The following item is United States District Judge Stanley Sporkin's memorandum opinion accompanying his order denying a motion to approve the antitrust settlement proposed in US v. Microsoft.
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
UNITED STATES OF AMERICA, )
Plaintiff, )
)
v. ) -Civil Action No. 94-1564
) (Stanley Sporkin)
MICROSOFT CORPORATION, )
Defendant. )
FILED Feb. 14 1995
CLERK, U.S. DISTRICT COURT
District of Columbia
MEMORANDUM OPINION
The issue before this Court is whether the entry of a proposed
antitrust consent decree between Microsoft Corporation and the
United States is in "the public interest. FN 2 Microsoft is the
world's largest developer of computer software. On July 15,
1994, the Government filed a complaint charging Microsoft with
violating Sections 1 and 2 of the Sherman Anti-Trust Act. 15
U.S.C. 1-7 (1973). On the same day the parties filed a
proposed consent judgment. FN 3
I. Background
The Government filed the complaint and proposed judgment after a
four-year investigation of Microsoft. The Federal Trade
Commission ("FTC") initiated the investigation in 1990.
According to Microsoft, but not confirmed by the Government, the
FTC considered a wide range of practices including: (1) that
Microsoft gave its developers of applications software information
about its operating systems software before providing it to other
applications developers; (2) that Microsoft announced that it
was developing a non-existent version of operating software to
dissuade Original Equipment Manufacturers ("OEMs") from leasing
a competitor's operating system; (3) that Microsoft required OEMs
that licensed its operating system software also to license
Microsoft applications; and (4) that Microsoft licensed its
operating systems to OEMs on a per processor basis. FN 4
Microsoft asserts that before the FTC investigation was completed, it
was expanded to include every aspect of Microsoft's business. FN 5
There was never a majority vote among the FTC commissioners to
file an administrative complaint against Microsoft. In late
1993, after a 2-2 deadlock by the commissioners, no
administrative action was filed, and the FTC suspended its
investigation of Microsoft.
Following the suspension of the FTC investigation, Assistant
Attorney General Bingaman, the head of the Antitrust Division of
the Department of Justice, decided to revive the investigation.
In June, 1994 Microsoft and the Department of Justice initiated
settlement negotiations. Approximately a month later the parties
came to agreement and filed a proposed judgment with the
Court. FN 6
II. The Complaint
The complaint charges that Microsoft violated Sections 1 and 2 of
the Sherman Anti-Trust Act. 15 U.S.C. 1-7. The primary
allegations in the complaint concern licensing agreements
between Microsoft and OEMs of personal computers ("PCs"). The
complaint also addresses provisions of non-disclosure agreements
("NDAs") between Microsoft and other developers of applications
software, known as independent software developers ("ISVs"). The
complaint narrowly tailors the relevant product market to the
market for certain operating systems software for x86
microprocessors. The geographic market is not limited.
In order to understand the complaint, one must understand
something about computers, microprocessors, and operations and
applications software. A microprocessor is the "brain" of the
computer. The x86 microprocessor, or chip, runs IBM and IBM-
clone PCs. These chips are primarily, but not exclusively, made by
Intel. FN 7 Operating systems software acts as the central nervous
system for a personal computer, linking up the keyboard,
monitor, disk drive and other components. Applications software
enables the PC user to perform a variety of tasks including word
processing and database management. Applications software
operates on top of the PC's operating system and must be
designed to function with that operating system. As a result,
ISVs who design applications software need information about an
operating system's codes in order to design their software.
Microsoft designs both operating systems (e.g., MS-DOS) and
applications (e.g., Microsoft Word, a word processing program).
Microsoft has a monopoly on the market for PC operating systems.
Microsoft's share of the operating systems market identified in
the complaint is consistently well above 70%. FN 8 According to
Microsoft's 1993 Annual Report, as of June 30, 1993, 120
million PCs ran on Microsoft's MS-DOS. Microsoft also developed
and sells Windows, a sophisticated operating system that runs on
top of MS-DOS or a similar operating system. Windows allows a PC
user to run more than one application at a time and shift
between them. Windows is known as a "graphical user interface."
Approximately 50 million PCs now use Windows. Microsoft
generally does not sell its operating systems directly to
consumers. Instead, it licenses its operating systems to OEMs
for inclusion in the PCs they make. FN 9
Microsoft, the Justice Department, and a number of competitors
who oppose the entry of the decree all agree that it is very
difficult to enter the operating systems market. There are two
main reasons for this, each of which reinforces the other.
First, consumers do not want to buy PCs with an operating system that
does not already have a large installed base because of their concern
that there will not be a wide range of applications software available
for that operating system. The second, complementary reason why there
are large barriers to entry into the operating systems market is that
ISVs do not want to spend time and money developing applications for
operating systems that do not have a large installed base. They
perceive that demand for that software will be low. As a result, OEMs
have little incentive to license an operating system that does not have
a large installed base and include it in their PCs. In addition to
these "natural" barriers to entry, the complaint identifies Microsoft's
use of per processor licenses and long term commitments as
"exclusionary and anti-competitive contract terms to maintain its
monopoly." A per processor license means that Microsoft licenses an
operating system to an OEM which pays a royalty to Microsoft for each
PC sold regardless of whether a Microsoft operating system is included
in that PC. In other words, under a per processor license, if an OEM
sells some PCs with a competitor's operating system installed (e.g.,
IBM's OS/2), and others with MS-DOS installed, the OEM would pay
Microsoft royalties for all PCs sold. In effect, the OEM pays twice
every time it sells a PC with a non-Microsoft operating system -- once
to the company that licensed the operating system to the OEM and once
to Microsoft. The complaint charges that per processor licenses
discourage OEMs from licensing competing operating systems and/or cause
OEMs to raise the price for PCs with a competing operating system to
recoup the fee paid to Microsoft. The complaint further alleges that
Microsoft's use of longterm licensing agreements with or without
minimum commitments, and the rolling over of unused commitments
unreasonably extended some licensing agreements with Microsoft. These
practices allegedly foreclosed OEMs from licensing operating systems
from Microsoft's competitors.
The other anticompetitive practice cited in the complaint is the
structure of Microsoft's non-disclosure agreements ("NDAs") with
ISVs during the development of its new Windows operating
system. FN10 ISVs work with Microsoft during the development and
testing of new operating systems so they can produce
applications that run with that operating system and release
them around the time the operating system is released. This
collaboration benefits Microsoft in two ways. First, Microsoft
receives input from the ISVs on how to improve the operating
system. Second, a new operating system is more attractive to consumers
if there are compatible applications programs immediately
available. In order to protect confidential information about
its new software, Microsoft requires ISVs to sign NDAs in order to
obtain product information.
The complaint alleges that the recent NDAs Microsoft has executed
with ISVs are overly restrictive and anti-competitive. The
Government alleges that the NDAs not only legitimately protect
against the disclosure of confidential information to competing
developers of operating systems but also discourage ISVs from
developing their own competing operating systems and/or from
developing applications for competing operating systems.
In sum, the Government alleges that the practices outlined above
deprive competitors of substantial opportunities to license
their operating systems to OEMs, preventing them from developing
a large installed base. This discourages both ISVs from
designing software for competing operating systems and consumers
from buying PCs with these competing operating systems. These
practices also harm consumers by limiting the variety of
available operating systems and raising the prices for non-
Microsoft operating systems.
Based on the allegations in the complaint, the Government sought
the following relief:
(1) That the Court adjudge and decree that Microsoft has
monopolized the interstate trade and commerce in the market for
PC operating systems in violation of Section 2 of the Sherman
Act.
