Source: http://www.justice.gov/atr/microsoft-tunney-act-comment-project-promote-competition-innovation-digital-age-procomp
Timestamp: 2015-10-09 22:13:39
Document Index: 343484960

Matched Legal Cases: ['§ 16', '§ 16', '§ 16', '§ 16', '§ 16', 'art, 253', '§ 2']

Microsoft Tunney Act Comment : Project To Promote Competition & Innovation In The Digital Age (ProCOMP) | ATR | Department of Justice
Microsoft Tunney Act Comment : Project To Promote Competition & Innovation In The Digital Age (ProCOMP)
This document is available in two formats: this web page (for browsing content) and PDF (comparable to original document formatting). To view the PDF you will need Acrobat Reader, which may be downloaded from the Adobe site. For an official copy, please contact the Antitrust Documents Group. PROJECT TO PROMOTE COMPETITION & INNOVATION
I N T H E D I G I T A L A G E
2001 K STREET, NW . SUITE 800 . WASHINGTON, DC 20006
Ms. Renata Hesse Trial Attorney Suite 1200 Antitrust Division Department of Justice 601 D. Street, NW Washington, D.C. 20530
Comments to the Proposed Final Judgment InUnited States v. Microsoft Corporation, No. 98-1232 State of New York, et al v. Microsoft Corporation, No. 98-1233
Enclosed please find ten (10) copies of the comments of the Project to Promote Competition and Innovation in the Digital Age ("ProComp"), submitted pursuant to the Tunney Act, 15 U.S.C. § 16, with respect to the Proposed Final Judgment in the above-captioned matters.
Please also note that this filing is accompanied by an affidavit prepared and submitted by Professor Kenneth J. Arrow, the original signed copy of which is attached hereto.
/s/ Mitchell S. Pettit President ProComp
Comments to the Proposed Final Judgment In United States v. Microsoft Corporation, No. 98-1232 State of New York, et al. v. Microsoft Corporation, No. 98-1233
Project to Promote Competition & Innovation in the Digital Age ("ProComp")
Pursuant to the Tunney Act, 15 U.S.C. . 16
Kenneth W. Starr Thomas D. Yannucci Mark L. Kovner Kirkland & Ellis 655 15th Street, N.W., Suite 1200 Washington, D.C., 20005 (202) 879-5000 Counsel for ProComp Robert H. Bork 1150 17th Street, N.W. Washington, D.C. 20036 Counsel for ProComp
Kevin J. Arquit Michael C. Naughton Arman Y. Oruc Clifford Chance Rogers & Wells LLP 200 Park Avenue New York, N.Y. 10166 (212) 878-8000 Counsel for ProComp Mitchell S. Pettit, President ProComp 2001 K Street, N.W., Suite 800 Washington, D.C. 20006 (202) 912-7140 Glenn B. Manishin Stephanie A. Joyce Kelley Drye & Warren LLP 1200 19th Street, N.W., Suite 500 Washington, D.C. 20036 (202) 955-9600 Counsel for ProComp TABLE OF CONTENTS
INTRODUCTION. Standard of Tunney Act Review Failure to Satisfy Settled Monopolization Remedies Law Failure to Redress Core Violations The PFJ Does Not Achieve its Purported Goals
The API Disclosure Requirements OEM Desktop Flexibility The PFJ Fails to Address Competitive Issues that Will Determine the Future of the Software Industry THE COURT SHOULD DEFER DECISION ON THE PROPOSED DECREE UNTIL AFTER THE LITIGATING STATES' REMEDIES HEARING AND SHOULD APPLY THE SETTLED ANTITRUST REMEDY STANDARD EXPRESSLY REAFFIRMED IN THIS CASE BY THE COURT OF APPEALS
Approving the Proposed Decree Before Completion of the Remedy Hearings Would Be Wholly Unprecedented and Highly Prejudicial Waiting to Rule on the Proposed Decree Until After the Remedies Trial Avoids Pre-Judging the Remedies Case and the Prospect of Inconsistent Rulings Deferring Ruling on the Proposed Decree Promotes the Tunney Act's Express Goal of Conserving Judicial Resources The Applicable Legal Standard for Reviewing the Proposed Decree is the Ford/United Shoe Test Specifically Mandated by the Court of Appeals The Court Owes No Tunney Act Deference To the Department in this Unprecedented Post-Trial, Post-Appeal Settlement The AT&T Model is Instructive by Conducting a Searching Inquiry into the Scope, Adequacy and Effectiveness of the Proposed Decree THE PROPOSED FINAL JUDGMENT IS INSUFFICIENT UNDER ANTITRUST REMEDIES LAW AND DOES NOT MEET THE STANDARD ARTICULATED BY THE DEPARTMENT The Decree Does Not "Undo" the Competitive Harm Resulting from Microsoft's Anticompetitive Practices The Proposed Settlement Fails to Deny Microsoft the Ill-gotten Fruits as Required by Established Antitrust Law The Decree Does Not Terminate or Redress Numerous Practices that the Court of Appeals Found to Violate the Sherman Act Integration of Windows and Middleware Coercion and Market Allocation Deception and Product Sabotage
THE API DISCLOSURE AND OEM FLEXIBILITY PROVISIONS OF THE PROPOSED DECREE WILL NOT CREATE THE OPPORTUNITY FOR MIDDLEWARE COMPETITION The Proposed Decree's Provisions for Information Disclosure Do Not Assure that Future Middleware Competitors Will Have Access to Necessary Interoperability Information The API Provision's Scope is Far Too Narrow The API Provision of the PFJ Constructs an Illusive Framework for Disclosure of Interoperability Information Defined Terms Within the API Disclosure Provision Leave All Material Disclosure Determinations to Microsoft The API Disclosure Provision Also Leaves Critical Terms Undefined Under Provision III.D, APIs Will Never be disclosed in a Timely Manner The Exceptions from and Preconditions to API Disclosure Further Narrow the Scope of an Already Unworkable Disclosure Provision Cross-Licensing of Middleware APIs Timing of API Disclosure Obligation The Communications Protocol Provisions of the Decree Do Not Require Release of any Server APIs and are Based on Terms the Department Failed to Include in the Settlement The Proposed Decree's Provisions for OEM Flexibility Do Not Open the PC Manufacturing Channel to Future Middleware Competitors
The OEM Provisions Place Sole Responsibility for Introducing Middleware Competition on PC Manufacturers The Provisions Allowing OEM Flexibility Do Not Address the Key Issue of Microsoft's Ubiquitous Middleware Development Platform The OEM Provisions Do Not Create a Level Playing Field for Middleware Desktop Competition Additional OEM Provisions Further Undermine the Crucial Ability of ISVs to Differentiate Competing Middleware Products The OEM Provisions Contain Other Superfluous Terms that Substantially Limit Any Potential Market Impact The OEM Provisions Have No Impact on Java The OEM Provisions Largely Codify Microsoft's Existing Business Practices The Proposed Decree Does Not Effectively Preclude Microsoft's Exclusive Dealings Current Market and Economic Realities Demonstrate that the PFJ is Incapable of Having Any Substantial Procompetitive Impact New Monopolies Enable Microsoft to Protect its Operating System Monopoly Despite the PFJ
The Proposed Settlement Ignores the Likely Tactics Microsoft Will Use to Eliminate the Next Significant Threat to its Monopoly Position The Decree Increases Microsoft's Market Dominance and Actually Worsens Competitive Conditions in the Relevant Software Markets The Settlement Would Not Have Prevented Microsoft's Unlawful Campaign Against Netscape and Java
THE PROPOSED DECREE IS HOPELESSLY VAGUE AND INHERENTLY UNENFORCEABLE DIVESTITURE REMAINS THE PREFERABLE AND MOST EFFECTIVE REMEDY FOR MICROSOFT'S SECTION 2 VIOLATIONS THE COURT SHOULD CONDUCT A RIGOROUS TUNNEY ACT EXAMINATION OF THE DECREE, THE COMPETITIVE IMPACT STATEMENT AND THE DEPARTMENT'S UNSUBSTANTIATED PROJECTIONS OF FUTURE COMPETITIVE EFFECT The Complexity and Substantial National Importance of this Case, the Government's Flat Reversal of Position and its Disregard of Clear Tunney Act Obligations All Dictate the Necessity of Critical Judicial Oversight in this Landmark Proceeding This Complex, Controversial, Nationally Important Antitrust Prosecution Demands Serious Judicial Oversight Heightened Scrutiny is Needed Because Neither the Department Nor Microsoft Complied With their Respective Tunney Act Obligations The Court Should Closely Examine the Government's Reversal of Position on Relief Live Evidence is Needed on the Technical and Economic Complexities of the Software Industry and the Profound Failings of, and Harms Caused by, the PFJ CONCLUSION INTRODUCTION
This proposed decree is so ineffective that it would not have prevented Microsoft from destroying Netscape and Java, the very acts that gave rise to this lawsuit. It is so ineffective in controlling Microsoft that it might as well have been written by Microsoft itself.
