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Editor's Notes: The caption, Certificate of Service, page numbering, and footnotes have been omitted. The Table of Contents has been added. Otherwise, this document has been edited for HTML, but not for content. The actual brief was filed under seal; this is the "public version" from which matters pertaining to trade secrets have been redacted. [caption omitted] DEFENDANT MICROSOFT CORPORATION’S REPLY IN Although plaintiffs deride Microsoft’s summary judgment motion as "frivolous" (Pls. Joint Resp. at 10), they devote more than 100 pages (including the States’ separate brief) attempting to respond to it. Despite the length of their papers, plaintiffs never really address, let alone genuinely dispute, the three basic facts that fatally undermine their claims in this case: (i) the software code in Windows 98 that provides web browsing functionality cannot be removed without seriously degrading the operating system, (ii) the inclusion of Internet Explorer technologies in Windows 98 produces clear technological benefits for consumers and software developers that could not otherwise be achieved, and (iii) Microsoft has not foreclosed Netscape or any other competitor from distributing web browsing software broadly to consumers. These three basic facts enable the Court to dispose of the case without ever reaching the question of whether Microsoft has "monopoly power," i.e., the power to control prices or exclude competition, in a properly defined geographic and product market. Rather than deal in any meaningful way with these central facts, plaintiffs accuse Microsoft of seeking to "obscure" the relevant issues "by ‘tightly compartmentalizing’" the facts on which it relies. (Id. at 23.) Plaintiffs, however, bear the burden of proof on each and every element of their purported claims. If they cannot prove any one essential element of a claim, then that claim must be dismissed, regardless of "the context of all of Microsoft’s other restrictions and pertinent market factors" (id. at 22) and regardless of whether the other elements of the claim involve disputed issues of fact. Contrary to their suggestion, therefore, plaintiffs cannot survive summary judgment by establishing "a single material factual dispute, without more." (Id. at 10.) Plaintiffs must establish a genuine issue of material fact as to each element of their claims. That they cannot do. In a further effort to obscure the fatal shortcomings of their claims, plaintiffs argue that this case is not limited to the specific allegations of their complaints, but rather involves a "broad series of anticompetitive acts" that range far beyond the acts to which their complaints advert. (Pls. Joint Resp. at 2.) Plaintiffs thus devote the first part of their brief not to responding to Microsoft’s summary judgment motion, but to leveling a variety of new accusations (found nowhere in their complaints) and to a baseless personal attack on the credibility of Microsoft’s CEO. Indeed, the first part of plaintiffs’ brief reads more like an opening argument to a jury than a memorandum of law in opposition to a motion for summary judgment. Whether or not the new matters raised by plaintiffs are disputed, they are not relevant, let alone material, to plaintiffs’ claims. For example, plaintiffs refer to Microsoft’s routine interaction with companies such as Intel, Apple Computer and Real Networks as purported evidence of "a pattern of anticompetitive conduct" (see id. at 2, 7-8, 18-20), even though none of those companies or Microsoft’s alleged discussions with them are even mentioned in plaintiffs’ lengthy complaints and preliminary injunction papers. In fact, plaintiffs acknowledge that Microsoft’s alleged discussions with those other companies had nothing to do with web browsing software-the focus of their complaints. They instead involve "other products" and "other markets." (See id. at 7-8.) Plaintiffs also spend several pages discussing allegations that Microsoft "entered into a series of anticompetitive agreements with customers and competitors to restrict the use of Java" and that Microsoft included software code "designed to disrupt the use of DR-DOS," a competitor of Microsoft’s MS-DOS operating system in the late 1980s and early 1990s, in a beta test version of Windows 3.1 released in December 1991. (Id. at 3-5, 7, 8.) Those allegations, which are utterly baseless, are the subject of entirely different lawsuits pending in other courts. See Sun Microsystems, Inc. v. Microsoft Corporation, No. C-97-20884-RMW (N.D. Cal.); Caldera, Inc. v. Microsoft Corporation, No. 2:96 CV 0645B (D. Utah). Plaintiffs may wish that they had brought a different lawsuit against Microsoft, but all that is at issue here are the claims alleged in their complaints. As part of their last-minute effort to refashion their case, plaintiffs also attempt to de-emphasize what was previously the focus of their claims. When plaintiffs filed their complaints in May 1998, their central contention was that Microsoft had improperly "tied" Internet Explorer to Windows 95 and Windows 98. (See DOJ Compl. ¶¶ 18-23, 103-23, 134-37; States First Am. Compl. ¶¶ 47-50, 54-69, 93-95; DOJ Prelim. Inj. Mem. at 2-3, 7-11, 22-27, 42-44, 47-58; States Prelim. Inj. Mem. at 2, 14-19, 21-27, 36-37, 39.) In opposing Microsoft’s summary judgment motion, however, plaintiffs attempt to downplay the significance of their tying claims, portraying them as just one of many purportedly "anticompetitive acts" at issue in the case and relegating them to the end of their list of alleged "anticompetitive acts." (See, e.g., Pls. Joint Resp. at 6.) Although plaintiffs summarily dismiss the Court of Appeals’ decision in the Consent Decree case as "tentative," "immaterial," "dicta" and even contrary to "Jefferson Parish and its progeny" (see id. at 68-69), that decision has clearly prompted plaintiffs to shift dramatically the focus of their case-because it is so plainly on point and so plainly devastating to their tying claims. In sum, plaintiffs have done exactly what all plaintiffs do when confronted with a meritorious summary judgment motion. They attempt to distract the Court from the fatal defects in their claims by slinging as much mud as they can at the defendant and by giving prominence to numerous irrelevant facts in a desperate attempt to cloud the issues. Plaintiffs apparently hope that a combination of overblown rhetoric and the sheer volume of paper they have submitted in opposition to Microsoft’s motion will lead the Court to throw up its hands in frustration, conclude there must be disputed issues of fact and deny Microsoft’s motion without seriously considering the sufficiency of plaintiffs’ claims. Rule 56, however, requires more, especially in complex antitrust cases such as this. As other courts have recognized, "summary judgment is an important procedural device in antitrust cases, because it enables courts to efficiently resolve potentially costly and time-consuming litigation." Clorox Co. v. Sterling Winthrop, Inc., 117 F.3d 50, 55 (2d Cir. 1997). There is no need for a costly and time-consuming trial in this case because plaintiffs cannot satisfy essential elements of their claims. This Court therefore should enter summary judgment dismissing plaintiffs’ complaints in their entirety.
Plaintiffs allege that the "coercive bundling of Internet Explorer with Windows is per se illegal" under Section 1 of the Sherman Act (Pls. Joint Resp. at 48) and "constitutes both unlawful monopolization of the PC operating system market . . . and an unlawful attempt to monopolize the market for Internet browsers" under Section 2 of the Sherman Act (id. at 72). Plaintiffs’ tying claims under both Section 1 and Section 2 of the Sherman Act fail for three separate reasons. First, plaintiffs cannot prove that Windows 98 and the Internet Explorer technologies incorporated in that operating system are "separate" products. Second, wholly apart from the question of whether two separate products are involved, plaintiffs cannot prove that the inclusion of Internet Explorer technologies in Windows 98 fails to achieve any technologically beneficial result. And third, plaintiffs cannot prove that any OEM has been forced to purchase a separate tied product because Internet Explorer technologies are encompassed by the single royalty that OEMs pay for Windows 98.