(2) That the Court adjudge and decree that Microsoft has entered
into unlawful contracts and combinations which unreasonably
restrain the trade in interstate commerce in PC operating
systems, in violation of Section 1 of the Sherman Act.
(3) That Microsoft and all persons, firms and corporations acting
on its behalf and under its direction or control be permanently
enjoined from engaging in, carrying out, renewing or attempting
to engage, carry out or renew, any contracts, agreements,
practices, or understandings in violation of the Sherman Act.
(4) That plaintiff have such other relief that the Court may
consider necessary or appropriate to restore competitive
conditions in the markets affected by Microsoft's unlawful
conduct.
III. The Proposed Decree
The proposed decree negotiated and entered into by the parties is
significantly and substantially narrower than the requests
contained in the prayer for relief in the complaint. The consent
decree limits certain of Microsoft's contract and NDA practices.
The prohibitions concern licensing agreements and NDAs for
certain operating systems software; operating systems software
for workstations are not covered. The decree does not address
any of Microsoft's applications software.
The decree enjoins Microsoft from entering into any licensing
agreement longer than one year, though OEMs may at their
discretion include in the licensing agreement a one year option
to renew.
Microsoft can impose no penalty or charge on an OEM for its
choice not to renew the licensing agreement, nor can it require
an OEM to commit not to license a competitor's operating system.
Microsoft may only license the operating systems covered by the
decree on a per copy basis, with one exception. FN 11 Microsoft
cannot include minimum commitments in its covered licensing
agreements. The agreements cannot be structured so that the OEM
pays royalties for including MS-DOS in a fixed number of PCs,
whether or not the OEM actually sells that number of PCs with a
Microsoft operating system included.
The decree restricts the scope of the NDAs that Microsoft may
negotiate with ISVs. Microsoft cannot enter into an NDA whose
duration extends beyond, (i) commercial release of the operating
system, (ii) an earlier public disclosure by Microsoft, or (iii)
one year from the date of the disclosure of information
covered by the NDA to a person subject to the NDA, whichever
comes first. The decree also prohibits the use of NDAs that
would prevent persons covered by that NDA from developing
applications for competing operating systems unless the
application entailed use of proprietary Microsoft information.
The decree explicitly states that it does not constitute "any
evidence or admission by any party with respect to any issue of
fact or law." Indeed, Microsoft has denied in its submissions to
the Court that any of the allegations set forth in the complaint
constitute violations of the antitrust laws. FN12
IV. Motions To Participate
Before addressing the question of whether the proposed decree is
in the public interest, the Court must decide whether to approve
three opposed motions to participate in this Tunney Act
proceeding. I.D.E. Corporation ("IDEA") has moved to intervene
under Fed. R. Civ. P. 24. Anonymous persons, represented by Gary
Reback of the law firm of Wilson, Sonsini, Goodrich & Rosati
("Wilson, Sonsini"), have made a motion to file an amicus curiae
memorandum in opposition to the proposed final judgment. The
Computer & Communications Industry Association ("CCIA") has
moved to intervene, or in the alternative, moved to participate
as amicus curiae.
IV.A. Tunney Act - Participation by Interested Persons
Section 16(f) of the Tunney Act gives the Court wide latitude to
gather relevant information to make its public interest
determination. In order to exercise properly its independent
role as mandated by Congress, the Court must ensure that it is
adequately informed about the intricacies and complexities of the
industry affected by the consent decree. FN 13 Section 16(f)(3)
specifically empowers the Court to gather relevant information
by means of authorizing intervention and amicus curiae
participation:
(f) In making its determination under subsection (e) of this
section, the court may
(3) authorize full or limited participation in proceedings before
the court by interested persons or agencies, including
appearance amicus curiae, intervention as a party pursuant to
the Federal Rules of Civil Procedure, examination of witnesses
or documentary materials, or participation in any other manner and
extent which serves the public interest as the court may deem
appropriate.
16(f)(3).
The Act also encourages participation by interested persons by
setting forth a procedure for written public comments on the
proposed consent decree. 16(b). The United States is required
to publish in the Federal Register the proposed consent decree
as well as a competitive impact statement. Id. The public has
60 days to submit written comments relating to the consent
decree. The United States is required to file such comments with
the District Court and publish such comments in the Federal
Register. Id. At the expiration of the 60 day period, the United
States must file a response with the Court and publish such
response in the Federal Register. 16(d).
In Senate hearings before the Subcommittee on Antitrust and
Monopoly, Judge J. Skelly Wright, U.S. Court of Appeals for the
District of Columbia Circuit, emphasized the vital role of
participation in the consent decree approval process by outside
persons:
The Antitrust Division of the Department of Justice, while no
doubt among the most competent and dedicated groups of
professionals in Government service, nevertheless is made up of
human beings and, unfortunately, human beings occasionally make
mistakes.
In approving a particular decree, the Justice Department
attorneys may overlook certain issues, ignore certain concerns,
or misunderstand certain facts. The participation of additional
interested parties in the consent decree approval process helps
to correct these oversights. Senate Hearings, at 146.
Only five public comments were received pursuant to the
procedures outlined in 16(b). FN 14 These public comments did
not provide much enlightenment about the proposed settlement.
Since receipt of these public comments, the Court has received
motions to intervene and appear as amici in the proceeding.
IV.B. Timeliness of Motions to Participate
Both the Justice Department and Microsoft argue that the motions
to intervene and the motion to appear as amicus curiae
(hereinafter "motions to participate") are untimely because they
were served three months after the close of the Tunney Act's 60
day public comment period pursuant to 16(b), and were served
only days before the scheduled final hearing held on January 20,
1995.
These motions to participate were brought under 16(f) which
specifically gives the court a wide variety of alternatives to gather
information necessary to its public interest determination. Section
16(f) and 16(b), while complementing each other in the sense that
they both help to insure that the proposed consent decree receives a
thorough public airing, are wholly separate provisions.
The Justice Department and Microsoft suggest that granting the
"late" motions to participate would be prejudicial because it
would delay the approval process. The Court is well-aware that
Congress directed that the public interest inquiry should be
conducted in "the least complicated and least time-consuming
means possible." S. Rep. No. 296, 93d Cong., 1st Sess. 6
(1973) [hereinafter "S. Rep."]; accord H.R. Rep. No. 1463, 93d
Cong., 2d Sess. at 12 (1974) [hereinafter "H.R. Rep."] "Extended
proceedings might Behave the effect of vitiating the benefits of
prompt and less costly settlement through the consent decree
process." 119 Cong. Rec. 24,598 (1973) (statement of Sen.
Tunney).
But the Court cannot sacrifice the thoroughness of its inquiry,
and hence, the validity of its determination that the consent
decree is in the public interest in order to increase the speed
with which the decree is approved. Judge J. Skelly Wright
aptly recognized that in cases of national import the Tunney Act
process would be turned on its head if the Court considered the
speed of review to be more important than the accuracy of
review:
[I]n many cases, I would think, and have seen, no opposition
filed, where the case is of great national importance, then time
should be taken -- court's time and counsels' time should be
taken to study the decree, to get information from the public
concerning the ramification of the decree, the anticipated
results of the decree and, in my judgment, this time is well
spent, even though it may take day, even though it might take
weeks; it could have a trial that would last months and months.
So, to suggest that S. 782 will not require judicial time and
counsel time would be misleading. In important cases, S. 782
would require judicial time, necessarily so, and I believe
rightfully so.
