory.
barrier to entry. This might have at least two important benefits.
reduce the price that end users pay for operating systems.
should not be prevented by Microsoft's anticompetitive practices from making that decision.
might view as a similar threat and, thus, less innovation in the software industry.
201. I declare under penalty of perjury that the foregoing is true and correct.
1See 4 Trade Reg. Rep. (CCH) ¶ 13,104 (1992).
2See Pl. Ex. 1 below, "Microsoft's Actual and Projected Share of the (Intel-based) PC Operating System Market."
5 Non-Microsoft browsers and Microsoft's operating system thus fit the meaning of the term "partial substitutes" as used by Areeda in his treatise. See 10 Phillip E. Areeda, et al., Antitrust Law ¶ 1747c, at 232-33 (1996) (explaining that "driving out producers of partial substitutes more likely" will "reduce the likelihood of entry into the tying market" because producers of partial substitutes "have the skill to be potential entrants in the tying market more frequently than producers of complete nonsubstitutes do").
6 Microsoft Press Computer Dictionary (Third Edition, 1997, Microsoft Press) (hereinafter "Microsoft Dictionary").
7 In 1997, 87.6% of all copies of the Microsoft's Windows 95 operating system product were installed by OEMs, while 7.3% were sold through retail channels as upgrades. Windows 95 is available at retail only as an upgrade from a Microsoft licensed operating system See Appendix B to Microsoft's Responses to Interrogatories, March 23, 1998.
8See Akerlind Dep. 78 (Aug. 26, 1998) (explaining that "[t]he end user segment [of the OEM market] is competitive").
9 Microsoft also develops and sells other operating systems targeted to more specialized markets, including operating systems for workstations (Windows NT Workstation), servers (Windows NT Server) and embedded and special purpose systems (Windows CE).
10See, e.g., Brown Dep. 8-11 (Mar. 5, 1998); McKinney Dep. 9-11 (Mar. 13, 1998).
11See, e.g., United States v. Baker Hughes Inc., 908 F.2d 981, 985-86 (D.C. Cir. 1990); Community Publishers, Inc. v. Donrey Corp., 892 F. Supp. 1146, 1153 (W.D. Ark. 1995), aff'd, 139 F.3d 1180 (8th Cir. 1998).
13 More precisely, the price elasticity for a product (or group of products) is the percentage reduction in unit sales for the product that would result from a one percent increase in the price of that product, holding all else constant.
14SeeU.S. Anchor Mfg., Inc. v. Rule Indus., Inc., 7 F.3d 986, 995 (11th Cir. 1993).
16See MS98 0113387 and MS7 007194.
17See Brownrigg Dep. 9-10 (Mar. 5, 1998) (explaining that "switch[ing] from manufacturing personal computers based on the Intel-based processor". . ."would be a very daunting task" because it would entail a "[s]ignificant amount of engineering work," . . . "[a] lot of retraining of technical support," and other costs).
18See Ransom Dep. 13-14 (Mar. 19, 1998); Ransom Dep. 16 (Aug. 7, 1998); Brown Dep. 10-11 (Mar. 5, 1998).
19See Ransom Dep. 9, 17 (Aug. 7, 1998); Brown Dep. 10-11 (Mar. 5, 1998); Romano Dep. 50-52 (Apr. 13, 1998); Von Holle Dep. 12-13 (Sept. 9, 1997); Kies Dep. 16-17 (Sept. 11, 1998); Santos Dep. 7-8 (Apr. 13, 1998); McKinney Dep. 11-12 (Mar. 13, 1998).
21See Sanders Dep. 104-06 (Aug. 26, 1998).
24See Sparks Dep. 131-33 (July 9, 1998).
25 "Note on the Desktop Operating System Industry in 1996," Stanford University Graduate School of Business (August, 1997), p. 23.
26 As Professor Kenneth Arrow stated "The value of the operating system product is in its capability to run application software. The larger the installed base of a particular OS, the more likely it is that independent software vendors will write program that run on the OS, and, in this circular fashion, the more valuable the OS will be to customers." Declaration of Kenneth J. Arrow dated January 17, 1995, submitted in United States v. Microsoft Corp., No. 94-1564 (D.D.C. 1994), on behalf of the Government and in opposition to Amici Curiae.