Standard of Tunney Act Review
The "public interest" standard of the Tunney Act, 15 U.S.C. § 16(e), is determined in this case by the unanimous legal ruling of the Court of Appeals for the District of Columbia Circuit sitting en bane. That Court held that Microsoft has maintained its monopoly in personal computer operating systems in clear violation of Section 2 of the Sherman Act. No decree that fails to cure that illegality and prevent its recurrence can conceivably serve the public interest. The Proposed Final Judgment ("PFJ" or "proposed decree") accomplishes neither of those mandatory purposes. For that reason, the proposed decree should be rejected by the District Court.
This case is entirely different from any settlement since the adoption of the Tunney Act in 1974. All other settlements were entered into prior to the conclusion of any trial, usually before any trial had even commenced. Cases holding that a Tunney Act court must accept a lesser remedy than might (or might not) be obtained after trial are utterly irrelevant. The Competitive Impact Statement's ("CIS") reliance upon such cases is misguided. United States v. Microsoft Corp., Revised Proposed Final Judgment and Competitive Impact Statement, 66 Fed. Reg. 59,452 (2001). Here, the District Court and the Court of Appeals, including a total of eight judges, have decided that in violating the Sherman Act, Microsoft's behavior is directly contrary to the public interest. The Tunney Act does not empower the District Court to enter a remedy that excuses past violations and permits future conduct of the same nature. The proposed decree does precisely that. It is no more binding on the District Court than would be a Department of Justice statement that henceforth a named company would be immune from antitrust prosecution.
In particular, the proposed settlement takes no steps to remedy Microsoft's foreclosure of middleware threats from competing Internet browsers and cross-platform Java technology, Microsoft's related efforts to illegally increase the applications barrier to entry protecting its Windows monopoly, or Microsoft's illegal commingling of browser and other middleware code with Windows. Further, the proposed settlement does not assure that future middleware competitors will have access to the necessary technical information to interoperate properly with Windows, and does not open up the critical Original Equipment Manufacturer ("OEM") distribution channel to these future competitors. Finally, the PFJ ignores the competitive threat to Microsoft's monopoly presented by server-based distributed applications, and thus fails to address Microsoft's practice of protecting its monopoly by controlling proprietary interfaces and communications protocols.
More significantly, the only suggestion in the CIS as to any basis for a very limited and deferential scope of judicial review is simply wrong. The Department insists that such a standard is "particularly" appropriate "where, as here, court's review of the decree is informed not merely by the allegations contained in the Complaint, but also by the extensive factual and legal record resulting from the district and appellate court proceedings." CIS, 66 Fed. Reg. at 59476. Exactly the opposite is the case. In routine Tunney Act cases, the law is clear that respect is to be accorded to the Department's antitrust enforcement judgments -- its "perceptions of the market structure and its view of the nature of the case" -- precisely because there is no factual or legal record before the court. United States v. Microsoft Corp., 56 F.3d 1448, 1448 (D.C. Cir. 1995) ("Microsoft l") (emphasis added). When a Sherman Act case has been litigated and affirmed on appeal, however, the district court is fully capable of assessing the proposed remedy in light of those rulings and its "familiarity with the market involved." Id. at 1461.
The closest parallel to this Court's review of the PFJ is the AT&T monopolization settlement presented by the Department and decided by this Court (Harold Greene, J.) under the Tunney Act. United States v. AT&T, 552 F. Supp. 131 (D.D.C. 1982), aff'd mere. sub nora., Maryland v. United States, 460 U.S. 1001 (1983). In the AT&Tease, Judge Greene had heard the vast majority of the evidence -- on all issues except remedy -- and more than a year earlier bad denied AT&T's motion to dismiss on the merits after the close of the government's case-in-chief. Following a wide-ranging Tunney Act process that included evidentiary hearings, third-party submissions and several days of oral argument, Judge Greene refused to approve the consent decree as proposed, even though it mandated divestiture of major components of the Bell System. He concluded that the decree was in certain respects substantively inadequate, precluded the Court from effective oversight and enforcement, and posed a risk of harming third-parties (despite the presence of complementary regulatory jurisdiction to accomplish similar goals). Judge Greene therefore insisted upon substantial modifications to the proposed decree before he would enter the settlement under the Tunney Act's public interest standard.
Recognizing the intense public concern over a possible "rubber stamp" of the settlement by the Court, Judge Greene concluded that it was his responsibility to ensure that the decree protected consumers, opened the relevant markets to effective competition in a timely manna-, and was readily enforceable. Significantly, Judge Green found that "unlike ordinary pre-trial antitrust settlements, the Court would 'be able to render sound judgments' because it 'ha[d] already heard what probably amounts to well over ninety percent of the parties' evidence both quantitatively and qualitatively, as well as all of their legal arguments." Id. at 152 (citations omitted). For this reason, Judge Greene held that "it does not follow that [the Court] must unquestionably accept a consent decree as long as it somehow, and, however inadequately, deals with the antitrust problems implicated in the lawsuit." Id.
The purpose of judicial review under the Tunney Act is to ensure that a consent decree follows "'the public interest as expressed in the antitrust laws.'" S. REP. NO. 93--298 (1973) ("SENATE REPORT") (emphasis added). Here, the Court of Appeals held specifically that "a remedies decree in an antitrust case must seek to 'unfetter a 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 1,. United Shoe Mach. Corp., 391 U.S. 244, 250 (1968)). The Department itself earlier emphasized to this Court on remand that "both the applicable remedial legal standard and the liability determination of the Court of Appeals are clear." Joint Status Report, United States v. Microsoft Corp., at 24 (D.D.C. filed Sept. 20, 2001). The Court of Appeals has spoken and its holding is binding on this Court as well as the litigants. Consequently, in the unique procedural posture of this case, the "public interest as expressed in the antitrust laws" is the Court of Appeals' mandate itself. SENATE REPORT, supra, at 5.
Failure to Satisfy Settled Monopolization Remedies Law
The CIS does not even cite, let alone argue, that the PFJ meets the D.C. Circuit's remedial standard, quoted above, to terminate the monopoly, deny the defendant of its ill-gotten fruits, and ensure that monopoly practices cannot arise in the future.
As that standard recognizes, there is no difference between the remedies called for when a defendant has unlawfully gained a monopoly or unlawfully maintained a monopoly. The offense of monopolization under Section 2 of the Sherman Act occurs when a finn has either "'acquired or maintained" monopoly power by anticompetitive means. United States v Grinnell Corp., 384 U.S. 563, 570-71 (1966); Microsoft III, 253 F.3d at 50. There is no legal basis to distinguish between the methods of monopolization either for liability or relief purposes, and neither DOJ nor Microsoft has cited a case making such a distinction. All arc equally unlawful and all arc equally harmful to consumers. Here, for example, even assuming that Microsoft achieved its monopoly power through legitimate business means, it has been found to have maintained such monopoly power through a series of anticompetitive conduct designed to illegally preserve its monopoly position by foreclosing rivals. But for this illegal maintenance, Microsoft's monopoly power would probably have dissipated, and competitors and consumers would have enjoyed the benefits of free and fair competition. Microsoft's internal communications demonstrate that Microsoft thought that would be the likely outcome.
For these reasons, courts apply broad relief even where a firm has been found to possess monopoly power that was legally acquired but illegally maintained. See, e.g., United Shoe, 391 U.S. at 250 (in context of a legally attained monopoly position that was illegally maintained, the Court held it has a duty to "prescribe relief which will 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"). And courts have never distinguished between illegal attainment and illegal maintenance when determining remedies for a Sherman Act Section 2 monopolization claim. See, e.g., Schine Chain Theatres, Inc. v. United States, 334 U.S. 110, 128 (1948) (holding conduct injunctions against future violations not adequate to protect public interest in monopolization cases since defendant thus maintains the full benefit of the monopoly; instead broad remedies, including divestiture, are necessary to undo the harm to the market); see also 3 PHILLIP E. AREEDA AND HERBERT HOVENCAMP, ANTITRUST LAW ¶ 653i (2002) (quoting United Shoe, 391 U.S. at 250-52, for the proposition that a "monopoly that has been created or maintained by plainly exclusionary conduct is unlawful and that it is the duty of the court to assure its 'complete extirpation.'" (emphasis added)). In short, an appropriate set of remedies to restore competition needs to be sufficient to pry open the market to competition, stop the bad acts, undo the effects of the bad acts, and preclude future alternative anticompetitive tactics.
The D.C. Circuit was well aware that this case involves monopoly maintenance -- that the achievement by Microsoft of a Windows monopoly in the first instance was not alleged to be unlawful -- but nonetheless specifically adopted the Ford/United Shoe remedy standard, including its command to "terminate" the defendant's monopoly power. That is the law of this case and the law in all Sherman Act monopolization cases.