Senate Hearings, at 151.
The Court is simply not willing to find that because the motions
were made days before the scheduled final hearing on January 20,
1995 that the motions should be denied on timeliness grounds.
The lack of any demonstrated prejudice to the parties, along
with the need for a thorough review of the proposed decree
are factors that weigh against denying these late filings.
Despite the complexity and the national importance of this case,
until these new motions to participate were filed, there was a
severe lack of information regarding the proposed consent
decree.
Only five public comments were filed during the public comment
period. Neither the Justice Department nor Microsoft provided
the Court with affidavits of experts. Moreover, the Justice
Department failed to make available to the Court and to the
public "any other materials and documents [in addition to the
proposed consent decree] which the United States considered
determinative in formulating" the proposed consent decree.
16(b). At the hearings held prior to receipt of the motions to
participate, the Court expressed its concern over the lack of
meaningful information. FN 15
Microsoft's response was that it would countenance no changes in
the proposed decree. The Government stated that while it would
not oppose the inclusion of a monitoring provision in the
decree, it would oppose all other changes.
The Government has declined to provide the Court any meaningful
information concerning the substance of its investigation, i.e.,
what it investigated and the findings it made. Microsoft has
gone a little further than the Government and tried to allay
certain of the Court's concerns. However, based on information
received from the law firm of Wilson, Sonsini, some of the
assurances provided by Microsoft have proved to be unreliable
and contrary to fact.
If a Court is asked to approve a decree without information regarding
the effect of the decree, then the Court's role becomes a nullity,
exactly what the Tunney Act sought to prevent. The Justice Department
and Microsoft's attempt to prevent the Court from considering
information provided by third parties when they have not been
forthcoming serves to thwart the Court's inquiry mandated by the Tunney
Act. It was not until the third party motions were received that the
Justice Department even filed an affidavit by an economist regarding
whether the proposed decree will restore competitive balance to the
operating systems market.
The Court will invoke the procedures found in 16(f). In such an
important and complex case, if the Court were not to invoke
16(f) procedures for gathering relevant information, the proper
exercise of the Court's discretion could be questioned. As
Senator Tunney observed:
[A]ll of the procedural devices cont[ain]ed in this subsection are
discretionary in nature. They are tools available to the district court
for its use, but use of a particular procedure is not required . . . .
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, failure to use some of the procedures might
give rise to an indication that the district court had failed to
exercise its discretion properly.
119 Cong. Rec. 3453 (statement of Sen. Tunney).
All third party submissions received prior to the January 20, 1995
hearing will be made part of the record and have been considered in the
Court's decision. Submissions by outside participants after the January
20, 1995 hearings were only considered if they had already been
permitted by the Court (IDEA's January 24, 1995 and related filings)
and to the extent that they offered legal arguments on the record
already before the Court (Wilson, Sonsini's February 1, 1995 filing).
The Court specific ally did not consider the section of the February 1,
1995 filing by the law firm of Wilson, Sonsini that dealt with a
certain redacted document. FN16 Nor did the Court consider recent
comments (dated February 13, 1995) submitted by Apple Computer, Inc.
While untimely filings ordinarily should not be condoned, the
Court has allowed them in this case for two reasons. First and
foremost, the information and arguments submitted are helpful,
particularly the submissions received from Wilson, Sonsini.
Second, the parties have not provided the Court with adequate,
meaningful information. The Government, time after time, has
refused to provide the Court with information concerning the
substance of its investigation, i.e., what it investigated and
the findings it made.
The next question presented to the Court is whether the motions
to participate as interveners and/or amici curiae should be
granted in the form requested.
IV.D. Intervention
Both IDEA and CCIA have filed motions to intervene under Rule 24
of the Federal Rules of Civil Procedure. FN 17 Intervention is
not a matter of right under the Tunney Act, as IDEA concedes.
United States v. Airline Tariff Publishing Co., 1993-1 Trade
Cas. (CCH) sec. 70,191, at 69,894 (D.D.C. Mar. 8, 1993) ("there
is no right to intervene in a Tunney Act proceeding to determine
whether a proposed consent decree is in the public interest.").
As such, it is within the Court's discretion to grant or
withhold intervention.
The Court declines to confer party status on IDEA and CCIA, with the
concomitant right to participate fully in the proceeding, including the
right to file an appeal. Pursuant to Rule 24(b), "[i]n exercising its
discretion the court shall consider whether the intervention will
unduly delay or prejudice the adjudication of the rights of the
original parties." The Tunney Act allows for a variety of alternatives
for the Court to receive relevant information in making its public
interest determination. Intervention, while one method for gathering
such information, would be too cumbersome and would unduly complicate
these proceedings. Although the Court welcomes the submissions by IDEA
and CCIA and will consider them in making its public interest
determination, the Court does not find that allowing IDEA and CCIA to
intervene would enhance the Court's inquiry. Moreover, such
intervention could serve unduly to delay the resolution of this case.
The rights of IDEA and CCIA to proceed as private litigants remain
unaffected.
The Court will deny the motions by IDEA and CCIA to intervene. In
the alternative, the Court will permit IDEA and CCIA to
participate in the proceedings under the Court's authority
pursuant to 16(f)(3) to allow "participation in any other
manner and extent which serves the public interest as the court
may deem appropriate."
IV.E. Participation as Amicus
The law firm of Wilson, Sonsini, Goodrich & Rosati by its
partner, Gary Reback, filed a motion to enter an appearance
amicus curiae on behalf of certain clients in the computer
industry, who wish to remain anonymous. Both the Government and
Microsoft argue that amici's request to appear anonymously is
inappropriate. Section 16(f), however, authorizes the Court to
accept submissions by "any interested persons or agencies."
Thus, the Court could accept the submission directly from the
law firm or the economists identified in the submission. FN 18
The Tunney Act confers broad powers to gather information. There is
nothing in the statute that would preclude the Court from receiving
information from those unwilling to identify themselves. It is
preferable for persons to identify themselves to permit the Court to
ascertain any bias on their part. However, there could be instances
where the fear of retaliation by an alleged monopolist could deprive
the public of relevant, material information. Indeed, Mr. Reback's
clients have asserted the fear of retaliation as their reason for
requesting anonymity. Nothing has been presented that would put into
question the sincerity of their position.
Microsoft argues that to allow the amici to appear anonymously
stymies the efforts of the parties and the Court to determine if
there would be grounds for the Court's recusal. The Court does
not know the identity of Mr. Reback's clients, whom Mr. Reback
has identified as competitors of Microsoft. As a member of
the Bar, it clearly would be incumbent on Mr. Reback to bring
any disqualifying information to the Court's attention.
Microsoft's next challenge is that the submission goes beyond an
analysis of the legal issues presented and seeks to introduce
factual matters into the record. Microsoft contends that it is
not the function of an amicus curiae to seek to introduce
factual matters or to present the opinions of experts.
The actual label of "amicus curiae" on the submission is not
relevant. Section 16(f) specifically permits the Court to
authorize Participation in any other manner and extent which
serves the public interest as the court may deem appropriate."
To argue that the Court should not consider the amici submission
because it goes beyond the role of the usual amici submission
runs counter to the plain language and purpose of the statute.
