In re Microsoft Corporation Antitrust Litigation

• Decision Date: 26 June 2003
• Docket Number: No. 03-1116.,03-1116.
• Parties: In re MICROSOFT CORPORATION ANTITRUST LITIGATION Sun Microsystems, Inc., a Delaware corporation, Plaintiff-Appellee, v. Microsoft Corporation, a Washington corporation, Defendant-Appellant. WildTangent, Incorporated, Amicus Supporting Appellant. Netscape Communications Corporation, Amicus Supporting Appellee.
• Court: U.S. Court of Appeals — Fourth Circuit

333 F.3d 517

In re MICROSOFT CORPORATION ANTITRUST LITIGATION

Sun Microsystems, Inc., a Delaware corporation, Plaintiff-Appellee, v. Microsoft Corporation, a Washington corporation, Defendant-Appellant.

WildTangent, Incorporated, Amicus Supporting Appellant.

Netscape Communications Corporation, Amicus Supporting Appellee.

No. 03-1116.

United States Court of Appeals, Fourth Circuit.

Argued: April 3, 2003.

Decided: June 26, 2003.

COPYRIGHT MATERIAL OMITTED

ARGUED: David Bruce Tulchin, Sullivan & Cromwell, L.L.P., New York, New York, for Appellant. Lloyd R. Day, Jr., Day, Casebeer, Madrid & Batchelder, L.L.P., Cupertino, California, for Appellee. ON BRIEF: Steven L. Holley, Michael Lacovara, Marc De Leeuw, Brian T. Frawley, Sullivan & Cromwell, L.L.P., New York, New York; Michael F. Brockmeyer, Piper Rudnick, L.L.P., Baltimore, Maryland David T. McDonald, Karl J. Quackenbush, Preston, Gates & Ellis, L.L.P., Seattle, Washington; Thomas W. Burt, Richard J. Wallis, Linda K. Norman, Microsoft Corporation, Redmond, Washington; Matthew L. Larrabee, Darryl Snider, A. Mari Mazour, Heller, Ehrman, White & Mcauliffe, L.L.P., San Francisco, California, for Appellant. James R. Batchelder, Robert M. Galvin, Day, Casebeer, Madrid & Batchelder, L.L.P., Cupertino, California; Kevin J. Arquit, Simpson, Thacher & Bartlett, New York, New York; Thomas M. Wilson, John B. Isbister, Tydings & Rosenberg, L.L.P., Baltimore, Maryland, for Appellee. O. Yale Lewis, Jr., Stacia N. Lay, Hendricks & Lewis, Seattle, Washington; Kenneth C. Bass, III, Sterne, Kessler, Goldstein & Fox, P.L.L.C., Washington, D.C., for Amicus WildTangent. Evan R. Chesler, Katherine B. Forrest, Cravath, Swaine & Moore, New York, New York; Jeffrey A. Rosen, Richard A. Cordray, Elizabeth S. Petrela, Kirkland & Ellis, Washington, D.C.; James P. Ulwick, Kramon & Graham, Baltimore, Maryland, for Amicus Netscape.

Before WIDENER, NIEMEYER, and GREGORY, Circuit Judges.

Affirmed in part, vacated in part, and remanded by published opinion. Judge NIEMEYER wrote the opinion, in which Judge WIDENER and Judge GREGORY joined.

OPINION

NIEMEYER, Circuit Judge:

Sun Microsystems, Inc. commenced this action against Microsoft Corporation, alleging, among other things, that Microsoft illegally maintained a monopoly in the "worldwide market for Intel-compatible PC operating systems," in violation of § 2 of the Sherman Act. Sun also complains that Microsoft infringed its copyrighted "source code in the Java platform" by distributing the software outside of a license that Microsoft received from Sun, in violation of § 501 of the Copyright Act. Sun seeks declaratory and permanent injunctive relief, as well as treble damages and attorneys fees.

On Sun's motion for a preliminary injunction pending trial and judgment, the district court entered (1) a mandatory preliminary injunction requiring Microsoft to incorporate in and distribute with every copy of its Windows PC operating system and every copy of its web browser Sun's Java software to operate as "middleware" on top of Microsoft's operating system to accommodate a wide variety of applications software, and (2) a preliminary injunction prohibiting Microsoft from distributing any software developments of Java software, other than products licensed to Microsoft by Sun in a 2001 settlement agreement arising out of prior litigation over Microsoft's alleged misuse of Java source code.

In granting the mandatory injunction, the district court acknowledged that its "must-carry" mandatory preliminary injunction was unprecedented, but explained it was necessary in the extraordinary circumstances of this case to prevent future "tipping"¹ from Sun to Microsoft in an emerging middleware market — a market for "general purpose, Internet-enabled distributed computing platforms" that is distinct from the PC operating systems market that Sun alleged was being illegally monopolized by Microsoft. The court found that Microsoft and Sun are the only competitors in this new emerging market in which Sun currently "would appear dominant," as Microsoft has yet "virtually no present share of the market."