27See Microsoft's Answer ¶ 58 (explaining that "(i) the popularity of an operating system [product] is to some extent a function of the number, variety and quality of application available for use with that operating system [product]; and (ii) software developers tend to write applications for operating systems [products] that are popular").
28SeeSantos Dep. 9 (Apr. 13, 1998);seealso Von Holle Dep. 9-10 (Sept. 19, 1997).
29 MS 154265-4279, 154268, Nathan Myhrvold, file attachment (InterOffice Memo) to email to Bill Gates, Peter Rinearson, and Jonathan Lazarus (July 24, 1993).
30See Confidential Submission of Microsoft Corporation to the Staff of the Antitrust Division of the United States Department of Justice 61 (Sept. 19, 1993).
31See Chase Dep. 97 (Mar. 25, 1997).
32As Brad Chase explained: "The OS/2 application market is small and getting smaller. Windows applications now account for almost 60% of all dollars spent worldwide on applications software, with $4 billion sold in 1993. In the same period sales of OS/2 applications have declined and in 1993 accounted for only 2% of the market, or $128 million." MS98 11434-44 (Aug. 8, 1994).
33 Kozel Dep. 11 (Sept. 19, 1997).
35 Decker Dep. 18-21 (Oct. 17, 1997).
36See Ransom Dep. 9, 17 (Aug. 7, 1998); Brown Dep. 10-11 (Mar. 5, 1998); Romano Dep. 50-52 (Apr. 13, 1998); Von Holle Dep. 12-13 (Sept. 9, 1997); Kies Dep. 16-17 (Sept. 11, 1998); Santos Dep. 7-8 (Apr. 13, 1998); McKinney Dep. 9 (Mar. 13, 1998).
37 MS7 007194, Joachim Kempin to Bill Gates (Dec. 16, 1997).
38 For Microsoft as a whole, net revenue as a percentage of total revenue increased from 20% in FY86 to 26% in FY92, falling to 24% in FY95 before rising again to 30% in FY97 (See Microsoft Annual Reports). Among the Fortune 500 largest U.S. corporations, Microsoft ranks 137th in revenue, 165th in assets, 15th in profits, 7th in growth of earnings per share, 3rd in profits as percentage of assets, 2nd in market value, and 1st in profits as a percentage of revenues. Fortune (Apr. 27, 1998).
39 See, for example, Brad Chase deposition 206 (Mar. 25, 1998).
40 Browsers generally also contain a limited set of application programming interfaces ("APIs") to which software writers can "write" to extend the functionality of their application products to "Internet-oriented tasks." This set of API's is not a substitute for the set of API's provided by the operating system.
41 Netscape Communicator -- Standard Edition -- is available for almost all Windows products, Mac System 7.5 and above, all major UNIX desktop systems and soon for OS/2. See http://www.netscape.com/navigator/index.html. Microsoft's Internet Explorer 4.0 is available on all Windows products, on Macintosh OS 7.1 and above, and on UNIX Solaris 2.5 and above and other UNIX platforms. Seehttp://www.microsoft.com/ie/ download/sysreq.html; seealso Chase Dep. 98 (March 25, 1998); Mehdi Dep. 32, 45 (April 2, 1998).
42 Other browsers include Lynx, Mosaic, Opera, Web Explorer and WebSurfer.
43 Microsoft itself argues that there are consumer benefits deriving from the competitive race. In a memorandum entitled "The Internet PC" dated April 10, 1996, Bill Gates noted that Netscape Navigator "led the way with speed and features . . . . Netscape and Microsoft have overlapping visions of the future of the Internet. Each company is working as hard as it can, as fast as it can, to develop software that supports its approach. One consequence of this feature race is that browsers are evolving from relatively simple pieces of software into large programs, enhanced with various extensions . . . ." MS6 6012977-78.