That the law enables this Court to consider a brief such as was
submitted by amici is without question. Accordingly, the Court
hereby grants the motion to file the memorandum of amici curiae
in opposition to the proposed final judgment. FN19
The Tunney Act envisions participation by interested persons in
the consent decree approval process, and such participation is
meant to ensure that the Court's public interest determination
is fully informed. The Court as well as the parties would have
preferred to receive these motions to participate at an
earlier date during these proceedings. However, the substantive
comments received from these third parties provide the process
with the information necessary to foster an appropriate public
airing of the issues. If the Court is to serve its role as an
independent check, then it is vital that the Court receive
responsible information from the public. The delay caused, which
was minimal, certainly is justified by the need to consider
the important issues presented.
V. The Public Interest Determination
V.A. Standard and Scope of Review
The Tunney Act requires that "before entering any consent
judgment proposed by the United States . . ., the court shall
determine that entry of such judgment is in the public
interest." 15 U.S.C. 16(e). Congress passed the Tunney Act so
that the courts would play an independent role in the review
of consent decrees as opposed to serving as a mere rubber stamp.
See S. Rep., at 4; H.R. Rep., at 8. In determining whether to approve
or reject a consent decree, the Court must consider that "[t]he
balancing of competing social and political interests affected
by a proposed antitrust decree must be left, in the first
instance, to the discretion of the Attorney General." United
States v. Western Electric Co., 993 F.2d 1572, 1577 (D.C. Cir.
1993) (quoting United States v. Bechtel Corp., 648 F.2d 660, 666
(9th Cir. 1981)). It is not for the Court to determine whether
the settlement is the best possible in the Court's view, but
instead, whether it is "within the reaches of the public
interest." United States v. Gillette Co., 406 F. Supp. 713, 716
(D. Mass. 1975).
In passing the Tunney Act Congress was concerned with the secrecy
of corporations' dealings with the Government and the immense
power that such corporations may wield. Senate Hearings, at 1
(statement of Sen. Tunney). Therefore, it would be an abdication
of the Court's responsibility, as mandated by Congress, not
to conduct a thorough review of this proposed decree. The role
of the Court is to scrutinize the exercise not only of the
Government's expertise but also of its good faith. See Gillette,
406 F. Supp. at 715. Approval should not automatically follow
the review process no matter how incomplete or ineffective the
Court finds the decree to be. See United States v. American Tel.
and Tel. Co., 552 F. Supp. 131, 151 (D.D.C. 1982) aff'd
sub nom Maryland v. United States, 460 U.S. 1001 (1983) ("It
does not follow from these principles, however, that courts must
unquestioningly accept a proffered decree as long as it somehow,
and however inadequately, deals with the antitrust and other
public policy problems implicated in the lawsuit.")
The Department of Justice argues that the scope of the Court's
review is limited to both the alleged anticompetitive practices
and the relevant markets set forth in the complaint. This
position is not supported by the language of the statute, its
legislative history, precedent or common sense.
The Justice Department relies on the Act's reference to both
"termination of the alleged violations" and the "violation set
forth in the complaint" to support its position. 15 U.S.C.
16(e)(1)-(2). In citing small portions of the Act's language,
the Government fails to consider the language of the statute as a
whole:
Before entering any consent judgment proposed by the United
States under this section, the court shall determine that the
entry of such judgment is in the public interest. For the
purpose of such determination, the court may consider-
(1) the competitive impact of such judgment, including
termination of alleged violations, provisions for enforcement
and modification, duration or relief sought, anticipated effects
of alternative remedies actually considered, and any other
considerations bearing upon the adequacy of such judgment;
(2) the impact of entry of such judgment upon the public
generally and individuals alleging specific injury from the
violations set forth in the complaint including consideration of
the public benefit, if any, to be derived from a determination
of the issues at trial.
15 U.S.C. 16(e)(1-2). Fifteen U.S.C. 16(e)(1) merely informs
the Court that the "termination of alleged violations" is one
factor the Court "may consider" in making its determination.
Section 16(e)(1) also explicitly states that the Court may
consider . . . any other considerations bearing upon the adequacy
of such judgment." The broad language of this last provision
clearly shows that the court is not limited in its inquiry to
the more specific provisions set forth in the same section.
The Justice Department also narrowly focuses on the wording in
one part of Section 16(e)(2) (i.e. Violations set forth in the
complaint."). In so doing, it ignores the language of the rest
of the provision and therefore misreads its meaning. FN 20
Section 16(e)(2) states "the court may consider . . . the impact
of entry of such judgment upon the public generally and individuals
alleging specific injury from the violation set forth in the
complaint." 15 U.S.C. 16(e)(2).FN21 This section gives
the Court the authority to consider not only the effect of the
entry of the decree on those claiming to be hurt by the
violations alleged in the complaint, but also the effect on the
public. The language of the Act does not restrict the scope of
inquiry into the effect of the decree on the public to the
specific injuries alleged in the complaint.
The legislative history supports the position that the Court may
look beyond the face of the complaint in evaluating the public
interest. FN 22 In hearings on the Tunney Act, the then Deputy
Assistant Attorney General of the Antitrust Division made clear
that the Justice Department's interpretation of the bill was
that the Court, in certain circumstances, would look not only at
whether the decree adequately addressed the complaint, but
also at whether the complaint itself war adequate. "[T]his
inquiry apparently would encompass not only whether the relief
is adequate in view of that sought in the complaint, but whether
the Government sought appropriate relief in the complaint
itself." Consent Decree Bills: Hearings Before the Subcommittee
on Monopolies and Commercial Law of the Committee on the Judiciary
House of Representatives, 93d Cong., 1st Sess. 87 (1973)
(statement of Hon. Bruce B. Wilson, Deputy Assistant Attorney
General, Antitrust Division, United States Department of
Justice). FN 23
In some instances, courts evaluating consent decrees under the
provisions of the Tunney Act have considered markets and practices
outside the scope of the complaint. For example, in AT&T, Judge Harold
Greene conditioned the Court's approval of the decree, in part, on the
addition of a provision that would bar AT&T's entry into the nascent
electronic publishing market. AT&T, 552 F. Supp. at 181-83. Judge
Greene did this even though the Government had not alleged any
anticompetitive practices by AT&T in this market. In addition, the
electronic publishing market is arguably not part of the relevant
market identified in the complaint.
Judge Greene's opinion in AT&T clearly explained why, in some
instances, the Court cannot limit itself to the decree's effect
on the practices alleged in the complaint. In order to determine
whether a decree is in the public interest, the Court must
evaluate whether it meets the test of a valid antitrust remedy,
to "effectively pry open to competition a market that has been
closed by defendant['s] illegal restraints." AT&T, 552 F.Supp.
at 150 (quoting International Salt Co. v. United States,
332 U.S. 392, 401 (1947)). Simply prohibiting repetition of the
specific conduct in the complaint may not in all cases achieve
that goal. Therefore, the Court cannot limit the scope of its
considerations in the way the Government has suggested.
While the Court must show some deference to the discretion of the
Justice Department, see Western Electric, 993 F.2d at 1577, such
deference does not preclude the Court's taking into consideration
practices and markets that the Government has failed to address. Cf.
Gillette, 406 F. Supp. at 715 ("Congress did not intend the court's
action to be merely pro forma, or to be limited to what appears on the
surface.").
Senator Tunney, the law's co-sponsor, recognized the possible adverse
consequences from entry of a consent decree that fails to address
anticompetitive practices outside the scope of the decree. "[A] bad or
inadequate consent decree may as a practical matter foreclose further
review of a defendant's practices both inside and outside the scope of
the decree." 119 Cong. Rec. 3451 (statement of Sen. served if the Court
can look only at the market and practices alleged in the complaint
because of the opportunity costs of failing to address severe
anticompetitive practices that do not appear in the complaint.
