Guilty, part 2

My earlier prediction that no meaningful points would be overturned was not correct, but it wasn't nearly as far off as the first headlines today made it seem.

The summary of the summary is that "(W)e (the US DC District Court of Appeals) affirm in part, reverse in part, and remand in part the District Court's judgment assessing liability. We vacate in full the Final Judgment embodying the remedial order and remand the case to a different trial judge for further proceedings consistent with this opinion."

Judge Jackson gets slammed for his misconduct (and appropriately enough; you're not supposed to talk to reporters about cases while they're still going, even though it makes for such interesting reading!), and disqualified from the case, something the higher court doesn't do lightly. They declined Microsoft's appeal to throw out the judge's Finding of Fact and Conclusions of Law on that basis, however, because they "reviewed the record with painstaking care and have discerned no evidence of actual bias."

The appellate court agreed with the District Court that Microsoft possesses monopoly power, and that it engaged in anti-competitive behavior and violated section 2 of the Sherman Antitrust Act. It curtly dismissed Microsoft's appeal that the trial proceedings were mismanaged or overly hasty. (In fact, the judges expressed admiration with the alacrity of the whole affair.)

It disagreed with the D.C. concerning Microsoft's "attempted monopolization" as defined by s.2, said conduct requiring "predatory or anticompetitive conduct with a specific intent to monopolize and a dangerous probability of achieving monopoly power." The plaintiffs (that's yours and my U.S. government) failed to make an adequate case proving this, and they don't get another chance.

Because of the differences in their liability conclusions, and particularly because Judge Jackson failed to hold evidentiary hearings concerning the proposed remedy (splitting the company in two), the final decree of the lower court was thrown out. In other words, new proceedings in the District Court to determine the remanded question of "tying" (see below), followed by new discussion of the appropriate penalty, more appeals, more delay, more megabucks for lawyers and more time for Microsoft to embrace and extend.

Of course, there is also a new administration in Washington, and perhaps a New Deal for an überCapitalist.

The specific issue in the "attempted monopolization" was whether or not they were attempting to monopolize the browser market. Observe that in 2001 the company has achieved a de facto monopoly on browsers, if not a de jure one. The matter of law is that the plaintiffs failed to define just exactly what the "browser market" was, and to show that significant barriers of entry existed, both of which they had to do. In spite of the court's introductory pontification about the unique "temporal dimension" of the case, it apparently isn't permissible to consider how things turned out in deciding what the company sought to do. (Maybe they just got lucky again?)

It remanded the question of whether Microsoft illegaly "tied" the Internet Explorer browser to its Windows operating system to the lower court, instructing that "the rule of reason" rather than a "per se analysis" should be used to decide the question. "(P)laintiffs must show that Microsoft's conduct unreasonably restrained competition. Meeting that burden 'involves an inquiry into the actual effect' of Microsoft's conduct on competition in the tied good market," which will again require definition of said market, and "a showing of barriers to entry other than the tying arrangement itself."

Maybe this is where the world-as-it-is-today can be entered into evidence? Or maybe not, because since they failed to define the market and the barriers to entry before, "plaintiffs will be precluded from arguing any theory of harm that depends on a precise definition of browsers or barriers to entry... other than what may be implicit in Microsoft's tying arrangement."

But don't be distracted by the apparent give and take in this ruling; the appeals court was brutally frank about Microsoft's blatantly illegal behavior, as it examined the "monopoly maintenance" points one by one, even though it stopped short of accepting the 6th category of "Course of Conduct," calling the DC's opinion of that only "broad, summarizing conclusions."

Licenses issued to OEMs

Restrictions Microsoft enforced on OEMs led to domination of its browser, thereby maintaining its O/S monopoly. What is installed to confront the user when a machine is first turned on is critically important, and Microsoft's attempt to dismiss the issue of "consumer confusion" of providing too many choices was damned by their own use of the argument in marketing to OEMs.

The court belittled the attempt at using copyright as a defense:

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." ... 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.

Integration of IE and Windows

Yes, it was anticompetitive, and yes, the finding of fact that Microsoft commingled browsing (IE) and non-browsing (O/S) code in common libraries (.DLLs) stands. Microsoft's appeal that its expert testified "without contradiction" is contradicted by the record. Oops.

That and the removal of IE from the Windows98 Add/Remove menu were deemed to have been harmful and violations of the Antitrust Act, with MS offering no proof that these served purposes other than protecting its O/S monopoly. The usefulness of the third item, overriding the default browser in certain circumstances (e.g. for internet access via "My Computer" or Windows Explorer), was not not rebutted by the plaintiff, and so that gets tossed.

Agreements with Internet Access Providers

Microsoft's no-cost or negative cost (as in "we'll pay you to do this") deals for IE and the IE Access Kit, with the provision that IE be the exclusive browser bundled to their customers, were shown by the plaintiff to be harmful, and MS showed no competitive justification for them.

Dealings with Independent Software Vendors, and Apple Computer

ISV deals to use IE as the default browsing software for any hypertext-based software in return for preferential support and technical information (the 1997 "First Wave" agreements) were anticompetitive and MS failed to show any procompetitive justification.

The dealing with Apple were particularly egregious: Gates threatened to cut off Mac Office unless Apple made IE its default browser, at a time when Apple appeared near death. Guess what's the default browser on Apple computers these days.


This may be the ugliest part of the story, with Microsoft's purposely incompatible Java Virtual Machine designed to trick unwitting developers into writing code that would only run on Windows.

...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."

Microsoft threatened Intel, as well, using feigned support for AMD's "3DX" technology to get Intel to back off its support for cross-platform compatible Java.

So now what?

The plaintiff, defendant, and District Court all have some more work to do. The defendant has been found guilty on numerous counts, and most of those findings have survived the first appeal. Microsoft can appeal further, but it's hard to see what they would hope to gain in the process. This court was nearly as contemptuous as the last one was of their legal performance, without taking it personally.

Ashcroft's office of the Attorney General may be more amenable to negotiation than Reno's was, but it's hard to predict how aggressively they'll pursue a suitable remedy.

The Court of Appeals did make it clear that divestiture was an extreme remedy, and it seems unlikely that a new District Court judge will attempt to impose it in the new context. In the nearly 15 months since the initial trial concluded, there's little evidence that Microsoft has reined in its behavior. Internet Explorer has unquestionably won the browser war, thanks to Microsoft's illegal, anticompetitive behavior.

I'm short on predictions today, but no doubt others will have plenty. The only thing I know for sure is that I'll be fascinated to see what happens next.

June 28, 2001

Tom von Alten      tva_∂t_fortboise_⋅_org

Friday, 29-Jun-2001 07:38:32 MDT