44See, e.g., Smith Dep. 16-21 (Oct. 10, 1997).
45 This is consistent with the test the Supreme Court applied in the Jefferson Parish case. SeeJefferson Parish Hosp. Dist. No. 2 v. Hyde, 466 U.S. 2 (1984).
47 Chase Dep. 99 (Mar. 25, 1998).
48 Silverberg Dep. 19 (April 14, 1998).
49See, e.g., Frasca Dep. 45 (July 24, 1998); seealso Clark Dep. 125 (July 22, 1998) ("You don't see Sun Microsystems integrating the browser into their UNIX operating system. You don't see DEC integrating it in their UNIX operating system. You don't see Hewlett Packard integrating it in their UNIX operating system, and you don't see Silicon Graphics integrating it in their UNIX operating system. They treat it as an application . . . .").
50See Trevanian Dep. 61-63 (July 17, 1998).
51See Sparks Dep. 74 (July 9, 1998) and Croll Dep. 71-72 (July 14).
52See Bergland Dep. 29-32 (Aug. 11, 1998).
53See Kanicki Decl.¶ 2 (Apr. 29, 1998); seealso Kanicki Dep. 26-29, 106-07 (Aug. 27, 1998).
54 Ransom Dep. 9-10 (Mar. 19, 1998).
55 Decker Dep. 17-21 (Oct. 29, 1997); Kies Dep. 10-12, 14-15 (Apr. 23, 1998); Kies Dep. 21-28 (Sept. 11, 1998); Von Holle Dep. 39-40, 59-60 (Oct. 6, 1998); McClain Dep. 43-44 (Aug. 7, 1998); Declaration of Eric Browning, ¶¶ 7-9 (October 14, 1997).
57 Expert Report of Edward W. Felten ¶¶ 48-54.
58See Frasca Dep. 35-38, 86-87, 106-07 (July 24, 1998); Croll. Dep. 74, 188 (July 14, 1998); Limp Dep.123-25, 128 (July 30, 1998); Bergland Dep. 24-30 (Aug. 11, 1998).
59 MS6 5004550, 4553; Dunn Dep. 37-42 (Apr. 24, 1998).
60 MS7 004127 PI Ex. 15.
61 MS6 6008247, 8248 PI Ex. 35.
62 MS6 6005550 (PI Ex. 33).
63 Allchin Dep. 120 (Mar. 19, 1998).
65 Webb Mckinney Dep, 27 (Mar. 13, 1998) ("Obviously it costs us money to bundle software, so we don't want to put a lot of software on a system that people don't value, and the amount of software on the system also increases our test burden and makes it harder for us to get to market quickly, so it's a pretty wide range of reasons to try to keep the amount of software on the system to what's really needed"); Kempin Dep. 37 (October 2, 1997). Mr. Kempin also testified that "[i]f the OEM wants to install the other browser, he can do it. And it's just a matter of how much cost he is willing to have. Because he will probably have to test all our product first then he has to test the other products..." Id. at 34.
66See McClain Dep. 51 (agreeing that "icons can cause clutter on the screen"). Indeed, Microsoft explained to OEMs that, although it permitted multiple icons for ISP sign-up on the desktop, it "recommend[s that] OEMs do not overwhelm the user by providing additional sign-up mechanisms." MS98 0109575 (4/16/98); seealso MS98 109900 (2/27/98) (Microsoft e-mail exchange reflecting concern that offering icons for two or more products or services in the same category on the desktop would cause consumer confusion).
67See McClain Dep. at 52-53; McKinney Dep. 27 (Mar. 13, 1998) ("[O]ne thing is that we found a lot of software required, you know, creates a lot of support, so it creates a support burden for us. It creates confusion for the consumer.").
68 McClain Dep. 122-23; id. at 57.
69 Von Holle Dep. 42, 61 (Oct. 6, 1998).
70 Von Holle Dep. at 42; seealso Brownrigg Dep. 14, 18 (Oct. 6, 1998).
71 Kempin Dep. 37 (Oct. 2, 1997).
72See, e.g., IE Market Review, April, 1997 (TXAG 0026734-770); MS7 006062; Myhrvold Dep. 43-44 (Apr. 24, 1998). The other principal channel is through OLSs and ISPs, the foreclosure of which is discussed below.
