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Microsoft Motion for Stay of Preliminary Injunction, as to Win98.
May 5,1998.
Source: Microsoft.


IN THE
United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

No. 97-5343

MICROSOFT CORPORATION,
Respondent-Appellant,

v.

UNITED STATES OF AMERICA,
Petitioner-Appellee.

MOTION OF RESPONDENT-APPELLANT MICROSOFT
CORPORATION FOR A STAY OF THE PRELIMINARY
INJUNCTION INSOFAR AS IT RELATES TO WINDOWS 98

1. Pursuant to Rule 8 of the Federal Rules of Appellate Procedure, respondent-appellant Microsoft Corporation ("Microsoft") hereby moves for a stay of the District Court's December 11, 1997 preliminary injunction to the extent it relates to Windows 98, a new operating system Microsoft plans to make available to computer manufacturers on May 15, 1998 and release to the general public on June 25, 1998.

BACKGROUND

2. On October 20, 1997, the Antitrust Division of the U.S. Department of Justice ("DOJ") filed a petition for an order to show cause why Microsoft should not be found in civil contempt of a consent decree entered on August 21, 1995. See United States v. Microsoft Corp., 1995-2 Trade Cas. (CCH)  71,096 (D.D.C. 1995). The DOJ argued that Microsoft's inclusion of certain Internet-related technologies (referred to under the rubric Internet Explorer) as an integral part of Windows 95 violated Section IV(E)(i) of the Consent Decree. Although the DOJ was aware of the forthcoming release of Windows 98, the DOJ's petition and supporting memorandum did not mention Windows 98 and did not allege any facts concerning the new operating system. Nor was Windows 98 mentioned by name or otherwise in any of the many declarations and memoranda subsequently submitted by the DOJ.

3. On December 11, 1997, the District Court denied the DOJ's request for a finding that Microsoft was in contempt of the Consent Decree. (J.A. 1289-90.) Even though the District Court denied the only relief requested by the DOJ—and expressly held that disputed issues of fact "abound as the record presently stands" (J.A. 1294)—the District Court proceeded to enter a sua sponte preliminary injunction prohibiting Microsoft from "licensing the use of any Microsoft personal computer operating system software (including Windows 95 or any successor version thereof) on the condition, express or implied, that the licensee also license and preinstall any Microsoft Internet browser software (including Internet Explorer 3.0, 4.0, or any successor versions thereof) pending further order of Court" (J.A. 1300 (emphasis added)).

4. By including in its order the phrase "any Microsoft personal operating system software"—as well as the phrase "any successor version" of Windows 95—the District Court prima facie included Windows 98 within the scope of its preliminary injunction. That was plainly improper given that the DOJ (i) had not sought any relief with respect to Windows 98 and (ii) did not submit any evidence or make any argument concerning Windows 98 or any other successor version of Windows 95. Given the complete absence of evidence in the record regarding Windows 98, the District Court had no basis for awarding any relief with regard to that new operating system, which is different from Windows 95 in material respects, particularly with regard to the central role played by Internet-related technologies.

5. Upon entry of the District Court's sua sponte preliminary injunction, Microsoft immediately filed a notice of appeal and moved for expedited consideration. This Court granted Microsoft's motion, and the appeal was argued on April 21, 1998. When counsel for the DOJ was asked at oral argument what basis there was for applying the preliminary injunction to Windows 98, he responded:

There may be no basis, Your Honor. Now we don't know what Windows 98 is going to look like precisely because we haven't seen the released version. But we have offered to join Microsoft in a motion to the District Court to clarify this matter. We're not here to tell you that Windows 98 is prohibited by the preliminary injunction.

(Tr. at 46-47.) In fact, the DOJ has the latest build of Windows 98. With the exception of any changes required to remedy serious bugs identified during final testing, that build is identical to the operating system as it will be commercially released. Nevertheless, both before and after the oral argument—despite repeated requests from Microsoft—the DOJ has refused to enter a definitive agreement immunizing Windows 98 under the preliminary injunction.

