Tech Law Journal Daily E-Mail Alert
December 24, 2002, 9:00 AM ET, Alert No. 574.
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District Court Rules Microsoft Must Carry Sun's Java
12/23. The U.S. District Court (Maryland) issued its opinion [42 pages in PDF] in Sun Microsystems v. Microsoft, holding that Microsoft must carry the latest Java runtime environment on any product carrying Microsoft's .NET, including Windows XP. This is a big victory for Sun Microsystems (Sun). The U.S. District Court (DC) in the government antitrust case previously declined to impose this "must carry" remedy upon Microsoft.

Basically, the District Court (Maryland) held that Microsoft years ago unlawfully fragmented the Java platform, and destroyed Sun's channels of distribution for Java, and is now 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 (that is, to promote its .NET platform to the detriment of Java). The Court further reasoned that while Java is the preferred platform for developers today, there is a risk that the market might irreversibly tip; hence, the Court must require Microsoft to carry Java in order to prevent the market from tipping, and irreparably injuring Sun.

Introduction. The present case is an antitrust action brought by Sun against Microsoft. Sun wants to compel Microsoft to carry its Java technology. However, this case builds upon two earlier actions.

First, there was a lawsuit brought by Sun against Microsoft in 1997 to enjoin Microsoft from shipping software products with Java technologies that did not pass Sun's Java compatibility test suite. Sun ultimately prevailed, to an extent; Microsoft was enjoined; but, Microsoft determined to drop Java, and instead develop its own .NET technology.

Second, there is the government antitrust action against Microsoft, originally assigned to Judge Thomas Jackson, and now assigned to Judge Colleen Kotelly. In that action, Sun and others had urged the Court to require Microsoft to carry Java. However, Judge Kotelly rejected that proposed remedy.

In the present action, Sun, relying on the antitrust conclusions in the government case, seeks a court injunction compelling Microsoft to carry Java. This District Court (Maryland) ruled that this relief is appropriate.

Java Licensing Case. Sun developed the Java technology, a standardized application programming environment that is designed to allow software developers to create programming code that can run across different platforms. In March of 1996, Sun and Microsoft entered into a Technology Licensing and Distribution Agreement (TLDA) which allowed Microsoft to use, modify and adapt Java technology. Microsoft proceeded to use Java technology in developing MS Internet Explorer 4.0, and other software products.

In October 1997, Sun filed a complaint against Microsoft. (See, Sun's first Amended Complaint, filed October 14, 1997.) Sun alleged that Microsoft refused to adhere to Sun's Java specifications and Java API, and that this constituted an attempt to fragment the standardized application environment, and break with cross platform compatibility. Sun sought sought injunctive relief, and monetary damages. See also, TLJ Summary of Sun Microsytems v. Microsoft, N.D.Cal. No. 97-CV-20884. See also, Microsoft's web page regarding the Java licensing suit.

Sun ultimately prevailed. In March 1998, the District Court issued a Preliminary Injunction against Microsoft barring Microsoft from using the Java Compatibility Logo. After protracted litigation, the District Court also enjoined Microsoft from shipping software products with Java technologies that do not pass Sun's Java compatibility test suite.

Rather than complying with Sun's requirements, Microsoft decided to drop Java, and instead develop its own competing programming language, C#. It also developed it own new .NET platform to enable developers to build, deliver and aggregate web services, as an alternative to Java.

Sun and Microsoft entered into a settlement agreement that ended the Java licensing case in January 2001. They terminated the TLDA.

Government Antitrust Case. The U.S. and many states filed two antitrust lawsuits against Microsoft in 1998 (which were consolidated). Judge Jackson entered findings of fact, conclusions of law, and a final judgment. He was reversed in part, and affirmed in part, by the Court of Appeals. See, 253 F.3d 34 (D.C. Cir. 2001). In particular, the Appeals Court affirmed the finding that Microsoft had monopoly power in the market for Intel compatible PC operating systems. It also affirmed the holding that Microsoft violated § 2 of the Sherman Act by illegally maintaining a monopoly in that market through a series of anticompetitive acts. The Appeals Court reversed, among other things, the remedy portion of Judge Jackson's final judgment. Upon remand, and reassignment to Judge Kotelly, the District Court declined to require Microsoft to carry Java.