Rather than attempt to rebut Microsoft’s showing that Internet Explorer technologies cannot be removed from Windows 98 without severely degrading the operating system, plaintiffs simply assert that "[t]his argument . . . rests on a semantic sleight of hand." (Id. at 59.) Contrary to plaintiffs’ assertion, Microsoft’s showing that Windows 98 and its Internet Explorer technologies are seamlessly integrated and cannot be separated without breaking the operating system is neither an "argument" nor "a semantic sleight of hand." It is an undisputed fact. Indeed, Netscape itself has already conceded that it is impossible to remove Internet Explorer technologies from Windows 98 without causing serious damage to the operating system. In a March 6, 1998 letter to Assistant Attorney General Klein, Netscape’s counsel flatly stated:
(Barksdale Ex. 17 at ATR-10980 (emphasis added).) Although Microsoft quoted this letter twice in its opening memorandum (see Microsoft Summ. J. Mem. at 5, 42), plaintiffs do not even acknowledge it in their response. They instead take the astounding position that such "technical" matters are irrelevant to their tying claims. (Pls. Joint Resp. at 58.) To the contrary, such "technical" matters are highly relevant, in fact, dispositive-they prove that Windows 98 constitutes a single, integrated product. Plaintiffs also criticize Microsoft for equating "‘Internet Explorer technologies’ with every bit of software code used to browse the Internet using Internet Explorer." (Id. at 59.) Indeed, they claim that the Court "rejected" this "gambit" last winter. (Id.) But how else can a software program be identified except by reference to the software code and files that make up the program? For their part, plaintiffs continue to refuse, as they did in responding to Microsoft’s interrogatories, to identify the particular software code or files in Windows 98 that they claim constitutes a separate product called Internet Explorer. It is remarkable that, after years of investigation and months of discovery, antitrust plaintiffs asserting a tying claim cannot identify the allegedly tied product, an essential element of such a claim. The reason plaintiffs cannot do so, however, is simple: There is no separate product called Internet Explorer; instead, Windows 98 is a single, integrated product. That integration also forces plaintiffs to be similarly vague in discussing the remedy they seek. Plaintiffs suggest that Microsoft should be required to "remove or permit OEMs to remove the specific Internet Explorer Web browsing functionality from its bundled Windows products." (Id. at 60.) According to plaintiffs, "such unbundled alternatives do not necessarily entail the unbundling of each and every file or library distributed with Internet Explorer." (Id. at 58 n.28.) Rather, plaintiffs appear to concede that any remedy "should generally leave shared program files behind," even though plaintiffs never identify the "shared program files" to which they refer. (Id.) To begin with, as plaintiffs well know, Windows 98 would not function at all if "each and every file" constituting Internet Explorer technologies were removed from the operating system. In addition, plaintiffs’ suggestion that OEMs should be given the option of removing all Internet Explorer technologies except "shared" files (id. at 58 n.28, 29) is highly misleading because it implies that there is something apart from those so-called "shared" files that constitutes Internet Explorer. The fact is that Internet Explorer technologies consist almost entirely of what plaintiffs refer to as "shared" files. The same code in Windows 98 that provides web browsing functionality also provides essential support for other key features of the operating system. As the Court of Appeals found, apart from those few "shared" files, "there is nothing more to IE than the four lines of programming required to summon browsing functionality from code that also supplies operating system functionality." United States v. Microsoft Corp., 147 F.3d 935, 952 n.17 (D.C. Cir. 1998). The few lines of code that provide a means of accessing the web browsing functionality provided by Windows are not and cannot be a separate product. As the Court of Appeals put it, that code is "more like a key to opening IE than anything that could plausibly be considered IE itself." Id. Finally, plaintiffs argue that "Microsoft attempts to obscure marketplace reality by invoking various misleading labels for Internet Explorer, such as an ‘upgrade’ to the operating system." (Pls. Joint Resp. at 59 n.31.) Yet Netscape itself readily admits that Internet Explorer "is really an OS [operating system] upgrade":
(Netscape web page attached as Exhibit D to Declaration of Brad Chase, executed November 7, 1997, at 6 (emphasis added).) Similarly, the Court of Appeals noted that "Microsoft plausibly characterizes the IE that it provides to end users as an operating system upgrade," whereas the DOJ "offers no means of distinguishing an upgrade from a separate product." 147 F.3d at 947. Indeed, it is plaintiffs that seek to "obscure marketplace realities" with their rigid academic focus on the economic "efficiency of providing an unbundled alternative" without regard to the "technical" question of whether that alternative is feasible given the design of Windows 98. (Pls. Joint Resp. at 59 & n.31; see also id. at 52 ("Jefferson Parish makes clear that the test is based on economics, not technology.").) In short, "where a court is dealing with what is physically and in fact a single product," the antitrust laws do "not contemplate judicial dissection of that product into parts and the reconstitution of these parts into a tying agreement." Telex Corp. v. IBM, 367 F. Supp. 258, 347 (N.D. Okla. 1973), rev’d on other grounds, 510 F.2d 894 (10th Cir.), cert. dismissed, 423 U.S. 802 (1975). Because Windows 98 is physically and in fact a single product-and plaintiffs do not seriously contend otherwise-their tying claims fail as a matter of law.
As purported support for their claim that Windows 98 and its Internet Explorer technologies are separate products for antitrust law purposes (despite the fact that they are physically a single product), plaintiffs rely on a series of inapposite cases involving packages of separate goods and services, not physically integrated products. Based on those cases, plaintiffs attempt to argue that if there is separate consumer demand for two functions, then the components of a single product that satisfy that demand for those functions are separate products for tying law purposes, even if the components are physically part of the same product. (See Pls. Joint Resp. at 51-52, 57-60, 69.) In other words, plaintiffs’ extreme position would lead to the conclusion that a clock radio constitutes two separate products for tying law purposes because there is separate demand for both clocks and radios. Although plaintiffs assert that "there are numerous genuinely disputed material facts" (id. at 70), their tying claims depend entirely on whether their novel interpretation of tying law is correct. Needless to say, the Court can resolve that legal question on summary judgment without the necessity of a trial. Plaintiffs base their peculiar interpretation of the "separate products" element of a tying claim on a misreading of the Supreme Court’s decisions in Jefferson Parish Hospital District No. 2 v. Hyde, 466 U.S. 2 (1984), and Eastman Kodak Co. v. Image Technical Services, Inc., 504 U.S. 451 (1992), which they claim are "the controlling decisions on the separate product issue." (Pls. Joint Resp. at 51.) Although plaintiffs assert that Microsoft has failed to "com[e] to grips in any serious way with Jefferson Parish and Eastman Kodak" (id.), Microsoft expressly distinguished those decisions in its opening memorandum (see Microsoft Summ. J. Mem. at 31-32). As Microsoft previously explained, Jefferson Parish dealt not with a physically integrated product like a clock radio or Windows 98, but with "a functionally integrated package of services"-specifically, anesthesiological services and hospital services. 466 U.S. at 19. The Court held that the answer to the question of whether that "package of services" constituted one or two products turns on "the character of the demand for the two items." Id. As Justice O’Connor pointed out in her concurring opinion, however, a different rule applies to physically integrated products:
Id. at 39 (O’Connor, J., concurring). Justice O’Connor noted that "lower courts largely have adopted this approach," id. at 40-41, citing with approval Response of Carolina, Inc. v. Leasco Response, Inc., 537 F.2d 1307 (5th Cir. 1976), and ILC Peripherals Leasing Corp. v. IBM, 448 F. Supp. 228 (N.D. Cal. 1978), aff’d per curiam sub nom. Memorex Corp. v. IBM, 636 F.2d 1188 (9th Cir. 1980), cert. denied, 452 U.S. 972 (1981). Those are two of the cases that Microsoft relied on in moving for summary judgment (see Microsoft Summ. J. Mem. at 24, 25, 30), and that plaintiffs suggest are no longer good law in view of Jefferson Parish (see Pls. Joint Resp. at 64-65). The majority in Jefferson Parish did not disagree with Justice O’Connor that a different rule applies to physically integrated products, a point that is obvious as a matter of common sense. Although plaintiffs cite Eastman Kodak as an example of the Supreme Court’s reliance on Jefferson Parish in a "‘high-technology’ service industry" (id. at 61), that case is readily distinguishable as well. Like Jefferson Parish, Eastman Kodak did not involve a physically integrated product. The plaintiffs (several independent service organizations) claimed that Kodak had unlawfully tied the sale of service for Kodak photocopiers to the sale of spare parts for those photocopiers-hardly an analogous "high-technology" situation. 504 U.S. at 459. "For service and parts to be considered two distinct products," the Court noted, "there must be sufficient consumer demand so that it is efficient for a firm to provide service separately from parts." Id. at 462. In reversing the December 11, 1997 preliminary injunction, the Court of Appeals expressly distinguished the issue in Eastman Kodak (whether service and parts are separate products) from the issue sub judice (whether a single physically integrated product nevertheless can be viewed as separate products). As the Court of Appeals observed,
147 F.3d at 950. The other cases on which plaintiffs rely as purported examples of the application of Jefferson Parish’s "demand-based analysis" to "evaluate separate product claims in ‘technological’ tie-ins" (Pls. Joint Resp. at 61) are similarly inapposite because they involve alleged ties of services to goods, not physically integrated products. See Data Gen. Corp. v. Grumman Sys. Support Corp., 36 F.3d 1147, 1179 (1st Cir. 1994) (plaintiff contended that "ADEX software is a product separate from support services"); Allen-Myland, Inc. v. IBM, 33 F.3d 194, 199 (3d Cir.) (plaintiff contended that "IBM had tied its upgrade installation services to the parts needed to perform the upgrades"), cert. denied, 513 U.S. 1066 (1994); Service & Training, Inc. v. Data Gen. Corp., 963 F.2d 680, 684 (4th Cir. 1992) (plaintiff contended that MV/ADEX software and defendant’s "repair services are separate products"). As explained below, applying a rule developed in the context of cases involving alleged ties of goods and services to physically integrated products such as Windows 98 would chill product innovation and lead to absurd results. In addition, plaintiffs erroneously argue that Digidyne Corp. v. Data General Corp., 734 F.2d 1336 (9th Cir. 1984), supports their extreme interpretation of the "separate products" requirement. (See Pls. Joint Resp. at 61.) In Digidyne, the plaintiff contended that Data General’s refusal to "license its RDOS [operating system software] to anyone who does not also purchase its NOVA CPU [hardware]" constitutes an unlawful tying arrangement. 734 F.2d 1338. In affirming the district court’s conclusion that Data General’s NOVA hardware and RDOS operating system software were separate products, the Ninth Circuit expressly "adopt[ed] the district court’s reasoning," which fully supports Microsoft’s position in this case. Id. at 1339. In particular, the district court had expressly distinguished ILC Peripherals Leasing Corp., 448 F. Supp. at 228, explaining that the court in ILC Peripherals found that "the aggregation of computer peripheral devices constituted a single product, in part because the purpose of combining the items was to enhance their technological capabilities and satisfy a recognized consumer need for increased on-line storage capacity." In re Data Gen. Corp. Antitrust Litig., 490 F. Supp. 1089, 1106 n.33 (N.D. Cal. 1980). By contrast, the district court in Digidyne had concluded that the alleged tying arrangement did "not involve physical aggregation and there is no evidence that bundling for marketing purposes yields any technological benefits apart from those attributable to joint R&D." Id. Unlike the situation in Digidyne, the incorporation of Internet Explorer technologies in Windows 98 does involve "physical aggregation"; the operating system cannot be disaggregated without severely degrading the product-indeed, rendering it totally inoperable. And there is substantial evidence, which cannot seriously be disputed, that the physical aggregation results in technological benefits that could not otherwise be achieved. (See Microsoft Summ. J. Mem. at 6-9, 33-37.) Those facts are fatal to plaintiffs’ tying claims, requiring that summary judgment be granted.
Plaintiffs expressly invite the Court to second-guess the benefits to consumers and software developers of Microsoft’s decision to include Internet-related technologies in its operating system software, arguing that such product design decisions are within the province of the judiciary:
(Pls. Joint Resp. at 65.) The Court of Appeals, however, has already rejected the DOJ’s assertion that the antitrust laws authorize "the court [to] embark on product design assessment." 147 F.3d at 949. In urging this Court to do exactly what the Court of Appeals has already said it should not, plaintiffs flout the judicial system itself. In reversing the December 11, 1997 preliminary injunction, the Court of Appeals stressed that "the limited competence of courts to evaluate high-tech product designs and the high cost of error should make them wary of second-guessing the claimed benefits of a particular design decision." Id. at 950 n.13. Because "[c]ourts are ill equipped to evaluate the benefits of high-tech product design," id. at 952, the Court of Appeals concluded that their evaluation of product design "must be narrow and deferential," id. at 949-50. In particular, the Court of Appeals held that, in reviewing a challenge to an integrated product design, the question courts must decide "is not whether the integration is a net plus but merely whether there is a plausible claim that it brings some advantage." Id. (emphasis in original). Plaintiffs seek to dismiss the Court of Appeals’ decision as insignificant here because it involved the construction of a consent decree. (Pls. Joint Resp. at 68.) Although the Court of Appeals left open the question of whether its approach towards the July 1994 Consent Decree "is the appropriate test for antitrust law generally," 147 F.3d at 950, there is no doubt that it relied heavily on basic antitrust law principles in fashioning that standard. Indeed, the Court of Appeals expressly noted that "[i]n antitrust law, from which this whole proceeding springs, courts have recognized the limits of their institutional competence and have on that ground rejected theories of ‘technological tying.’" Id. at 949. Moreover, the Court of Appeals relied, see id. at 950, on a number of the same "technological tying" cases, such as Response of Carolina, 537 F.2d at 1307; and ILC Peripherals Leasing Corp. v. IBM, 458 F. Supp. 423 (N.D. Cal. 1978), aff’d per curiam sub nom. Memorex Corp. v. IBM, 636 F.2d 1188 (9th Cir. 1980), cert. denied, 452 U.S. 972 (1981), on which Microsoft relied in moving for summary judgment (see Microsoft Summ. J. Mem. at 24, 25, 30). Lastly, as the Court of Appeals itself acknowledged, its standard is virtually identical to the tying test proposed in Professor Areeda’s leading treatise on antitrust law. See 147 F.3d at 950 (citing X Phillip E. Areeda et al., Antitrust Law ¶ 1746b (1996)). That treatise, on which plaintiffs rely when it suits their purposes (see, e.g., Pls. Joint Resp. at 49-50, 56, 73), emphatically rejects the notion that courts should be in the business of determining whether specific product design decisions are efficient:
X Areeda, supra ¶ 1746b, at 225-26 (footnote omitted). Even apart from the Court of Appeals’ decision, which is of course controlling in this Circuit, there exists a long line of cases (nearly all concerning the computer industry) rejecting claims that technically integrated products constitute unlawful tying arrangements under the antitrust laws. (See Microsoft Summ. J. Mem. at 27-31.) In arguing that these technological tying cases are "inapposite" (Pls. Joint Resp. at 61), plaintiffs make a halfhearted effort to distinguish them on their facts (see id. at 62-64), claiming that they "rest on facts materially different from those alleged . . . here" (id. at 61). Based on these immaterial factual distinctions, plaintiffs assert that Microsoft (and presumably the Court of Appeals) "has not properly understood . . . the cases on which it relies" (id. at 61), and then argues that those cases do not foreclose judicial forays into questions of product design (id. at 65). In advancing these insignificant factual differences, plaintiffs apparently hope that the Court will miss the forest for the trees; for if the "technological tying" cases stand for anything, it is that "courts should not get involved in second guessing engineers." ILC Peripherals Leasing Corp., 458 F. Supp. at 441. Those cases thus establish that the Court of Appeals’ approach is not limited to the Consent Decree, but rather quite clearly applies to antitrust law generally. "Where there is a difference of opinion as to the advantages of two alternatives which can both be defended from an engineering standpoint," courts have not allowed themselves "to be enmeshed ‘in a technical inquiry into the justifiability of product innovations.’" Id. at 439 (quoting Response of Carolina, 537 F.2d at 1330). Instead, courts have rejected challenges to integrated product designs under the antitrust laws if the integration "achieve[s] some technologically beneficial result." Response of Carolina, 537 F.2d at 1330. "To rule otherwise," courts have time and again stressed, "would enmesh the courts with technical and uncertain inquiry into the technological justifiability of functional integration and cast unfortunate doubt on the legality of product innovations in serious detriment to the industry and without any legitimate antitrust purpose." Telex, 367 F. Supp. at 347. Plaintiffs have not-and cannot-put forth anything that undermines that fundamental principle. In arguing that their reading of the "Jefferson Parish market test does not require courts to engage in product design oversight or even to look at the relative technical benefits of various products" (Pls. Joint Resp. at 69), plaintiffs take an extreme and unsupported position. They assert that "[i]f there is sufficient demand" for a component of an integrated product, "then Jefferson Parish requires the defendant to offer the unbundled alternative," regardless of whether it is technologically possible-let alone beneficial-to disaggregate the components. (Id.) Such an expansive reading of Jefferson Parish would lead to absurd results when applied to commonplace goods, such as clock radios, toaster ovens, boats, cars, cameras and stereo systems. As Justice O’Connor observed in Jefferson Parish, "[a]ll but the simplest products can be broken down into two or more components that are ‘tied together’ in the final sale." 466 U.S. at 39 (O’Connor, J., concurring). Although plaintiffs assert that "the facts cast serious doubt on the assertion that there are any necessary synergistic benefits of the bundled version" (Pls. Joint Resp. at 70)-whatever that may mean-they do not seriously dispute (nor could they) that the integrated design of Windows 98 achieves technologically beneficial results. Instead, plaintiffs simply point out that "other operating system vendors . . . have incorporated browsing functionality into their operating system" merely by bundling a standalone web browser such as Netscape Navigator. (Pls. Joint Resp. at 70-71.) That certain other operating system vendors have opted to satisfy acknowledged consumer demand for operating systems that provide web browsing functionality by bundling a standalone web browser with their operating systems simply means that customers of those other vendors do not receive the benefit of Microsoft’s integrated approach. Competitors’ decision to bundle a standalone browser says absolutely nothing about whether Microsoft’s incorporation of Internet Explorer technologies into Windows 98 achieves technological benefits. Plaintiffs also argue that some users do not "consider the integration beneficial" because they are not interested in browsing the World Wide Web. (Id. at 71.) As an initial matter, plaintiffs do not genuinely dispute that the integration of Internet Explorer technologies into Windows 98 produces technological benefits to the vast majority of users. That a few users might not consider the integration to be beneficial is of no consequence. In addition, the integration of Internet Explorer technologies into Windows 98 results in many technological benefits that are totally unrelated to the Internet, such as the new Windows 98 Help system and networking protocols used with corporate intranets. (See Microsoft Summ. J. Mem. at 6-7, 34-35.) Plaintiffs do not genuinely dispute that these features of the operating system are beneficial to users. Finally, plaintiffs argue that there are "numerous Microsoft documents" that purportedly show that "the bundling of Internet Explorer" was "motivated by a desire to thwart competition among browsers." (Pls. Joint Resp. at 71.) That assertion is false, but entirely beside the point. As plaintiffs themselves admit, there are "numerous cases holding intent irrelevant" to tying claims under Section 1 of the Sherman Act. (Id. at 62 n.32.) As one court noted in rejecting a technological tying claim on the ground that there were no separate products, "[g]ood intentions will not change two products into one, and likewise, a single product does not become separate and distinct products because of a malevolent intent." ILC Peripherals Leasing, 448 F. Supp. at 234. Furthermore, to the extent they are evidence of Microsoft’s intent, the documents to which plaintiffs refer reveal a desire on Microsoft’s part to improve Windows through the integration of Internet technologies and thereby compete more effectively with Netscape-an unambiguously procompetitive purpose.
Plaintiffs cannot show that Microsoft has forced any OEM to purchase a separate tied product. That failure of proof is in and of itself fatal to their tying claims. Plaintiffs ridicule Microsoft for devoting only "a single page" to this argument (Pls. Joint Resp. at 49), but the argument is so straightforward that it does not require more elaboration than that. Plaintiffs acknowledge that to establish a tying claim under Sections 1 and 2 of the Sherman Act, they must show that the availability of one product was conditioned on the "purchase" of separate product. (Id. at 49.) Plaintiffs also concede that "no separate price is charged for Internet Explorer" because "it is licensed under the same licensing agreement as Windows." (Id. at 50.) Indeed, plaintiffs candidly recognize that Microsoft "give[s] its Internet browser away for free." (Id. at 16; see also id. at 6.) Despite these concessions, plaintiffs argue that the word "purchase" in this context means something different from its plain English meaning, and that giving something "away for free" (plaintiffs’ words) can thus constitute a forced "purchase" under the antitrust law. But cf. Webster’s Ninth New Collegiate Dictionary 957 (1990) (defining "purchase" as "to obtain by paying money or its equivalent"). Plaintiffs do not cite any case law in support of their odd interpretation of the word "purchase." Rather, they rely exclusively on an ambiguous passage from Professor Areeda’s treatise (see Pls. Joint Resp. at 49-50) that has nothing to do with adding features to a single product and that itself cites no supporting cases. See IIIA Phillip E Areeda & Herbert Hovenkamp, Antitrust Law ¶ 760b, at 51 (1996). Plaintiffs also fail to distinguish in a meaningful way (see Pls. Joint Resp. at 50 n.23) the cases cited in Microsoft’s opening memorandum (see Microsoft Summ. J. Mem. at 49-50) that hold to the contrary. See Multistate Legal Studies v. Harcourt Brace Jovanovich, 63 F.3d 1540, 1548 (10th Cir. 1995) ("It appears that Gilbert [the alleged tied product] truly was free to BAR/BRI customers during that summer’s session, so that no separate, tied purchase was involved."), cert. denied, 516 U.S. 1044 (1996); Directory Sales Management Corp. v. Ohio Bell Tel. Co., 833 F.2d 606, 609-10 (6th Cir. 1987) (affirming grant of summary judgment dismissing claim that telephone company "tied a free first telephone yellow pages listing to the subscription of new business telephone service" because "there is no purchase of a tied product"); cf. Jefferson Parish, 466 U.S. at 22 (noting that "anesthesiological services are billed separately from the hospital services petitioners provide"). Lastly, plaintiffs assert that even though Microsoft does not charge a separate royalty for Internet Explorer technologies, [redacted text] Moreover, plaintiffs concede that Microsoft’s OEM agreements in no way prohibit OEMs from licensing Netscape web browsing software and pre-installing it on their new computers, [redacted text] The vice of tying is that it forecloses competition in the market for the tied product. See Northern Pac. Ry. v. United States, 356 U.S. 1, 6 (1958); Times-Picayune Publ’g Co. v. United States, 345 U.S. 594, 614 (1953). Just because some customers elect not to license a product that competes with an element of an integrated product does not mean that competition has been foreclosed. In sum, plaintiffs’ inability to show that Microsoft has forced any OEM to purchase a separate tied product, or that it has foreclosed developers of competing web browsing software from distributing their products through OEMs, constitutes an independent ground for dismissing plaintiffs’ tying claims on summary judgment. (See Microsoft Summ. J. Mem. at 49-51.)