6. When Microsoft filed its notice of appeal, it was too early to predict with reasonable certainty when Microsoft would make Windows 98 available to computer manufacturers. Microsoft also did not know whether this Court would expedite the appeal and, if so, the extent to which the Court's consideration of the appeal would be expedited. Lastly, Microsoft wanted to give the DOJ sufficient time to conduct an investigation and formulate its position on whether the design of Windows 98 could raise an issue under the Consent Decree or the antitrust laws. (As noted in paragraph 14 below, the DOJ did not begin requesting information from Microsoft about Windows 98 until January 16, 1998—more than a month after the preliminary injunction was entered.)

7. Microsoft concluded that it would have been premature at that time to seek a stay of the preliminary injunction to the extent it relates to Windows 98 because the injury to Microsoft was not sufficiently immediate to constitute irreparable injury. Since noticing this appeal, however, Microsoft has completed the development and nearly completed the testing of Windows 98, and it now appears that Microsoft will be in a position to make Windows 98 available to computer manufacturers on May 15, 1998 and release the product to the public on June 25, 1998.

8. Windows 98 differs from Windows 95 in several significant respects. Of particular importance to the instant motion, the Internet-related technologies in Windows 98 are even more deeply integrated into the operating system than they were in Windows 95. For example, the Windows 98 user interface is generated by the same modules of software code that enable end users to browse for information on the Internet. Those modules of software code cannot be removed from Windows 98 without rendering the operating system inoperable. What is more, because Internet-related technologies pervade virtually every aspect of Windows 98, the many visible means of accessing the web browsing functionality provided by those technologies cannot be facilely "hidden" from end-users (for example, by deleting icons from the Windows desktop) as they could in Windows 95. As a result, the convenient fiction that deleting the Internet Explorer icons from the Windows desktop is equivalent to "removing" Internet Explorer technologies from the operating system is not available in the case of Windows 98.

9. In order to comply with the preliminary injunction insofar as it relates to Windows 98, Microsoft would have to create a whole new operating system that did not provide support for Internet standards. Given the centrality of Internet-related technologies to Windows 98—they underlie most of the major improvements in the operating system, including the new user interface—the product that Microsoft would be forced to produce would bear little, if any, resemblance to Windows 98. Further, requiring Microsoft to design, develop and test such a new operating system—an extremely time-consuming and expensive undertaking—would represent an unprecedented governmental intrusion into unilateral product design decisions.

10. With this appeal fully briefed and argued—and with Windows 98 scheduled to be made available to computer manufacturers on May 15, 1998—it is not practical for Microsoft to seek a stay in the first instance in the District Court. Indeed, this case is, for all practical purposes, in this Court, which has before it the full record of proceedings that have occurred below. Moreover, having granted the preliminary injunction, it is improbable that the District Court would reconsider its decision to make that order applicable to Windows 98. Microsoft therefore respectfully requests that this Court issue a stay of the December 11, 1997 preliminary injunction to the extent it relates to Windows 98 until the propriety of that order has been resolved. In light of the impending release of Windows 98, Microsoft respectfully requests that this Court set an expedited briefing schedule (if further briefing is deemed necessary) and issue its decision on this motion before May 15, 1998.

ARGUMENT

11. The factors to be considered in determining whether a stay is warranted are (i) the likelihood that the moving party will prevail on the merits, (ii) the likelihood that the moving party will be irreparably injured absent a stay, (iii) the prospect that other parties interested in the proceeding will be harmed if the court grants the stay, and (iv) the public interest in granting the stay. See Hilton v. Braunskill, 481 U.S. 770, 776 (1987); see also D.C. Cir. R. 8(a)(1). In ruling on a motion for a stay, a court must balance the strengths of the moving party's arguments on each of these four factors. See CityFed Fin. Corp. v. Office of Thrift Supervision, 58 F.3d 738, 747 (D.C. Cir. 1995) ("If the arguments for one factor are particularly strong, an injunction may issue even if the arguments in other areas are rather weak."). As a result, "[a] stay may be granted with either a high probability of success and some injury, or vice versa." Cuomo v. United States Nuclear Regulatory Comm'n, 772 F.2d 972, 974 (D.C. Cir. 1985) (per curiam). Taken together, the four factors strongly favor issuance of a stay in these circumstances.