Present Action. Sun filed a complaint in the U.S. District Court (NDCal) against Microsoft alleging violations of antitrust law (and copyright infringement). This is just one of several such antitrust actions filed in the wake of the governments' success. The Judicial Panel on Multidistrict Litigation transferred the action to the U.S. District Court (Maryland) for resolution of pretrial issues. The case has been assigned to Judge Frederick Motz.

Basically, building upon the Court's conclusions regarding monopoly behavior in the government antitrust case, Sun, in this private antitrust action, asks the District Court (Maryland) to require Microsoft to carry Java. The District Court opinion summarizes Sun's request. It seeks an injunction requiring Microsoft "to set up Sun's most current Java runtime environment to be installed by default on any product containing .NET, including Windows XP (the most recent iteration of the Windows operating system) and Internet Explorer. Under the proposed injunction, the Java runtime environment is to be provided by Sun to Microsoft at no cost, and it must pass the relevant Java compatibility tests available from the Java Community Process." (Parentheses in original.)

The District Court (Maryland) continued that "The theory underlying Sun’s requested injunction is that Microsoft, having unlawfully fragmented the Java platform and having destroyed Sun’s channels of distribution for that platform, is now 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 added that "The ``must-carry´´ remedy Sun proposes is designed to prevent Microsoft from obtaining future advantage from its past wrongs and to correct the distortion in the marketplace that its violations of the antitrust laws have caused."

The Court concluded that Sun's theory is sound, and the proposed remedy appropriate. The District Court (Maryland) also distinguished this case from the case before the District Court (DC). It wrote that wrote that "The record in this case is also different; additional witnesses and exhibits have been presented. Most importantly, here the must-carry injunction is a means to correct a private wrong done to Sun and the other members of the Java community, rather than as an external governmental mandate."

Anti Tipping. In reaching this conclusion, the Court conceded that Sun's Java, not Microsoft's .NET, is dominant today. But, the Court reasoned, as part of the analysis of likelihood of irreparable harm, that the market might reach an irreversible "tipping point".

The Court wrote that "there will be a substantial feedback effect in the market for general purpose, Internet enabled distributed computing platforms as the competition between .NET and Java unfolds. I also find that, in accordance with the general economic principles cited by the D.C. Circuit in the Department of Justice case, .NET and Java will compete for the field rather than within the field. ... I do not suggest, however, it is inevitable that the market will tip in favor of .NET. ... It is possible that .NET and Java will both survive as competing platforms and that the new market will be a heterogeneous one."

The Court continued that "if one took a snapshot picture of the existing market for general purpose, Internet enabled distributed computing platforms, it is Java that would appear dominant. Having just been commercially introduced, .NET has virtually no present share of the market. On the other hand, Java, despite the absence of Sun’s most current platform on PCs caused by the events I have previously described, is presently in a strong position. For many years it has been the platform of choice for software on large servers and handheld devices. Moreover, Sun’s own documents show there are presently approximately 3 million developers who use Java today."

"But in that dynamic environment, it is impossible to identify the moment when the competition has been won. Waiting for the score to appear in market share data is too late because by that time the critical events will have already occurred" wrote the Court. "Therefore, the genuine threat that market tipping presents cannot be dismissed on the ground that at the moment, before the competition has begun, a large number of software developers are still Java-oriented. Microsoft, Sun, and the developer community are all looking toward the future, and in order to determine whether a must-carry injunction is necessary and appropriate, a court must do so as well."

DC Circuit Rules in Pole Attachments Act Case
12/20. The U.S. Court of Appeals (DCCir) issued its opinion in Southern Company Services v. FCC, upholding the Federal Communications Commission's (FCC) pole attachments rules.

Southern Company Services and other companies that own utility poles and conduits filed a petition for review of three FCC orders implementing amendments to the Pole Attachments Act, 47 U.S.C. § 224. This statute requires owners of poles and conduits to lease space to companies that want to attach cables or wires, and gives the FCC authority to promulgate implementing regulations.

