Yesterday Microsoft filed its principal appeal brief in the DOJ lawsuit with the U.S. Court of Appeals in Washington, D.C.
The brief outlines a powerful argument as to why the District Court`s judgement should be reversed and the case should be dismissed. This brief is the first step in the appellate process. The government responds on January 12 with its 150-page brief. Microsoft then files its reply brief on January 29. The process is completed with two-days of oral arguments in front of the seven members of the en banc panel at the U.S. Court of Appeals on February 26-27.
Here is our initial comment if you want to use a quote from Microsoft:
"Our brief outlines a powerful case for having the District Court`s judgement reversed and the entire case dismissed. We are pleased to have an opportunity to present our case to the Court of Appeals and get this issue behind us."
Herewith are the links to two documents - Microsoft`s brief and a revier`s guide that highlights the key points of the document, as well as the full reviewer`s guide attached in the document.
Here is the appeal brief -- http://www.microsoft.com/presspass/trial/appeals/11-27brief.asp
Here is the reviewer`s guide -- http://www.microsoft.com/presspass/trial/appeals/11-27brief-guide.asp
Reviewer`s Guide Microsoft Corporation - Appellate Brief to the U.S. Court of Appeals
Microsoft`s 150-page brief filed with the U.S. Court of Appeals in Washington, D.C. provides a compelling case for reversing the district court`s judgment and enter judgement for Microsoft.
The entire proceeding was infected with error. Revealing a profound misunder-standing of the antitrust laws, the district court condemned Microsoft`s competitive response to the growth of the Internet and Netscape`s emergence as a platform competitor, conduct that pro-duced enormous consumer benefits. The district court branded Microsoft`s conduct anticompeti-tive even though it recognized that Microsoft did not foreclose Netscape from the marketplace.
The primary argument of the appeal is that the government`s lawsuit and the district court`s rulings reflect a clear misunderstanding of the antitrust laws. Even accepting the district court`s findings of fact, Microsoft must win on liability because there is no exclusion of competing products from consumers.
Here are the key sections of our appeal and highlights from each.
Tying Claim
The district court erroneously held that Microsoft`s design of Windows to include Web browsing software constituted a tie in violation of Section 1. First, Windows and IE are not "separate products" under this Court`s standard because there are significant benefits to the integrated design of Windows that cannot be duplicated by combining an operating system with a standalone Web browser like Navigator.
Plaintiffs` tying claim fails for two independently sufficient reasons. First, Windows and IE are not "separate products" under any rational test -- including the governing standard articulated by this Court -- because the inclusion of IE in Windows improved the product, satisfying pervasive demand for Internet-related functionality. Second, the alleged tie did not foreclose competition in the "browser" market, and thus did not unreasonably restrain trade in violation of Section 1.
The district court`s "consumer demand" test would chill innovation to the detriment of consumers by preventing firms from integrating into their products new functionality that was previously provided by standalone products - and hence, by definition, subject to separate consumer demand.
Plaintiffs did not prove, and the district court did not find, that the benefits of Microsoft`s integrated design could be duplicated by combining an operating system with a "stand-alone browser" like Navigator.
Monopoly Maintenance
The district court erroneously held that Microsoft maintained a PC operating sys-tem monopoly in violation of Section 2. First, Microsoft cannot control prices or exclude compe-tition, and thus does not possess monopoly power in a properly defined market. Second, Microsoft did not engage in anticompetitive conduct because it did not foreclose Navigator or Java from any marketplace.
By adhering rigidly to the structural approach and failing to take into account the dy-namism of the software industry, the district court elevated form over substance, excluding from consideration competitive forces that actively constrain Microsoft`s conduct. As a result, the district court`s narrow market definition obscures, rather than illuminates, the underlying com-petitive reality of the software business.
Given the competitive nature of the software industry, the district court`s holding that Microsoft has monopoly power is contrary to commercial realities.
The principal bases for the district court`s mono-poly maintenance ruling were Microsoft`s inclusion of IE in Windows and its promotion and distribution agreements with ISPs and OLSs, which supposedly foreclosed Navigator from the OEM and IAP channels of distribution. 87 F. Supp. 2d at 39-42. Those alleged instances of anti-competitive conduct come up short under Section 2 for the very same reasons that plaintiffs` tying and exclusive dealing claims fail under Section 1: they were not exclusionary.
The term "anticompetitive" has a "special meaning: it refers not to actions that merely injure individual competitors, but rather to actions that harm the competitive process, a process that aims to bring consumers the benefits of lower prices, better products, and more efficient production methods."
The district court also erroneously relied on evidence of Microsoft`s intent to win busi-ness from Netscape in concluding that Microsoft`s conduct was anticompetitive. 87 F. Supp. 2d at 37 n.1. Consistent with this focus on intent, the district court placed great weight on the unremarkable proposition that Microsoft sought to maximize IE`s share of browser usage at Navigator`s expense, a perfectly procompetitive intent.
The copyright laws thus give Microsoft the right to prevent OEMs from shipping modified versions of Windows without Microsoft`s permission. That right derives from Microsoft`s exclusive rights under the Copyright Act to reproduce its copyrighted works and prepare derivative works.
Contrary to the district court`s assertion, courts have applied the same standard to alleged exclusive dealing agreements under both Section 1 and Section 2, holding that such agreements are not anticompetitive unless they deny competitors access to a significant percentage of the market.
