IP: Microsoft decision

[David Farber <dave () farber net>]

> Date: Thu, 28 Jun 2001 13:56:27 -0700
> From: James Love <love () cptech org>
> Organization: http://www.cptech.org
> To: "Farber, David" <farber () cis upenn edu>
> Subject: Microsoft decision
>
> Seems upon a quick read that today is a bad day for both Microsoft and
> Judge Jackson.  Microsoft clearly won on some important points, the
> break-up in particular was hammered, Jackson is out, the remedies will
> be redone, and Jackson was overturned on some important issues, for
> example, the court was more sympathetic to tying than was Judge
> Jackson.  However, in many other areas Microsoft stands as guilty under
> the antitrust laws and the decision was much more pro-antitrust
> enforcement than some had expected.  (I guess Ken Starr and Robert Bork
> did a good job.)   Here are a few parts from the opinion that can't be
> good news for Microsoft.   Jamie
>
>
> http://i.cnn.net/cnn/LAW/library/documents/microsoft/microsoft.0628.ruling.pdf
>
> Page 33
>
> b. Microsoft's justifications for the license restrictions
> Microsoft argues that the license restrictions are legally
> justified because, in imposing them, Microsoft is simply ''exercising
> its rights as the holder of valid copyrights.'' Appellant's
> Opening Br. at 102. Microsoft also argues that the
> licenses ''do not unduly restrict the opportunities of Netscape
> to distribute Navigator in any event.'' Id.
>
> Microsoft's primary copyright argument borders upon the
> frivolous. The company claims an absolute and unfettered
> right to use its intellectual property as it wishes: ''[I]f
> intellectual property rights have been lawfully acquired,'' it
> says, then ''their subsequent exercise cannot give rise to
> antitrust liability.'' Appellant's Opening Br. at 105. That is
> no more correct than the proposition that use of one's personal
> property, such as a baseball bat, cannot give rise to tort
> liability. As the Federal Circuit succinctly stated: ''Intellectual
> property rights do not confer a privilege to violate the
> antitrust laws.'' In re Indep. Serv. Orgs. Antitrust Litig., 203
> F.3d 1322, 1325 (Fed. Cir. 2000).
>
> Page 35
>
> In sum, we hold that with the exception of the one restriction
> prohibiting automatically launched alternative interfaces,
> all the OEM license restrictions at issue represent uses of
> Microsoft's market power to protect its monopoly, unredeemed
> by any legitimate justification. The restrictions
> therefore violate § 2 of the Sherman Act.
>
>
> Page 39
>
> 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.
>
>   [snip]
>
>
> Plaintiffs
> plainly made out a prima facie case of harm to competition in
> the operating system market by demonstrating that Microsoft's
> actions increased its browser usage share and thus
> protected its operating system monopoly from a middleware
> threat and, for its part, Microsoft failed to meet its burden of
> showing that its conduct serves a purpose other than protecting
>
> Page 40
>
> its operating system monopoly. Accordingly, we hold
> that Microsoft's exclusion of IE from the Add/Remove Programs
> utility and its commingling of browser and operating
> system code constitute exclusionary conduct, in violation of
> § 2.
>
> Page 46
>
> Plaintiffs having demonstrated a harm to competition, the
> burden falls upon Microsoft to defend its exclusive dealing
> contracts with IAPs by providing a procompetitive justification
> for them. Significantly, Microsoft's only explanation for
> its exclusive dealing is that it wants to keep developers
> focused upon its APIs-which is to say, it wants to preserve
> its power in the operating system market. 02/26/01 Ct.
> Appeals Tr. at 45-47. That is not an unlawful end, but
> neither is it a procompetitive justification for the specific
> means here in question, namely exclusive dealing contracts
> with IAPs. Accordingly, we affirm the District Court's deci-
>
> Page 47
>
> sion holding that Microsoft's exclusive contracts with IAPs
> are exclusionary devices, in violation of § 2 of the Sherman
> Act.