If the Court's scope of review is as narrow as the Government claims,
the Government could effectively foreclose judicial review of the
decree. For example, the Government could initiate a massive antitrust
probe and find significant violations in a large market. Then, bowing
to political or other pressures, the Government could write a complaint
that alleges only minor anticompetitive practices in a very small
market and file it contemporaneously with a decree that addresses those
limited violations. Under the Government's rationale, the Court could
only consider whether the decree adequately addressed the alleged
violations. If its scope of review were so limited, the Court would
have to approve the decree. The Tunney Act as well as common sense
dictate that entry of such a decree would not be in the public
interest.
V.B. Public Interest Determination
The Court cannot find the proposed decree to be in the public interest
for four reasons. First, the Government has declined to provide the
Court with the information it needs to make a proper public interest
determination. Second, the scope of the decree is too narrow. Third,
the parties have been unable and unwilling adequately to address
certain anticompetitive practices, which Microsoft states it will
continue to employ in the future and with respect to which the decree
is silent. Thus, the decree does not constitute an effective antitrust
remedy. Fourth, the Court is not satisfied that the enforcement and
compliance mechanisms in the decree are satisfactory.
V.B.1. Insufficient Information
The parties did not create the necessary record to enable the
Court to make its public interest determination. While the
scrutiny that a proposed consent decree requires is dependent
upon the particular facts of the case, at a minimum, the Court
should be apprised of the following:
(1) The broad contours of the investigation i.e., the particular
practices and conduct of the defendant that were under
investigation along with the nature, scope and intensity of the
inquiry;
(2) With respect to such particular practices and conduct, what
were the conclusions reached by the Government;
(3) In the settlement discussions between the Government and
defendant: (a) what were the areas that were discussed, and (b)
what, if any, areas were bargained away and the reasons for
their non-inclusion in the decree;
(4) With respect to the areas not discussed at the bargaining
table or not bargained away, what are the plans for the
Government to deal with them i.e.. is the investigation to
continue, and, if so, at what intensity, or if the investigation
is to be closed, then the Government must explain why it is in
the public interest to do so.
Basically, other than being told the Government spent a great deal of
time on a wide ranging inquiry and that the defendant is a tough
bargainer, the Court has not been provided with the essential
information it needs to make its public interest finding. FN 24 To make
an objective determination, a court must know not only what is included
in the decree but also what has been negotiated out, directly as well
as indirectly, i.e. what is the understanding of the parties as to
what, if any, additional action the Government will or will not take
with respect to matters that were inquired into, but with respect to
which the decree is silent.
One of the main purposes of the Tunney Act was to bring the consent
decree process into the open. Senate Hearings, at 1 (statement of Sen.
Tunney). In this case, the Government has filed its complaint and
decree contemporaneously so the Court has no insight into what charges
the Government originally intended to file. The Court does not know
whether the Government has bargained away other pernicious practices
that were deleterious to the public. The Government has steadfastly
refused to address any conduct of the defendant beyond that presented
in the four corners of the decree. The Government has taken the
position that the Tunney Act limits the Court's review to only those
matters contained in the decree and the Court in not permitted to
explore any other areas and cannot even consider evidence received from
third parties (i.e., pursuant to their comments) that legitimately
raise questions as to whether the defendant has been engaged in
anticompetitive practices not included in the decree. The Tunney Act
does not dictate this kind of sterile review nor does it justify the
stonewalling that has taken place in these proceedings. There is
absolutely nothing in the Tunney Act that would circumscribe the
Court's review as the Government suggests. See Section V. A., supra. To
so hold would render the Act a nullity. "Tunney Act courts" are not
mushrooms to be placed in a dark corner and sprinkled with fertilizer.
V.B.2. Scope of the Decree
The Court finds the decree on its face to be too narrow. Its
coverage is restricted to PCs with x86 or Intel x86 compatible
microprocessors. The decree covers only MS-DOS and Windows and
its predecessor and successor products. Neither party has even
addressed the Court's concern that the decree be expanded to
cover all of Microsoft's commercially marketed operating
systems. Given the pace of technological change, the decree must
anticipate covering operating systems developed for new
microprocessors. FN25 In addition, taking into account
Microsoft's
penchant for narrowly defining the antitrust laws, the Court
fears there may be endless debate as to whether a new operating
system is covered by the decree. FN 26
V.B.3. Ineffective Remedy
The Court cannot find the proposed decree to be in the public
interest because it does not find that the decree will
"effectively pry open to competition a market that has been
closed by defendant['s] illegal restraints." AT&T, 552 F.Supp. at
150. During the period in which this matter was before the Court
the Government did little to show that the decree would meet this
test beyond telling the Court that it had labored hard, that the
decree was good, and that it should be approved. At the eleventh
hour, only after the Court again requested information to
allay its concerns, did the Government finally produce an
affidavit from Nobel Laureate economist, Professor Kenneth
Arrow. FN 27
The affidavit made three main points: 1) that the market is an
increasing returns market with large barriers to entry; 2) that
the violations set forth in the complaint contributed in some
part to Microsoft's monopoly position; and 3) that the decree
will eliminate "artificial barriers that Microsoft had erected
to prevent or slow the entry of competing suppliers of operating
system software products."
The Court does not doubt the Government's position that the
practices alleged in the complaint are artificial barriers. FN 28
Nor does it doubt that the decree does address those practices.
But what the Government fails to show is that the proposed
decree will open the market and remedy the unfair advantage
Microsoft gained in the market through its anticompetitive
practices.
Professor Arrow's affidavit states that the operating systems
market is an increasing returns market. In layman's terms that
means that once a company has a monopoly position, it is
extremely hard to dislodge it. Professor Arrow and the
Government also concur that part of Microsoft's monopoly
position is
attributable to the artificial barriers it erected. Professor
Arrow only argues that the decree prospectively removes these
artificial barriers. He does not explain how the decree remedies
the
monopolist position Microsoft has achieved through alleged
illegal means in an increasing returns market. If it is
concededly difficult to open up an increasing returns market to
competition once a company has obtained a monopoly position, the
Government has not shown how
prospectively prohibiting violative conduct that contributed to
defendant's achieving its monopoly position will serve to return
the market to where it should have been absent its
anticompetitive practices.FN29 Simply telling a defendant to go
forth and sin no more does little or nothing to address the unfair
advantage it has already gained. In short, given the Government's
expert's own analysis of this market, the decree is "too
little, too late."
The proposed decree without going further, is not in the public
interest because it does not meet the test of an effective
antitrust remedy. FN 30 The decree deals with licensing and
nondisclosure practices that the Government found to be
anticompetitive and detrimental to a free and open market. What
the decree
does not address are a number of other anticompetitive practices
that from time to time Microsoft has been accused of engaging in
by others in the industry. Since a Court cannot shut it
s eyes to the obvious, it has asked the parties to discuss these
widespread public allegations. The Government has refused, and
Microsoft has claimed that the accusations are false.
The accusations range from charges that Microsoft engages in the
practice of vaporware i.e., the public announcement of a
computer product before it is ready for market for the sole
purpose of causing consumers not to purchase a competitor's
product
that has been developed and is either currently available for
sale or momentarily about to enter the market. Other allegations
include charges that Microsoft uses its dominant position in
operating systems to give it an undue advantage in developing
applications software and that it manipulates its operating
systems so competitors' applications software are inoperable or
more difficult for the consumers to utilize effectively.
