As Microsoft recognizes in its own internal communications, consumers are likely to select whatever Internet services (including browsers and IAPs) they see the first time they turn on their [begin page 26] PC, see, e.g., M. Dunie 2/24/97 e-mail ("[O]nce everything is in the OS and right there, integrated into the OS . . . there would be no more need to use something 'separate. "') (States' PI Ex. 1), and are unlikely to go through the trouble of switching. See, B. Chase 4/4/96 Planning Memo ("We know that it is very hard and expensive to make people switch") (States' PI Ex. 2).
Plaintiffs allege that, in addition to "tying" IE to Windows, Microsoft sought to control the OEM channel of browser distribution by restricting OEMs' ability to alter the Windows "bootup" sequence.15 After the machine boots up, the user sees a default or "first" screen. The bootup and first screen present a convenient opportunity for vendors of software and services to address potential customers, providing them with information about and access to their products, and for OEMs to communicate with their customers about configuration options.
When Windows 95 was first released, a number of OEMs who preinstalled Windows 95 customized the content and configurations of the computers' boot-up and first screens for various commercial reasons. Some OEMs altered the arrangement, number and content of icons and folders which accessed IAPs, Internet browsers and other software through the Windows 95 desktop. These OEMs struck deals with IAPs and ICPs that earned revenue for OEMs and gar. garnered customers for the IAPs and ICPs. In an internal e-mail, Bill Gates wrote of his concern that OEMs were bundling non-Microsoft browsers and "coming up with offerings together with Internet Service providers that get displayed on their machines in a FAR more prominent way than ... our Internet browser" and that those offerings were interfering with the "very very [begin page 27] important goal" of "[w]inning Internet browser share." B. Gates 1/5/96 e-mail (PI Ex. 45) (emphasis in original).
Allegedly to address this concern, Microsoft, as a condition of licensing Windows 98, began prohibiting OEMs from adding to the sequence of screens every user sees in the boot-up sequence and from modifying the first screen displayed to the user at the conclusion of the bootup sequence.16 OEMs could not remove folders or icons from the Windows desktop, create icons or folders larger than those placed by Microsoft on the desktop, and could not alter the boot-up sequence by, for instance, presenting an OEM-created screen that would highlight a choice of Internet browsers or the OEM's own Internet offerings. Plaintiffs contend that the boot and startup screen restrictions amount to an unreasonable restraint of trade in violation of § 1.
The restrictions are subject to a "rule of reason" analysis, and are unlawful only if they injure competition by restricting competitors' output more than they further Microsoft's legitimate objectives, see, e.g., National Soc'v of Prof'l Eng'rs v. United States, 43 5 U.S. 679, 691 (1978), American Ad Management, Inc. v. GTE Corp., 92 F.3d 781, 791 (9th Cir. 1996), or if Microsoft's objectives could be achieved by a less restrictive means, see Sullivan v. NFL, 34 F.3d 1091, 1103 (1st Cir. 1994);
Microsoft argues that its OEM license agreements merely highlight and expressly state the rights that Microsoft already enjoys under federal copyright law. Consequently, it contends, the agreements are not subject to challenge under the antitrust laws. According to Microsoft, the license agreements merely require that the very first time a consumer turns on his new computer, [begin page 28] Microsoft's copyrighted operating system be allowed to go through its initial startup sequence as designed, developed and tested by Microsoft and to display the Windows "desktop" screen without any aspects of that screen having been altered by the OEM.
