Analysis: Microsoft filing outlines defensive plan

Microsoft's 118-page appellate filing this week raises a number of issues, both technical and legal, that will frame the next phase of its antitrust case. On the one hand, the company's complaints about Judge Jackson's behavior are interesting and of debatable merit. But Microsoft's rewriting of history in this document--in particular it's bit about intending to integrate IE into Windows from the very beginning--does much to undermine some of the good points they do make. Like the performance of Microsoft's executives on the stand during the trial, the company's initial legal filing in its appeal is surprising, but often for the wrong reasons.

Microsoft begins its defense with a statement of the issues. There's not much surprise here, though I'll reword the statements as slightly more honest questions:

  1. Did Microsoft illegally tie Internet Explorer to Windows?
  2. Did Microsoft maintain a monopoly in the "alleged" market for Intel-compatible PC operating systems using anticompetitive practices?
  3. Did Microsoft attempt to monopolize the market for Web browsers using anticompetitive practices?
  4. Should the decision to break up Microsoft--made without an evidentiary hearing--be reversed?
  5. Should the decision against Microsoft be vacated because the judge failed to provide Microsoft with adequate time for discovery and trial preparation?
  6. Should Judge Jackson be disqualified, and his judgment against the company vacated, because of his public statements about the case?
The first three are not surprising, and they represent a summary, of sorts, of the case against the company. And frankly, I don't think Microsoft does too well on any of these counts. The final three statements, however, are new to the appellate phase, and they introduce an interesting tactic for the company: Forget the original trial, as the judge's conduct clearly invalidates any ruling. Microsoft would like to have the case retried, indefinitely delaying any final judgment. Thus, the chance of a breakup is further reduced.

Microsoft frames the antitrust case around the "browser wars," where Microsoft wrested control of the Web browser market from once-dominant Netscape, though the actual trial expanded beyond that quite a bit. Microsoft notes that it "developed new versions of Windows to satisfy increasing demand for Internet functionality," but that argument has already been beaten to death in the past: Competing OSes, such as Linux, Mac OS, Mac OS X, Be OS, and even OS/2 offer wide ranges of Internet functionality without requiring those features to be integrated into the OS. Indeed, technical representatives from a variety of companies--including Apple's Avie Tevanian--have explained that the integration of Internet functionality into the OS provides little benefit to end users while causing the underlying system to be more unstable. Microsoft could have provided Internet functionality without integrated it into the OS as it did, but the company defends its tactic as "clearly beneficial" for consumers.

Microsoft also decries the expansion of the case, noting that Assistant Attorney General Joel Klein had promised a "surgical strike" against the company in May 1988, only to "transform the case beyond recognition" over the next two years, adding a number of complaints to the charges brought against the company.

And the company had few kind words for Judge Jackson, who the company damned for speaking publicly about the case. "The district judge’s public comments would lead a reasonable observer to question his impartiality and--together with other procedural irregularities--the fairness of the entire proceeding," the filing reads.

Microsoft then explains the history of the case, from the claims asserted by the DOJ and the states arrayed against it, to the pretrial proceedings, where the company was denied continuance as it watched the case against it expand. And then the trial itself, a horror show of unfairness. It's almost possible to feel bad for Microsoft, reading through the timetable in this remarkable document, where "the most inculpatory 'findings' consist of sweeping, conclusory assertions, unfounded inferences and speculative predictions masquerading as 'facts.'"

To defend itself, Microsoft launches into a lengthy statement of facts that explains, among other things, what an operating system really is. The definition is fleeting, of course, since users require ever more powerful software to drive their systems. After a dissertation on the history of Windows, in which we learn about the DOS shell that became an OS in its own right, Microsoft makes its first bogus assertion. It claims that integrating Internet technologies in Windows 95 was on the drawing board as early as 1994, when Netscape was still a gleam in Jim Clark's eye. But adding Internet functionality and integrating it are two different things. The first version of Internet Explorer (code-named "O'Hare") was never intended to ship with Windows 95. Instead, the company planned to ship it in "Frosting," which became Plus for Windows 95, an add-on package that was sold separately from the OS. In fact, Microsoft specifically left IE out of Windows so that it wouldn't compete with its fledgling MSN service, which was then not Internet-based.