In an effort to salvage their tying claims, plaintiffs argue that the inclusion of Internet Explorer technologies in Windows 98 violates Section 2 of the Sherman Act even if "Internet Explorer and Windows comprise a single product." (Pls. Joint Resp. at 72.) None of the cases that plaintiffs cite in their response hold that a plaintiff can establish unlawful tying under Section 2 of the Sherman Act without proving that two separate products exist. (See id. at 73-74.) Plaintiffs instead rely entirely on a single footnote in Professor Areeda’s treatise on antitrust law as purported support for their counterintuitive assertion. (See id. at 72-73.) That treatise, however, clearly states in the main text that a plaintiff must show that "two products exist" to establish an improper tying arrangement under Section 2 of the Sherman Act:
X Areeda, supra ¶ 1752g, at 289 (footnote omitted and emphasis added). As plaintiffs point out (Pls. Joint Resp. at 73), Professor Areeda’s treatise goes on in a footnote to qualify the sentence underscored above "in one sense," noting that "[s]ome bundling may be anticompetitive under § 2 even though the bundled items are technically a single product." X Areeda, supra ¶ 1752g, at 289 n.46. But the treatise provides scant detail about the nature of this supposed qualification or how it should be applied outside of the context of separate "morning and evening newspaper[s]"-the one example provided in the treatise. Id. Nor does the treatise cite any case law as authority for its assertion that "[s]ome bundling" may be "anticompetitive" under Section 2 of the Sherman Act "even though the bundled items are technically a single product." Moreover, plaintiffs’ assertion that Microsoft "license[s] Internet Explorer as a condition of licensing Windows" (Pls. Joint Resp. at 74-75) misstates the provision of Microsoft’s OEM license agreements at issue here. The challenged provision simply provides that OEMs "may not modify or delete any part of the Product software [Windows 98] in any manner" without Microsoft’s permission. As Microsoft explained in its opening memorandum (see Microsoft Summ. J. Mem. at 53-54), contractual provisions limiting the ability of licensees to modify copyrighted works without the licensor’s permission are commonplace in the highly competitive software industry, [redacted text] "Acts which are ordinary business practices typical of those used in a competitive market do not constitute anti-competitive conduct violative of Section 2." Trace X Chem., Inc. v. Canadian Indus., Ltd., 738 F.2d 261, 266 (8th Cir. 1984), cert. denied, 469 U.S. 1160 (1985); accord, e.g., Northeastern Tel. Co., 651 F.2d at 93; Telex Corp. v. IBM, 510 F.2d 894, 925-26 (10th Cir.), cert. dismissed, 423 U.S. 802 (1975). Despite their repeated references to a sentence from Justice Scalia’s dissenting opinion in Eastman Kodak (504 U.S. at 488) stating that the activities of a defendant with market power "are examined through a special lens" (see, e.g., Pls. Joint Resp. at 15-16; 74), plaintiffs do not dispute the basic principle that ordinary business practices typical of those used in a competitive market do not violate Section 2 of the Sherman Act. That principle is fatal to their Section 2 claims.
Plaintiffs contend that the agreements between Microsoft and certain ICPs, ISPs, OLSs and OEMs "are exclusionary in that they make it more difficult and costly for Microsoft’s rivals to develop and distribute their Internet browsers." (Pls. Joint Resp. at 20.) In opposing summary judgment, plaintiffs assert that the purportedly "exclusionary effect" of Microsoft’s agreements "must be determined in the context of all of Microsoft’s other restrictions and pertinent market factors." (Id. at 22.) According to plaintiffs, this assessment involves "fact-bound questions that generally cannot be resolved on summary judgment." (Id. at 34 n.12.) Yet, in the very case that plaintiffs cite as providing the appropriate standard for summary judgment under Rule 56 (see id. at 13-14), the court affirmed a grant of summary judgment dismissing an antitrust challenge to contracts (which, unlike the contracts here, were truly exclusive) on the ground that the plaintiff had "not advanced evidence" that the contracts "have a substantial anti-competitive effect." Thompson Everett, 57 F.3d at 1326. Plaintiffs likewise have not advanced evidence that the contracts at issue here have a "substantial anti-competitive effect"-i.e., that they lessen competition-and thus their claims challenging those contracts should be dismissed on summary judgment as well.
Plaintiffs concede that Microsoft’s agreements with ICPs, ISPs and OLSs are not exclusive dealing arrangements-indeed, none of the agreements challenged by plaintiffs obligated the other contracting parties to distribute Internet Explorer technologies exclusively. Instead, every single one of those agreements permitted the other contracting parties to distribute other web browsing software at the request of a customer (see Myhrvold Decl. ¶ 5; Poole Decl. ¶¶ 9, 10). See Barry Wright Corp. v. ITT Grinnell Corp., 724 F.2d 227, 237 (1st Cir. 1983) ("flexibility" provided by partial requirements contract is "important" because it left buyer with "legal power to buy small . . . amounts" from plaintiff). Nor do plaintiffs dispute that the agreements in question are relatively short term-indeed, most of the agreements are no longer than one or two years, and many expire this year (see Myhrvold Decl. ¶ 4; Poole Decl. ¶ 7). See Thompson Everett, 57 F.3d at 1326 (rejecting challenge to exclusive contracts that were "typically of short duration, usually terminable after a year"). Rather than attempt to contest those critical facts, plaintiffs ignore them, contending that the provisions of Microsoft’s agreements with ICPs, ISPs and OLSs were exclusionary notwithstanding the non-exclusive, short-term nature of those agreements. (See Pls. Joint Resp. at 24, 30.) In so arguing, plaintiffs attempt to gloss over the fact that in April 1998 (prior to the commencement of this action), Microsoft unilaterally waived all of the allegedly exclusionary provisions regarding the promotion and distribution of Internet Explorer technologies in two of the three categories of agreements at issue here-Microsoft’s ICP and ISP agreements. (See Myhrvold Decl. ¶¶ 4; Poole Decl. ¶¶ 7, 8.) Plaintiffs also fail to acknowledge that Microsoft’s new agreements with ISPs for the Windows 98 version of the Internet referral server (i) contain none of the purported exclusionary provisions challenged in this case, and (ii) are terminable at will by the ISPs on 90 days’ notice. (See Myhrvold Decl. ¶ 8.) Plaintiffs similarly fail to acknowledge that Microsoft has informed all of the ICPs included in the Channel Bar in Windows 95 (i) that the April 1998 changes to the ICP agreements apply to ICPs’ placement in the Channel Bar in Windows 98, and (ii) that the entire concept of a separate Channel Bar is being phased out in upgraded versions of Windows 98 and thus is likely not to be included in the next release of the operating system. (Poole Decl. ¶ 12.) In short, plaintiffs do not-and cannot-dispute that Microsoft’s ICP and ISP agreements no longer contain any requirement that ICPs or ISPs distribute Internet Explorer technologies. (Myhrvold Decl. ¶ 4; Poole Decl. ¶ 9.) Those ICPs and ISPs instead are free, as plaintiffs admit, to distribute any web browsing software they want. (See Pls. Statement of Disputed Facts at 28, 31.) Indeed, they are free to distribute Netscape Navigator exclusively if they so desire, and Microsoft will continue to promote their businesses. All that Microsoft’s ICP and ISP agreements now require is that the few ICPs and ISPs that have entered into such agreements with Microsoft promote Internet Explorer technologies at least as prominently as they promote other web browsing software. (Myhrvold Decl. ¶ 4; Poole Decl. ¶ 10.) Plaintiffs do not claim (nor could they plausibly do so) that this one remaining requirement is exclusionary or unlawful. Plaintiffs seek to dismiss Microsoft’s waiver of the provisions at issue in this lawsuit as a "courthouse conversion," arguing that Microsoft’s waiver suggests that it "recognizes the[] doubtful legality" of the provisions. (Pls. Joint Resp. at 46.) As an initial matter, Microsoft waived the challenged provisions because they were generating negative publicity and because Microsoft determined that they were not commercially significant. (Myhrvold Decl. ¶ 4; Poole Decl. ¶ 8.) Microsoft thought then, and continues to believe now, that its ICP and ISP agreements were legitimate cross-marketing arrangements not unlike those employed by many others (including Netscape) in the software industry. [redacted text] In any case, regardless of Microsoft’s reason for waiving the challenged provisions, they no longer have any force or effect. Plaintiffs therefore seek nothing more than "an injunction providing prophylactic relief against the reinstitution of the waived restrictions." (Pls. Joint Resp. at 48 n.21.) Given that this is the only relief plaintiffs seek with respect to Microsoft’s ISP and ICP agreements-"prophylactic relief" against the reinstitution of "waived restrictions"-it is plain that plaintiffs’ rhetoric about the allegedly anticompetitive effect of the agreements, which supposedly required the Court to proceed with great urgency, is just empty hyperbole. That plaintiffs are continuing to press their