The petitioners argued that the rules exceed the FCC's enforcement authority and interfere with their rights to reasonably deny pole, duct, conduit, and right-of-way space. They also argued that rules violate the Administrative Procedure Act (APA). The Appeals Court denied the petition for review.

BSA Recommends Funding Levels for Cyber Security
12/23. The Business Software Alliance (BSA) wrote a letter [3 pages in PDF] to President Bush with its recommendations for the President's FY 2004 budget proposals.

The BSA recommends "At least $4.2 billion to strengthen the cyber security of federal agencies in FY 2004, in keeping with the Administration’s intention to utilize this level of resources in FY03". It also recommends "$900 million to fund cyber security research and development efforts over the next five years."

The BSA also recommends "$13 million to fund vital law enforcement efforts to combat Internet theft". It elaborated that "While BSA member companies expend significant resources to fight piracy on the Internet and in traditional settings, these actions are a minimal deterrent for large and organized pirate groups. For this reason, criminal sanctions are a necessary and appropriate tool."

Administrative Law Judge Concludes Mitnick Has Been Rehabilitated
12/23. The Federal Communications Commission (FCC) released the decision [PDF] of an administrative law judge (ALJ) who concludes that Kevin Mitnick, the famous former computer hacker, has rehabilitated himself. He now has enough character to hold an FCC license.

The FCC released a document titled "Initial Decision of Chief Administrative Law Judge Richard L. Sippel" in the proceeding titled "In the Matter of Kevin David Mitnick, Licensee of Station N6NHG in the Amateur Radio Service for Renewal of Station License".

The decision notes that Mitnick is a "disgraced felon" who spent five years in prison. But, the ALJ concludes, he has "paid his debt to society", and now possesses a "positive attitude towards society".

The ALJ "concluded that Kevin David Mitnick has been sufficiently rehabilitated to show that he now possesses the requisite character for the renewal of his licenses in the amateur radio service."

Mitnick's illegal activities included the interception of electronic communications, computer fraud, wire fraud, and damaging computers. The ALJ decision does not address the relationship between accounting fraud, character, and FCC licenses.

Frist Elected Senate Majority Leader
12/23. Senate Republicans elected Sen. Bill Frist (R-TN) Senate Majority Leader. He replaces Sen. Trent Lott (R-MS). The other members of the Senate Republican leadership are Ted Stevens (R-AK), Mitch McConnell (R-KY), Rick Santorum (R-PA), Kay Hutchison (R-TX), Jon Kyl (R-AZ), and George Allen (R-VA). See also, Frist statement.

President Bush stated in a release that "I congratulate Senator Bill Frist on his election to Majority Leader of the U.S. Senate. Senator Frist has earned the trust and respect of his colleagues on both sides of the aisle. I look forward to working with him and all members of the Senate and House to advance our agenda for a safer, stronger, and better America."

Sendo Sues Microsoft
12/20. Sendo filed a complaint [27 pages in PDF] in U.S. District Court (EDTex) against Microsoft alleging a shotgun list of state causes of actions, including misappropriation of trade secrets. The suit arises out of Microsoft's and Sendo's prior business dealings pertaining to mobile communications.

Sendo is a U.K. based mobile phone make. Its complaint offers a long introductory statement. It states that "This lawsuit is the result of Microsoft's master plan (``The Plan´´) to quickly obtain the technology necessary to enter and ultimately dominate the next generation mobile phone market, also known as 2.5G, created by the convergence of mobile phones and computers. ... The Plan came at a time when Microsoft had little or no experience in the technology of mobile telephone handsets or their operating systems; nor did it have relationships with the primary customers for units, the carriers -- such as Orange, Cingular and AT&T Wireless. Microsoft had made repeated unsuccessful attempts to work with the major handset manufacturers and to attempt to license to them its planned software for handsets. Finally, Microsoft had no experience with the technical requirements that the carriers imposed upon manufacturers, some of which were the results of unwritten custom."

The complaint states that Sendo is "made up of able and experienced former employees of such established mobile phone manufacturers as Phillips, Motorola and Nokia" who have substantial experience with 2.5G.

