Microsoft Issues Response to DOJ’s Findings of Fact

On January 18, Microsoft responded to the Department of Justice’s (DOJ’s) accusations of monopolistic behavior with its Proposed Conclusions of Law. The response argues that, even accepting all of Judge Penfield Jackson’s Findings of Fact, the DOJ doesn’t have enough evidence to show that Microsoft is a monopoly. The trial focuses on whether Microsoft had improperly incorporated a Web browser into Windows 9x and whether the company had marketed this OS in a monopolistic manner. Microsoft presented arguments against each of the DOJ’s main charges: technological tie-in, foreclosure through exclusive deal agreements, first-screen restrictions, monopolizing the browser market, and monopolizing the PC market. Technological tie-in: Microsoft argues that it hasn’t unlawfully tied its Web browser to its OS. “To establish an unlawful tie,” reads the brief, “a plaintiff must show that the defendant conditioned the availability of one product on the purchase of another.” Microsoft responds, “Because Internet Explorer is part of Windows 98, Microsoft has never charged OEMs (or others) a separate royalty for Internet Explorer.” The general notion of a tie-in’s unlawfulness, Microsoft explains, rests on the idea that Microsoft foreclosed the browser market (i.e., that Microsoft forced consumers to give up their free choice between browser products, and that Netscape lost potential sales due to this tie-in). Microsoft contends that, because consumers were free to obtain Netscape and add it to their desktop, Microsoft including Internet Explorer (IE) with Win98 didn’t foreclose the browser market. Foreclosure through exclusive deal agreements: Foreclosure comes up again in the argument about exclusive deal agreements that Microsoft made with OEMs and other vendors. The DOJ argues that Microsoft closed the market to Netscape through exclusive contracts. The key criterion that the government must establish is whether “a substantial share of the relevant market is foreclosed.” The court has defined the word “substantial” as a 40 percent market share. Microsoft argues that Netscape distributed 160 million copies of its browser software and that Netscape’s usage increased steadily during the period in question. These facts, Microsoft says, show that it didn’t foreclose a substantial market share. First-screen restrictions: The government argued that Microsoft illegally prevented OEMs from modifying the Windows launch screen. The DOJ had entered testimony into evidence from key OEMs, such as Compaq. This testimony stated that Microsoft had applied pressure on vendors to prevent them from loading Netscape onto new computers. Microsoft replied that it has the copyright and quoted a precedent, which states that “where a patent or copyright has been lawfully acquired, subsequent conduct permissible under the patent or copyright laws cannot give rise to any liability under the antitrust laws.” Monopolizing the browser market: Microsoft relied on the court’s findings on this charge. “The court did not find that Microsoft acted with a specific intent to obtain monopoly power in the alleged market for Web browsing software. The court instead found that Microsoft attempted to increase Internet Explorer’s usage share to such a level as would prevent Netscape Navigator, which enjoyed an overwhelming usage share at the outset, from becoming the ‘standard’ Web browsing software. In fact, it describes procompetitive conduct.” Microsoft added that the court didn’t find “a dangerous probability that Microsoft will obtain monopoly power;” nor did the court find that Microsoft had acted “with a specific intent to drive Netscape from the marketplace and thus obtain monopoly power.” Monopolizing the PC market: Microsoft claims that it lacks the power to control prices or exclude competitors, “despite the current popularity of its operating systems.” The company says that the government points to Microsoft’s high market share and the lack of a commercially viable alternative, but that neither of those facts establishes monopoly power under the antitrust laws. The company also argues that the government never showed that Microsoft did charge a price for Win98 that a monopolizing power would, but simply that it could charge such a price. Throughout its brief, Microsoft argues time and time again that it competes on its merits. The brief provides no end of quotations from legal precedents about how competition based on simple improvement of merits is possible. Microsoft runs through some of its previous arguments about lack of foreclosure and argues that the government has failed to prove predatory pricing. The filing of Proposed Conclusions of Law by both the DOJ and Microsoft ends the evidentiary phase of the lawsuit. The next step will be Judge Jackson’s Conclusions of Law, followed by arguments concerning remedies that the DOJ will propose. Assuming that the two parties don’t reach a settlement, the case will likely reach the Conclusions of Law phase in mid-March, with the issuance of remedies appearing in late spring or early summer. The most likely outcome at present is that Judge Jackson will uphold his Findings of Fact, essentially establishing the DOJ’s case. Remedies that the DOJ has proposed, as reported in the press over the last 2 weeks, suggest that the government will press for a breakup of Microsoft, possibly into three parts. Because the two parties don’t appear close to settling (both sides are refrained from commenting on their settlement discussions), Microsoft is likely to appeal. The case will probably end up in the Supreme Court.

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