>
>
> Page 51
>
> This exclusive deal between Microsoft and Apple has a
> substantial effect upon the distribution of rival browsers. If a
> browser developer ports its product to a second operating
> system, such as the Mac OS, it can continue to display a
> common set of APIs. Thus,
>
> Page 52
>
> Microsoft offers no procompetitive justification for the exclusive
> dealing arrangement. It makes only the irrelevant
> claim that the IE-for-Mac Office deal is part of a multifaceted
> set of agreements between itself and Apple, see Appellant's
> Opening Br. at 61 (''Apple's 'browsing software' obligation
> was [not] the quid pro quo for Microsoft's Mac Office obligation[;]
> TTT all of the various obligations TTT were part of
> one 'overall agreement' between the two companies.''); that
> does not mean it has any procompetitive justification. Accordingly,
> we hold that the exclusive deal with Apple is
> exclusionary, in violation of § 2 of the Sherman Act.
>
>
>  Page 56
>
> Finally, other Microsoft documents confirm that Microsoft
> intended to deceive Java developers, and predicted that the
> effect of its actions would be to generate Windows-dependent
> Java applications that their developers believed would be
> cross-platform; these documents also indicate that Microsoft's
> ultimate objective was to thwart Java's threat to Microsoft's
> monopoly in the market for operating systems. One
> Microsoft document, for example, states as a strategic goal:
> ''Kill cross-platform Java by grow[ing] the polluted Java
> market.'' GX 259, reprinted in 22 J.A. at 14514; see also id.
> (''Cross-platform capability is by far the number one reason
> for choosing/using Java.'') (emphasis in original).
> Microsoft's conduct related to its Java developer tools
> served to protect its monopoly of the operating system in a
> manner not attributable either to the superiority of the
> operating system or to the acumen of its makers, and therefore
> was anticompetitive. Unsurprisingly, Microsoft offers no
> procompetitive explanation for its campaign to deceive developers.
> Accordingly, we conclude this conduct is exclusionary,
> in violation of § 2 of the Sherman Act.
>
>
> Page 59
>
> C. Causation
> As a final parry, Microsoft urges this court to reverse on
> the monopoly maintenance claim, because plaintiffs never
> established a causal link between Microsoft's anticompetitive
> conduct, in particular its foreclosure of Netscape's and Java's
> distribution channels, and the maintenance of Microsoft's
> operating system monopoly. See Findings of Fact  411
>
> . . . According to Microsoft,
> the District Court cannot simultaneously find that middleware
> is not a reasonable substitute and that Microsoft's
> exclusionary conduct contributed to the maintenance of monopoly
> power in the operating system market. Microsoft
> claims that the first finding depended on the court's view that
> middleware does not pose a serious threat to Windows, see
> supra Section II.A, while the second finding required the
> court to find that Navigator and Java would have developed
> into serious enough cross-platform threats to erode the applications
> barrier to entry. We disagree.
>
>
> Page 76
>
>
> Microsoft contends not only that its
> integration of IE into Windows is innovative and beneficial
> but also that it requires non-removal of IE. In our discussion
> of monopoly maintenance we find that these claims fail the
> efficiency balancing applicable in that context. But the separate-
> products analysis is supposed to perform its function as a
> proxy without embarking on any direct analysis of efficiency.
> Accordingly, Microsoft's implicit argument-that in this case
> looking to a competitive fringe is inadequate to evaluate fully
> its potentially innovative technological integration, that such a
> comparison is between apples and oranges-poses a legitimate
> objection to the operation of Jefferson Parish's
> separate-products test for the per se rule.
>
> In fact there is merit to Microsoft's broader argument that
> Jefferson Parish's consumer demand test would ''chill innovation
> to the detriment of consumers by preventing firms from
> integrating into their products new functionality previously
> provided by standalone products-and hence, by definition,
> subject to separate consumer demand.'' Appellant's Opening
> Br. at 69. The per se rule's direct consumer demand and
>
> Page 77
>
> indirect industry custom inquiries are, as a general matter,
> backward-looking and therefore systematically poor proxies
> for overall efficiency in the presence of new and innovative
> integration.
>
> . . .
>
> In light of the monopoly maintenance section, obviously, we
> do not find that Microsoft's integration is welfare-enhancing
> or that it should be absolved of tying liability. Rather, we
> heed Microsoft's warning that the separate-products element
> of the per se rule may not give newly integrated products a
> fair shake.
>
>
>
>
>
>
>
>
>
>
>
> --
> James Love
> Consumer Project on Technology
> P.O. Box 19367, Washington, DC 20036
> http://www.cptech.org, mailto:love () cptech org
> voice: 1.202.387.8030 fax 1.202.234.5176 mobile 1.202.361.3040
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