To address the problem that the complaint alleges monopolization in one market and the injunction was requested to protect Sun in a different market, the court relied on a monopoly leveraging theory under which Microsoft is alleged to be "taking advantage of its past antitrust violations to leverage its monopoly in the Intel-compatible PC market into the market for general purpose, Internet-enabled distributed computing platforms." The court found appropriate a remedy in the middleware market "designed to prevent Microsoft from obtaining future advantage from its past wrongs" in the PC operating systems market. But the court could only conclude (1) that it is not "inevitable" that the new emerging middleware market will "tip" in favor of Microsoft, (2) that it cannot say that "tipping" in favor of Microsoft in the middleware market will "more likely than not" occur, and (3) that it cannot find "at this precise moment ... an imminent threat that the market for general purpose, Internet-enabled distributed computing platforms will tip in favor of [Microsoft]."

Because the district court was unable to find immediate irreparable harm and because it entered a preliminary injunction that does not aid or protect the court's ability to enter final relief on Sun's PC-operating-systems monopolization claim, we vacate the mandatory preliminary injunction. With respect to the preliminary injunction prohibiting Microsoft from distributing products that infringe Sun's copyright interests, however, we conclude that the district court did not err in construing the scope of the license granted by Sun to Microsoft, nor did it abuse its discretion in entering the injunction. Accordingly, we affirm that preliminary injunction.

I

Sun summarizes its complaint in this case, which includes 16 counts, as follows:

This is an action brought pursuant to the antitrust laws of the United States as well as the laws of the State of California to restrain anticompetitive conduct by [Microsoft], and to remedy the damage suffered by [Sun], as the result of Microsoft's illegal efforts to maintain and expand its monopoly power. In addition, this action seeks to enjoin Microsoft from infringing Sun's copyrights by unlawfully distributing products outside the scope of the limited license that Sun granted to Microsoft.

Count 1, in connection with which the district court entered the mandatory preliminary injunction, alleges that Microsoft has willfully and illegally maintained its monopoly power in the worldwide market for "Intel-compatible PC operating systems" by anticompetitive and unreasonably exclusive conduct. Sun claims that it

has been and will continue to be damaged by, without limitation, diminished licensing fees, lost computer workstation sales, lost server sales, lost software product sales, lost storage sales, lost sales of consulting services, and a diminution in value to Sun's trademarks reputation, and goodwill in amounts to be proven at trial.

And for relief from "immediate and irreparable injury," it requests injunctive relief.

Sun's motion for a preliminary injunction relies in substantial part on previous litigation in which Microsoft was found guilty of illegal and anticompetitive conduct, particularly the District of Columbia litigation in which Microsoft was found to have maintained an illegal monopoly in the market for worldwide licensing of Intel-compatible PC operating systems, see United States v. Microsoft Corp., 87 F.Supp.2d 30 (D.D.C.2000), aff'd in part and rev'd in part, 253 F.3d 34 (D.C.Cir. 2001), cert. denied, 534 U.S. 952, 122 S.Ct. 350, 151 L.Ed.2d 264 (2001), and California litigation involving Microsoft's allegedly illegal conduct aimed specifically at Sun, see Sun Microsystems, Inc. v. Microsoft Corp., 87 F.Supp.2d 992 (N.D.Cal.2000). In its motion, Sun asked the district court to enjoin Microsoft from

(a) distributing its Windows operating system and web browser products unless Microsoft integrates and distributes Sun's binary implementation of the Java Plug-in for Windows XP [operating system] in those products and

(b) distributing Microsoft's Virtual Machine for Java [often referred to as MSJVM, for M icro s oft J ava V irtual M achine] in an unlicensed manner.

It asserted that:

If Microsoft's conduct is left unchecked, there is a substantial threat that Microsoft will irreparably tip the market against the Java platform in favor of .NET.... [T]he Court should grant preliminary injunctive relief requiring Microsoft to integrate and distribute Sun's Java Plug-in as part of [the] Windows [operating system] and [the Internet Explorer web browser] and cease standalone distribution of the old Microsoft VM [i.e., the MSJVM].

Sun's Java platform and Microsoft's .NET are "middleware" with which Sun and Microsoft will compete in the emerging market for Internet-enabled distributed computing platforms.

Both Sun and the district court in this case adopted the District of Columbia courts' definition of the relevant market — in which Microsoft was alleged to be illegally maintaining its monopoly power — as the worldwide licensing of Intel-compatible PC operating systems, and both agree that the market for "middleware" that is now emerging is distinct from the market that Microsoft was found to have monopolized in the District of Columbia litigation. It is undisputed that the middleware market identified by the parties and the district court has not yet been defined for antitrust purposes.

Operating systems, such as Windows 2000, Windows XP, Mac OS, and Sun's Solaris OS, function to implement instructions from applications software and enable computer hardware to operate, "including allocating computer memory and controlling peripherals such as printers and keyboards." United States v. Microsoft Corp., 253 F.3d at 53. Because operating systems...