Hence, "nothing in Continental Ore requires a conclusion that a defendant that has not engaged in an unlawful conspiracy, and has committed no acts in themselves violative of the Sherman Act, could be found guilty of antitrust violations on some theory that the acts have `synergistic effects` that convert lawful conduct into violations of law."
Attempted Monopolization
The district court erroneously held that Microsoft attempted to monopolize the "browser" market in violation of Section 2. First, as explained above, Microsoft`s vigorous com-petition with Netscape to develop and market improved Web browsing software was not anti-competitive because nothing Microsoft did foreclosed Navigator from the marketplace. Second, Microsoft did not act with a "specific intent" to monopolize, but rather sought to prevent Navigator from dominating the alleged "browser" market. Third, there is no "dangerous proba-bility" that Microsoft will achieve monopoly power in the alleged "browser" market: Microsoft`s June 1995 discussions with Netscape did not create such a probability, and none exists now. Indeed, AOL could (and says it will) switch more than one-third of IE`s users to Navigator.
The offense of attempted monopo-lization requires a specific intent to monopolize, which cannot be shown by evidence of negli-gence (even gross negligence or recklessness). United States v. ALCOA, 148 F.2d 416, 431-32 (2d Cir. 1945). Microsoft did not act with such a specific intent, and the district court`s attempt to manufacture it should be rejected as another effort to proscribe aggressive competition.
The June 1995 discussions between Microsoft and Netscape are a far cry from the brazen price-fixing proposal in American Airlines. In June 1995, Web browsing software was a nascent business: Microsoft had not yet released Windows 95-and thus had no share of the alleged market-and Netscape had released the first version of Navigator only six months earlier.
In short, IE`s usage share is highly vulnerable to decisions made by AOL, a formidable Microsoft competitor and the world`s largest. On April 5, 2000-the day after the district court issued its conclu-sions of law-AOL announced its intent to replace IE with Navigator in AOL`s proprietary client software.
Remedy
Wholly apart from the district court`s erroneous liability determinations, the relief entered cannot stand, for both procedural and substantive reasons. Although a district court`s decision to enter equitable relief is typically reviewed for abuse of discretion, no such deference is appro-priate here given the district court`s (i) refusal to hold an evidentiary hearing and allow Microsoft to present evidence on relief, (ii) failure to make findings to support the relief entered, (iii) reliance on improper factors and information outside the record, and (iv) admitted deference to plaintiffs` proposed remedy.
Accordingly, the district court was not at liberty to enter sweeping relief, over Microsoft`s objection, without conducting an evidentiary hearing and affording Microsoft an opportunity to present evidence on all disputed issues. Nor was the district court free to enter such relief without making findings of fact based on admissible evidence regarding the terms of the decree. The entire decree should be vacated on these grounds alone.
The opinion accompanying the decree makes clear that the district court relied on inad-missible evidence in imposing relief. The district court noted that "Microsoft officials have recently been quoted publicly to the effect that the company has `done nothing wrong` and that it will be vindicated on appeal." Id. Leaving aside the fact that Microsoft`s continued belief that its conduct was lawful is not grounds for any relief, much less breaking up the company, the only conceivable basis for the district court`s statement is hearsay submitted by plaintiffs.
Pre-Trial and Trial Proceedings
The district court`s conduct of the trial was highly unusual and prejudicial to Microsoft. Time and again, the district court changed the rules of the game -- and always to Microsoft`s detriment - as the following examples illustrate.
Microsoft ultimately had less than five months to prepare for trial-and much less time to prepare its defenses to plaintiffs` new allegations, which involved highly technical subjects like Java, NSP software and QuickTime. Microsoft also was limited to 12 trial witnesses, plus three rebuttal witnesses. Pretrial Order No. 1 at 3; Pretrial Order No. 2 at 6. As a result, Microsoft was unable to pursue entire avenues of important discovery and trial testimony.
The district court largely suspended appli-cation of the Federal Rules of Evidence at trial, admitting scores of newspaper and magazine articles and other rank hearsay.
District Court`s Public Comments The district judge`s public comments about the case both during and after trial violated the Code of Conduct for United States Judges. 175 F.R.D. 363 (1998). Canon 3A(6) provides: "A judge should avoid public comment on the merits of a pending or impending action . . . ."
By repeatedly commenting on the merits of the case in the press, the district judge has cast himself in the public`s eye as a participant in the controversy, thereby compromising the appearance of imparti-ality, if not demonstrating actual bias against Microsoft.
The district judge here deliberately chose to discuss the merits of the case in public, expressing strong personal views about Microsoft and its executives in person, in print and on the radio, both during and after trial. Indeed, some of his remarks suggest that he may have pre-judged the central issue in the case-tying-in advance of trial.
The district judge`s violations of the Code of Conduct are emblematic of the manner in which he conducted the entire case-employing improper procedures and changing the rules of the game, always to Microsoft`s detriment. To preserve the appearance of justice, should any of plaintiffs` claims survive review, the Court should vacate the judgment as to those claims and remand for a new trial before a different district judge.
Conclusion
The Court should reverse the judgment below and direct the entry of judgment for Microsoft. As to any aspect of the judgment not reversed, the Court should vacate and remand the case to a different district judge for a new trial.
Share
