Microsoft Argues That It Has Not Violated Antitrust Law

(January 19, 2000) Microsoft argued in its proposed conclusions of law filed with Judge Jackson on January 18 that it has not violated the Sherman Antitrust Act.

U.S. District Court Judge Thomas Jackson's Findings of Fact, issued on November 5, would appear to have left Microsoft little room to argue that it had not violated antitrust law. Microsoft sees things differently.

Judge Jackson found as a matter of fact that Microsoft has a monopoly in the market for Intel-compatible PC operating systems, and that Microsoft has harmed consumers in numerous ways. Microsoft argues in its Proposed Conclusions of Law that even if the Judge's findings of facts are correct, a finding of law that Microsoft has violated the Sherman Antitrust Act is still unwarranted.

Microsoft's filing is unyielding, and nonconciliatory. In the first paragraph, Microsoft reminded Judge Jackson when he previously enjoined Microsoft from tying its browser to its operating system, the Court of Appeals reversed him. The proposed conclusions of law state: "the issue of whether Windows 98 and its Internet Explorer components are "separate products" is governed by the standards articulated in that decision."

In the second paragraph Microsoft bluntly tells Judge Jackson that he got the facts wrong. "Needless to say, Microsoft respectfully disagrees with many of the Court’s findings of fact and believes that they are unsupported by the record."

Microsoft's arguments sometimes contradicted Judge Jackson's findings of fact. In a few matters, Microsoft relied on facts not in the record, such as the recently announced merger of America Online and Time Warner.

The Governments' Proposed Conclusions of Law, filed on December 6, 1999, argued that Judge Jackson's Findings of Fact established multiple violations of the Sherman Antitrust Act by Microsoft. In particular, the government argued that Microsoft:

• violated Section 2 of the Act by unlawfully maintaining its monopoly in operating systems for Intel-compatible PCs,
• violated Section 2 of the Act by unlawfully tying a web browser to its operating system,
• violated Section 1 of the Act by entering into unlawful exclusionary agreements, and
• attempted to monopolize the browser market.

Microsoft argued in its proposed conclusions of law that the government failed to prove that Microsoft unlawfully maintained a monopoly for Intel-compatible PC operating systems in violation of Section 2 of the Act. [See, Section V of Microsoft's Proposed Conclusions of Law.] Microsoft argued that it does not possess monopoly power in a properly defined product market. Microsoft wrote that the "Intel-compatible PC OS" market definition is too narrow. It continued:

"... consumers looking for computing solutions have an increasing array of alternatives, including, among other options, an Apple Macintosh running the Mac OS or a workstation running some variant of the UNIX operating system. ... Within the next few years, if not already, consumers who use their computers primarily "for storing addresses and schedules, for sending and receiving E-mail, for browsing the Web, and for playing video games" also will be able to choose an "information appliance" such as a handheld personal computer, a "smart" wireless telephone or a television set-top box. ... Consumers likewise may be able to choose a network computer or terminal attached to a server or mainframe computer. ... Moreover, "[a]s the bandwidth available to the average user increases, ‘portal’ Web sites . . . could begin to host full lines of the server-based, personal-productivity applications," thus enabling "increasing numbers of computer users equipped with Web browsers . . . to conduct a significant portion of their computing through these portals" without regard to their underlying operating system." [Citations to Findings of Fact omitted.]

In addition, Microsoft argued that it does not have the power to control prices or exclude competition.

On the unlawful tying allegation, Microsoft argued that the government failed to prove unlawful tying in violation of Section 1 of the Act. [See, section I.] In particular, Microsoft argued that its Windows OS and browser is an integrated product, that no computer manufacturer was forced to buy a second distinct product, and that the alleged tying did not prevent Netscape from getting its web browsing software into the hands of consumers.

Microsoft next argued that the government failed to prove that Microsoft entered into unlawful exclusive dealing agreements in violation of Section 1 of the Act. [See, Section II.]

Next, Microsoft argued that the government failed to prove that Microsoft's license agreements with computer manufacturers constituted unlawful restraint of trade in violation of Section 1 of the Act. [See, Section III.] Microsoft claimed that it merely exercised valid rights under copyright law.

And finally, Microsoft argued that the government failed to prove that Microsoft unlawfully attempted to monopolize a market for web browsing software in violation of Section 2 of the Act. [See, Section IV.] First, Microsoft asserted that it did not act with specific intent to obtain such monopoly power.

Second, it asserted that the government failed to meet its burden of proving that there is a dangerous probability that Microsoft will achieve such monopoly power. Microsoft wrote that this dangerous probability of monopolization never existed and "is even less likely now given AOL’s recently-announced agreement to acquire Time Warner and thereby be able to deliver Netscape’s Web browsing software to Time Warner’s vast number of cable television subscribers."

	Bill Gates

Microsoft's filing of its proposed conclusions of law follows closely on the heals of several other major developments:

• January 10 -- announcement of the settlement of the antitrust suit brought by Caldera,
• January 13 -- announcement that Steve Balmer will take over as the CEO of Microsoft, while Gates will become Chief Software Architect, and
• January 18 -- announcement that Microsoft had record revenue of $6.11 Billion for the quarter ended December 31, 1999, up 18 percent over the $5.20 Billion for the same quarter last year.

The U.S. Department of Justice filed the Complaint which initiated this antitrust suit against Microsoft on May 18, 1998. Trial began on October 19, 1998, and continued intermittently through June 24, 1999. Judge Jackson issued his Findings of Fact on November 5, 1999. The Department of Justice filed its proposed conclusions of law on December 6, 1999. The parties still have the opportunity to file replies. The government has until January 25, and Microsoft has until February 2. Oral arguments on the proposed conclusions of law are scheduled for February 22.