Brief for Appellees United States and the State Plaintiffs ______
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ORAL ARGUMENT SCHEDULED FOR FEBRUARY 26-27, 2001 ______________________________________________________________________________ ______________________________________________________________________________ Nos. 00-5212, 00-5213 IN THE UNITED STATES COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA CIRCUIT _______________ UNITED STATES OF AMERICA and STATE OF NEW YORK, et al., Plaintiffs-Appellees v. MICROSOFT CORPORATION, Defendant-Appellant _______________ ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA _______________ BRIEF FOR APPELLEES UNITED STATES AND THE STATE PLAINTIFFS _______________ ELIOT SPITZER A. DOUGLAS MELAMED Attorney General of the Acting Assistant Attorney General State of New York JEFFREY H. BLATTNER PREETA D. BANSAL Deputy Assistant Attorney General Solicitor General JEFFREY P. MINEAR HARRY FIRST DAVID C. FREDERICK Assistant Attorney General Assistants to the Solicitor General MELANIE L. OXHORN MARY JEAN MOLTENBREY Assistant Solicitor General Director, Civil Non-Merger Enforcement RICHARD L. SCHWARTZ CATHERINE G. O'SULLIVAN Assistant Attorney General ROBERT B. NICHOLSON 120 Broadway DAVID E. BLAKE-THOMAS New York, NY 10271 JOHN F. COVE, JR. JAMES E. DOYLE SUSAN M. DAVIES Attorney General of Wisconsin ADAM D. HIRSH KEVIN J. O'CONNOR ANDREA LIMMER Lead State Counsel PHILLIP R. MALONE Office of the Attorney General DAVID SEIDMAN State Capitol, Suite 114 East CHRISTOPHER SPRIGMAN Madison WI 53707-7857 Attorneys (608) 266-8986 Department of Justice Washington D.C. 20530 (202) 514-2413 CERTIFICATE AS TO PARTIES, RULINGS, AND RELATED CASES A. All parties, intervenors and amici appearing before the district court and in this court are listed in the Brief for Appellant. B. References to the rulings at issue appear in the Brief for Appellant. C. This case was previously before this Court in Nos. 98-5399 and 98-5400, United States v. Microsoft Corp., 165 F.3d 952 (D.C. Cir. 1999). There are no other related cases currently pending in this Court or in any other court. TABLE OF CONTENTS CERTIFICATE AS TO PARTIES, RULINGS, AND RELATED CASES ................. i TABLE OF CONTENTS ...................................................... ii TABLE OF AUTHORITIES ................................................... vi GLOSSARY ...............................................................xvi STATEMENT AS TO STATUTES AND REGULATIONS .......................... xix STATEMENT OF ISSUES......................................................1 STATEMENT OF THE CASE...................................................1 A. Introduction ..........................................................1 B. Course Of Proceedings .................................................4 C. Statement Of Facts ....................................................6 1. Microsoft’s Operating System Monopoly ..............................7 a. The Market..................................................7 b. The Applications Barrier To Entry................................9 2. Combating The Middleware Threats .................................11 a. The Attempt To Obtain Agreement With Netscape..................12 b. Denying Netscape Access To Crucial Channels Of Distribution........14 (i) Excluding Navigator From The OEM Channel ....................16 (a)Contractual Restrictions And Coercion Of OEMs...............16 (b) Additional Means To Prevent OEMs From Distributing Navigator..............................................20 (ii) The IAP Channel...........................................24 (iii) Apple ....................................................28 -ii- (iv) ICPs And ISVs ............................................30 (v) Effects Of The Campaign.....................................31 c. Java.......................................................35 d. Intel And Others.............................................39 SUMMARY OF ARGUMENT..................................................41 ARGUMENT................................................................45 STANDARD OF REVIEW .....................................................45 I. MICROSOFT VIOLATED SECTION 2 OF THE SHERMAN ACT THROUGH A COURSE OF ANTICOMPETITIVE CONDUCT THAT MAINTAINED ITS OPERATING SYSTEM MONOPOLY ...................................................47 A. The Offense Of Monopolization .........................................47 B. Microsoft Has Monopoly Power .........................................51 1. The District Court Correctly Found That The Relevant Market Is “The Licensing Of All Intel-Compatible PC Operating Systems Worldwide” . 