I. Likelihood of Success on the Merits

12. Microsoft has already demonstrated a likelihood of success on the merits of its appeal. In its motion for expedited consideration and an expedited briefing schedule—as well as in its two briefs on the merits and at oral argument—Microsoft set out in detail the numerous procedural and substantive errors committed by the District Court in entering its sua sponte preliminary injunction. At oral argument, the DOJ effectively conceded that the preliminary injunction was indefensible because there had been no showing that anyone would suffer irreparable injury in the absence of the order entered (Tr. at 60-61), which the District Court itself identified as a prerequisite to granting preliminary injunctive relief (J.A. 1295).

13. Microsoft's challenge to the preliminary injunction is even stronger with respect to Windows 98, an operating system that is significantly different from Windows 95. The DOJ's original petition did not mention Windows 98, nor did the DOJ seek any relief with respect to Windows 98 in any of its briefs. More importantly, the DOJ submitted no evidence or argument concerning Windows 98 at any time before (or, for that matter, after) the District Court entered its sua sponte preliminary injunction. The DOJ's petition was not silent about Windows 98 because the DOJ was unaware that Microsoft planned to release such a new operating system. Windows 98 has been under development by Microsoft for several years, and that fact has been widely reported in the industry trade press and was undeniably known to the DOJ before it commenced this action.

14. The DOJ has acted in a manner consistent with the notion that Windows 98 is not covered by its petition or properly encompassed by the District Court's preliminary injunction. On January 16, 1998—more than a month after the District Court entered its order—the DOJ served Microsoft with its first Civil Investigative Demand ("CID") seeking information related to "the licensing, marketing and distribution of Windows 98, including possible tying of Windows 98 and Internet Explorer." (See CID No. 17516, dated January 12, 1998 (a copy of which is annexed hereto as Exhibit A).) The word "design" is notably missing from the DOJ's description of the scope of its investigation, although the design of Windows 98—principally the integration of Internet-related technologies into the operating system—has been the central focus of discovery conducted thus far by the DOJ. The mere fact that the DOJ is still seeking information about the design of Windows 98—it issued a second CID on that subject to Microsoft last Friday, May 1, 1998—undermines the notion that the DOJ knew enough about the new operating system to include it in the DOJ's October 27, 1997 petition.

15. Moreover, the DOJ made clear in the cover letter accompanying its first Windows 98 CID that the DOJ views the litigation before this Court as limited to Windows 95, expressly stating that the CID "does not relate to, and does not seek documents or information for, the current Consent Decree litigation regarding Microsoft's conditioning of Windows 95 licenses on OEMs licensing Internet Explorer." (A copy of that letter, dated January 16, 1998, is annexed hereto as Exhibit B.) It therefore would be disingenuous for the DOJ to contend at this late stage that it now regards Windows 98 to be properly part of this case. Finally, the DOJ is permitted to issue CIDs only at the pre-complaint stage of a civil investigation; CIDs may not be used as a discovery tool in an ongoing litigation such as this. See 15 U.S.C.  1311(a), 1312(a); Department of Justice, Antitrust Division Manual III-33 (2d ed. 1987), reprinted in 6A Department of Justice Manual 7-703 (1997) ("Use of CIDs is restricted to the pre-complaint stage of civil investigations."). That is further evidence that Windows 98 is outside the scope of this litigation.

II. Irreparable Injury

16. Microsoft will be irreparably injured in the absence of the requested stay. To the extent it relates to Windows 98, the preliminary injunction on its face requires Microsoft to make available to computer manufacturers a version of the operating system from which all "Microsoft Internet browser software" has been removed. (J.A. 1300.) As an initial matter, it is not clear what that means. The DOJ has never identified what "Internet browser software" Microsoft is supposed to remove from Windows 95 (see J.A. 1462-73.), much less from Windows 98. In any case, a version of Windows 98 devoid of "Internet browser software" is not currently under development, and if Microsoft were to create such a non-existent product, it would necessarily lack much of the increased functionality provided by Windows 98. Internet-related technologies pervade virtually every aspect of Windows 98, and removing those technologies would require the design, development and testing of an entirely new operating system, one that did not provide support for Internet standards. Because every other modern operating system does provide support for such Internet standards, the end result of this substantial engineering effort would be a hobbled operating system with little or no commercial value.