Throughout these proceedings this Court has expressed repeated
concern about these allegations, in part, because it is
concerned that if they are true and defendant continues to
engage in them, it will continue to hold and possibly expand its
monopoly position, even if it ceases the practices alleged in
the complaint.
The Court has been particularly concerned about the accusations
of "vaporware." Microsoft has a dominant position in the
operating systems market, from which the Government's expert
concedes it would be very hard to dislodge it. Given this fact,
Microsoft could unfairly hold onto this position with aggressive
preannouncements of new products in the face of the introduction
of possibly superior competitive products. In other words, all
participants concede that consumers and OEMs will be reluctant
to shift to a new operating system, even a superior one,
because it will mean not only giving up on both its old
operating systems and applications, but also risking the
possibility that there will not be adequate applications to run
on the superior product. If this is true, Microsoft can hold
onto its market
share gained allegedly illegally, even with the introduction of
a competitor's operating system superior to its own. By telling
the public, "we have developed a product that we are about
to introduce into the market (when such is not the case) that
is just as good and is compatible with all your old
applications," Microsoft can discourage consumers and OEMs from
considering switching to the new product. It is for this reason
that courts may consider practices outside the complaint. See
AT&T,
552 F. Supp. at 150. FN 31
With respect to the vaporware claim when this matter was raised
at the November 2, 1994 status call, counsel for Microsoft
stated the charge was false. The colloquy with the Court was as
follows:
The Court: Well how do you answer those charges?
Counsel for Microsoft: Those charges we believe are entirely
false.
The Court: In other words, the vaporware charge is false?
Counsel for Microsoft: That's correct.
Transcript of Hearing, September 29, 1994, p. 15.
When questioned about the practice, the Government refused to
disclose what it knew about the practice or what investigation
it had conducted with respect to it.
This was the state of the record until Mr. Reback submitted two
documents to the Court (Court Exhibits 1 and 2). FN 32 Both of
these documents are internal Microsoft records. They are part of
two Microsoft employee evaluation forms. In the first, the
Microsoft employee writes that during the past six months he
engaged in the following beneficial activities for Microsoft,
"QB3 preannounce to hold off Turbo buyers." FN 33
The second document is even more specific. In a self-evaluation,
a Microsoft employee wrote, "I developed a rollout plan for
QuickC and CS that focused on minimizing Borland's first mover
advantage by preannouncing with an aggressive communications
campaign." (emphasis added) These documents indicate that the
highest officials of the company knew of the practices that were
utilized to impact adversely on the market plans of a
competitor. Whether the documents are actionable or not,
certainly at a minimum they require explanation from the
parties. No
satisfactory explanation has been given.
Although Microsoft acknowledges the authenticity of the
documents, it denies they describe the practice of vaporware and
indeed, states that the practice that is described is a
perfectly legitimate competitive practice. When pressed as to
why the practices described in the documents were not vaporware,
counsel
for Microsoft stated he would limit "vaporware" to those
instances where no product at all exists at the time of the so-
called "preannouncement." According to counsel, it does not
even matter that the date for introduction of the preannounced
product is not met. Counsel further advised the Court that he
would advise his client to continue to engage in the described
practices. FN 34
At the January 20, 1995 hearing, the Government merely
acknowledged receipt of the documents. It outright refused to
discuss them or to state what consideration it has given to
them. It declined to state whether it had even interviewed the
authors of the documents. In a subsequent filing, the Government
has taken
the following position: "[P]roduct preannouncements do not
violate antitrust laws unless those preannouncements are
knowingly false and contribute to the acquisition, maintenance,
or
exercise of market share." Of course, this is not the time or
place to debate the Government's rather narrow view of this
highly questionable practice. It is obvious that the Government
has adopted a criminal standard and may have ignored the fact
that it also has plenary civil authority to enjoin violative
practices without having to prove criminal culpability.
Regardless of how narrow the Government's view is, it is
incumbent on the Government to address whether the defendant has
been preannouncing products and what effect, if any, such
preannouncements have had in eliminating competition in an
increasing
returns market where the market has clearly been tipped. Even if
Microsoft's current practice of "preannouncing" did not meet the
Government's definition of vaporware, shouldn't the Court be
advised whether there is a basis for seeking to limit the
practice in fashioning an antitrust remedy? As Judge Green held
in the AT&T case, even practices that have not been found to be
unlawful can be prohibited if they prevent the prying open of
the market that has been closed through illegal restraints.
AT&T, 552 F. Supp. at 150. Even if these practices might be
legal in another context, defendant's ability to use them to
maintain a monopoly position that it gained in part through
improper licensing and nondisclosure agreements certainly raises
the question whether a decree that does not address such
anticompetitive practices, is in the public interest.
This Court cannot ignore the obvious. Here is the dominant firm
in the software industry admitting it "preannounces" products to
freeze the current software market and thereby defeat the
marketing plans of competitors that have products ready for
market. Microsoft admits that the preannouncement is solely for
the purpose of having an adverse impact on a competitor's
product. Its counsel states it has advised its client that the
practice
is perfectly legal and it may continue the practice. This
practice of an alleged monopolist would seem to contribute to
the acquisition, maintenance, or exercise of market share.
The Government has pressed for the adoption of its decree on the
grounds that it will open up competition. Given the Government's
desire to open up competition why does it not want to take on
the vaporware issue?
When the Court gave Microsoft the opportunity to disavow this
practice by an undertaking it declined to do so. What is more,
the Government told the Court that if it conditioned its
approval on Microsoft's undertaking no longer to engage in the
practice, the Government would withdraw its approval of the
decree even if Microsoft agreed to the undertaking.
The Court cannot sign off on a decree knowing that the defendant
intends to continue to engage in an anticompetitive practice
without the Government providing a full explanation as to its
"no action" stance. It would almost be the equivalent of a
Court accepting a probationary plea from a defendant who has told
the Court he will go out and again engage in inappropriate
conduct.
V.B.4. Compliance
The only change in the decree that the Government stated it would
accept is the Court's suggestion that Microsoft establish an
internal mechanism to monitor the decree. This too Microsoft has
declined even to consider. Microsoft's position is that its
50 or so in-house lawyers, along with its outside retained
counsel, are sufficient to monitor the decree. This is the same
group that has advised its client that "product
preannouncements" to impede competition is proper behavior.
This Court finds itself in a position similar to that of Judge
Greene in AT&T, who refused to approve the decree without
modification because of his concern as to its compliance and
enforcement. FN 35 AT&T, 552 F.Supp at 214-17.
Based on Microsoft's counsel's representations to this Court, the
Court is concerned about the question of compliance. This
concern is heightened because even though the Company on prior
occasions has publicly stated at does not and will not abuse
its dominant position in the operating systems market vis-a-vis
its development of application products, it has refused to give
the Court the same assurance. Without a compliance mechanism,
the Court cannot make the public interest finding. This is
particularly so because Microsoft denies that the conduct charged
in the Government's complaint to which it has consented,
violates the antitrust laws.
This is clearly the kind of case that Congress had in mind when
it passed the Tunney Act. Microsoft is a company that has a
monopolist position in a field that is central to this country's
well being, not only for the balance of this century, but
also for the 21st Century. The Court is certainly mindful of the
heroic efforts of the Antitrust Division to negotiate the
decree. There is no doubt its task was formidable. Here is a
company that is so feared by its competitors that they believe
they
will be retaliated against if they disclose their identity even
in an open proceeding before a U.S. District Court Judge.
The picture that emerges from these proceedings is that the U.S.
Government is either incapable or unwilling to deal effectively
with a potential threat to this nation's economic well being.
