U.S. v. Microsoft Corp.

• Decision Date: 03 April 2000
• Docket Number: Civil Action No. 98-1232 (TPJ).,Civil Action No. 98-1233 (TPJ).
• Citation: 87 F.Supp.2d 30
• Parties: UNITED STATES of America, Plaintiff, v. MICROSOFT CORPORATION, Defendant. State of New York, et al., Plaintiffs, v. Microsoft Corporation, Defendant. Microsoft Corporation, Counterclaim-Plaintiff, Eliot Spitzer, attorney general of the State of New York, in his official capacity, et al., Counterclaim-Defendants.
• Court: U.S. Court of Appeals — District of Columbia Circuit

87 F.Supp.2d 30

UNITED STATES of America, Plaintiff, v. MICROSOFT CORPORATION, Defendant.

State of New York, et al., Plaintiffs, v. Microsoft Corporation, Defendant.

Microsoft Corporation, Counterclaim-Plaintiff,

Eliot Spitzer, attorney general of the State of New York, in his official capacity, et al., Counterclaim-Defendants.

Civil Action No. 98-1232 (TPJ).

Civil Action No. 98-1233 (TPJ).

United States District Court, District of Columbia.

April 3, 2000.

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Dennis C. Vacco, Attorney General of the State of New York, New York, NY, Christopher Crook, U.S. Dept. of Justice, San Francisco, CA, A. Douglas Melamed, U.S. Dept. of Justice, Washington DC, for plaintiff United States in case 1:98cv01232.

Alan R. Kusinitz, Attorney General of the State of New York, New York, NY, for plaintiffs in case 1:98cv01233.

David Paul Murray, Willkie Farr & Gallagher, Washington, DC, for movant Bloomberg News.

Daryl Andrew Libow, Sullivan & Cromwell, Washington, DC, John Lehman Warden, Sullivan & Cromwell, New York, NY, for defendant Microsoft Corp.

Donald Manwell Falk, Mayer, Brown & Platt, Washington, DC for Network Computer Inc.

Joseph Jay Simons, Rogers & Wells, L.L.P., Washington, DC for Sun Microsystems, Inc.

Samuel R. Miller, Folger, Levin & Kahn, L.L.P., San Francisco, CA, and Trisa Jean Thompson, Dell Computer Corporation, Round Rock, TX, for Dell Computer Corporation.

Junius Carlisle McElveen, Jr., Jones, Day, Reavis & Pogue, Washington, DC for IBM.

Allen Roger Snyder, Hogan & Hartson, L.L.P., Washington, DC for movant Netscape Communications Corp.

Lee J. Levine, Levine Sullivan & Koch, LLP, Washington, DC, for movants Seattle Times, ZDTV, ZDNET, The Washington Post Co., Associated Press, Dow Jones & Co., New York Times Co., American Lawyer Media, and USA Today.

Niki Kuckes, Miller, Cassidy, Larroca & Lewin, L.L.P., Washington DC for movant Reuter America, Inc.

Robert A. Gutkin, Pillsbury, Madison & Sutro, L.L.P., Washington, DC for movant San Jose Mercury News, Inc.

Jerry L. Robinett and Roy A. Day, movants pro se.

Richard Joseph Favretto, Mayer, Brown & Platt, Washington, DC for movant Oracle Corp.

William Dean Coston, Venable, Baetjer, Howard & Civiletti, L.L.P., Washington, DC for movant Compaq Computer Corp.

Benjamin S. Sharp, Perkins, Cote, L.L.P., Washington DC for movant Boeing Co.

Jay Ward Brown, Levine Sullivan & Koch, L.L.P., Washington, DC for movant Associated Press.

Carl Richard Schenker, Jr., O'Melveny & Myers, L.L.P., Washington, DC for movant Bristol Technology Inc. Robert Stephen Berry, Berry & Leftwich, Washington, DC for movant Gravity, Inc.

CONCLUSIONS OF LAW

JACKSON, District Judge.

The United States, nineteen individual states, and the District of Columbia ("the plaintiffs") bring these consolidated civil enforcement actions against defendant Microsoft Corporation ("Microsoft") under the Sherman Antitrust Act, 15 U.S.C. §§ 1 and 2. The plaintiffs charge, in essence, that Microsoft has waged an unlawful campaign in defense of its monopoly position in the market for operating systems designed to run on Intel-compatible personal computers ("PCs"). Specifically, the plaintiffs contend that Microsoft violated § 2 of the Sherman Act by engaging in a series of exclusionary, anticompetitive, and predatory acts to maintain its monopoly power. They also assert that Microsoft attempted, albeit unsuccessfully to date, to monopolize the Web browser market, likewise in violation of § 2. Finally, they contend that certain steps taken by Microsoft as part of its campaign to protect its monopoly power, namely tying its browser to its operating system and entering into exclusive dealing arrangements, violated § 1 of the Act.