attack on Microsoft’s ICP agreements is especially perplexing. Leaving aside Microsoft’s waiver of all of the challenged provisions, most of Microsoft’s ICP agreements expire on September 30, 1998, and Microsoft has informed the relevant ICPs that Microsoft will not be renewing any of those agreements because the Channel Bar concept has not been sufficiently popular with consumers and is thus being discontinued. (See Poole Decl. ¶ 7.) Surely there are more productive uses of this Court’s resources than holding a trial to rule on the legality of waived provisions in contracts that are about to expire and that will not be renewed-especially when those provisions were not anticompetitive in the first place. (See Microsoft Summ. J. Mem. at 67-70.) Plaintiffs also note that Microsoft has not waived the provisions in its OLS agreements relating to the distribution and promotion of Internet Explorer technologies. (See Pls. Joint Resp. at 47.) Microsoft did not waive those provisions because its OLS agreements differ fundamentally from its ICP and ISP agreements. Microsoft has granted the OLSs, unlike ICPs and ISPs, broad rights to use and modify Internet Explorer technologies in connection with their client software. Microsoft also is required under the OLS agreements to invest what amounts to millions of dollars to support development of improved versions of client software for the OLSs (particularly AOL, which just recently introduced a new version of its client software). In return, Microsoft legitimately sought some assurance that the OLSs would promote and distribute Internet Explorer technologies. There is nothing unusual, or anticompetitive, about that. Moreover, Microsoft’s OLS agreements are non-exclusive and relatively short term.
The OLSs remain free to enter into arrangements with Netscape, More importantly, as explained below, there are plenty of other channels available to Netscape to distribute its web browsing software, and Netscape has utilized those channels to such good effect that [redacted text]
The main objection to exclusive-dealing agreements, which the contracts at issue here are not, is that "they deny outlets to competitors during the term of the agreement." Roland Mach. Co. v. Dresser Indus., Inc., 749 F.2d 380, 393 (7th Cir. 1984). Thus, to establish that Microsoft’s agreements with ICPs, ISPs, OLSs and OEMs violate Section 1 of the Sherman Act, plaintiffs must show that those agreements "foreclose competition in a substantial share of the line of commerce affected." Tampa Elec. Co. v. Nashville Coal Co., 365 U.S. 320, 327 (1961). Although antitrust plaintiffs challenging such contracts under Section 1 of the Sherman Act typically try to prove the percentage of commerce foreclosed by the contracts, see ABA Section of Antitrust Law, Antitrust Law Developments at 222-23 & nn. 1240-22 (4th ed. 1997) (citing cases); see also, e.g., Barry Wright Corp., 724 F.2d at 237, plaintiffs in this case do not even attempt to quantify the percentage of commerce that they claim has been foreclosed. They simply assert without evidentiary basis that Microsoft’s agreements "effectively foreclose Microsoft’s browser competitors" from important distribution channels. (Pls. Joint Resp. at 23.) Contrary to plaintiffs’ bald assertion, the undisputed record evidence shows that, notwithstanding Microsoft’s agreements, Netscape, the party on whose behalf plaintiffs brought this action, is able to distribute its web browsing software very broadly to consumers through numerous distribution channels. This fact alone is fatal to plaintiffs’ challenges to the ICP, ISP, and OLS agreements. See Omega Environmental, Inc. v. Gilbarco, Inc., 127 F.3d 1157, 1162-63 (9th Cir. 1997), petition for cert. filed, 66 U.S.L.W. 3750 (U.S. May 11, 1998); Seagood Trading Corp. v. Jerrico, Inc., 924 F.2d 1555, 1573 (11th Cir. 1991). As an initial matter, despite the claim in their complaints that Microsoft’s ICP agreements "foreclose" [Internet browser competitors] from access to customers" (DOJ Compl. ¶ 91), plaintiffs now apparently concede that Microsoft’s ICP agreements do not have a material effect on "browser distribution" (Pls. Joint Resp. at 30). Instead, they argue that those agreements "injure Microsoft’s browser rivals . . . in other ways not directly resulting from loss of distribution." (Id.). Apart from that dispositive concession, plaintiffs also acknowledge that Microsoft has Channel Bar agreements with only 24 of the thousands of commercially significant ICPs in the United States. [redacted text] Having essentially conceded away their claims with respect to Microsoft’s ICP agreements, plaintiffs focus principally on Microsoft’s allegedly "restrictive agreements with ISPs and OEMs," contending that those agreements "effectively foreclose Microsoft’s browser competitors from these more important distribution channels." (Pls. Joint Resp. at 23.) Once again, the undisputed record evidence belies plaintiffs’ unsupported assertion. Plaintiffs do not deny that Microsoft has entered into Internet referral server agreements with only eleven of the more than 4,500 ISPs in the United States. [redacted text] Similarly, plaintiffs concede that Microsoft’s OEM agreements do not prohibit OEMs from licensing Netscape web browsing software and pre-installing it on their new computers. (See id. at 23.) Instead, plaintiffs assert that Microsoft’s inclusion of Internet Explorer technologies in Windows makes OEMs unwilling "even to consider other browser products on the merits." (Pls. Joint Resp. at 27 (emphasis in original).) [redacted text] That fact negates plaintiffs’ assertion that OEMs are unwilling even to consider other web browsing software on the merits because Internet Explorer technologies are part of Windows 98. More importantly, plaintiffs concede that many other channels of distribution are available to Netscape. (See Pls. Joint Resp. at 31.) The following concessions found in Plaintiffs’ Separate Statement of Disputed Issues of Fact are utterly devastating to plaintiffs’ claims. [redacted text]
Rather than dispute the open availability of these other distribution channels, plaintiffs assert that such "other methods of distribution" are "more costly and much less effective than distribution through ISPs and OEMs." (Pls. Joint Resp. at 32.) Even assuming that plaintiffs’ assertion were true, it is still insufficient to withstand summary judgment. Indeed, the Ninth Circuit in Omega Environmental rejected a virtually identical assertion in holding that the district court had erred in submitting antitrust claims to a jury that challenged contracts that were truly exclusive. See 127 F.3d 1162-65. Although the Ninth Circuit determined that the defendant’s contracts foreclosed a "significant" share of one channel of distribution, id. at 1162, it nevertheless concluded that existing or potential alternative channels of distribution eliminate substantially any foreclosure effect" that the defendant’s contracts might have, id. at 1163. In reaching that conclusion, the Ninth Circuit noted that "exclusive dealing arrangements imposed on distributors rather than end-users are generally less cause for anticompetitive concern." Id. at 1162. As the court explained,
Id. at 1163 (emphasis in original). The Ninth Circuit determined that "[t]he record contains undisputed evidence that direct sales to end-users are an alternative channel of distribution in [the] market," and that "[t]he record also contains undisputed evidence of potential alternative sources of distribution." Id. Although the plaintiff in that case "complain[ed]" that those alternative channels of distribution are "inadequate substitutes," the Ninth Circuit responded that "the antitrust laws were not designed to equip" the plaintiff with the "legitimate competitive advantage" that defendants’ distributors provided. Id. The Ninth Circuit explained:
Id.; accord Seagood Trading Corp., 924 F.2d at 1572-73. Here, too, the record contains undisputed evidence that direct distribution of web browsing software to end-users is a viable alternative, and that existing and potential alternative channels of distribution abound. As in Omega Environmental, that evidence disposes of plaintiffs’ claims. Thus, it is not surprising (but nonetheless telling) that although Omega Environmental was one of the principal authorities on which Microsoft relied in its opening memorandum-indeed, it was cited passim in that memorandum-plaintiffs failed even to acknowledge its existence in their joint response. Taking a step back, it is truly remarkable that plaintiffs continue to insist that Microsoft has done something to foreclose Netscape’s access to customers. [redacted text] The reason why a lower percentage of Internet users are using Netscape Navigator now than before, however, has nothing to do with Netscape’s ability to distribute its web browsing software, [redacted text] It is because Microsoft has dramatically improved its Internet Explorer technologies since they were first included in the initial version of Windows 95 released to OEMs in July 1995. (See Pls. Joint Resp. at 7 (plaintiffs assert that initial version of Internet Explorer was "poor in quality and function").) Distribution does not guarantee usage. Indeed, the reality is that consumers have a choice, and although plaintiffs may not like it, consumers are increasingly choosing Microsoft’s Internet Explorer technologies over Netscape’s web browsing software on the merits.