How else can the four year deadlocked investigation conducted
by the FTC be explained. What is more, the Justice
Department, although it labored hard in its follow up
investigation, likewise was unable to come up with a meaningful
result.
It is clear to this Court that if it signs the decree presented
to it, the message will be that Microsoft is so powerful that
neither the market nor the Government is capable of dealing with
all of its monopolistic practices. The attitude of Microsoft
confirms these observations. While it has denied publicly that
it engages in anticompetitive practices, it refuses to give the
Court in any respect the same assurance. FN 36 It has refused to
take even a small step to meet any of the reasonable concerns
that have been raised by the Court. FN 37
The Government itself is so anxious to close this deal that it
has interpreted certain anticompetitive practices so narrowly
that it possibly has given the green light for persons to engage
in anticompetitive practices with impunity. To in any way
condone the practice of announcing products before they are ready
for market to freeze a competitor's product is terribly
bothersome to this Court. "Vaporware is a practice that is
deceitful on its face and everybody in the business community
known it. Why else has the business community dubbed the
practice "vaporware?" It is interesting that business leaders
know that the practice is improper but the Government does not.
Philip K. Howard's comment from his book "The Death of Common
Sense" might well be right: "Law designed to make Americans'
lives safer and fairer has now become an enemy of the people."
The Tunney Act provides that a Court must find that a proposed
consent decree is in the public interest before it shall enter
an order to that effect. Because of the many concerns that the
Court has, that finding cannot be made on the present record.
The Court fully understands the role the judiciary plays in this
society. It has no interest in intruding on the prerogatives of
the executive branch. The Courts only reason for being involved
in this case is because of the dictates of the Tunney Act.
To make the public interest finding required by the Tunney
Act, the Court has to be confident of its decision. It does not
have the confidence in the proposed antitrust decree that has been
presented to it. In part, this lack of confidence is a result of
the Government's "stonewalling" position.
Microsoft has done extremely well in its business in a relatively
short period of time, which is a tribute both to its talented
personnel and to this nation's great ethic that affords every
citizen the ability to rise to the top. Microsoft, a rather
new corporation, may not have matured to the position where it
understands how it should act with respect to the public
interest and the ethics of the market place. In this
technological age, this nation's cutting edge companies must
guard against being captured by their own technology and
becoming robotized.
Some might suggest that disapproval of the proposed decree serves
little purpose since all that the Government will be able to
achieve if it prevails after a lengthy trial would be the relief
set forth in the proposed consent decree.
This is not necessarily so. First after a fully successful litigated
case and findings made, the judgment may have preclusive effect in
other cases. Second, unlike a denial in a consent decree, once a court
issues its findings and conclusions, a party's denial of liability has
no effect unless the party is successful on appeal. Third, a court of
equity has a wide range of remedies it can fashion to protect the
public interest. After a trial in which the Government prevails, the
Court is not limited solely to the relief set forth in the Governments
earlier proposed negotiated settlement. Certainly, all parties to a
litigation face certain risks. While the risks are greater, so are the
rewards. FN 38 For all of the above reasons, the Court finds that the
proposed antitrust consent decree is not in the public interest. An
appropriate order accompanies this memorandum opinion.
DATE: February 14, 1995
Stanley Sporkin
United States District Judge
FN 1 The findings and discussion contained in this opinion are
for the purposes of this opinion only and will have no bearing on or
play any role in any litigation that might follow this
proceeding.
FN 2 15 U.S.C. 16(e) (Supp. 1994) (Tunney Act).
FN 3 The Court has held three hearings on the proposed consent
decree -- (1) a status call on September 29, 1994; (2) a status
call on November 2, 1994; and (3) a final hearing on January 20,
1995.
FN 4 Per processor licenses, applications and operating systems
software are all defined below.
FN 5 This would include operating systems software, applications
software, and computer peripherals.
FN 6 The Justice Department cooperated with the Directorate-
General IV of the European Commission ("DG IV"), the European
Union's antitrust enforcement authority. Microsoft has consented
with the DG IV to comply with provisions virtually identical to
those in the consent decree presently before the Court.
FN 7 The 486 and Pentium chips are examples of x86
microprocessors.
FN 8 Apple computers do not run on x86 microprocessors and utilize
Apple's own proprietary operating system.
FN 9 In the first half of 1994, 80% of Windows units sold by
Microsoft were through OEMs.
FN 10 The newest version of Windows is scheduled for release
sometime in 1995 and is code-named Chicago.
FN 11 This exception allows for certain Per System Licenses. A per
system license means a license for a particular system or model.
The decree allows OEMs to designate identical machines
containing different operating systems as distinct systems. This
is intended to prevent OEMs from paying royalties to Microsoft
for all the computers of a certain system even if some do not
include a Microsoft operating system.
FN 12 Entry of decrees containing denials by the defendant of the
allegations in the complaint are not favored in other government
agencies. See 17 C.F.R. 202.5(e) (1994) (Securities and
Exchange Commission).
FN 13 The Tunney Act envisioned that the courts were to be an
"independent force" rather than a "rubber stamp in reviewing
consent decrees." Antitrust Procedures and Penalties Act:
Hearings on S.782 and S.1088 Before the Subcomm. on Antitrust
and Monopoly of the Senate Comm. on the Judiciary, 93d Cong.,
1st Sess. 1 (1973) [hereinafter "Senate Hearings"] (statement of
Sen. Tunney).
FN 14 The law firm of Chan & Jodziewicz submitted a comment on
behalf of a number of small computer companies. The comment
charged that Microsoft violated copyright laws by not allowing
purchasers of MS-DOS to resell it in any manner they choose. In
addition, the comment charged that Microsoft engaged in illegal
tying by leasing MS-DOS to OEMs and not selling it to the
public. The basis of the claim that this is illegal is that
Microsoft "ties" the purchase of MS-DOS to the purchase of a PC.
Micro Systems Option commented that Microsoft's inclusion of a
graphics feature in its operating systems would reduce demand
for Micro Systems own product, which performs similar functions.
Anthony Martin commented that Microsoft had begun to engage in
new anticompetitive conduct, specifically pressuring software
suppliers to switch from old versions of Windows to the next
version to be released. Mr. Martin suggested that the Department
of Justice should reopen its investigation.
IDE Corporation, an OEM which has a licensing agreement with
Microsoft, commented that the decree should have forced
Microsoft to repay certain royalties received from IDE in an
agreement of a type prospectively forbidden in the decree.
Finally, J. Adam Burden commented that the Government should have
brought no action at all against Microsoft, whose success is
attributable to good products.
FN 15 On January 19, 1995 the Court issued the following order in
an attempt to supplement the record and obtain information
necessary to make its public interest determination.
A hearing in the above captioned case has been scheduled for
January 20, 1995. At that hearing, the Court requests the
parties to respond to the following:
(1) How the proposed consent decree will restore competitive
balance to the operating systems market?
(2) Why the proposed consent decree should not be amended to
include:
(a) A provision that would clearly state that the consent decree
applies to all operating systems commercially offered by
Microsoft;
(b) A provision barring Microsoft from engaging in the practice
of "vaporware" i.e., releasing misleading information concerning
the status of the introduction into the marketplace of new
software products;
(c) A provision establishing a wall between the development of
operating systems software and the development of applications
software at Microsoft;
(d) A provision requiring disclosure of all instruction codes
built into operating systems software designed to give Microsoft
an advantage over competitors in the applications software
market;
(e) A provision establishing an appropriate compliance apparatus
(e.g., private inspector general, business practices officer or
compliance officer) to ensure compliance with the decree;
(g) In the event Microsoft chooses not to pay I.D.E. Corporation
the damages that it seeks, a provision that would avoid costly
litigation. For example, allowing this Court to refer the matter
to a Special Master.