Microsoft argues that it "may refrain from vending or licensing and content [itself] with simply exercising the right to exclude others from using [its intellectual] property." See Fox Film Corp. v. Doyal, 286 U.S. 123, 127 (1932). But whatever copyright protection Microsoft enjoys in its software is not unlimited. For example, copyright in a computer program does not extend to its functional aspects. See, e.g., Lotus Dev. Corp. v. Borland Int'l, Inc., 49 F.3d 807 (1st Cir. 1995), aff by an equally divided Court, 516 U.S. 233 (1996). It does not preclude design choices dictated by necessity, cost, convenience or consumer demand. See, e.g., Apple Computer, Inc. v. Microsoft Corp., 35 F.3d 1435, 1442 (9th Cir. 1994) (user interface of computer program entitled to only limited protection against "virtually identical" copying, because of license and because of limited number of different ways the underlying idea can be expressed), Computer Assocs. Int'l v. Altai, 982 F.2d 693, 715 (2d Cir. 1992) (significant portions of structure, sequence, and organization of program may be copied in order to write similar program to run on different platform). And it does not render inviolate portions of the program that are not original to its creator. See Stenograph L.L.C. v. Bossard Assocs., Inc., 144 F.3d 96, 99 (D.C. Cir. 1998).
Furthermore, copyright law does not give Microsoft blanket authority to license (or refuse to license) its intellectual property as it sees fit. A copyright does not give its holder immunity from laws of general applicability, including the antitrust laws. See Data General Corp. v. Grumman Sys. Supp. Corp., 36 F.3d 1147, 1185 n.63 (1st Cir. 1994) ("It is in any event well [begin page 29] settled that concerted and contractual behavior that threatens competition is not immune from antitrust inquiry simply because it involves the exercise of copyright privileges."). Copyright holders are restricted in their ability to extend their control to other markets. See Eastman Kodak Co. v. Image Technical Servs., Inc., 504 U.S. 451, 479 n.29 (1992) ("The Court has held many times that power gained through some natural and legal advantage such as a patent, copyright, or business acumen can give rise to liability if a seller exploits his dominant position in one market to expand his empire into the next.") (internal citation and quotation marks omitted). They may not prevent the development and use of interoperable programs by competitors. See, e.g., DSC Communications Corp. v. DGI Techs. Inc., 81 F.3d 597, 601 (5th Cir. 1996) (likely copyright misuse to use copyright in a computer program operating a telephone switch to prevent a competitor from designing and testing a compatible switch using copyright holder's protocol). Antitrust liability may also attach to other anticompetitive licensing restrictions involving copyrighted works. See, e.g., Practice Management Info. Corp, v. American Med. Ass'n, 121 F.3d 516, 520-21 (9th Cir. 1997) (finding copyright misuse where copyright owner entered into license agreements restricting licensees from competing with it), amended by , 133 F 3d 1140 (9th Cir.), cert. denied, 118 S. Ct. 2367 (1998); Lasercomb Am., Inc. v. Reynolds, 911 F.2d 970 (4th Cir. 1990) (same).
In addition to claiming a fight to "exclude" licensees as it sees fit, Microsoft cites the Second Circuit's opinion in Gilliam v. ABC, 538 F.2d 14 (2d Cir. 1976), recognizing a copyright holder's "moral right of integrity'' where a copyrighted work was significantly changed, or ,'mutilated," but still promoted under its original name. But the Gilliam court acknowledged the lack of statutory or doctrinal support in copyright law for the fight it recognized, see Gilliam, 538 [begin page 30] F.2d at 24 , and ultimately grounded its decision in trademark law. Id. at 24-25. Several subsequent decisions considering Gilliam have declined to endorse the "moral right" argument Microsoft advances. See, e.g., Halicki v. United Artists Communications, Inc., 812 F.2d 1213, 1214 (9th Cir. 1987); Weinstein v. University of Illinois, 811 F.2d 1091, 1095 n.3 (7th Cir. 1987); Paramount Pictures Corp. v. Video Broad. Sys, Inc., 724 F. Supp. 808, 820 (D. Kan. 1989).
Moreover, whatever policy justifications that may exist for a moral right of integrity in works of art are substantially weaker when the work at issue is a computer program, whose value lies in its functionality, not its artistry. The Copyright Act itself expressly allows owners of a copy of a computer program to "adapt" it in certain circumstances without the copyright owner's permission. See 17 U.S.C. § 117; see also Aymes v. Bonelli, 47 F.3d 23 (2d Cir. 1995). Although Microsoft undoubtedly enjoys some "right against mutilation" in its software, there are significant factual questions dispute on this issue, chief among them the extent of copyright protection in the specific portions of the software plaintiffs seek to modify.