Plaintiffs do not dispute that Microsoft received copyright registrations for both Windows 95 and Windows 98 from the United States Copyright Office. Such certificates of registration "constitute prima facie evidence of the validity of the copyright of the software," Stenograph L.L.C. v. Bossard Assocs., Inc., 144 F.3d 96, 99 (D.C. Cir. 1998), and plaintiffs do not contend that such certificates were improvidently issued. See 17 U.S.C. § 410(c); Fonar Corp. v. Domenick, 105 F.3d 99, 104 (2d Cir.) ("possession of a registration certificate creates a rebuttable presumption that the work in question is copyrightable") (internal quotation marks omitted), cert. denied, 118 S. Ct. 265 (1997). Plaintiffs are alleging that Microsoft has violated the antitrust laws by including in its OEM license agreements prohibitions against OEMs’ modifying or deleting any portion of Microsoft’s copyrighted Windows operating system software without Microsoft’s permission. By so doing, plaintiffs are squarely asserting that measures taken by the holder of a presumptively valid copyright in an effort to protect the integrity of its copyrighted works may be precluded by the antitrust laws. Contrary to plaintiffs’ assertion that there are "a number of material factual issues" bearing on this issue (Pls. Joint Resp. at 79), it is a pure question of law that can be resolved on summary judgment. Plaintiffs offer no real response to the cases that Microsoft cited in its opening memorandum (see Microsoft Summ. J. Mem. at 55-56) that clearly establish a copyright holder’s right (regardless of whether that right is explicitly set out in a license agreement) to prohibit unauthorized modifications to its copyrighted works. See Gilliam v. ABC, 538 F.2d 14, 21 (2d Cir. 1976); WGN Continental Broad. Co. v. United Video, Inc., 693 F.2d 622, 625 (7th Cir. 1982); National Bank of Commerce v. Shaklee Corp., 503 F. Supp. 533, 543-44 (W.D. Tex. 1980). For example, although plaintiffs make a halfhearted attempt to distinguish Gilliam (see Pls. Joint Resp. at 77 & n.39), they ignore the Gilliam court’s clear and unambiguous statement that "unauthorized editing of the underlying [copyrighted] work, if proven, would constitute an infringement of the copyright in that work." 538 F.2d at 21. Because they have no substantive response, plaintiff seek to dismiss Microsoft’s cases as "obscure." (Pls. Joint Resp. at 77.) The small number of cases that address whether the unauthorized modification of a copyrighted work constitutes copyright infringement demonstrates not that the principle is uncertain, but rather that it is so free from doubt as to merit little or no discussion. To understand the truly unprecedented nature of plaintiffs’ challenge to Microsoft’s efforts to preserve the integrity of its copyrighted operating system software, it is perhaps useful to think about such a challenge in an analogous context. Would the government be entitled to tell John Grisham that his legal thrillers were too popular and thus that he was required to permit distributors of his books to substitute pages of their liking for the opening sequences of The Firm or The Client? Obviously not. Furthermore, none of the cases plaintiffs cite for the proposition that Gilliam "has not been read expansively by other courts" (see Pls. Joint Resp. at 77-78) is applicable here because none involves the physical alteration, i.e., revision, of a copyrighted work by a distributor or licensee-which is what plaintiffs seek to require Microsoft to permit its OEM licensees, i.e., its publishers, to do. And although plaintiffs state that "[n]umerous software cases have allowed defendants to make alterations to a plaintiff’s program in appropriate circumstances" (Pls. Joint Resp. at 78-79 & n.43), they do not cite any case that comes close to holding that unauthorized modification of a copyrighted work is permissible under the Copyright Act. Indeed, not one of the cases cited by plaintiffs (see id. at 79 n.43) even involved a claim that the defendant had modified a copyrighted work without authorization. In short, plaintiffs do not cite any authority to undermine the basic principle set out in Gilliam, WGN and National Bank of Commerce, namely, that the federal copyright laws prohibit unauthorized modifications of copyrighted works regardless of whether that prohibition is spelled out in a license agreement. Plaintiffs thus resort to setting up a straw man to knock down. Plaintiffs argue that "[t]he thrust of Microsoft’s copyright argument is that it is free to do whatever it wishes in licensing its copyrighted works." (Pls. Joint Resp. at 80; see also id. at 77 ("possession of a copyright does not permit its owner to do whatever it likes with that copyright"); id. at 82 ("Microsoft’s copyrights do not give it the right to impose whatever restrictions it wishes on its licensees").) Plaintiffs even go so far as to assert that the copyright laws do not permit Microsoft to insert into its license agreements "restrictions that exclude competing browsers" (id. at 83; accord States Opp’n Br. at 7), even though plaintiffs concede elsewhere that Microsoft’s OEM license agreements contain no such provisions (see Pls. Statement of Disputed Facts at 23). Contrary to plaintiffs’ assertion, Microsoft does not contend that the copyright laws either "shield it from the antitrust laws" (Pls. Joint Resp. at 77) or give it "an unbounded property right" (id. at 80). Nor does Microsoft claim that just because Windows 98 is a copyrighted work, "any restrictions it chooses to insert in its licensing agreements are permissible under the antitrust laws." (Id. at 82.) Indeed, Microsoft’s position here bears no resemblance to plaintiffs’ expansive hyperbole or to the cases cited in their response. Microsoft simply points out that the provisions in its OEM license agreements that prohibit OEMs from modifying or deleting any part of Windows 98 merely restate rights Microsoft already enjoys under the copyright laws. Because those provisions (which serve legitimate business purposes (see Microsoft Summ. J. Mem. at 57-59)) create no restraints that do not already exist by virtue of the copyright laws themselves, the provisions are not properly subject to challenge under the antitrust laws. See Broadcast Music, Inc. v. Columbia Broad. Sys., Inc., 441 U.S. 1, 19 (1979); LucasArts Entertainment Co. v. Humongous Entertainment Co., 870 F. Supp. 285, 290 (N.D. Cal. 1993); cf. United States v. Westinghouse Elec. Corp., 648 F.2d 642, 647 (9th Cir. 1981) (applying same rule in patent case). Plaintiffs do not seriously dispute this commonsense principle. Indeed, although Microsoft cited Broadcast Music, LucasArts Entertainment and Westinghouse in its opening memorandum (see Microsoft Summ. J. Mem. at 56-57), plaintiffs completely ignored those decisions in their response.