The complaint continues that "Microsoft recognized Sendo had the technology and experience it lacked to quickly penetrate this new lucrative market. As such, Microsoft set about through a secret plan (``The Secret Plan´´) to obtain that technology and know-how from Sendo with the false promises that Microsoft would co-develop, help finance, and be the ``go to market´´ partner for Sendo's 2.5G Smartphone, the Z100."

"Microsoft's Secret Plan was to plunder the small company of its propriety information, technical expertise, market knowledge, customers, and prospective customers. Microsoft had been unable to successfully access the wireless market because the major handset manufacturers would not use their software. So instead, Microsoft gained Sendo's trust and confidence through false promises that Sendo would be its ``go to market partner´´ with the Microsoft Smartphone platform, originally code named ``Stinger.´´ As a result of those false promises, Microsoft gained access to Sendo's hardware expertise and knowledge of the mobile carrier business. Microsoft then provided Sendo's proprietary hardware expertise and trade secrets to low cost original equipment manufacturers (OEM) (who would not otherwise have had the expertise) to manufacture handsets that would use Stinger and used Sendo's carrier-customer relationships to establish it own contractual relationships. In short, Microsoft used Sendo's knowledge and expertise to its benefit to gain direct entry into the burgeoning next generation mobile phone market and then, after driving Sendo to the brink of bankruptcy, cut it out of the picture", the complaint alleges.

The lawsuit was filed in federal court based upon diversity of citizenship. There are no causes of action based upon federal law. The complaint pleads a long list of Texas commercial tort and contract claims. First, the complaint pleads misappropriation of trade secrets "relating to its operation of a mobile telephone development and manufacturing business". The complaint also pleads common law misappropriation

There is also a count for conversion. It alleges that Microsoft is "currently in possession of Sendo's property, including but not limited to Sendo's company confidential information including strategies and plans, source code, trade secrets embodied in documents, Z100 mock-ups or demo units, pre-production testing units, and source code for several key drivers."

The complaint also pleads unfair competition, based upon Microsoft's alleged "unauthorized use of Sendo's trade secrets and confidential proprietary information".

Other causes of action plead in the complaint include fraud, breach of fiduciary duty, negligent misrepresentation, civil conspiracy, breach of contract, tortious interference, constructive fraud, and fraudulent inducement.

The plaintiffs request monetary damages, and "Defendants' profits arising from their tortious acts".

Sendo's various corporate entities are incorporated and registered in the United Kingdom, the Cayman Islands, and Hong Kong. Microsoft is incorporated in, and based in, the state of Washington. The complaint was filed in Texarkana, Texas, a town located on Interstate 30 at the Texas Arkansas border. Out of district plaintiffs frequently file lawsuits against large technology companies in the U.S. District Court for the Eastern District of Texas.

This case is Sendo Limited, Sendo International Limited, Sendo Holdings PLC, and Sendo America, Inc., v. Microsoft Corporation, Microsoft Licensing, Incorporated, and Microsoft Capital Corporation, D.C. No. 502CV282. Plaintiffs are represented by the Texarkana, Texas, law firm of Patton Haltom Roberts McWilliams & Greer, and the law firm of Jackson Walker.

FCC Approves Long Distance Application for Nine Western States
12/23. The Federal Communications Commission (FCC) announced and released its order [556 pages in PDF] approving Qwest's Section 271 application to provide in region interLATA service in the states of Colorado, Idaho, Iowa, Montana, Nebraska, North Dakota, Utah, Washington, and Wyoming. This is Docket No. WC 02-314. See also, FCC release [MS Word].

The FCC approved the application by a 4-0 vote on December 20. New Commissioner Jonathan Adelstein did not participate. Commissioner Michael Copps wrote in a separate statement that "this is one of the most difficult applications we have faced. There are a number of troubling allegations raised in this proceeding, including among other things, the existence of confidential unfiled agreements, accounting depredations, withholding of information, and provision of in-region long-distance services without authority. Accordingly, we have subjected this application to especially close scrutiny. Indeed, Qwest withdrew previous versions of these applications in order to address these issues. The FCC has now approved long distance applications for 35 states." Nevertheless, he voted for approval of the application.