Failure to Redress Core Violations
By agreeing to the proposed settlement, the Department and the Settling States have "won a lawsuit and lost a cause." International Salt Co. v. United States, 332 U.S. 392, 401 (1947). By excluding consideration of terminating the Windows monopoly from their remedy calculations, Plaintiffs have ignored the central meaning of Section 2. They would have the Court sanction Microsoft's unlawful conduct allowing its monopoly to remain intact. The Court of Appeals' use of the traditional Ford/United Shoe standard clearly holds that that is not a proper remedy.
The CIS explains that the applications barrier to entry protecting Microsoft's monopoly was directly threatened by "two incarnations of middleware that, working together, had the potential to weaken the applications barrier severely without the assistance of any other middleware" -- Netscape and Java. CIS, 66 Fed. Reg. at 59464-65. Nonetheless, the PFJ inexplicably contains no provision addressing Internet browsers or cross-platform Java runtime technology, let alone any other provisions that erode the applications barrier to entry. Moreover, the proposed decree simply ignores a number of other significant ways in which the Court of Appeals held that Microsoft's practices violated the Sherman Act. Consequently, the PFJ does not "unfetter [the] market from anticompetitive conduct" or "ensure that there remain no practices likely to result in monopolization in the future." Microsoft III, 253 F.3d at 103.
Nothing in the settlement prohibits Microsoft from commingling code or binding its middleware to the operating system. This was a major issue in this litigation, and the Court of Appeals specifically found Microsoft's commingling of browser and operating system code to be anticompetitive. The danger is reinforced by the definition of "Windows Operating System Product" in Section VI.U, which states that what code comprises Windows "shall be determined by Microsoft in its sole discretion." PFJ, 66 Fed. Reg. at 59459. Thus, Microsoft can render the protections for middleware, meaningless by binding and commingling code and redefining the operating system to include the bound/commingled applications.
ProComp strongly disagrees with the notion that it is impossible to move the market forward to approximate where it would have been absent Microsoft's violations. The applications barrier to entry is not an immutable condition. There are remedial alternatives available to restore Internet browsers and cross-platform runtime technology to the position they would have achieved -- ubiquitous distribution without any "lock-in" to the Windows operating system m in the absence of Microsoft's violations. The open source Internet Explorer ("IE") licensing requirement proposed by the Litigating States does just that. More specifically, a remedy that acts directly to undermine the applications barrier to entry, for instance by requiring "porting" of the Office suite to other operating systems platforms, could potentially do precisely what Netscape and Java were poised to accomplish in 1995-98 -- "commoditize" the operating systems and thus allow operating systems competition to occur on the basis of efficiency and consumer demand, rather than hardware lock-in. In any event, by ignoring the economic importance of the competition destroyed by Microsoft's wide range of exclusionary practices, the PFJ fails to address the central lesson of this litigation. It does not redress the core Sherman Act violations on which liability was unanimously affirmed by the en bane Court of Appeals.
The relief proposed by the Litigating States acts directly to deny Microsoft the fruits of the violation (Interact Explorer licensing), pry open the operating systems market to competition (Java must carry) and erode the barrier to entry protecting Microsoft's monopoly power (applications porting). It is precisely these omissions m consequences of the Department's current, erroneously truncated remedy analysis m that fatally undermine the legal sufficiency of the PFJ. The Department's proposed remedy flatly contradicts the Court of Appeals' directives and thus "the public interest as expressed in the antitrust laws." SENATE REPORT, supra, at 5.
The PFJ Does Not Achieve its Purported Goals
The PFJ purports to provide applications developers with the tools to create competing platforms, but the proposed decree fails to achieve even the narrow goals it sets out to accomplish. The PFJ neither creates the conditions under which new middleware competition can flourish nor provides OEMs with the freedom to support such middleware in the event these technologies avoid the predatory acts of Microsoft.
Most predatory conduct fails to achieve or maintain monopolization because the aggressor must incur greater costs than its prey in order to keep or drive competitors from the market. What this litigation has shown is that Microsoft has numerous weapons in its arsenal to impose far greater damage on its competitors than the loss Microsoft suffers by using such weapons. Controlling the disclosure of the Application Program Interfaces ("API") and the related technical information, imposing conditions on OEM licenses, "commingling" or bolting of software code and products are all examples of weapons Microsoft employed in its predatory attack on Netscape's Navigator and Java technologies. The PFJ does nothing to protect Microsoft from using the same tactics against any future middleware threats.
The API Disclosure Requirements
The PFJ purports only to make public those APIs between the operating system and Microsoft middleware that run on top of the operating system. It does not accomplish even that narrow result. To name a few, the convoluted definitions and exemptions to the API disclosure obligation allow Microsoft itself to decide which APIs will be subject to the disclosure requirement and when those APIs will be released. The decree also permits Microsoft to design and bundle its products in different ways to evade the disclosure requirements, for instance by permitting Microsoft in "its sole discretion" to decide what software comprises a "Windows Operating System Product." PFJ, 66 Fed. Reg. at 59459. With some simple packaging decisions, Microsoft can unilaterally dictate whether middleware competitors will receive the interoperability information necessary to innovate. In short, as explained in detail below, the API disclosure provisions are riddled with numerous deficiencies that render them ineffective in promoting competition.
These are not loopholes, but triumphal arches that allow Microsoft to proceed uninhibited by the antitrust laws. The PFJ expressly allows Microsoft to play a game of form over substance by categorizing pieces of code into different defined terms. The operation of the disclosure requirements is devoid of any notion of technological or economic efficiency.
OEM Desktop Flexibility
The PFJ relies almost exclusively on OEMs to restore competition, a naive hope at best. OEMs do not have the resources or the economic incentive to create competition for Microsoft. In any event, the provisions regarding OEM flexibility to distribute competing middleware products ignore the economic realities of the software industry. Most importantly, the decree fails to provide OEMs and consumers with the flexibility to support competing middleware or other new technologies that Microsoft may deem as a threat to its monopoly position. The add/remove provisions in the proposed decree only allow for removal of end user access, i.e., the icon for Microsoft middleware, not the middleware itself. As discussed in the accompanying Declaration of Kenneth Arrow (Attachment A), Nobel laureate and the Department's own expert in Microsoft I, this perpetuates the applications barrier to entry that is at the heart of this litigation. Thus, the OEM provisions enhance rather than erode Microsoft's operating system monopoly power.
The PFJ Fails to Address Competitive Issues that Will Determine the Future of the Software Industry
Even if these serious deficiencies in the structure, scope and language of the proposed decree were corrected, the settlement would still not create the conditions for a competitive operating systems market. The proposed decree hardly deals at all with Microsoft's likely future anticompetitive conduct. Microsoft's prodigious market power is now directed at the next threat to the Windows platform -- applications and services provided via the Internet and other networks m not the Netscape/Java threat of 1995-99. Microsoft has destroyed those revolutionary technologies that are a source of operating systems competition and has moved on to other areas that the proposed decree all but ignores.
The PFJ fails to serve the public interest and to achieve the settled goals of monopolization relief reaffirmed in the Court of Appeals' decision. It ignores the changing market realities, and the core violations upheld by the D.C. Circuit. The proposed settlement exhibits an unjustifiable deference to a convicted monopolist in designing its products and determining the scope of the remedy. In doing so, it renounces its purported goal of creating the conditions for new middleware threats to flourish. Additionally, it clearly fails to deny Microsoft the "fruits" of its violations and "terminate" its monopoly power. It is precisely these flaws that fatally undermine the legal sufficiency of the PFJ. In contrast, the relief proposal by the Litigating States includes provisions, such as Interact Explorer licensing, Java must carry, applications porting, sufficient and timely disclosure of information, and the freedom to license unbundled Microsoft products, just to name a few, which deny Microsoft the fruits of the violation, pry open the OS market to competition and erode the barrier to entry protecting Microsoft's monopoly power. As a matter of law, the Department's settlement proposal cannot be said to be consistent with "the public interest as expressed in the antitrust laws," SENATE REPORT, supra, at 5, where it has proposed a remedy without reference to those laws as reiterated by the Court of Appeals in this very case.
THE COURT SHOULD DEFER DECISION ON THE PROPOSED DECREE UNTIL AFTER THE LITIGATING STATES' REMEDIES HEARING AND SHOULD APPLY THE SETTLED ANTITRUST REMEDY STANDARD EXPRESSLY REAFFIRMED IN THIS CASE BY THE COURT OF APPEALS
This is the only substantial Government Section 2 case in more than 30 years litigated through trial to judgment, appeal and dual opportunities for Supreme Court review.1 A "rush to judgment" is simply not the appropriate course of judicial review under the Tunney Act, or otherwise. A decision on the adequacy of the proposed decree should therefore be deferred until after the conclusion of the evidentiary heating on the remaining Plaintiffs' ("Litigating States") relief proposals. Moreover, the normal Tunney Act flexibility accorded to the Government in offering a proposed pretrial antitrust settlement cannot hold in the unique circumstances of this case, in which the Court is obligated to conduct a searching, independent inquiry into the proposed decree, with no deference accorded to the government. Approving the Proposed Decree Before Completion of the Remedy Hearings Would Be Wholly Unprecedented and Highly Prejudicial
No court has ever approved an antitrust settlement where, as here, there are remaining plaintiffs in the very same consolidated action that are about to begin a full remedies hearing based on adjudicated Sherman Act liability that has been affirmed on appeal. In this unprecedented case,2 it is essential that the Court evaluate all available evidence bearing on the "'public interest" of the Department's proposed settlement.