Revealing a profound lack of confidence in the case they filed in May, plaintiffs begin their joint response not by discussing their tying claim or their challenge to Microsoft’s agreements with ICPs, ISPs, OLSs and OEMs, but by making a number of unfounded accusations that Microsoft has engaged in other vaguely defined bad acts. Those accusations do nothing to remedy the fatal defects in plaintiffs’ claims. A plaintiff cannot create a genuine issue of material fact where none exists simply by heaping abuse on the defendant and its CEO. By suggesting that they have evidence of misconduct not alleged in their complaints, plaintiffs invite the Court to speculate that if there is smoke, there must be a fire somewhere. For example, plaintiffs claim that Microsoft’s decision not to charge separately for Internet Explorer technologies constitutes a "predatory and anticompetitive act." (See Pls. Joint Resp. at 6, 16.) Microsoft does not charge separately for Internet Explorer technologies because they are an integral element of Windows 98, and thus are included in the overall royalty charged to licensees of the operating system. (See Microsoft’s 5/10/98 Response to Interrogatory No. 4 at 17-18.) In addition, because low prices benefit consumers, an antitrust plaintiff claiming that a defendant’s prices are too low must establish that those prices are "predatory," i.e., below an appropriate measure of the defendant’s costs. See Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209, 222 (1993) ("[A] plaintiff seeking to establish competitive injury resulting from a rival’s low prices must prove that the prices complained of are below an appropriate measure of its rival’s costs."). Not only have plaintiffs failed to allege such a "predatory pricing" claim, but they also cannot possibly prove that the royalties Microsoft charges for Windows 98 are below any sensible measure of Microsoft’s costs. Plaintiffs also refer repeatedly to Microsoft’s alleged attempt at a June 21, 1995 meeting "to get Netscape to divide markets." (Pls. Joint Resp. at 11; see also id. at 5, 7, 14.) Yet plaintiffs provide no details about what they claim happened during that meeting. Nor do they contend that any agreement was reached at that meeting to divide any purported "market." Plaintiffs’ vague and unsubstantiated allegations concerning the June 21, 1995 meeting are thus a far cry from those in United States v. American Airlines, Inc., 743 F.2d 1114 (5th Cir. 1984), the case on which plaintiffs rely (see Pls. Joint Resp. at 14). The court in that case found that the government had stated a claim for attempted monopolization-and thus that the district court had erred in granting the defendant’s motion to dismiss on the pleadings pursuant to Rule 12(b)(6)-because the alleged attempt to enter into a price-fixing agreement (which was unambiguous and recorded on audio tape) was "uniquely unequivocal and its potential, given the alleged market conditions, [was] uniquely consequential." 743 F.2d at 1119. Even accepting plaintiffs’ current iteration of their vague and constantly changing allegations concerning what happened at the June 21, 1995 meeting, there was no improper attempt to divide any purported "market." Unlike the unequivocal conduct at issue in American Airlines, the statements supposedly made at that meeting are at worst highly equivocal and subject to varying interpretations as to whether they have any significance under the antitrust laws. Further, plaintiffs cannot deny that similar discussions occur on a routine basis between companies in the software industry that develop complementary products. Consumers would be decidedly worse off if such coordination of development efforts did not occur, and Microsoft would surely be the subject of vociferous complaints under the antitrust laws if it refused to cooperate with the many companies that develop products that run on top of its operating system software. Moreover, at the time of the meeting, which was before Microsoft’s commercial release of Windows 95, the purported "market" for web browsing software was at its very incipiency, and thus the potential effect of the meeting (even if plaintiffs’ version of events were true) is, at best, uncertain. Plaintiffs’ vague and unsubstantiated allegations about the June 21, 1995 meeting, which were included in their complaints for the sole purpose of portraying Microsoft in a negative light, are insufficient to stave off summary judgment. Plaintiffs’ other accusations-and that is all they are-are distractions designed to call attention away from the flaws in plaintiffs’ claims. Although they play prominently in plaintiffs’ joint response (see Pls. Joint Resp. at 2, 7-8, 18-20), one searches the complaints in vain for any allegations concerning Intel, Apple Computer or Real Networks. There are none. Moreover, even under plaintiffs’ broad reading of what poses a competitive threat to Windows, the software developed by Apple and Real Networks to display "multimedia" files and "streaming audio and video" files do not represent alternative "platforms" for ISVs to use in developing applications. The same is true of the "native signal processing" software that Intel was at one time developing to display "multimedia" files. If such software is not a competing "platform" to Windows and has nothing to do with web browsing software, it is difficult to see any possible basis for discussing it in the context of this case. With regard to Java, plaintiffs make unsubstantiated allegations about Microsoft’s purported efforts to "pollute" Java (see id. at 5) without recognizing that Microsoft distributes more and better Java Virtual Machines than anyone (including Sun and Netscape), and that Microsoft’s tools for developing Java applications are consistently rated the best in the software industry. Of course, all of plaintiffs’ talk about Java is beside the point, for one struggles in vain to determine the nexus between plaintiffs’ allegations regarding Java and the claims alleged in their complaints regarding purported foreclosure of distribution channels for web browsing software. Similarly, plaintiffs’ unfounded allegations regarding DR-DOS, an obsolete operating system that Novell ceased developing and marketing in September 1994 (and that Caldera only recently resuscitated for purposes of filing a lawsuit), are nothing but a smear tactic unrelated to the subject matters addressed in the complaints. The Federal Trade Commission and DOJ explored Novell’s charges that Microsoft created code "designed to disrupt the use of DR-DOS" (id. at 8) in great detail during their investigations that resulted in the Consent Decree, and neither agency found the charges-which are false-a sufficient basis to bring any enforcement action against Microsoft. Finally, plaintiffs’ allegations concerning Intuit are a blatant misrepresentation. (Id. at 17.) Although they quote a Microsoft e-mail mentioning the possibility of doing a favor" for Intuit that would not cost more than one million dollars "in return for [Intuit’s] switching browsers" (id.), plaintiffs do not-because they cannot-claim that Microsoft ever paid Intuit anything in exchange for Intuit’s utilizing Internet Explorer technologies. Nor did Intuit stop "support[ing] Netscape" in order to obtain "access to valuable placement on the Windows desktop." (Id.) [redacted text] In short, the Court should not be distracted from the task at hand by all of the flak plaintiffs have thrown up. Such irrelevancies do not detract from the inescapable conclusion that plaintiffs cannot satisfy essential elements of their claims. As a result, summary judgment should be granted dismissing those claims in their entirety. For the foregoing reasons, as well as those set out in Microsoft’s opening memorandum, this Court should grant Microsoft’s motion for summary judgment and dismiss plaintiffs’ complaints on the merits with prejudice and in their entirety. Dated: New York, New York September 8, 1998
[Certificate of Service omitted]
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