But the indecision of the past becomes the decisiveness of Microsoft's history. Now, we discover that the company "always intended to include IE in all versions of Windows 95. The only issue was one of schedule." Even Microsoft can't get this new version of history correct, however. Consider the following two sentences, taken verbatim from the filing: "Since the release of Internet Explorer 1.0 in July 1995, Microsoft has distributed every version of Windows with Internet Explorer included. IE was not included, however, in the initial retail version of Windows 95 released in August 1995." Now, read it over and over again until it makes sense (hint: It never will).

Microsoft then discusses its talks with Netscape, which are the subject of some debate. Netscape says that Microsoft offered to carve up the browser market with them, while Microsoft says it was simply interested in talking about collaborating with Netscape. It's impossible to choose a side in this story without being biased to one or the other, but the court took Netscape's version a bit more seriously considering the wide range of similar stories about Microsoft in similar meetings with other companies. Regardless of what really happened, Microsoft's history was working against them here. Whether this was premeditated on Netscape's part will likely remain unknown.

But Microsoft's tactics against Netscape are a matter of history. When Microsoft finally fielded a decent version of Internet Explorer--IE 3 in August 1996--Netscape dominated the market. Today, the roles are reversed. Netscape and the anti-Microsoft crowd says that the reversal is due to Microsoft bundling IE with Windows, not because of any technical advantage. But there is some truth to Microsoft's side of the argument, as IE features better technology and features than Netscape. Microsoft discusses IE's superior "componentized" design at length in the filing, and notes the many companies--including AOL--that chose IE over Netscape But it fails to mention that Microsoft executives clearly stated in email that the only way they were going to beat Netscape was to leverage their Windows dominance and make IE an non-removable component of the OS. This is an amazing bit of selective recording that does nothing to counter claims that Microsoft's integration of Windows was anything but anti-competitive.

Microsoft makes a few good points regarding IE and Netscape, however. During the period of time we're debating, Netscape was able to distribute millions of copies of its software, so it's hard to argue that the inclusion of IE in Windows did anything to harm Netscape's ability to get its product to users. And though the DOJ claims that Microsoft forced PC makers to stop bundling their PCs with Netscape, Microsoft notes that by "1999, many leading OEMs, including Acer, Compaq, Fujitsu, Gateway, Hewlett-Packard, Hitachi, IBM, Packard Bell/NEC and Sony preinstalled Navigator on some of their PCs."

In summary, Microsoft says that the judgment against it "was infected with error. Revealing a profound misunderstanding of the antitrust laws, the district court condemned Microsoft’s competitive response to the phenomenal growth of the Internet and the emergence of Netscape as a platform competitor. Far from violating the antitrust laws, Microsoft’s conduct was procompetitive, producing enormous consumer benefits." Whether one believes this, of course, depends heavily on opinions about product bundling, consumer benefits and damages, and the rationale behind key business decisions. Did Microsoft integrate IE in Windows to benefit consumers, or was that simply an overt attempt to kill Netscape? If you're undecided, consider the following passage, where Microsoft, which now owns about 90% of the browser market, claims that such a market might not even exist. "There is no 'dangerous probability' that Microsoft will achieve monopoly power in the alleged 'browser' market," the filing reads. "Microsoft did not act with a 'specific intent' to monopolize, but rather sought to prevent Navigator from dominating the alleged 'browser' market." If the market is alleged, why did Microsoft seek to prevent Netscape from dominating it?

Like the current presidential election snafu, this is something that could be debated endlessly. Hopefully, the U.S. Court of Appeals can wade through this mess in less time than that. Microsoft's initial filing gives them a start, though it's an incomplete--and often inaccurate--version of the events. Next up is the government's reply, which should provide even more fodder for debate. After eight quiet months, it looks like the Microsoft antitrust trial is finally heating up again

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