73 IE5 OEM Marketing Review, MS98 012655.
75 MS7 007468; MS7 006062-64 (Jeff Johnson e-mail) ("[I]t is pretty clear that current IE users are often getting it with their PC, and the focus group data . . . also stated that Netscape users aren't likely to switch to IE until it is integrated into the OS"); MS7 006352 (Jonathan Roberts e-mail) ("This distribution leads me to believe we are better off with a tighter tie to Windows.").
76See Myhrvold Dep. 43 (Apr. 24, 1998).
77 Knott Dep. 21-23 (Feb. 20, 1998). Indeed, Knott testified that CompuServe had tried but failed to put together a comparable package through OEMs. Id. at 22; seealso Von Rump Dep.14-15 (Apr. 28, 1998); Colburn Dep. at 29-33 (Mar. 6, 1998).
78 Silverberg Dep. 159 (Apr. 15, 1998).
79 MS6 5001199-1245 (AOL agreement); MS6 5000168-89 (CompuServe Agreement).
80 Myhrvold Dep. 64-65, 68 (Apr. 24, 1998).
81See, e.g., MS6 5001127-51 (Spry); MS6 50000920-47 (Mindspring).
84 Testimony from ISP executives and internal Microsoft documents show that there are significant costs for ISPs which arise from distributing two browsers. See Von Rump Dep. 17 (Apr. 28, 1998) (expenses incurred for support of an additional browser include "marketing resources, whatever expenses are required in the promotion and distribution, advertising, literature, training for sales and customer service representatives"); Solnik Dep.81-82 (June 15, 1998) (explaining that "there are lots of costs" including testing, training, and support costs, for an ISP to distribute two browsers); seealso Beran Dep. 52 (Aug. 5, 1998); Schwartz Dep. 41-42 (Sept. 9, 1998); MS7 005526.
85 Silverberg Dep. 142-44 (Apr. 14, 1998).
87Seeid.; MS6 6009919; MS7 000584. See also MS7 00591, a 1997 Mid-year review in which Microsoft noted that "46 of top 50 ISPs/OLSs [are] shipping IE as their preferred browser."
92 Wadsworth Decl.¶ 4 (Apr. 23, 1998).
94See, e.g, AOL 0000145-73 (AOL); CNET 00028-55 (CNET); TWDC 0704-55 (Disney); INT 00001-25 (Intuit).
95See, e.g., INT 00003; See Chase Dep. 206-08 (Mar. 3, 1998).
96 Dunn Dep. 37-42 (Apr. 24, 1998).
101 MS6 5005719-720 (Apr. 4, 1996, Chase Planning Memo).
105Compare MSV 000163 (IBM 8/24/95 Windows 95 License) with MSV 000203-04 (IBM 8/16/96 Windows 95 License).
106See, e.g., Amendment 12 to August 1, 1996, License agreement between Microsoft Corporation and AST Research, Inc., Ex. C1 (Aug. 8. 1996) (MSV 0006245).
107 Myhrvold Dep. 73-74 (Sept. 24, 1998).
108See, e.g., MS98 0113937; MS98 0113961; MS98 0113962; MS98 0113963.
109See Kempin Dep. 45-46, 49-50 (Sept. 9, 1998).
110See, e.g., MS98 0113849-52 (May 27, 1998 Letter to Packard Bell/NEC authorizing alternative ISP sign-up process); Kempin Dep. 94 (Sept. 9, 1998).
111See, e.g., Amendment 12 to August 1, 1996, License agreement between Microsoft Corporation and AST Research, Inc., Ex. C1 (Aug. 8. 1996) (MSV 0006245).
112See Kempin Dep. 96-98 (Sept. 9, 1998).
113 Microsoft made assumptions concerning the percentage of new Internet connections who use Internet Explorer in each of the sectors just described (the "run rate") and the rate at which people switch browser types (the "switching rate").