Waiting to Rule on the Proposed Decree Until After the Remedies Trial Avoids PreJudging the Remedies Case and the Prospect of Inconsistent Rulings
The Tunney Act sets no deadlines. Neither the Act nor its legislative history in any way encourages "fast-track" review. Instead, the Act expressly allows the Court to set its own schedule and to tailor its judicial review process to the facts and circumstances of each antitrust case. 15 U.S.C. §§ 16(1)3 As the Senate sponsor of the Tunney Act explained:
The decision to make [Tunney Act] procedures discretionary is dictated by a desire to avoid needlessly complicating the consent decree process. There are some cases in which none of these procedures may be needed. On the other hand, there have been and will continue to be cases where the use of many or even all of them may be necessary. In fact, in a very few complex cases, failures to use some of the procedures might give rise to a, indication that the district court had failed to exercise its discretion properly.
119 Cong. Rec. 3453 (statement of Sen. Tunney) (emphasis added).
This highly complex case demands that the Court utilize all available procedures for evaluating the adequacy of the proposed decree and the evidentiary basis of the economic projections that underly the Department's remedial scheme. Deferring decision on the proposed decree is the only sensible approach. The Court's consideration of testimonial and other evidence on the failings of the decree will avoid unfair pre-judgment of the remedies remand and the entry of potentially conflicting relief. It also offers the most efficient means of ensuring that the many issues raised by the proposed decree and the Court of Appeals' decision receive a thorough hearing on the merits. Deferring judgment will not harm any party or inconvenience the Court, given that the Litigating States' upcoming remedies trial is scheduled to begin just thirteen days after the completion of the Tunney Act comment process.4 Indeed, neither the Justice Department nor Microsoft can claim to be prejudiced by a short deferment in judgment on the PFJ, because Microsoft represents that it is already complying with the terms of the proposed decree.
Deferral would also avoid the highly undesirable result of inconsistent judgments. The Litigating States' remedy proposal differs markedly from the proposed settlement in breadth, scope and approach. A premature ruling on the PFJ would force the Litigating States either to (1) pursue their relief proposal in full, knowing there may be inconsistent remedy orders issued by this Court that would make compliance difficult, if not impossible, or (2) stunt their case by limiting their proposed remedies to those that can be implemented in a manner consistent with the PFJ, even though they have already rejected that settlement as inadequate.
The Court faces a similar, untenable choice if it seeks to issue an early ruling on the proposed decree. The Court would have to limit its ultimate remedy order to the terms already required by its ruling on the Department's settlement, or order new remedies but vacate those portions of the PFJ that are inconsistent with the subsequent decree. This dilemma is easily avoided, however, by waiting to resolve the issues raised by the Tunney Act comments until after the Litigating States and Microsoft have had a full and fair opportunity to present evidence supporting their respective remedy proposals.
Avoiding conflicting remedial orders alone is reason enough to defer judgment on the decree. Inconsistent judgments are to be avoided in antitrust as in all complex litigation. See In re Transit Co. Tire Antitrust Litigation, 67 F.R.D. 59, 65 (W.D. Mo. 1975) (separate relief hearings "would result in duplication of effort [and] possible inconsistent judgments"). It is well-established that "[t]he avoidance of logically inconsistent judgments in the same action" is a "just reason for delay[ing]" entry of final judgment in multi-party civil actions.5
The Court should give particular weight to considerations of uniformity in this case, because of the great need to ensure that all in the software industry -- suppliers, customers and competitors -- face a fair and even playing field. As the Supreme Court has held, antitrust violations should be remedied "with as little injury as possible to the interest of the general public." United States v. American Tobacco Co., 221 U.S. 106 (1911). Thus, "the Court would be justified in rejecting the proposed decree or requiring its modification if it concluded that the decree unnecessarily conflicts with important public policies other than the policy embodied in the Sherman Act." AT&T, 552 F. Supp. at 151. In this case, such an important public policy is the uniform application of antitrust law to the national software market.
Deferring Ruling on the Proposed Decree Promotes the Tunney Act's Express Goal of Conserving Judicial Resources
Deferring judgment on the proposed decree will also conserve judicial resources by allowing the Court to determine which questions raised by the PFJ can be resolved by the testimony and other evidence offered in the remedy trial. The Court may then limit or avoid duplicative evidence that must be adduced to assess whether the decree meets the applicable substantive standard for Tunney Act judicial review.
Consent decrees subject to Tunney Act review are generally used to obviate trial -- to avoid "extended proceedings" and provide a "'prompt and less costly'" means of resolving antitrust suits pre-litigation. CIS, 66 Fed. Reg. at 59476 (quoting 119 Cong. Rec. 24598 (1973)). Even the Department of Justice, in discussing the negotiation of antitrust settlements in its Practice Manual, identifies the consent decree as the best way to obtain relief "without taking the case to trial." Antitrust Division Manual, Ch. IV, § E, at 50 (3 rd ed. 1998) (emphasis added). Here, however, a liabilities trial has already occurred, and a remedies trial must occur regardless of when or whether the proposed Department settlement is approved. There is little or no court action to avoId. As a result, judicial resources are best conserved and most efficiently allocated by holding the remedies trial before ruling on the PFJ.
The Applicable Legal Standard for Reviewing the Proposed Decree is the Ford/United Shoe Test Specifically Mandated by the Court of Appeals
In no reported case since adoption of the Tunney Act in 1974 has the Department sought to settle a monopolization action after prevailing at trial and on appeal. The CIS nonetheless suggests that in assessing the adequacy of the proposed decree under the Act, this Court must approve a settlement that is less than the remedy the Court would otherwise impose of its own accord. CIS, 66 Fed. Reg. at 59476 (citations omitted). In the unprecedented procedural posture of this case, it cannot.
The Court of Appeals agreed that relief in this case must seek to "terminate" Microsoft's operating system monopoly, to "unfetter" barriers to competition to the operating systems market, to "deny" Microsoft the "fruits" of its statutory violations, and to "ensure" there are no practices "'likely to result in monopolization in the future"'6 That mandate is binding on this Court as well as the litigants. The Supreme Court has "consistently held that an inferior court has no power or authority to deviate from the mandate issued by an appellate court." Briggs v. Pennsylvania R. Co., 334 U.S. 304, 306 (1948). Indeed, even prior to the Tunney Act the Supreme Court emphasized that in antitrust cases, "[t]he Department of Justice ... by stipulation or otherwise has no authority to circumscribe the power of the courts to see that [their] mandate is carried out." Cascade Natural Gas Corp. v. El Paso Natural Gas Co., 386 U.S. 129, 136 (1967). 7 Consequently, in the unique procedural posture of this case, the "public interest as expressed in the antitrust laws," SENATE REPORT, supra, at 5, is the Court of Appeals' mandate itself.
The D.C. Circuit did not establish a new legal standard for monopolization relief, but rather adopted the traditional test developed by the Supreme Court decades ago. See Microsoft. III, 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)). Notably, however, the CIS does not even cite, let alone argue, that the PFJ meets the D.C. Circuit's remedial standard. The Department instead offers its own view that "[a]ppropriate injunctive relief in an antitrust case should: (1) [e]nd the unlawful conduct; (2) avoid a recurrence of the violation and others like it; and (3) undo its anticompetitive consequences." CIS, 66 Fed. Reg. at 59465 (citations omitted). This lesser standard is invalid because it ignores the Supreme Court's directives to "'terminate" the monopoly and to eradicate the "fruits" enjoyed by the unlawful monopolist.
To the extent that DOJ may contend this case is different because the acquisition of Microsoft's monopoly was not challenged, rather the unlawful maintenance of that monopoly, it would be incorrect. There is no legal basis to distinguish between the methods of monopolizalion either for liability or relief purposes, and neither DOJ nor Microsoft has ever cited a case making such a distinction. The adverse consumer welfare and economic efficiency consequences of monopoly power are the same whether a monopoly was illegally acquired, illegally maintained or both. Indeed, the D.C. Circuit was well aware that the achievement by Microsoft of a Windows monopoly in the first instance was not alleged to he unlawful, 8 but nonetheless specifically adopted the traditional Ford/United Shoe remedy standard.
