TABLE OF CONTENTS
Table of Authorities
TABLE OF AUTHORITIES
Abcor Corp. v. AM Intl, Inc., 916 F.2d 924 (4th Cir. 1990)
Advo, Inc. v. Philadelphia Newspapers, Inc. 51 F.3d 1191 (3d Cir. 1995)
Ball Meml Hosp. v. Mutual Hosp. Ins., Inc., 784 F.2d 1325 (7th Cir. 1986)
Electronics Communications Corp. v. Toshiba America
Consumer Products, Inc., 129 F.3d 240 (2d Cir. 1997)
Essex Intl, Inc. v. Industra Prods., Inc., 64 F.R.D. 361 (N.D. Ind. 1974)
Juneau Square Corp. v. First Wisconsin Nat. Bank,624 F.2d 798 (7th Cir. 1980)
Levine v. McLeskey, 881 F. Supp. 1030 (E.D. Va. 1995)
Sage Realty Corp. v. ISS Cleaning Servs. Group, Inc., 936 F. Supp. 130 (S.D.N.Y. 1996)
Spectrum Sports, Inc. v. McQuillan, 506 U.S. 447 (1993)
Springfield Terminal Ry. v. Canadian Pac. Ltd., 133 F.3d 103 (1st Cir. 1997)
Tom Doherty Assocs., Inc. v. Saban Entertainment, Inc., 60 F.3d 27 (2d Cir. 1995)
United States v. Microsoft, 56 F.3d 1448 (D.C. Cir. 1995)
United States v. Microsoft, 159 F.R.D. 318 (D.D.C. 1995),
revd, 56 F.3d 1448 (D.C. Cir. 1995)
United States v. Syufy Enters., 903 F.2d 659 (9th Cir. 1990)
MICROSOFTS SUPPLEMENTAL MEMORANDUM
During a telephone conference with counsel to the parties concerning the schedule for depositions and the submission of Microsofts papers in opposition to Bristols preliminary injunction motion, chambers advised that Microsoft should submit its opposition papers on September 25, 1998, but that Microsoft could thereafter submit a supplemental memorandum addressing information obtained after the September 25 due date, including from later depositions of certain Bristol employees and Bristols designated testifying expert. Accordingly, Microsoft submits this supplemental memorandum (although depositions are still continuing).
1. Microsofts Alleged Monopoly in PC Operating Systems.
In its October 2, 1998 reply brief in support of its preliminary injunction motion, Bristol states that the "most critical statement" -- which it describes as "of overriding importance" -- in Microsofts opposition papers "is the footnote where Microsoft concedes that it has monopoly power in the market for PC Operating Systems. (Opp. at 26 n.15)." (Bristol Reply at 1.) This is utterly false. The cited Microsoft footnote says no such thing.
Footnote 15 of Microsofts opposition brief states in full:
(Microsoft Opp. Brief at 26 n.15 (emphasis supplied).) This statement is the opposite of the concession that Bristol imagines.1
Bristols assertion that Microsofts alleged monopoly power in PC operating systems "was not lawfully acquired" (Bristol Reply at 1 n.1) is even more of a stretch. Bristols own economist testified last week that he offers no opinion in this case that Microsofts alleged monopoly in PC operating systems was unlawfully acquired. (Langlois Dep. (De Leeuw Aff., Ex. 1) at 51-52.) Bristol argues instead that "the Court can find a reasonable probability that Bristol will be able to prove unlawful acquisition by relying on the summary of the Governments charges set out in United States v. Microsoft, 159 F.R.D. 318, 323 (D.D.C. 1995), revd 56 F.3d 1448 (D.C. Cir. 1995)." (Bristol Reply at 1-2 n.1.)
This is almost as astounding as Bristols first assertion. Bristol can hardly "prove" something by relying on a summary of unproven "charges" in another case. In addition, Bristol is dead wrong: the government has never alleged, in the cited case or elsewhere, that Microsoft unlawfully acquired a monopoly in PC operating systems. As the D.C. Circuit was careful to point out in reversing the decision cited by Bristol: "The government did not allege and does not contend -- and this is of crucial significance to this case -- that Microsoft obtained its alleged monopoly position in violation of the antitrust laws." United States v. Microsoft, 56 F.3d 1448, 1452 (D.C. Cir. 1995) (original emphasis). Similarly, the government does not allege unlawful acquisition of monopoly power in its pending action against Microsoft, and Bristol does not contend that it does.