17. Quite apart from issues of delay, expense and futility, Microsoft should not be required to offer to the public a product that Microsoft did not design of its own volition or to have such a plainly inferior product associated with its valuable "Windows" trademark. This is especially true where, as here, the DOJ adduced absolutely no evidence that Microsoft's development and marketing of Windows 98 violates the Consent Decree.

III. Harm to Other Parties

18. No other party to this proceeding will sustain injury as a result of the issuance of a stay, much less injury that would outweigh the irreparable injury that Microsoft will sustain in the absence of a stay. Having failed to seek any relief against Windows 98, or present any evidence or argument to the District Court concerning Windows 98, the DOJ cannot belatedly claim that it (or whoever's interest it is purporting to represent) will be seriously injured if the preliminary injunction is stayed with respect to Windows 98.

IV. The Public Interest

19. The public interest weighs strongly in favor of granting a stay. Windows 98, including its Internet Explorer technologies, represents a dramatic improvement over products currently available in the marketplace, and consumers will plainly benefit from the increased functionality and ease of use it provides. Moreover, numerous businesses in the high-technology and other industries are counting on the timely release of Windows 98. Software developers are planning to release updated versions of their products that take advantage of new features of Windows 98. Similarly, computer manufacturers are expecting the release of Windows 98 to stimulate consumer demand for their products, including a variety of new peripheral hardware devices that are supported by the operating system. Computer manufacturers also anticipate that the increased reliability of Windows 98 will significantly decrease their product support costs. Such businesses, together with the computer-using public, will be seriously injured if the DOJ does anything to hinder the commercial release of Windows 98.

20. In sum, the public has a strong interest in the prompt delivery of innovative technology to the marketplace, in aid of science, industry and the broad dissemination of information. That interest would be served by staying the preliminary injunction insofar as it relates to Windows 98.

CONCLUSION

21. For the foregoing reasons, Microsoft respectfully requests that this Court stay the preliminary injunction insofar as it relates to Windows 98 until the propriety of that preliminary injunction has been resolved. In view of the impending release of Windows 98, Microsoft also respectfully requests that this Court issue its decision on this motion before May 15, 1998.

Dated: New York, New York
May 5, 1998

Respectfully submitted,

 

______________________________
John L. Warden
Richard J. Urowsky
Steven L. Holley
Richard C. Pepperman, II
Stephanie G. Wheeler
SULLIVAN & CROMWELL
125 Broad Street
New York, New York 10004
(212) 558-4000

James R. Weiss
PRESTON GATES ELLIS &
ROUVELAS MEEDS
1735 New York Avenue, N.W.
Washington, D.C. 20006
(202) 628-1700

William H. Neukom
Thomas W. Burt
David A. Heiner, Jr.
Steven J. Aeschbacher
MICROSOFT CORPORATION
One Microsoft Way
Redmond, Washington 98052
(425) 936-8080

Counsel for Respondent-Appellant
Microsoft Corporation

 

VERIFICATION

I, William H. Neukom, Senior Vice President, Law and Corporate Affairs of Microsoft Corporation, state that I have read the foregoing Motion of Respondent-Appellant Microsoft Corporation for a Stay of the Preliminary Injunction Insofar as It Relates to Windows 98, that I know the contents thereof, and that the statements contained in the motion are true of my own knowledge.

I declare under penalty of perjury under 28 U.S.C.  1746 that the foregoing is true and correct.

Executed at Bothell, Washington this 4th day of May, 1998.

 

__________________________
William H. Neukom

 

CERTIFICATE OF SERVICE

I hereby certify that on this 5th day of May, 1998, I caused a true and correct copy of the foregoing Motion of Respondent-Appellant Microsoft Corporation for a Stay of the Preliminary Injunction Insofar as It Relates to Windows 98 to be served by hand upon:


A. Douglas Melamed, Esq.
Principal Deputy Assistant Attorney General
Antitrust Division
U.S. Department of Justice
10th Street & Constitution Avenue, N.W.
Washington, D.C. 20530

Catherine G. O'Sullivan, Esq.
Chief, Appellate Section
Antitrust Division
U.S. Department of Justice
601 D Street, N.W.
Washington, D.C. 20530

 

_________________________
Christopher J. Meyers


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