116 A user "clicks on" on an ad to get more information about the product.
117 Because of the size of this database, data were acquired for only the second Wednesday of each month.
118 "Netscape Competitive Analysis." MS98 0112834-36.
119 "Netscape Competitive Analysis." MS98 0112834-36.
120 The difference between the two groups (i) takes OEM restraints as given; (ii) measures a stock rather than flow of browser shares; and, (iii) does not take into account the possibility that network effects in the browser market will cause the effect of Microsoft's anticompetitive practices to accumulate over time.
122See Kanicki Dep. 36, 40 (Aug. 27, 1998). It is also unlikely Microsoft would have agreed to a licensing agreement with Dell, see MS98 0128328, that lifts the screen restrictions, including the prohibition on removing the IE icon, when Dell is presented with a specific customization request by a large-volume customer, such as corporate customers, if such customization would have harmful effects.
123See Expert Report of Edward W. Felten ¶¶ 48-64 (hereinafter "Felten Report").
124See Akerlind Dep. 115 (Aug. 26, 1998) (agreeing that "[i]f Compaq's removal of the Internet Explorer icon caused . . . problems" that Compaq would "be punished by the marketplace."); seealsoid. at 87 ("I would agree . . . that if a company in this market or any market, you know, has weak products, that sooner or later they're either going to have to fix the problem or get out of the business, because what they try to sell is not going to be profitable business for them.").
125 Microsoft's Memorandum in Support of Summary Judgment at 58.
127 Expert Report of David J. Farber ¶ 23.
128 Expert Report of Glenn E. Weadock ¶ 26 ("The existence of a software product . . . depends on both the presence of a feature set and the means to use that feature set.") (hereinafter "Weadock Report").
129 Felten Report ¶ 52 (quoting Handbook for Applications 29).
130 Felten Report ¶¶ 48-57.
131 Weadock Report ¶ 24.
133See Felten Report ¶¶ 48-57.
134See Weadock Report ¶ 27; seealso Gailey Decl ¶ 4 (Nov. 17, 1997); Allaire Decl. ¶ 2 (Nov. 17, 1997); Bourdeau Decl ¶¶ 3-4 (Nov. 17, 1997); Bickel Decl. ¶ 8 (Nov. 19, 1997) (all introduced in United States v. Microsoft, No. 94-1564 (TPJ)).
135See Akerlind Dep. 155-56 (Aug. 26, 1998).
136 MS98 0102953 (Apr. 1, 1998).
137See Kempin Dep. 84-85 (Sept. 9, 1998); Akerlind Dep. 150-55 (Aug. 26, 1998).
138See Akerlind Dep. at 83-88.
139 Akerlind Dep. at 83.
140 It is important to keep in mind that, from an economic perspective, the value of a product to consumers is determined by both its quality, including all of its features, and its price. For example, some consumers may prefer an Oldsmobile to a Cadillac because the additional features a Cadillac provides are not worth paying the higher price, or because they prefer the features the Oldsmobile provides and would chose it even if the price were the same. One cannot say that the Cadillac is superior simply because some or many of its features are not provided by, or are superior to counterparts provided by, the Oldsmobile.
141 Although early versions of IE might have had only modest revenue-generating potential, because they were widely regarded to be substantially inferior to Netscape's browser, that is no longer the case.
142See TXAG 0012832; MS7 005732.
143 For example, the Cournot model, the oldest and still most widely used model to predict behavior in oligopolistic markets, predicts that, with two suppliers producing an identical product with zero marginal cost, price will be below the monopoly level but will not equal zero. Although a zero price is possible under a Bertrand model of oligopoly that assumes that the products are identical and that the cost to users of switching products is zero, these assumptions do not comport with the realities of the browser market.
144 Microsoft has suggested in this litigation that it might set a non-predatory price of zero in the expectation that the resulting increase in IE usage would generate increased revenues from increased sales of its Windows 95 and Windows 98 operating system products. For reasons explained above, I do not believe that this argument can help explain Microsoft's pricing of IE to Microsoft's installed base.

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