Upon consideration of the Court's Findings of Fact ("Findings"), filed herein on November 5, 1999, as amended on December 21, 1999, the proposed conclusions of law submitted by the parties, the briefs of amici curiae, and the argument of counsel thereon, the Court concludes that Microsoft maintained its monopoly power by anticompetitive means and attempted to monopolize the Web browser market, both in violation of § 2. Microsoft also violated § 1 of the Sherman Act by unlawfully tying its Web browser to its operating system. The facts found do not support the conclusion, however, that the effect of Microsoft's marketing arrangements with other companies constituted unlawful exclusive dealing under criteria established by leading decisions under § 1.

The nineteen states and the District of Columbia ("the plaintiff states") seek to ground liability additionally under their respective antitrust laws. The Court is persuaded that the evidence in the record proving violations of the Sherman Act also satisfies the elements of analogous causes of action arising under the laws of each plaintiff state. For this reason, and for others stated below, the Court holds Microsoft liable under those particular state laws as well.

I. SECTION TWO OF THE SHERMAN ACT

A. Maintenance of Monopoly Power by Anticompetitive Means

Section 2 of the Sherman Act declares that it is unlawful for a person or firm to "monopolize ... any part of the trade or commerce among the several States, or with foreign nations...." 15 U.S.C. § 2. This language operates to limit the means by which a firm may lawfully either acquire or perpetuate monopoly power. Specifically, a firm violates § 2 if it attains or preserves monopoly power through anticompetitive acts. See United States v. Grinnell Corp., 384 U.S. 563, 570-71, 86 S.Ct. 1698, 16 L.Ed.2d 778 (1966) ("The offense of monopoly power under § 2 of the Sherman Act has two elements: (1) the possession of monopoly power in the relevant market and (2) the willful acquisition or maintenance of that power as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident."); Eastman Kodak Co. v. Image Technical Services, Inc., 504 U.S. 451, 488, 112 S.Ct. 2072, 119 L.Ed.2d 265 (1992) (Scalia, J., dissenting) ("Our § 2 monopolization doctrines are ... directed to discrete situations in which a defendant's possession of substantial market power, combined with his exclusionary or anticompetitive behavior, threatens to defeat or forestall the corrective forces of competition and thereby sustain or extend the defendant's agglomeration of power.").

1. Monopoly Power

The threshold element of a § 2 monopolization offense being "the possession of monopoly power in the relevant market," Grinnell, 384 U.S. at 570, 86 S.Ct. 1698, the Court must first ascertain the boundaries of the commercial activity that can be termed the "relevant market." See Walker Process Equip., Inc. v. Food Mach. & Chem. Corp., 382 U.S. 172, 177, 86 S.Ct. 347, 15 L.Ed.2d 247 (1965) ("Without a definition of [the relevant] market there is no way to measure [defendant's] ability to lessen or destroy competition."). Next, the Court must assess the defendant's actual power to control prices in — or to exclude competition from — that market. See United States v. E.I. du Pont de Nemours & Co., 351 U.S. 377, 391, 76 S.Ct. 994, 100 L.Ed. 1264 (1956) ("Monopoly power is the power to control prices or exclude competition.").

In this case, the plaintiffs postulated the relevant market as being the worldwide licensing of Intel-compatible PC operating systems. Whether this zone of commercial activity actually qualifies as a market, "monopolization of which may be illegal," depends on whether it includes all products "reasonably interchangeable by consumers for the same purposes." du Pont, 351 U.S. at 395, 76 S.Ct. 994. See Rothery Storage & Van Co. v. Atlas Van Lines, Inc., 792 F.2d 210, 218 (D.C.Cir. 1986) ("Because the ability of consumers to turn to other suppliers restrains a firm from raising prices above the competitive level, the definition of the `relevant market' rests on a determination of available substitutes.").

The Court has already found, based on the evidence in this record, that there are currently no products — and that there are not likely to be any in the near future — that a significant percentage of computer users worldwide could substitute for Intel-compatible PC operating systems without incurring substantial costs. Findings ¶¶ 18-29. The Court has further found that no firm not currently marketing Intel-compatible PC operating systems could start doing so in a way that would, within a reasonably short period of time, present a significant percentage of such consumers with a viable alternative to existing Intel-compatible PC operating systems. Id. ¶¶ 18, 30-32. From these facts, the Court has inferred that if a single firm or cartel controlled the licensing of all Intel-compatible PC operating systems worldwide, it could set the price of a license substantially above that which would be charged in a competitive market — and leave the price there for a significant period of time — without losing so many customers as to make the action unprofitable. Id. ¶ 18. This inference, in turn, has led the Court to find that the licensing of all Intel-compatible PC operating systems worldwide does in fact constitute the relevant market in the context of the plaintiffs' monopoly maintenance claim. Id.

The plaintiffs proved at trial that Microsoft possesses a dominant, persistent, and increasing share of the relevant market. Microsoft's share of the worldwide market for Intel-compatible PC operating systems currently exceeds ninety-five percent, and the firm's share would stand well above eighty percent even if the Mac OS were included in the market. Id. ¶ 35. The plaintiffs also proved that the applications barrier to entry protects Microsoft's dominant market share. Id. ¶¶ 36-52. This barrier ensures that no Intel-compatible PC operating system other than Windows can attract significant consumer demand, and the barrier would operate to the same effect even if...