Microsoft also claims that the boot and start-up screen restrictions are justified by legitimate business reasons, each of which is disputed by plaintiffs. For example, the restrictions purportedly ensure a "stable and consistent platform" for ISVs who must know that the software code that provides required system services ("APIs") will be present on every computer. In response, plaintiffs contend that the necessary APIs would be unaffected by alterations to the Windows boot-up sequence, modifications to the contents of desktop folders, or creation of icons of different shapes and sizes.
Microsoft also insists that the restrictions are necessary to ensure a "consistent user experience across multiple brands of computers." But plaintiffs point out that Microsoft permits [begin page 31] OEM modifications that do not affect the browser, even though such modifications may result in an "inconsistent user experience." For example, Microsoft grants exceptions to the screen restrictions for some OEM tutorials and "system check" applications. See J. Kempin (Microsoft) 3/18/98 Dep., 58:24 - 59-25. It permits some OEMs to display their own ISP sign-up software before the Windows 98 boot-process is completed for the first time, and permits OEMs to preload the software of their choice, subject to Microsoft's license restrictions. Removal by OEMs of the IE icon would not, plaintiffs argue, affect the overall "look and feel" of Windows any more than adding various software (which Microsoft permits). Similarly, the "look and feel" would not be affected by permitting OEMs to install icons of different sizes, plaintiffs contend.
Finally, Microsoft claims that the restrictions are necessary to "preserve Microsoft's reputation as a supplier of quality operating system software and enhance the value of Microsoft's brand name." See Gilliam, 538 F.2d at 18-19 (reputational injury resulting from unauthorized alteration of copyrighted work is irreparable). But plaintiffs argue that this "quality control" defense is implausible. Microsoft requires OEMs to bear the cost of providing post-sale software support for the computers they sell. Accordingly, OEMs are unlikely to take any action that will do anything to increase the likelihood that customers will call them for technical assistance.
Regardless of the viability of its justifications for the agreements, Microsoft contends that there is no antitrust violation because there is no market foreclosure. OEMs are free to configure the computers so that on all subsequent occasions (after the initial boot) they will boot directly into an alternative "shell" (such as Netscape Communicator). But several OEMs (and Microsoft executives) have expressed their belief that, while the licenses technically allow OEMs to engineer [begin page 32] a mechanism for "user-initiated" action after the first boot-up is complete to alter the Microsoft-required screens, these factors are of negligible value to OEMs. It is both costly and time-consuming for OEMs to develop such a mechanism, plaintiffs contend. See B. Chase (Microsoft) 3/l/96 e-mail ("most OEMs won't go through the hassle to develop such a DOS utility") (PI Ex. 43); J. Kempin (Microsoft) 3/18/98 Dep., 62:2 - 63:10; R. Brownrigg (Gateway 2000) Dep., 49:15 - 51:2; F. Santos (Hewlett-Packard) Dep., 29:11 - 30:15.
Numerous issues remain genuinely in dispute on the boot and start-up screen claim. These include the extent of copyright protection in the specific portions of software plaintiffs seek to modify and whether Microsoft abused its copyright for anticompetitive purposes. Plaintiffs also contest the legitimacy of Microsoft's claimed business justifications and Microsoft's claims that the restrictions do not foreclose competitors' opportunities.
Since May 1995, plaintiffs allege, Microsoft has substantially foreclosed non-Microsoft browsers from the IAP and ICP distribution channels by relying on its operating system monopoly to coerce IAPs and ICPs into entering into what amount to "exclusive dealing" arrangements. Plaintiffs claim that, in return for placement on Microsoft's coveted Windows desktop 'the content of which Microsoft controls by virtue of the boot and start-up screen restrictions), providers reluctantly agreed to distribute and promote IE and not to distribute and/or promote competitive browsers.