The Court of Appeals' carefully crafted and detailed opinion can hardly be deemed to have applied this standard by accident. Accordingly, notwithstanding Microsoft's claim, it is simply not true that "contrary to the critics' overheated rhetoric, there is no basis for relief designed to terminate an `illegal monopoly.'"9 The fact that a monopoly was acquired lawfully does not provide any defense, because the monopolist forfeits its right to continue to hold even a lawfully acquired monopoly when it violates the Sherman Act in its preservation.10
The Department and Microsoft may argue that the Court of Appeals' "drastic" modification of liability is of crucial significance in evaluating the scope of a remedy. See Microsoft III, 253 F.3d at 105. What this contention ignores is that the Court of Appeals reversed or remanded separate, distinguishable legal theories for Sherman Act liability that all arose from the same set of operative facts. As the government explained to the Supreme Court:
The court of appeals affirmed the district court's central ruling that Microsoft violated Section 2 of the Sherman Act by engaging in an unlawful course of conduct to maintain its monopoly of the market for Intel-compatible PC operating systems. With minor exceptions, the court agreed with the district court's findings and conclusions that Microsoft's restrictions on original equipment manufacturers; its bundling of Internet Explorer into Windows; its dealings with internet access providers, independent software vendors, and Apple Computers; and its efforts to contain and to subvert Java technologies that threatened Microsoft's operating system monopoly, all served unlawfully to maintain the Windows monopoly.
Brief for the United States in Opposition [To Certiorari], Microsoft Corp. v. United States, No. 01-236, at 5 (S. Ct. filed Aug. 2001) (emphasis added; citations omitted). And the Court of Appeals added the explicit, highly unusual caution that "[n]othing in the Court's opinion is intended to preclude the District Court's consideration of remedy issues."11 That the lesser included offenses of attempted monopolization and tying were not upheld does nothing to subtract from the seriousness of the widespread Section 2 violations affirmed by the Court of Appeals or the Court's explicit reaffirmation of the Ford/United Shoe standard for antitrust relief.
The CIS" lengthy recitation of cases indicating that a Tunney Act court must accept a lesser remedy than might be obtained after trial is irrelevant. CIS, 66 Fed. Reg. at 59475-76. None of these cases arose in the context of a post-trial settlement of a Section 2 monopolization claim and thus none resolved whether the remedial standard adopted by the federal courts in a fully litigated antitrust case must be jettisoned if the government subsequently agrees to a consensual decree.12 More importantly, the Department has not offered any statutory or policy basis 1o justify its wooden invocation of Tunney Act dicta to this case. By failing to articulate any legitimate justification for the deference it insists upon, the Department's position suggests that it is designed to shield the merits of the decree from critique by the Court and to mask the weakness of the proposed settlement, rather than to satisfy any compelling institutional or constitutional policy.
The only suggestion in the CIS as to any basis for a limited scope of judicial review is just wrong. The Department insists that a different relief standard is "particularly" appropriate "where, as here, court's review of the decree is informed not merely by the allegations contained in the Complaint, but also by the extensive factual and legal record resulting from the district and appellate court proceedings." CIS, 66 Fed. Reg. at 59476. That has things backwards. In normal Tunney Act cases, the law is clear that respect is to be accorded to the Department's antitrust enforcement judgments w its "perceptions of the market structure and its view of the nature of the case" -- precisely because there is no factual or legal record before the court. Microsoft I, 56 F.3d at 1448. When a Sherman Act case has been litigated and affirmed on appeal, however, the district court is fully capable of assessing the proposed remedy against that record and its "familiarity with the market involved." Id. at 1461.13 In short, the Court of Appeals" mandate, and its application of traditional monopolization remedy law, is the applicable standard against which to measure the scope and efficacy of the PFJ.
The Court Owes No Tunney Act Deference To the Department in this Unprecedented Post-Trial, Post-Appeal Settlement
The language, legislative history and purpose of the Tunney Act all indicate that the relatively deferential attitude ordinarily adopted by courts to antitrust settlements should not constrain this Court's inquiry into the legal sufficiency and acceptability of the remedy proposed by Microsoft, the Department and the Settling States.
The leading authority on Tunney Act deference is not at all to the contrary. In Microsoft I, the D.C. Circuit reversed the district judge for "construet[ing] his own hypothetical case and then evaluat[ing] the decree against that case." 56 F.3d at 1459. Here, no one is asking the Court to consider claims the government chose not to pursue. Quite to the contrary. ProComp asks the Court to grant effective relief for those claims that the Department actually brought and on which it has already prevailed.
The difference in judicial deference owed to the Executive Branch is easily understood against this backdrop. The Tunney Act was created as a "check on prosecutorial discretion," In re IBM, 687 F.2d 591,595 (2d Cir. 1982), that is, "a check.., on the government's expertise m or at the least, its exercise of it -- even on its good faith." United States v. Gillette Co., 406 F. Supp. 713, 715 (D. Mass. 1975). The concern of Congress was the predominance of pretrial antitrust settlements that otherwise would never reach a courtroom,14 For these reasons, the Microsoft I decision cautions that a district court's Tunney Act obligation to avoid delving too deeply into the substantive merits of antitrust settlements arises because "there are no findings that the defendant has actually engaged in illegal practices." Microsoft I, 56 F.3d at 1460 (emphasis in original). That is obviously not the case here. Microsoft's liability for a wide variety of exclusionary practices violative of Section 2 of the Sherman Act has been adjudicated and affirmed on appeal. In contrast, it is clear that the Tunney Act was predicated on the assumption that proposed consent decrees would be presented in the context of pretrial settlements over which the courts had yet to engage in an exercise of judicial power. See 15 U.S.C. § 16(e)(1) (district court must "evaluate the competitive impact of... termination of alleged violations ...."); § 16(e)(2) (court must consider "the public benefit, if any, to be derived from a determination of the issues at trial"). Unlike the ordinary Tunney Act situation, in this case it is indisputably not correct to conclude that "[r]emedies which appear less than vigorous may well reflect an underlying weakness in the government's case." Microsoft I, 56 F.3d at 1461.
The Tunney Act's underlying principles of judicial restraint applicable to the exercise of prosecutorial discretion -- deeply rooted in separation of powers -- simply do not apply here.15 In the typical Tunney Act case, courts have made "no judicial finding of relevant markets, closed or otherwise, to be opened or of anticompetitive activity to be prevented," is by definition not present in a post-appeal antitrust settlement. Maryland v. United States, 460 U.S. 1001, 1004 (1983) (per curiam) (Rehnquist, J., dissenting). The separation of powers concerns in a post-trial settlement are actually reversed. 16 The source of Tunney Act deference is that "the court's authority to review a decree depends entirely on the government's exercising its prosecutorial discretion by bringing a case in the first instance." Microsoft I, 56 F.3d at 1459-60 (emphasis added). In contrast, deferential review of a post-trial settlement in a fully litigated, finally appealed antitrust prosecution would directly contradict the "mandate rule" of Cascade Natural Gas and would be inconsistent with this Court's Article III obligations.
The Court of Appeals has explained that because there are "constitutional difficulties that inhere in this statute," it is "inappropriate for the [district] judge to measure the remedies in the decree as if they were fashioned after trial." Microsoft I, 56 F.3d at 1461. The converse is true when a remedy is in fact fashioned after trial. In that situation, the court has already made the factual and legal findings that do not exist in the ordinary consent decree situation, and therefore is not required to "give due respect to the Justice Department's perception of the market structure and its view of the nature of the case." Id. at 1461.
In light of these serious constitutional concerns, this Court should not and cannot accept a proposed decree that falls short of the remedy that the Court would impose based on its own, independent assessment of the record and the Court of Appeals' remand mandate. The Court is undoubtedly aware of the long-standing maxim that constitutional questions are to be avoided if a statute can be interpreted so as not to raise them. E.g., Richmond Screw Anchor Co., 275 U.S. 331, 346 (1928). In the context of this unprecedented Tunney Act case, simple prudence dictates that the Court should construe the Act to dispense with deference to the government where liability has been adjudicated and affirmed on appeal, and thus avoid any possibility of a constitutional challenge to its remand decision on remedies.
Tile AT&T Model is Instructive by Conducting a Searching Inquiry into the Scope, Adequacy and Effectiveness of the Proposed Decree
Before turning to a substantive critique of the PFJ, it is appropriate to discuss the close parallels between Microsoft and the last major monopolization settlement presented by the Department and decided by this Court (Harold Greene, J.) under the Tunney Act. United States v. AT&T, 552 F. Supp. at 151.
Before the AT&T settlement was proposed, Judge Greene had heard the vast majority of the evidence--on all issues except remedy -- and had denied AT&T's motion to dismiss on the merits after the close of the government's case-in-chief. United States v. AT&T, 524 F. Supp. 1336, 1380 (D.D.C. 1981). Following a wide-ranging Tunney Act process that included evidentiary hearings, third-party submissions, and several days of oral augment, Judge Greene declined to approve the decree as proposed -- even though it required divestiture of the Bell system -- because he concluded that it was substantively inadequate, precluded the Court from effective oversight and enforcement, and posed a risk of harming third parties.