2. The Testimony of Bristols Economist Forecloses Bristols Monopolization and Attempted Monopolization Claims.
Bristol alleges in its Complaint that "Microsoft has monopoly power in the technical workstation operating systems market and departmental server operating systems market," and that Microsoft acquired monopoly power in these two purported markets "by 1997, if not before." (August 18, 1998 Complaint at ¶¶ 24, 57.) Upon these allegations, Bristol asserts six claims of Section 2 "monopolization" by Microsoft of the workstation and server operating systems "markets" (the Second through Fourth and Eighth through Tenth Claims asserted in the Complaint). Contrary to the allegations and claims in Bristols Complaint, however, Bristols expert, Prof. Langlois, testified unequivocally at deposition last week that, in his opinion, Microsoft does not have monopoly power in either of the "markets" for workstation operating systems or for server operating systems. (Langlois Dep. (De Leeuw Aff., Ex. 1) at 81-83.) This
concession -- a true concession, coming from Bristols designated testifying expert-- makes it clear that Bristol has no basis for its various claims of monopolization of these two "markets."
Prof. Langlois testimony is equally fatal to Bristols four alternative claims of attempted monopolization of the workstation and server operating system "markets" (the Fifth, Sixth, Eleventh and Twelfth claims asserted in the Complaint). Those claims require Bristol to prove, among other things, that there is a "dangerous probability" that Microsoft will achieve monopoly power in the workstation and/or server operating systems "markets." (See Microsoft Opp. Brief at 38-39 and cases cited therein.) A speculative "possibility" of gaining monopoly power is not sufficient to support an attempted monopolization claim.2
At deposition, Prof. Langlois offered nothing more than uncertain speculation about whether Microsoft will ever obtain a monopoly in the "markets" for workstation or server operating systems, and he made it clear that he does not believe that any such monopoly in either "market" is even remotely approaching, let alone dangerously probable. When asked how long he believed it might take Microsoft to achieve monopoly power in those two "markets," Prof. Langlois testified:
* * * *
(Langlois Dep. (De Leeuw Aff., Ex. 1) at 83-84.)
Prof. Langlois was then asked when he would be able to determine whether or not the supposed "tipping" necessary to give Microsoft monopoly power in those two "markets" will occur, and he testified: "I dont think we will know anything for certain unless -- until enough time has elapsed that we can look at this with the eyes of history. . . . I suspect by certainly the middle of the next decade we should pretty much know the answer. Maybe sooner." (Langlois Dep. (De Leeuw Aff., Ex. 1) at 148-49.) Uncertain speculation such as this -- that Windows NT may someday, several years from now, approach 60% market share in the workstation and/or server operating systems markets, and at that point, if it ever comes, one could "debate" whether Microsoft will thereby gain monopoly power-- does not come close to supporting an attempted monopolization claim in the Second Circuit. (See Microsoft Opp. Brief at 38-39 and cases cited therein.)
3. No Injury to Competition Between Windows NT and UNIX Will Result If Wind/U Is Unavailable.
Bristol admits that it is required to prove injury to competition, not mere harm to itself, in order to invoke the antitrust laws. (Bristol Reply at 30-31.) Bristol also admits that there are many alternatives available to software developers for having their programs run on both Windows NT and UNIX or on UNIX alone. Indeed, Bristol concedes that its product "accounts for only a small fraction of the programs available on UNIX." (Bristol Reply at 31.)
Similarly, Microsofts economist, Prof. Schmalensee, provided much more precise data on this point. As described in his declaration, sales of UNIX software developed with Wind/U are much less than 0.1% of the overall market for software that runs on UNIX, which had sales of $28 billion in 1997. (Schmalensee Decl. ¶ 12.) Bristol does not dispute these figures.
Bristol never explains how UNIXs ability to compete with Windows NT can possibly be affected if Bristols Wind/U product ceases to exist, given that (i) out of all the software applications that are available on UNIX, only a minuscule fraction are attributable to Wind/U, and (ii) even if Wind/U were responsible for a larger percentage of the applications available on UNIX, there are still numerous alternatives for accomplishing the same result that Wind/U accomplishes. The most Bristol is able to say is that there can be damage to competition "if a monopolist may exclude a whole class of competitors," or if a monopolist eliminates "small businessmen, one at a time." (Bristol Reply at 31.) But Bristol makes no allegation in this case
-- and there would be no evidence to support any such allegation -- that Microsoft is excluding a "whole class" of businesses that make applications available on UNIX, or that Microsoft is trying to eliminate a number of small businesses one by one, let alone even Bristol.
It is Bristols burden to prove that, in the absence of Wind/U, there will be tangible injury to competition between Windows NT and UNIX in the "markets" for workstation and server operating systems. See Electronics Communications Corp. v. Toshiba America
Consumer Products, Inc., 129 F.3d 240, 242 (2d Cir. 1997); Sage Realty Corp. v. ISS Cleaning Servs. Group, Inc., 936 F. Supp. 130, 135 (S.D.N.Y. 1996). In order to carry that burden, Bristol cannot simply say it is so; it must come forward with evidence demonstrating that harm to competition will result and the extent of that harm. Bristol has presented no evidence, and will be unable to present any such evidence at the hearing, that sellers of UNIX operating systems will be adversely affected in competing against Windows NT even if Bristol goes out of business tomorrow.