FN 16 In response to the allegations made in the submissions that
this Court has considered, the Government has insisted that
Microsoft's illicit activities covered by the proposed consent
decree be considered apart from the other matters addressed in
the submissions. The Court knows of no theory of
compartmentalization in carrying out its responsibilities under
the Tunney Act. Of course, related relevant conduct must be
considered and all such conduct has been considered except for
conduct outlined in the redacted document attached to the
supplemental
submission filed by Gary Reback on February 1, 1995. Since that
information has not been made available to Microsoft, it has not
been considered by the Court. This, however, should not preclude
the Government from considering the new submission it has
received from Mr. Reback, and if it believes such information is
pertinent to this case, on notice to defendant, it may request
the Court to reopen these proceedings so the information
appropriately may be considered.
FN 17 CCIA is comprised of approximately 25 member companies,
many of whom are manufacturers and/or providers of computer products,
computer software and services.
FN 18 It is interesting to note that one of the public comments
was filed by a law firm on behalf of certain unnamed clients and
neither the Justice Department nor Microsoft objected.
FN 19 But see footnote 16, supra, with respect to certain
materials not considered by the Court because they were not
submitted to Microsoft.
FN 20 By focusing only on snippets of Section 16 to defend its
position as to the narrow scope of the Tunney Act, the
Department ignores the cardinal rule of statutory interpretation
"that a statute is to be read as a whole." Kind v. St. Vincent's
Hospital, 112 S.Ct 570, 574 (1991); see also DAE Corporation v.
Engeleiter, 958 F.2d 436, 439 (D.C. Cir. 1992).
FN 21 The legislative history shows that the inclusion in the
bill
of specific factors that the Court "may consider," such as
"termination of [the] alleged violations was not intended to
limit the scope of the Court's inquiry. 119 Cong. Rec. 24,599
(1973) (statements of Sen. Tunney).
FN 22 The Justice Department has cited a statement from the
Senate Reports to support its position that the Court is
restricted to
considering only the allegations in the complaint in analyzing
whether the decree is in the public interest. See Department
of Justice Motion for Final Judgment at 12 (citing S. Rep.
No. 298, 93d Cong., 1st Sess. at 3 (1973)). Their motion
mischaracterizes the statement. The statement simply stands for
the proposition that the Court needs to know what other relief
the Department considered when the Court evaluates whether relief
is appropriate with reference to the allegations in the
complaint. The statement does not support the Government's
assertion the Court may consider only the relationship between
the actual allegations and the remedies in the decree. In fact,
the statute gives the Court a much broader scope of review. See
supra.
FN 23 The then Deputy Attorney General made clear that the
Justice Department did not approve of the broad scope of the bill.
His testimony made equally clear that the bill appeared to give
the Court authority to look beyond the allegations in the
complaint. Id.
FN 24 In the hearing on January 20, 1995, the following colloquy
took place:
The Court: Well, every time I ask you I get stonewalled. Every
time -- not you -- I ask your people what is it? What are the
facts? They stone-wall me. And I don't like to be stonewalled.
Ms. Bingaman: Okay. You know why I'm stone-walling you? You bet.
Transcript of Hearing, January 20, 1995, p. 46.
FN 25 It is difficult to imagine in this dynamic area that by the
end of the period (7 years) the decree will be in effect, there
will not be wholesale change with respect to microprocessors and
operating systems.
FN 26 See discussion infra, at page 46.
FN 27 When to testify, the Government stated he was not available to
testify at the hearing.
FN 28 "The decree is to be tested on the basis of the relief
provided, on the assumption that the government would have won."
Gillette, 406 F.Supp. at 716 n.2; see also United States v.
Airline Tariff Pub. Co., 836 F. Supp. 9, 12 n.4 (D.D.C. 1993).
FN 29 The legislative history of The Tunney Act gives further
support to the argument that the Court may find a decree is not
in the public interest because of its failure to go beyond mere
prospective remedies. Senator Tunney cited the antitrust
decrees in the "smog case and the IT&T consent decree as examples
of abuses the Act was drafted to remedy. In the "smog case" Senator
Tunney noted the failure of the decree to "require the auto
industry to undo its past damage." Senator Tunney criticized
the failure of the IT&T decree to force IT&T to disgorge its
profits even though IT&T prospectively had to divest itself of
certain companies. 119 Cong. Rec. 24,598 (1973). See also
testimony of Judge J. Skelly Wright, Senate Hearings, at 147.
FN 30 The goal of the remedy is not only to prevent future
occurrences of illegal conduct, but also to cure the ill effects
of such conduct and to deny the violator future benefits of that
conduct. See United States v. United States Gypsum Co., 340
U.S. 76, 88-89 (1950); Wilk v. American Medical Association, 671
F.Supp. 1465, 1484-85 (N.D.Ill. 1987), aff'd 895 F.2d 352 (7th
Cir. 1990), cert. denied, 496 U.S. 927 (199O).
FN 31 The Court may not only consider practices outside the
complaint, it may also prohibit such practices even if they have
not been found to be unlawful if that is necessary to formulate
an effective decree to prevent the recurrence of monopolization.
See AT&T, 552 F.Supp. at 150 n.80 (citing with approval
United States v. United Shoe Machinery Corp., 110 F.Supp 295,
346-47, aff'd, 347 U.S. 521 (1954) and Hartford-Empire Co. v.
United States, 323 U.S. 386, 409 (1945)); see also United States
Gypsum Co., 340 U.S. at 89.
FN 32 According to Mr. Reback, these documents come from public
sources.
FN 33 QB3 is Microsoft software; Turbo is software developed by
Borland, one of Microsoft's competitors.
FN 34 Transcript of Hearing, January 20, 1995, p. 110-11.
FN 35 The proposed AT&T decree and the decree before this Court
contain almost identical provisions regarding the Court's role in
enforcement and continuing jurisdiction.
FN 36 Microsoft has stated to the press over the years that there
is a "Chinese Wall" between its operating systems and
applications divisions. See Memorandum of Amici Curiae in
Opposition to Proposed Final Judgment, p. 19. In Microsoft's
submission
to the Court, it maintains that there is no such separation and
that one is not necessary. See Memorandum of Microsoft
Corporation in Support of Proposed Final Judgment, p. 7 n.12.
FN 37 See footnote 15, supra.
FN 38 The Government has expressed concern that if the Court
rejects the consent decree, Microsoft would be able to
reinstitute the prohibited practices that have been banned by
the consent decree with which Microsoft has voluntarily agreed
to comply
pending this Court's determination. The Government's fears are
misplaced. The Government is reminded that it has filed with the
Court a complaint in which it has prayed for an injunction
against Microsoft enjoining it "from engaging or carrying out,
renewing or attempting to engage, carry out or renew any
contracts, agreements, practices or understandings in violation
of the Sherman Act [and] (4) that plaintiffs have such other
relief that the court may consider necessary or appropriate to
restore competitive conditions in the markets affected by
Microsoft's unlawful conduct."
If Microsoft wants to dissolve its "standstill" agreement with
the Government pending the completion of these proceedings, the
Government certainly can move for a preliminary injunction
pending conclusion of the litigation. If it can prove to the
Court the merits of its position, it will be entitled to
appropriate relief.
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