For example, plaintiffs assert, Microsoft reached agreements with the largest OLSs, including America Online, CompuServe, and Prodigy, by which Microsoft undertook to include [begin page 33] an icon for the OLSs' client software both in the "Online Services" folder17 that is displayed on the Windows desktop, and in the Windows "Start" menu. Pursuant to the agreements, Microsoft must also invest in the support and development of improved versions of the OLSs' client software. In return, the OLSs agree to: (1) distribute and promote IE to their subscribers as the "exclusive" or "primary" browser, and not to distribute a non-Microsoft browser unless a customer specifically requests it; (2) eliminate links on their Web sites from which their subscribers could download a competing browser; (3) refrain from "expressing or implying" to their subscribers that a competing browser is available (and even from displaying a logo for a non-Microsoft browser on the OLS's home page or elsewhere), (4) limit the percentage of competing browsers they distribute to 15%, even in response to specific requests from customers; and (5) design their Web sites using Microsoft-specific, proprietary programming extensions so that those sites look better when viewed with IE than when viewed through a competing browser.
A number of ISPs agreed to similar terms in return for Microsoft's agreement to include them in a list of providers that are shown to an end-user who selects his Internet access provider using a Windows 98 feature called the Internet Connection Wizard ("ICW'). When a user elects to use the ICW, Windows dials into a computer maintained by Microsoft that transmits to the user a list of participating ISPs. If the user decides to sign up for an ISP's service, Windows connects him to a computer maintained by that ISP, and the user's computer is automatically configured to work properly with the Internet connection provided by that ISP. In return, ISPs pay Microsoft a [begin page 34] referral fee for each customer referred to them through the ICW and agree to terms similar to those in the OLS agreements.
The third group of providers entering into such agreements with Microsoft were ICPs. One of IE 4.0's new features is the provision of "channels" that appear on the right side of the Windows desktop screen after IE 4.0 is installed. Channel buttons are icons on the Windows desktop screen that, when clicked, lead the user directly to a particular content provider's Web site or service,18 without having to sign on to the Internet through some intermediary step. In order to gain prominent "channel placement," certain ICPs agreed: (1) not to compensate the manufacturer of an "other browser"19 (including by distributing its browser) for the distribution, marketing, or Promotion of the ICP's content; (2) not to promote any browser produced by any manufacturer of an "other browser"; (3) not to allow any manufacturer of an "other browser" to promote and highlight the ICP's channel content on or for its browsers; and (4) to design its Web sites using Microsoft-specific, proprietary programming extensions so that those sites look better when viewed with IE than when viewed through a competing browser.
Plaintiffs contend that providers sometimes agreed to Microsoft's terms despite their preference not to be locked into exclusive browser distribution agreements. CompuServe, the nation's second-largest OLS, for example, expressed its preference "to have flexibility in software" that it distributes. See K. Knott Dep. at 25:4-5. An MCI executive testified that his company would have liked to "have had the flexibility to be able to promote other browsers [begin page 35] should there be a marketing advantage to do so." See S. Von Rump (MCI) Dep. at 11 -15-17. And AT&T told Microsoft that it wanted to remain "browser neutral," and that the "level of exclusivity" demanded by Microsoft was problematic for AT&T's partnership with Netscape. See D. Steele (Microsoft) 3/14/96 e-mail (PI Ex. 58); B. Silverberg Dep., 170:21 - 171:5. Nevertheless, plaintiffs contend, these providers acceded to Microsoft's restrictions in order to gain access to the nearly ubiquitous Windows desktop. For example, Microsoft allegedly told AT&T during negotiations: "You want to be part of the Windows box, you're going to have to do something special for us ... If you want that preferential treatment from us ... we're going to want something very extraordinary from you." See B. Silverberg Dep. at 159:10-16.