52 2. The District Court Correctly Concluded That Microsoft Has Monopoly Power .....................................55 a. Microsoft’s Dominant, Persistent, And Increasing Market Share Supports A Finding Of Monopoly Power .........................55 b. Microsoft Is Protected By Barriers To Entry That Support A Finding Of Monopoly Power ..........................57 c. Microsoft’s Conduct Did Not Negate A Finding Of Monopoly Power ...60 C. Microsoft Engaged In A Multifaceted Campaign Of Exclusionary Conduct That Maintained Its Monopoly Power ....................................62 1. The District Court Imposed Liability Based On Microsoft’s Anticompetitive Conduct ..........................................63 2. The District Court Did Not Condemn Microsoft For Developing -iii- Or Improving Its Products .........................................65 3. The District Court Correctly Concluded That Microsoft Wrongfully Excluded Netscape Navigator From The OEM Channel..................68 a. Copyright Law Does Not Insulate Microsoft’s Restrictive OEM License Provisions From The Antitrust Laws .............................68 b. Microsoft’s Conduct Was Exclusionary Even Though It Did Not Completely Exclude Navigator From The OEM Distribution Channel ....................................73 4. The District Court Correctly Concluded That Microsoft Wrongfully Excluded Netscape Navigator From The IAP Channel..........76 a. The Court’s Section 1 Determination Does Not Preclude A Finding That Microsoft’s Exclusion Of Navigator From The IAP Channel Violated Section 2 ...........................................77 b. Microsoft’s Conduct Was Exclusionary Even Though It Did Not Completely Exclude Navigator From The IAP Distribution Channel....78 5. The District Court Correctly Ruled That Aspects Of Microsoft’s Java Implementation Violated Section 2 ..................................79 6. The District Court Correctly Based Liability On Microsoft’s Course Of Conduct As A Whole, As Well As On Its Individual Acts .......80 D. Microsoft’s Exclusionary Conduct Contributed Significantly To The Maintenance Of Its Operating Systems Monopoly ...........................83 II. MICROSOFT ATTEMPTED TO MONOPOLIZE THE BROWSER MARKET .......87 A. Microsoft’s Proposal To Netscape In June 1995 Constituted Attempted Monopolization .....................................................88 B. Microsoft’s Pattern Of Conduct Following Netscape’s Failure To Accept Its Proposal Constituted Attempted Monopolization ............................93 III. MICROSOFT VIOLATED SECTION 1 OF THE SHERMAN ACT BY TYING INTERNET EXPLORER TO WINDOWS .....................................97 A. Microsoft Is Liable Under The Supreme Court’s Tying Decisions ..............98 -iv- B. Microsoft Is Liable Under The Microsoft II Rationale For Distinguishing Integrated Products ..................................................102 1. The District Court Condemned Tying, Not Integrated Design .............102 2. Windows and IE Would Be Considered Separate Products If Microsoft II Were Applied To The Facts Of This Case............................104 C. Microsoft’s Tying Had Significant Competitive Consequences ................107 IV. THE DISTRICT COURT DID NOT COMMIT REVERSIBLE ERROR IN THE SCHEDULING OR CONDUCT OF THE PROCEEDINGS ON LIABILITY .........110 A. The District Court Did Not Abuse Its Discretion In Managing Its Docket........110 B. The District Court Did Not Rely On Inadmissible Hearsay In Making Any Essential Finding Of Fact .........................................114 V. THE DISTRICT COURT PROPERLY ORDERED STRUCTURAL AND CONDUCT REMEDIES AND FOLLOWED APPROPRIATE PROCEDURES IN DOING SO ....119 A. The District Court Did Not Abuse Its Discretion In Ordering The Remedy.......119 1. Divestiture Of Microsoft Into “OpsCo” And “AppsCo” .................120 2. Conduct Restrictions .............................................128 B. The District Court Did Not Err By Entering Its Decree Without A Separate Evidentiary Hearing On Remedy.................................................135 VI. JUDGE JACKSON’S OUT-OF-COURT COMMENTS DO NOT MERIT VACATING THE JUDGMENT OR REMOVING HIM FROM FURTHER PROCEEDINGS ......145 CONCLUSION .............................................................150 ADDENDUM A Statutes And Regulations .................................... A-1 ADDENDUM B Index To The District Court’s Findings Of Fact ...................B-1 ADDENDUM C Witnesses, Deponents, And Others Named In This Brief ............C-1 -v- TABLE OF AUTHORITIES Cases A.H. Cox & Co. v. Star Mach. Co., 653 F.2d 1302 (9th Cir. 1981) .......................89 AD/SAT v. Associated Press, 181 F.3d 216 (2d Cir. 1999) .............................55 Adams v. Hinchman, 154 F.3d 420 (D.C. Cir. 1998) ..................................46 Advanced Computer Servs. of Mich., Inc. v. MAI Sys. Corp., 845 F. Supp. 356 (E.D. Va. 1994) .............................................73 Advanced Health-Care Servs. v. Radford Cmty. Hosp., 910 F.2d