The Judge insisted upon substantial modifications to the proposed decree before he would enter the settlement under the Tunney Act's public interest standard. In doing so, Judge Greene explained that ,AT&T was "not an ordinary antitrust case." 552 F. Supp. at 151. Instead, in that case as in this one, the proposed decree was an "enormous undertaking" having "significant consequences for an unusually large number of ratepayers [i.e., consumers], shareholders... and competitors." 552 F. Supp. at 152. In addition, and also like in this case, the Court would "be able to render sound judgments" because it "ha[d] already heard what probably amounts to well over ninety percent of the parties' evidence both quantitatively and qualitatively, as well as all of their legal arguments." Id. For these reasons, Judge Greene concluded that "it does not follow that [the Court] must unquestionably accept a consent decree as long as it somehow, and, however inadequately, deals with the antitrust problems implicated in the lawsuit." Id. Instead, Judge Greene reasoned it was his responsibility to ensure the decree protected consumers, opened the relevant markets to effective competition in a timely manner, and would be readily enforceable. The Supreme Court affirmed. Maryland v. United States, 460 U.S. 1001 (1983) (per curiam); California v. United States, 464 U.S. 1013 (1983)(per curiam).
Like AT&T, this has been a long, exceedingly complex and very hard-fought case. Unlike AT&T, however, in this litigation the proposed settlement comes after the trial was completed and after the courts finally adjudicated the defendant's liability. Also' unlike AT&T, moreover, here the government has not succeeded in obtaining via settlement anything close to the relief it sought on the merits from this Court. We have submitted our view that deference to the Department of Justice is inappropriate in this unique case. The AT&T model provides a benchmark for the scope of Tunney Act judicial review which, if anything, should be exceeded given the far more advanced procedural posture here. This Court cannot err by following an expanded AT&T-like procedure. The converse may not be true.
In sum, the Litigating States must be allowed to proceed free from the interference that early Court approval of the proposed decree would entail. When the Court does assess and rule on the decree, it must undertake a thorough, independent analysis of whether the settlement protects the public interest and satisfies the D.C. Circuit's mandate for effective relief. Delegating this core judicial responsibility to the Department would violate the Tunney Act, raise serious separation-of-powers concerns and leave the public without effective redress against a proven monopolist.
THE PROPOSED FINAL JUDGMENT IS INSUFFICIENT UNDER ANTITRUST REMEDIES LAW AND DOES NOT MEET THE STANDARD ARTICULATED BY THE DEPARTMENT
The proposed settlement does not meet the D.C. Circuit's remedial standard, quoted above, to terminate the monopoly, deny the defendant its ill-gotten fruits, and ensure that monopoly practices cannot arise in the future. The CIS does not even cite, let alone argue that the PFJ meets the D.C. Circuit's remedial standard. Indeed, the PFJ does not even meet the lesser standard, articulated in the CIS, to "(1) end the unlawful conduct; (2) 'avoid a recurrence of the violation' and others like it; and (3) undo its anticompetitive consequences." CIS, 66 Fed. Reg. at 59465 (citations omitted).
In fact, the proposed settlement fails to undo the competitive harm from the core antitrust violations affirmed by the Court of Appeals, and does not even address a series of additional violations of the Sherman Act upheld by the Court of Appeals.
The Decree Does Not "Undo" the Competitive Harm Resulting from Microsoft's Anticompetitive Practices
Netscape's browser and Sun's Java were revolutionary middleware technologies which allowed Independent Software Vendors CISVs") to write programs that would run on any operating system, thus potentially making hardware platforms - and correspondingly, operating systems -- a matter of competitive and technological indifference. Microsoft both recognized and feared that this new model for software development would be an inflection point in the computer industry, 17 and accordingly launched a multi-faceted campaign to destroy the economic and technological viability of these forms of competing middleware.
In this case, Microsoft early on recognized middleware as the Trojan horse that, once having, in effect, infiltrated the applications barrier to entry, could enable rival operating systems to compete .... Alerted to this threat, Microsoft strove over a period of approximately four years to prevent middleware technologies from fostering the development of enough full-feature, cross-platform applications to erode the applications barrier to entry.
United States v. Microsoft Corp., 87 F. Supp.2d 30, 38-39 (D.D.C. 2000) (Conclusions of Law), affirmed in part, 253 F.3d 34 (D.C. Cir.), cert. denied, 530 U.S. 1301 (2000).
The Court of Appeals affirmed the illegality of Microsoft's campaign to destroy the competitive threat of Internet browsers and cross-platform Java technology. Further, as the Court of Appeals explained, Sun's distribution arrangement with Netscape was key to .,"'achiev[ing] the necessary ubiquity on Windows" required for Java to serve "as the ubiquitous platform for software development." Microsoft III, 253 F.3d at 74, 75. By foreclosing Netscape from the market, Microsoft thus eliminated the ability of the Java runtime environment to develop into a ubiquitous, competitive alternative to Windows for applications development.18 Today, the anticonsumer effects are even more clear because Microsoft has integrated its own Internet browsing and Java-like runtime technologies into Windows.
No other middleware technologies introduced since Netscape and Java have evolved to the point where they could directly challenge, and substitute for, Windows. While a variety of middleware is available today, most if not all presently lack the capability to serve as major platforms for software development. As Professor Arrow explains, no middleware entrant currently exists that offers the user base, head start and technological capability to supplant Windows, characteristics enjoyed by both Netscape and Java before Microsoft eliminated them as serious competitive threats. Arrow Decl. ¶¶ 25-30. Middleware is more often a short-run complement to the operating system rather than a substitute. It is only when particularly "disruptive technologies" can achieve the distribution scale and scope of exposed APIs to permit substitution among operating systems -- the "commoditized" operating systems feared by Microsoft -- that middleware becomes a long-run competitive substitute for the operating systems. Id. ¶¶ 16-17, 33-34. Powerful middleware substitutes for Microsoft's operating systems monopoly just do not come along every week. Id. ¶ 18 ("Technological disruptions such as the middleware threat of the mid-1990s do not occur continually.")
Microsoft's anticompetitive practices destroyed the prospect that middleware could effect such a fundamental change (sometimes called a "paradigm shift') in the operating system market and, thus, have substantially entrenched its monopoly power. "Microsoft's significantly enhanced ability to stem potential middleware threats is the result, in very substantial part, of its past anticompetitive campaign against Netscape."19 As Professor Arrow explains, "[a]t times of technological disruption, the forces of dynamic competition play an especially important role." Id. ¶ 18. See Findings of Fact ¶ 377 ("Microsoft "successfully denied" Netscape status of "the standard software for browsing the Web").20 It will be "exceedingly difficult now, even with the best of remedies, to re-establish middleware fully as the kind of competitive threat to Microsoft's monopoly power that it posed in the mid-1990s." Arrow Decl. ¶¶ 5, 18, 71. Thus, as Professor Arrow concludes, it is "highly unlikely" that "market forces alone will lead to the development of innovative middleware that creates the same competitive risk to Microsoft that it faced from Navigator and Java in 1995." Id. ¶ 30.
Despite these compelling facts, the Department and the Settling States have proposed middleware provisions that ignore the core Internet browser and Java runtime technologies in favor of undefined, future middleware that may or may not present the same viable cross-platform capabilities. The Department's remedy ratifies the illegal acts that Microsoft committed, instead of moving the market forward to where it would be today had Netscape and Java been permitted to grow without illegal Section 2 constraint.21 The Supreme Court, however, has squarely rejected the proposition that "antitrust violators may not be required to do more than return the market to the status quo ante." Ford, 405 U.S. at 573 n.8.
Assistant Attorney General James explains that the settlement is designed "to recreate the potential for the emergence of competitive alternatives to Microsoft's operating system monopoly through middleware innovations."22 But without identifying any comparable middleware products today or predicting that truly competitive middleware will be introduced in the near-term future that could become substitutes for Windows, the Department does not have a verifiable basis to project that such a remedy will have any impact on competition. The Department's proposed settlement posits only hypothetical future entry to counteract the very real monopoly power of Windows today.
In addition, Microsoft's integration of Internet browsing and runtime environment technology into Windows allows Microsoft today to prevent any competing middleware technology from achieving ubiquity, thus preserving the applications barrier to entry.23 Unlike the Netscape and Java technologies that Microsoft's unlawful practices eliminated as serious competitive threats, however, Microsoft middleware is not cross-platform. Consequently, by sanctioning Microsoft's integration of middleware into Windows and by failing to redress its illegal campaign against Netscape and Java, the proposed decree enhances, rather than reduces, Microsoft's operating systems monopoly power. In short, the PFJ does not undo the competitive harm resulting from Microsoft's unlawful assault on Netscape and Java, and therefore, fails to meet the requirements of established antitrust law and the lesser standard the Department has set.
The Proposed Settlement Fails to Deny Microsoft the Ill-gotten Fruits as Required by Established Antitrust Law
Equally importantly, in clear denial of the standards under established antitrust remedies law, the decree permits Microsoft to retain the fruits of its statutory violations. See United Shoe, 391 U.S. at 252. It "would be inimical to the purpose of the Sherman Act to allow monopolists free rein to squash nascent, albeit unproven, competitors at will -- particularly in industries marked by rapid technological advance and frequent paradigm shifts." Microsoft III, 253 F.3d at 79. Consequently, because the PFJ fails to "deny to [Microsoft] the fruits of its statutory violation," id. at 103, it cannot be approved by this Court.