Exclusive dealing arrangements pose two related, but distinct antitrust concerns. First, they threaten to eliminate opportunities for products unable to find ample other outlets to the marketplace. Second, they raise the barriers to entry in a market because, in order to enter, producers will have to be vertically integrated (i.e., they will have to operate at both the manufacturing and retailing levels).
Recognizing potentially pro-competitive rationales for such agreements, see, e.g., Omega Envtl., Inc. v. Gilbarco, Inc., 127 F.3d 1157, 1162 (9th Cir.1997) ("well-recognized economic benefits to exclusive dealing arrangements"), petition for cert. filed, 66 U.S.L.W. 3750 (U.S. May 11, 1998) (No. 97-1828), courts are obliged to apply a "rule of reason" analysis. See, e.g., Roland Mach, Co. v. Dresser Indus., 749 F.2d 380, 393 (7th Cir. 1984) (rule of reason must be applied to exclusive dealing). As a threshold matter, courts generally determine whether a "substantial share of the relevant market" is foreclosed. See Tampa Elec. Co. v. Nashville Coal Co., 365 U.S. 320, 328-29 (1961). Once foreclosure of a sufficient percentage is found, courts [begin page 36] consider the agreements' actual impact on competition (as opposed to merely the foreclosed market share), see Tampa Elec., 365 U.S. 320, see also Collins v. Associated Pathologists, Ltd., 844 F.2d 473, 478-79 (7th Cir. 1988); Interface Group v. Massachusetts Port Auth., 816 F.2d 9, 11-12 (1st Cir. 1987), and any procompetitive justifications that may outweigh anticompetitive effects.
In considering the degree of foreclosure, it is important to remember that the relevant figure is the share of the browser market that is foreclosed by the challenged agreements, and not Microsoft's total browser share. Plaintiffs do not need to show that Microsoft's competitors are completely excluded from the marketplace. Cf. Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585 (1985) (competitor never contended that the joint marketing program at issue was essential to its survival, but rather that it impeded its marketing efforts). Nevertheless, plaintiffs must establish foreclosure on the order of greater than 40% to prevail on their exclusive dealing claims. See, e.g., United States v, Dairymen, Inc., 758 F.2d 654 (6th Cir. 1985) (unpublished) (50% sufficient), Sewell Plastics, Inc. v. Coca-Cola Co., 720 F. Supp. 1196, 1212- (W.D.N.C. 1989) (40% insufficient); Oltz v. St, Peter's Community Hosp., 656 F. Supp. 760 (D. Mont, 1987) (84% sufficient). Plaintiffs must also establish the extent to which exclusive dealing contracts are imposed on other resellers in the market. See Chuck's Feed & Seed Co., Inc. v. Ralston Purina Co., 8 10 F.2d 1289, 1295 (4th Cir. 1987) (j.n.o.v. for defendant where plaintiff failed to show extent to which exclusive dealing was used in the market as a whole).
Without citing a specific percentage of the market that is allegedly foreclosed, plaintiffs allege that Microsoft has entered into agreements with the "largest and most important" ISPs and OLSs and the "largest and most popular" ICPs. The OLSs in Microsoft's Online Services folder [begin page 37] include America Online, CompuServe, Prodigy, AT&T WorldNet and Microsoft Network, which, according to plaintiffs, collectively account for over 53% of the total North American subscriber base for Internet access, See Microsoft 1/23/98 Internet Customer Unit FY '98 Mid-Year Review (SJ Opp'n Ex. 26). In 1997, Microsoft estimated that 43% of home users access the Internet through AOL alone. See Microsoft April 1997 IE Market Review (PI Ex. 54). And one Microsoft executive has estimated Internet Explorer's share of usage among AOL subscribers as 92%. See C. Myhrvold 1/13/98 e-mail (SJ Opp'n Ex. 80).