4. Bristols Ever-Changing, Strained Theories that It Is a Microsoft Competitor Are Insufficient.
In its opening brief on the preliminary injunction motion (at 44-45), Bristol admitted that it "does not make and sell an operating system," but nonetheless claimed to be a Microsoft competitor in the workstation and server operating systems "markets" because Wind/U "enhances UNIX and makes it more competitive" with Windows NT. Similarly, Prof. Langlois opined in his declaration (at ¶ 10) that Bristol "competes with Microsoft" in those "markets" by "allow[ing] users of UNIX greater access to applications software, thus helping to maintain UNIX as a viable competitor." However, Bristols and Prof. Langlois "competitor" theory has changed now that Prof. Schmalensee has shown that, under the initial theory, all companies that write software applications to run on UNIX (and many other businesses as well) also enhance UNIXs attractiveness and viability, and when all those are included in the operating systems "markets," Microsofts market share would be very small. (Schmalensee Decl. ¶¶ 14-17.)
Bristols new theory is that it is a Microsoft competitor because the Wind/U runtime libraries are a "supplement" to UNIX operating systems and, once installed, they become "a part of the operating system." (Bristol Reply at 29.) Prof. Langlois "competitor" theory has evolved as well. Although he agreed at deposition that Wind/U cannot function without a separate operating system produced by a company other than Bristol (Langlois Dep. (De Leeuw Aff., Ex. 1) at 104), he contended that Wind/U nevertheless "is in some sense an operating system" (id. at 103). He testified that Wind/U "is a kind of operating system-like product" in that it "sits on top of other things but it [delivers] functionality." (Id. at 116.)
There is no need to debate here these ever-changing "competitor" theories. Even if Bristol could be viewed as a Microsoft competitor in some sense (and there is no logical way of so viewing it), neither Bristol nor its economist have been able to articulate a consistent or coherent basis for making such a finding. Yet unless Bristol is found to be a Microsoft competitor, Bristol has no standing to assert any of its antitrust claims. (See Microsoft Opp. at 23-25 and cases cited therein.) The point here is that, in the context of this motion for a preliminary injunction compelling Microsoft to turn over its confidential, proprietary source code to Bristol -- where Bristol bears the burden of making a "clear showing of likelihood of success" on the merits, Tom Doherty Assocs., Inc. v. Saban Entertainment, Inc., 60 F.3d 27, 35 (2d Cir. 1995) (emphasis supplied) -- Bristols "competitor" theories are far too strained and dubious to satisfy this burden.
5.The Various Isolated Statements of Microsoft Personnel Cited by Bristol Are Not Probative of Anticompetitive Conduct or Intent.
Most of Bristols reply brief is devoted to quoting selectively, without providing context, from internal Microsoft documents that contain language that Bristol finds colorful. The majority of the statements were written by individuals who Bristol has chosen not to depose and is not calling as witnesses at the hearing. It appears that Bristol intends simply to dump these documents into the record at the hearing without any witnesses to sponsor them, and then argue about what the authors must have meant. Of course, such argument is not of evidentiary quality. In any event, however, the most these statements show is the unremarkable fact that Microsoft is competing vigorously and trying to beat the competition, which is exactly what the antitrust laws are designed to promote. See United States v. Syufy Enters., 903 F.2d 659, 669 (9th Cir. 1990) ("Fostering an environment where businesses fight it out using the weapon of efficiency and consumer goodwill is what the antitrust laws are meant to champion.")
The same sort of "aggressive-sounding language" in internal documents has routinely been found insufficient to establish anticompetitive conduct or intent. See, e.g., Advo, Inc. v. Philadelphia Newspapers, Inc. 51 F.3d 1191, 1199 (3d Cir. 1995) (the "antitrust laws do not condemn, without more, such colorful, vigorous hyperbole," referring to fact that defendants CEO "quoted McDonalds founder Ray Kroc for the advice that [w]hen [you] see the competition drowning, . . . stick a water hose down their throats" (alterations in original)); Abcor Corp. v. AM Intl, Inc., 916 F.2d 924, 927 (4th Cir. 1990) ("A desire to increase market share or even to drive a competitor out of business through vigorous competition on the merits is not sufficient."); Ball Meml Hosp. v. Mutual Hosp. Ins., Inc., 784 F.2d 1325, 1338 (7th Cir. 1986) ("Vigorous competitors intend to harm rivals, to do all the business if they can. To penalize this intent is to penalize competition.").
frequently use similar language
Bristols motion for a preliminary injunction should be denied.
SULLIVAN & CROMWELL
DAY BERRY & HOWARD LLP
October 8, 1998
[Certificate of Service omitted]