There are remedial alternatives available to restore Internet browsers and cross-platform runtime technology to the position they would have achieved -- ubiquitous distribution without any "lock-in" to the Windows operating systems D in the absence of Microsoft's violations. The open source Internet Explorer licensing requirement proposed by the Litigating States does precisely that. A remedy that acts directly to undermine the applications barrier to entry, for instance by requiring "porting" of the Office suite to other operating system platforms, would act to commoditize the operating system and thus allow operating systems competition to occur on the basis of efficiency, technology and consumer demand. 24 See Arrow Decl. ¶ 46-49.25
In sharp contrast, the proposed decree is described in the CIS as encouraging the development of future technologies that "over time could help lower the applications barrier to entry." CIS, 66 Fed. Reg. at 59467 (emphasis added). As no significant platform innovations with the characteristics necessary to substitute for Windows have developed since Microsoft's multi-faceted predatory campaign was launched, there is simply no reason to believe that new Netscape and Java-like middleware competition could flourish today, especially under the decree, which not only does not lower the applications barrier to entry - it actually preserves and strengthens. Therefore, the remedy fails to meet the standard set by established antitrust remedies law by refusing to deny Microsoft the fruits of its unlawful acts, or providing any viable alternative mechanism.
The Decree Does Not Terminate or Redress Numerous Practices that the Court of Appeals Found to Violate the Sherman Act The decree now proposed by the government improperly permits Microsoft to continue some of the very exclusionary practices that the Court of Appeals explicitly held were illegal. Both established antitrust remedies law and the lesser standard articulated by the Department require that the settlement terminate and redress the unlawful conduct affirmed by the Court of Appeals. The settlement does not.
Integration of Windows and Middleware
The PFJ does not preclude Microsoft from integrating middleware software, or any other technology that could erode the applications barrier to entry, into its operating system products. Hence, the proposed decree not only does not end Microsoft's practice of binding competing technologies to Windows, but allows middleware integration to continue unabated in the future.
This failure is impossible to square with the Court of Appeals' decision. First, the Court specifically held that "Microsoft's decision to bind IE to Windows 98" by "commingling of code" was an unlawfully "exclusionary" practice. Microsoft III, 253 F.3d at 64-67. The Court of Appeals' discussion is worthy of close attention became it sheds light on the magnitude of the PFJ's failure with respect to product integration. The Court explained that "[t]echnologically binding IE to Windows ... both prevented OEMs from pre-installing other browsers and deterred consumers from using them," Microsoft III, 253 F.3d at 64 (citing Findings of Fact ¶ 159), and thus that "Microsoft's... commingling of browser and operating system code constitute[s] exclusionary conduct, in violation of ¶ 2." Id. at 67. Moreover, the Court of Appeals emphasized that its Section 2 holding rebuffed Microsoft's arguments "not only that its integration of IE into Windows is innovative and beneficial, but also that it requires non-removal of IE." Id. at 89.
Second, the Court summarily denied Microsoft's rehearing petition challenging both the factual basis and the legal sufficiency of the code commingling holding.26 The Court denied without opinion Microsoft's rehearing petition, in which the defendant Microsoft argued that "`commingling of code' is not 'per se pernicious or even suspicious'" and urged the D.C. Circuit to (1) reverse the applicable Findings of Fact, and (2) limit its liability holding with respect to bundling of Internet Explorer to Microsoft's refusal to permit "[r]emoval of end-user access by OEMs."27
In spite of these repeated holdings, the PFJ reverses course and adopts the position for which Microsoft argued on rehearing. The proposed settlement allows OF. Ms to remove "access to" middleware -- that is, icons w from the desktop and related areas of the Windows user interface. Conversely, it permits Microsoft to commingle any code and prohibits OEMs from deleting Microsoft middleware code from the operating system software. Thus, although the Court of Appeals expressly reiterated that technological integration of Interact Explorer violated Section 2, the PFJ fails to impose any limits whatsoever on current or future bundling of middleware and operating systems software.
Assistant Attorney General James has testified that "[t]he court of appeals ruled that, albeit with some limits, Microsoft could lawfully integrate new functions into the operating system."28 This is a mischaracterization. The D.C. Circuit remanded the tying claim for rule of reason analysis, Microsoft III, 253 F.3d at 84-95, but did not conclude that any product integration litigated at trial was "lawful." The only general statement the Court made was that the "integration of additional software functionality into an operating systems" is not a per se unlawful Section 1 offense.29
Coercion and Market Allocation
The D.C. Circuit affirmed that Microsoft's coercion of Apple, by threatening to withhold porting of Office to the Macintosh operating systems platform, was unlawful. The District Court likewise found that Microsoft attempted (this time without success) to coerce Apple into abandoning development of its QuickTime software, in order to limit "the development of multimedia content that would run cross-platform." Findings of Fact ¶ 110.
Microsoft also coerced Intel -- Microsoft's partner in the IBM-compatible PC market m into abandoning its work on creation of Java-compatible multimedia software.(30)Microsoft III, 253 F.3d at 77. In fact, the Court specifically ruled that "Microsoft's threats to Intel were exclusionary, in violation of § 2 of the Sherman Act." Id. at 78 (emphasis added). And the District Court, again without objection by the Court of Appeals, also found that Microsoft pressured Intel to cease development of "Native Signal Processing ('NSP') software, [which] would endow Intel microprocessors with substantially enhanced video and graphics performance,"31 as well as "using revenues from its microprocessor business to fund the development and distribution of free platform-level software," 32 in order to "halt the development of software that presented developers with a set of operating-system-independent interfaces." 33
The proposed decree does not constrain Microsoft's ability to engage in this sort of coercive conduct to impede competition from potential middleware or other software rivals.Section III.F of the PFJ precludes Microsoft only from "retaliating" against ISVs and IHVs that develop or use competing platform software and from entering into exclusive dealings with ISVs (but curiously not IHVs) for platform software. It does not, however, deal with the use of threats and coercion to compel adherence to Microsoft's objectives short of an actual agreement.34 As both a legal and practical matter, the PFJ fails to redress the Court of Appeals' holding that Microsoft's "threats" to its competitors and partners violated Section 2.
Deception and Product Sabotage
The Department recognizes that among the practices the D.C. Circuit ruled unlawful was Microsoft's "attempt[s] to mislead and threaten software developers in order to contain and subvert Java middleware technologies that threatened Microsoft's operating system monopoly."35 Yet the PFJ does not prohibit Microsoft from misleading developers or, as it did with Java, creating supposedly "open" software development tools that, in reality, are compatible only with Windows. See Microsoft III, 253 F.3d at 77. These sorts of practices are added in the Litigating States remedy proposal.36 By preventing Microsoft from intentionally sabotaging competing applications or middleware products, and by requiring that if Microsoft implements open industry standards it not "pollute" those standards with proprietary, Windows-specific protocols and features, such relief would constrain the exclusionary conduct held unlawful by the D.C. Circuit. The Department's proposed settlement does not.
The Department's claim that the decree "ends" Microsoft's unlawful practices is incorrect. It is also wrong as a matter of remedies jurisprudence. Antitrust courts must "start from the premise that an injunction against future violations is not adequate to protect the public interest."37 In order to prevent "a recurrence of the violation" found, antitrust courts are not limited to imposing "a simple proscription against the precise conduct [the violator] previously pursued." 38
Yet Assistant Attorney General James recently testified that the government's remedy proposal is "focused on the specific practices that the court [of appeals] had ruled unlawful."39 This focus on specific practices does not eliminate those practices. In any event, it is settled that antitrust relief may prohibit even otherwise lawful conduct if it "represents a reasonable method of eliminating the consequences of the illegal conduct" or preventing its resumption. 40
THE API DISCLOSURE AND OEM FLEXIBILITY PROVISIONS OF THE PROPOSED DECREE WILL NOT CREATE THE OPPORTUNITY FOR MIDDLEWARE COMPETITION
The proposed decree neither provides future middleware competitors with the API information needed to develop interoperable products nor opens the OEM distribution channel to effective competition from any such new entrants. To a surprisingly large degree, the PFJ's provisions simply memorialize Microsoft's current business practices. Indeed, the PFJ would not have thwarted Microsoft's 1995-98 unlawful campaign against Net. scape and Java had the decree been in place at that time.
As a consequence, the PFJ will discourage, rather than encourage, investment and innovation in new middleware technology. Future middleware competitors, faced with the very real prospect that they may not be able to obtain necessary API information from Microsoft or access to the OEM distribution channel, will have virtually no incentive to invest in time development of new and innovative middleware technology. Moreover, even if the PFJ actually did "creat[e] the opportunity for software developers and other computer industry participants to develop new middleware products that compete directly with Microsoft," as the CIS states, the five-year term of the proposed decree is far too short to promote innovation and investment in middleware technology. In short, under the PFJ the status quo that prompted the Department of Justice and State Attorneys General to bring these actions against Microsoft will perpetuate.