Plaintiffs contend that Microsoft's conduct, in the aggregate, see Continental Ore Co. v. Union Carbide & Carbon Corp., 370 U.S. 690, 699 (1962) (courts should consider cumulative effects in assessing likelihood of anticompetitive harm); City of Anaheim v. Southern Cal, Edison Co., 955 F.2d 1373, 1376 (9th Cir. 1992), is substantially likely to entrench Microsoft's operating system monopoly and harm competition. Most importantly, plaintiffs allege, Netscape is foreclosed from the "vast majority" of IAPs, which are the single most important channel through which users acquire their browsers.20
Microsoft contends that Netscape and other competitors are not foreclosed from the marketplace, and that the availability to Netscape and others of alternative channels of distribution, including the possibility of direct sales to end users, by itself is fatal to an exclusive dealing claim. See, e.g., Omega Envtl., 127 F.3d at 1162-63; Seagood Trading Corp. v. Jerrico, Inc., 924 F.2d 1555, 1573 (11' Cir. 1991); Stitt Spark Plug Co. v. Champion Spark Plug Co., 840 F.2d 1253, 1258 (5th Cir. 1988), Microsoft claims that Netscape has arrangements with [begin page 38] thousands of ISPs and ICPs, who include "Netscape Now" buttons on their Web sites that facilitate the electronic downloading of Navigator. Netscape also apparently has arrangements with leading ISVs such as Corel, IBM, Novell, Oracle and Sun, and various OEMs who preinstall Navigator on their computers. Netscape executives testified that the company, through these and other channels, will distribute between 150 and 170 million copies of its browser this year alone.
But Netscape's CEO also testified that the ISP channel is one of the principal means through which Netscape has historically distributed its browser, and that other methods of distribution cannot make up for the lack of access to the ISP and OEM channels. Netscape's principal remaining channel for distributing its browser is to permit users to download it from a Netscape Web site, but Microsoft itself recognizes the decreasing viability of browser distribution through downloads, as browsers increase in complexity and size, resulting in inordinately long download times and a high rate of failure. See Myhrvold Dep., 152:19 - 153:4; J. Belfiore Dep. at 45:2-16; B. Chase 11/19/97 e-mail (PI Ex. 73). Microsoft's Carl Stork, who oversaw the development of Windows 95 and Windows 98, testified that having a browser preinstalled on a PC where a user buys it avoids the "painstaking" process of downloading, which is "fraught with risk," and reduces support calls and the potential for errors. See Stork Dep. at 42-43.
In addition to disputing the percentage of the market that may be foreclosed by the agreements in question, the parties disagree about numerous other factors courts consider in determining whether competition in the relevant market is actually affected. Microsoft argues that, since the OLS arrangements are short-term, they cannot unreasonably restrain trade. See, [begin page 39] e.g., Omega Envtl., 127 F. 3 d at 1163-64.21 Excluding the agreement with AOL, which expires on January 1, 2001, all of Microsoft's OLS agreements expire either this year or next. See Twin City Sportservice, Inc. v. Charles O. Finley & Co., Inc., 676 F.2d 1291 (9th Cir. 1982) (condemning contracts in excess of ten years); Barry Wright Corp. v. ITT Grinnell Corp., 724 F.2d 227, 236-38 (1st Cir. 1983) (approving two-year contracts); Roland Mach., 749 F.2d at 394-95 (approving agreements that could be terminated on one year notice). This factor may be appropriate to consider in a final determination of whether the agreements unreasonably restrain trade. It is, however, only one among many factors the Court will consider and does not admit of, much less compel summary judgment for Microsoft on this claim.