Qwest stated in a release that it "will file an application to re-enter the long-distance business in three additional states, Oregon, New Mexico and South Dakota, in January. Qwest anticipates filing applications for its final two states, Arizona and Minnesota, in early 2003."

Holiday Reading List
Got too much free time on your hands over the holidays? If so, TLJ recommends the following online reading.

Sen. Bill Frist: The newly elected Senate Majority Leader has given several speeches on technology related issues. Here is a selection. First, there is a speech in the Senate on local competition and the 1996 Telecom Act that may worry ILECs. He stated on June 20, 2001 that "We need to ensure that the market opening requirements of the 1996 Act are vigorously implemented". Second, there is a speech on the Next Generation Internet, on March 1, 2000. There is also his opening statement [3 pages in PDF] titled "The Role of Standards in the Growth of Global Electronic Commerce" at a October 28, 1999 hearing before the Senate Commerce Committee's Subcommittee on Science Technology and Space. He also gave an opening statement [2 pages in PDF] on "Telemedicine Technologies", at a Science Subcommittee hearing on September 15, 1999. Finally, see TLJ story titled "Where Sen. Frist Stands on Tech Issues", December 23, 2002.

Jurisdiction and the Internet: Two vastly different opinions were handed down earlier this month by courts in the U.S. and Australia on jurisdiction over defendants based upon their publication on the Internet. On December 10 the High Court of Australia issued its opinion in Dow Jones v. Gutnick holding that because of publication on the Internet, the Australian courts have jurisdiction over a U.S. based news publisher. The Court reasoned that jurisdiction exists where the injury occurs, and in the case of Internet defamation, it is where web pages are downloaded. This could be be anywhere in the world. Then, on December 13, the U.S. Court of Appeals (4thCir) issued its opinion [12 pages in PDF] in Young v. New Haven Advocate holding that a court in Virginia does not have jurisdiction over two small newspapers, and their editors and reporters, located in Connecticut, who wrote allegedly defamatory stories about a Virginia resident and published them on the Internet. The Court held that the web publication did not establish minimum contacts with Virginia because the newspapers are not directed at a Virginia audience.

Spectrum Rights: Two recent items may be of interest. First, there is a paper [36 pages in PDF] titled "Spectrum Management: Property Rights, Markets, and The Commons", by Gerald Faulhaber and David Farber (AEI Brookings Joint Center for Regulatory Studies, Working Paper No. 02-12, December 2002). Second, there is a report [73 pages in PDF] by the FCC's Spectrum Policy Task Force, released on November 15. The report recommends that "spectrum policy must evolve towards more flexible and market oriented regulatory models."

Broadband Deployment: A FCC report [21 pages in PDF] titled "High Speed Services for Internet Access: Status as of June 30, 2002", released on December 17, measured growth in the uptake of broadband. While legislators, groups and companies debate what the government should do to increase use of broadband, the FCC's data shows that the number of broadband lines grew from 12.8 to 16.2 Million in the first half of 2002, a 27% increase in just six months, without any help from the government. For an overview of some of the broadband related issues at the FCC, read the speech [13 pages in PDF] by FCC Commissioner Kevin Martin on December 12. He offers his recommendations for how the FCC ought to resolve the pending broadband related proceedings at the FCC.

Antitrust: FTC Chairman Timothy Muris gave a long and detailed speech on December 10 titled "Looking Forward: The Federal Trade Commission and the Future Development of U.S. Competition Policy". He discussed many tech related cases and issues, including intellectual property. Also, the Department of Justice filed an amicus brief with the Supreme Court on December 13 in Verizon v. Trinko on the interaction of antitrust and telecom law.

Miscellaneous Reading: Other recent items include: commentary titled "Whatever Happened to Leaving the Internet Unregulated?", by Clyde Crews and Adam Thierer (Cato Institute, December 22); study titled "Empirical Analysis of Internet Filtering in China", by Jonathan Zittrain and Benjamin Edelman (Berkman Center for Internet and Society, Harvard Law School, last updated December 11); and book [120 pages in PDF] titled "Government Policy toward Open Source Software", by Robert Hahn, James Besson, Laurence Lessig, David Evans, and Bradford Smith (AEI Brookings Joint Center for Regulatory Studies).

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