Opinion ID: 185418
Heading Depth: 4
Heading Rank: 1

Heading: Anticompetitive effect of integration

Text: 92 As a general rule, courts are properly very skeptical about claims that competition has been harmed by a dominant firm's product design changes. See, e.g., Foremost Pro Color, Inc. v. Eastman Kodak Co., 703 F.2d 534, 544-45 (9th Cir. 1983). In a competitive market, firms routinely innovate in the hope of appealing to consumers, sometimes in the process making their products incompatible with those of rivals; the imposition of liability when a monopolist does the same thing will inevitably deter a certain amount of innovation. This is all the more true in a market, such as this one, in which the product itself is rapidly changing. See Findings of Fact p 59. Judicial deference to product innovation, however, does not mean that a monopolist's product design decisions are per se lawful. See Foremost Pro Color, 703 F.2d at 545; see also Cal. Computer Prods., 613 F.2d at 739, 744; In re IBM Peripheral EDP Devices Antitrust Litig., 481 F. Supp. 965, 1007-08 (N.D. Cal. 1979). 93 The District Court first condemned as anticompetitive Microsoft's decision to exclude IE from the Add/Remove Programs utility in Windows 98. Findings of Fact p 170. Microsoft had included IE in the Add/Remove Programs utility in Windows 95, see id. p p 175-76, but when it modified Windows 95 to produce Windows 98, it took IE out of the Add/Remove Programs utility. This change reduces the usage share of rival browsers not by making Microsoft's own browser more attractive to consumers but, rather, by discouraging OEMs from distributing rival products. See id. p 159. Because Microsoft's conduct, through something other than competition on the merits, has the effect of significantly reducing usage of rivals' products and hence protecting its own operating system monopoly, it is anticompetitive; we defer for the moment the question whether it is nonetheless justified. 94 Second, the District Court found that Microsoft designed Windows 98 so that using Navigator on Windows 98 would have unpleasant consequences for users by, in some circumstances, overriding the user's choice of a browser other than IE as his or her default browser. Id. p p 171-72. Plaintiffs argue that this override harms the competitive process by deterring consumers from using a browser other than IE even though they might prefer to do so, thereby reducing rival browsers' usage share and, hence, the ability of rival browsers to draw developer attention away from the APIs exposed by Windows. Microsoft does not deny, of course, that overriding the user's preference prevents some people from using other browsers. Because the override reduces rivals' usage share and protects Microsoft's monopoly, it too is anticompetitive. 95 Finally, the District Court condemned Microsoft's decision to bind IE to Windows 98 by placing code specific to Web browsing in the same files as code that provided operating system functions. Id. p 161; see also id. p p 174, 192. Putting code supplying browsing functionality into a file with code supplying operating system functionality ensure[s] that the deletion of any file containing browsing-specific routines would also delete vital operating system routines and thus cripple Windows.... Id. p 164. As noted above, preventing an OEM from removing IE deters it from installing a second browser because doing so increases the OEM's product testing and support costs; by contrast, had OEMs been able to remove IE, they might have chosen to pre-install Navigator alone. See id. p 159. 96 Microsoft denies, as a factual matter, that it commingled browsing and non-browsing code, and it maintains the District Court's findings to the contrary are clearly erroneous. According to Microsoft, its expert testified without contradiction that '[t]he very same code in Windows 98 that provides Web browsing functionality' also performs essential operating system functions--not code in the same files, but the very same software code. Appellant's Opening Br. at 79 (citing 5 J.A. 3291-92). 97 Microsoft's expert did not testify to that effect without contradiction, however. A Government expert, Glenn Weadock, testified that Microsoft design[ed] [IE] so that some of the code that it uses co-resides in the same library files as other code needed for Windows. Direct Testimony p 30. Another Government expert likewise testified that one library file, SHDOCVW.DLL, is really a bundle of separate functions. It contains some functions that have to do specifically with Web browsing, and it contains some general user interface functions as well. 12/14/98 am Tr. at 60-61 (trial testimony of Edward Felten), reprinted in 11 J.A. at 6953-54. One of Microsoft's own documents suggests as much. See Plaintiffs' Proposed Findings of Fact p 131.2.vii (citing GX 1686 (under seal) (Microsoft document indicating some functions in SHDOCVW.DLL can be described as IE only, others can be described as shell only and still others can be described as providing both IE and shell functions)). 98 In view of the contradictory testimony in the record, some of which supports the District Court's finding that Microsoft commingled browsing and non-browsing code, we cannot conclude that the finding was clearly erroneous. See Anderson v. City of Bessemer City, 470 U.S. 564, 573-74 (1985) (If the district court's account of the evidence is plausible in light of the record viewed in its entirety, the court of appeals may not reverse it even though convinced that had it been sitting as the trier of fact, it would have weighed the evidence differently.). Accordingly, we reject Microsoft's argument that we should vacate Finding of Fact 159 as it relates to the commingling of code, and we conclude that such commingling has an anticompetitive effect; as noted above, the commingling deters OEMs from pre-installing rival browsers, thereby reducing the rivals' usage share and, hence, developers' interest in rivals' APIs as an alternative to the API set exposed by Microsoft's operating system. 99