As the Supreme Court emphasized in its landmark ruling in the DuPont antitrust case, "It]he proper disposition of antitrust cases is obviously of great public importance, and their remedial phase, more often than not, is crucial. For the suit has been a futile exercise if the Government proves a violation but fails to secure a remedy adequate to redress it." United States v. E.I. du Pont de Nemours & Co., 366 U.S. 316, 323 (1961). Under any appropriate standard for judging the effectiveness of antitrust remedies, the key portions of the PFJ are just such an exercise in futility.
The Proposed Decree's Provisions for Information Disclosure Do Not Assure that Future Middleware Competitors Will Have Access to Necessary Interoperability Information
The Department proclaims that the API disclosure provisions of the proposed decree will create middleware competition by requiring Microsoft to disclose all of the interfaces and related technical information that Microsoft's middleware uses to intemperate with the Windows operating system." CIS, 66 Fed. Reg. at 59460. 41 That is simply not accomplished by a literal reading of the proposed decree's API provisions. The proposed decree does not provide middleware competitors with the information needed to intemperate, but rather allows Microsoft itself to decide whether, when and which APIs to release to potential competitors.
There are four provisions of the proposed decree that seek to address the issues of information disclosure for the purposes of enabling interoperability. Section III.D addresses the disclosure of APIs and Section III.E addresses the disclosure of communications protocols with server operating systems products. These provisions need to be read in concert with Section HI J, which substantially narrows the scope of required disclosures, and Section HI.L5, which potentially undermines the information disclosure regime by granting to Microsoft rights to insist on cross licenses to intellectual property developed through the use of Microsoft's APIs. Lastly, these provisions are dependent on a multitude of definitions which include Sections VI.A "APIs"; VI.B "Communications Protocol"; VI.E "Documentation"; VI.J "Microsoft Middleware"; VI.R "Timely Manner"; VI.T "'Trademarked"; and VI.U "Windows Operating System Product." To understand the impact of the PFJ on information disclosure, all these provisions must be read together, along with their subordinate definitions and exceptions.
The API Provision's Scope is Far Too Narrow.
The PFJ falls short of requiting the disclosure of APIs that innovative middleware technologies might need. Section III.D requires only that Microsoft disclose: "the APIs and related Documentation that are used by Microsoft Middleware to intemperate with a Windows Operating System Product." PFJ, 66 Fed. Reg. at 59454 (emphasis added).
This obligation is plainly too narrow to support real middleware competition. If a potential competitor creates a new form of middleware that provides innovative functionalities, it will not be entitled to the necessary APIs, if those APIs are not "used by Microsoft Middleware to interoperate with a Windows Operating System Product" within the scope of Section III.D. This necessarily limits future innovation to the parameters set by the breadth of Microsoft's Middleware functionality, it creates a regime where competitors must always follow, as opposed to lead, middleware innovations. For example, when Netscape was attempting to achieve full 38 interoperability with the Windows operating system in 1995, Netscape required the APIs for Windows, not merely the APIs between Windows and Microsoft's browser, which was just in the process of development.42 Further, under Section III.D, Microsoft must disclose "for the sole purpose of interoperating with a Windows Operating Systems Product... APIs and related documentation that are used by Microsoft Middleware to interoperate with a Windows Operating System Product." PFJ, 66 Fed. Reg. at 59454. Windows Operating Systems Products are defined in Section VI.U to include Windows 2000 Professional and Windows XP for the PC. Thus, Microsoft does not have to disclose APIs its middleware uses to interoperate with Microsoft operating systems on servers or handhelds. And for those APIs that Microsoft does disclose, Microsoft is permitted to limit their use by third parties "solely for the purpose of interoperating with a Windows Operating System Product." Id. at 59454. Thus, Microsoft can distribute middleware products that interoperate with all of its client and server operating systems along with its applications such as Office, while competitors' middleware products will be limited to using any disclosed APIs to intemperate only with PC versions of Windows. This limitation certainly does not provide a level playing field for competitive middleware.
The API Provision of the PFJ Constructs an Illusive Framework for Disclosure of Interoperability Information
Close review of the plain language of the API disclosure provision and its subordinate definitions reveals that the provision is quite illusory. A careful examination of these complex provisions of the proposed decree -- represented graphically in Figure 1 on the next page reveals that, despite their length, they are nonetheless circular and illusory.
Figure 1 [D]
Section III.D sets forth the basic obligation that Microsoft must disclose to competitors "the APIs and related Documentation that are used by Microsoft Middleware to interoperate with a Windows Operating System Product." The PFJ therefore establishes a regime where Microsoft must disclose the "APIs," a defined tern, that are used by "Microsoft Middleware," a defined term, to intemperate with a "Windows Operating System Product," a defined term.
Defined Terms Within the API Disclosure Provision Leave All Material Disclosure Determinations to Microsoft.
The defined terms within Section III.D reveal that the PFJ's API disclosure obligations are without substance. As stated, the provision calls for the disclosure of "APIs" between "Microsoft Middleware" and the "Windows Operating System Product." Taking those definitions in reverse order demonstrates that the Department cannot possibly predict precisely what information is required to be disclosed under Section III.D because most of the definitions are left to Microsoft.
First, Section VI.U provides the definition of a "Windows Operating System Product." A Windows Operating System Product is defined as:
the software code (as opposed to source code) distributed commercially by Microsoft for use with Personal Computers as Windows 2000 Professional, Windows XP Home, Windows XP Professional, and successors to the foregoing, including the Personal Computer versions of the products currently code named "Longhorn" and "Blackcomb" and their successors, including upgrades, bug fixes, service packs, etc. The software code that comprises a Windows Operating System Product shall be determined by Microsoft in its sole discretion. (emphasis added)
The CIS explains that, pursuant to the proviso in the final sentence, this definition means that "the software code that comprises a Windows Operating System Product is determined by Microsoft's packaging decisions (i.e., by what it chooses to ship as 'Windows')." CIS, 66 Fed. Reg. At 59459. Under this approach, therefore, Microsoft retains the unilateral discretion to determine what constitutes Windows for purposes of its API disclosure obligations. If middleware software is included with Windows, it is thus part of a Windows Operating System Product for the purposes of this definition. It follows that if Microsoft chooses "at its sole discretion" to include middleware as part of Windows it escapes the disclosure requirements of Section III.D.
The other "bookend" of Microsoft's information disclosure requirement rests on definition VI.J, "Microsoft Middleware." First, it is critical to understand that provision III.D does not invoke definition VI.K "Microsoft Middleware Product," which clearly sets forth that "Internet Explorer, Microsoft's Java Virtual Machine, Windows Media Player, Windows Messenger, Outlook Express and their successors" are "'Microsoft Middleware Products." Id. Rather, the provision rests on the far more ambiguous definition of "Microsoft Middleware." Under definition VI.J, Microsoft Middleware means:
software code that Microsoft distributes separately from a Windows Operating System Product to update that Windows Operating System Product; Is Trademarked; Provides the same or substantially similar functionality as a Microsoft Middleware Product; and Includes at least the software code that controls most or all of the user interface elements of that Microsoft Middleware.
The weakness of this definition is immediately apparent. The first prong of the definition requires Microsoft middleware to be distributed "separately from a Windows Operating System Product." Therefore, if Microsoft decides to include middleware as part of Windows as it is entitled to do "in its sole discretion" it cannot possibly be Microsoft Middleware because it will not be "distributed separately." Alternatively, because middleware is "Microsoft Middleware" only if it is distributed "to update" Windows, Microsoft can as easily avoid any API disclosure obligations by distributing middleware as a separate application rather than as a Windows update.43
Second, in order to qualify as Microsoft Middleware, the middleware must also be "Trademarked." Section VI.T of the PFJ defines "'Trademarked" in two ways. The first clause of the definition states:
"Trademarked" means distributed in commerce and identified as distributed by a name other than Microsoft® or Windows® that Microsoft has claimed as a trademark or service mark by (i) marking the name with trademark notices, such as ® or TM, in connection with a product distributed in the United States; (ii) filing an application for trademark protection for the name in the United States Patent and trademark Office; or (iii) asserting the name as a trademark in the Unites States in a demand letter or lawsuit.
PFJ, 66 Fed. Reg. 59459.
We cannot fathom the rationale for resting the definition of Middleware on whether or not a particular technology is trademarked. The Department contends that the definition is "designed to ensure that the Microsoft Middleware ... that Microsoft distributes (either for free or for sale) to the market as commercial products are covered by the Proposed Final Judgment." CIS, 66 Fed. Reg. at 59465. Yet, again it appears that exactly the opposite is true based on the second part of the "Trademarked" definition, which states:
Any product distributed under descriptive or generic terms or a name comprised of the Microsoft® or Windows® trademarks together with descriptive or generic terms shall not be Trademarked as that term is used in this Final Judgment. Microsoft