Microsoft also argues that the limitations on OLSs are justified to prevent "free-riding" by other browser manufacturers on Microsoft's investment in support for the development of improved versions of OLSs' software the agreements commit it to undertake. See generally Continental T.V., Inc. v. GTE Sylvania Inc., 433 U.S, 36, 55 (1977) (preventing free riding may justify certain vertical restraints); see also American Motor Inns, Inc. v. Holiday Inns, Inc., 521 F.2d 1230, 1252 (3d Cir. 1975) (hotel chain's exclusionary agreements with franchisees justified, in part, by chain's desire to strengthen its position vis-a-vis its competitors); Joyce Beverages v. Royal Crown Cola Co., 555 F. Supp. 271, 278 (S.D.N.Y. 1983) (recognizing exclusive dealing as [begin page 40] a means of assuring that retailer "devotes undivided loyalty to its particular brand and that it competes vigorously against all competing brands."). But "[w]hen payment is possible, free-riding is not a problem because the 'ride' is not free." Chicago Prof'l Sports, Ltd. Partnership v. NBA, 961 F.2d 667, 675 (7th Cir. 1992) (Easterbrook, J.). In other words, in order to recoup its investment, Microsoft could simply charge OLSs a fee rather than extract exclusionary rights.
Microsoft views its ISP agreements as nothing more than "commonplace cross-marketing arrangements." See Chuck's Feed & Seed, 810 F. 2d at 1295 (considering extent to which exclusive dealing was used in the market as a whole). For example, Netscape has similar agreements with all five of the regional Bell operating companies ("RBOCs"), providing that Navigator must be the default browser for all customers who do not specifically request an alternative. But plaintiffs point out that the Netscape restrictions will automatically terminate in the event that Microsoft's restrictions on AT&T and MCI are eliminated. See Solnik Dep. at 79:2-22; Beran Dep. at 49-52, Barksdale Dep. at 220-21. Moreover, those agreements (unlike Microsoft's) do not require that the RBOCs ship Navigator as a certain minimum percentage of their browsers. And the ISPs in Microsoft's Internet referral server have a combined base of over 4.3 million subscribers, compared to the 625,000 subscribers to the RBOCs, See Microsoft 1/28/98 ISP Marketing Update (SJ Opp'n Ex. 25).
Microsoft also points, out that its ISP agreements involve only eleven of the more than 4,500 ISPs in the United States and, once again, are short term, typically no longer than one or two years. Moreover, Microsoft points out, the customers of the eleven ISPs appear to be using Netscape's Web browsing software and IE in about the same proportion as Internet users generally. While that may be true, Microsoft's own documents, see Microsoft 1/26/98 Referral [begin page 41] Server Business Plan (SJ Opp'n Ex. 40), show that IE's share of browser usage is much higher among subscribers to ISPs that have been subject to its agreements since mid-1996 than among subscribers to ISPs that entered into agreements in mid- or late 1997. This supports plaintiffs' argument that the agreements have had a substantial role in increasing Microsoft's browser share.
In summary, the record to date discloses many material issues of fact genuinely in dispute on plaintiffs' exclusive dealing claims. Chief among them is the degree to which the browser market is foreclosed and the actual effect the agreements have had on competition. Also hotly in dispute is whether the arrangements serve legitimate business purposes that might outweigh any anticompetitive effect. Microsoft claims that consumers benefit by easier access to the Internet; ISPs included in its referral server and OLSs in the Online Services folder benefit by opening the door to a new source of customers; and Microsoft itself benefits by receiving referral fees from the providers and promotion of its browser technologies. But see Myhrvold Dep. at 137:6-7. (explaining that the referral server "doesn't even pay for itself, much less generate any profits").
Furthermore, any claimed benefit "cannot outweigh its harm to competition, if a
reasonable, less restrictive alternative to the policy exists that would provide the same
benefits" as the challenged policies. See Sullivan v. NFL, 34 F 3d
1091, 1103 (1st Cir. 1994). This difficult balancing of potentially legitimate business
justifications against what plaintiffs contend are exclusionary effects are fact-bound
questions that generally cannot be resolved on summary judgment. See, e.g., Betaseed,
Inc. v. U&I, Inc., 681 F.2d 1203, 1228-30 (9th Cir. 1982) (explaining that
"the reasonableness of a restrictive practice is a paradigm fact question" and
reversing grant of summary judgment for defendant on rule of reason claim).