DoJ says MS guilty of monopolisation and exclusionary deals

Reply says MS case avoids the real issues

MS on Trial Microsoft has been following the legal maxim that when the law is not on your side, argue the facts, but when you don't have the facts on your side, argue the law. That was why Microsoft cited 112 cases in its proposed conclusions of law last week (and 51 cases in its defence against the states). The Joint Reply by the DoJ and the plaintiff States, filed late yesterday, leaves Microsoft looking very exposed to the powerful remedies possible for breaching the Sherman Act. The Reply starts with Microsoft's core defence failing: it didn't take seriously Judge Jackson's finding that Microsoft has monopoly power, that it "fought a multi-front campaign, using a broad array of anticompetitive tactics that reduced rather than enhanced consumer choice, to sustain the critical barrier to entry protecting its monopoly power". It's "nearly an afterthought", the Reply states, "relegating its discussion to the back of its brief" and discussing the Sherman Act section one issues (and the attempted monopoly issue) first and without regard to the monopoly power tying claim. So far as the DoJ and the States are concerned, Microsoft "improperly evades the substantive importance of the finding of monopoly power". Microsoft addresses "straw men", uses out-of-context passages from decisions involving patently different market circumstances", and "repeatedly misstates the applicable legal standards in order to avoid the legal implications of the Court's findings" the Reply says. The Reply leaves until last Microsoft's primary and surprisingly feeble arguments that it was innocent because it was just defending its copyright and couldn't therefore be done for antitrust infringements. Throughout the case, Microsoft has leant heavily on the DC Circuit's (Court of Appeals') decisions in the case, but it was pointed out that aspects of the decisions that did not suit Microsoft are ignored. Consequently, the Reply argues, Microsoft should be done under section two for unlawfully maintaining its monopoly, and for two claims under section one: that it unlawfully tied IE to Windows, as well as entered into unlawful exclusionary agreements to maintain the monopoly. In addition, there is a further section two claim of attempted monopolisation of the browser market. It's "attempted" because when the evidence ended, it was not then provable that Microsoft had achieved a browser-market monopoly, but various actions by Microsoft were enough for the charge of attempted monopolisation. So far as the monopoly maintenance charges are concerned (and the judge had found Microsoft had a monopoly, so the arguments did not have to be repeated) it was pointless for Microsoft to wriggle over the market definition: the Mac market, network computers and middleware were different markets, the judge had decided, since none could substitute for Windows in the Intel-compatible PC operating system market. Microsoft had also tried to claim its market share was not legally conclusive evidence, but the Reply points out that it was an analysis of all the evidence that led the court to make its finding that Microsoft had monopoly power. Nor is Microsoft able to claim that it had no power over prices, since this "was confirmed by its evident lack of concern over rivals' prices and its internally recognised vast range of discretion over price". The weight of evidence and the findings of fact had reduced Microsoft to claiming that its restrictive agreements with OEMs over tying IE and Windows were not illegal because it did not absolutely "prevent Netscape from getting Navigator into the hands of consumers" (it just foreclosed the most important channels, of course). There was "no legitimate consumer-benefiting" reason for this, the Reply states. So far as Microsoft's argument that it had no duty to pre-disclose technical information about Windows 95 is concerned, the Reply points out that this had not been alleged, and that anyway, "the pertinent anticompetitive conduct was the sequence of (a) Microsoft's proposal that Netscape conspire to maintain the applications barrier to entry by withdrawing its plan to produce and distribute a browser that exposed APIs, followed by (b) Microsoft's punishing of Netscape, when Netscape declined to collude, by withholding information otherwise routinely made available to developers of software complements. "The punishment... corroborates the proof that Microsoft's proposal to Netscape was an anticompetitive scheme to exclude Netscape as a middleware threat and, second, because Microsoft's use of its power to dispense or withhold necessary operating system technical information... is an anticompetitive means of maintaining its operating system monopoly." So far as Microsoft's actions against Intel were concerned: "Microsoft does not deny that it succeeded in stopping Intel's promotion of its own NSP software and Intel's undertaking of other software initiatives. All Microsoft can say is that its success was so great that it not only stopped Intel from acting as an independent competitive force in the market but actually strengthened its monopoly by acquiring some of the very technology at issue. That acquisition aggravates, rather than alleviates, the competitive harm." Having knocked down Microsoft's attempted defence against the charge of illegal monopolisation, the Reply moves on to the illegal section one IE-Windows tying claim. Here Microsoft does not argue that Windows 98 does not combine two products, but relies on the DC Circuit's reference to a Supreme Court ruling. But the Reply points out that Microsoft's complaint under the Supreme Court's test, that it would be required "to offer OEMs and end users, a Chinese menu of options" was not a correct interpretation since separate options need only be offered when it is "efficient" to do so, and "In any event, Microsoft's argument, and its concern about testing costs and the like, ring hollow in light of the fact that Microsoft already offers end users a 'Chinese menu of options', allowing optional installation or removal through the Add/Remove utility of more than 70 software products or components shipped with Windows 98 (including most that were Internet-related, with the striking exception of Internet Explorer)." Furthermore, "Technological integration does not create a single product if it is mere 'bolting', that is, 'commingling for an anticompetitive purpose (or for no purpose at all)'; to create a single product, it must provide 'benefits when compared to a purchaser's combination of corresponding stand-alone functionalities'. In ignoring the standard, Microsoft also ignores the clear findings that Windows 98 is not a single product under even that standard; this Court's findings establish that Microsoft commingled files in Windows 98... for anticompetitive reasons and that the commingling provides no consumer benefits compared to stand-alone programs that function on their own but could be combined to achieve the integration benefits if the user wanted them." Microsoft's arguments that there were benefits in the commingling of IE and Windows are negated by the findings of fact. On the section one charge of entering into restrictive agreements, the findings of fact made it clear that they served no legitimate purpose, "that competition was substantially harmed by Netscape's foreclosure from meaningful access to the important distribution channels". Microsoft had maintained, in defence of the section two charge of attempting to monopolise the browser market, that it had no specific intent to do so, and that there was no dangerous probability of success. The Reply maintains that Microsoft's intent went "far beyond an intent to compete vigorously or to increase its market share". The findings of fact established that "a dangerous probability that Microsoft would achieve power over price (or innovation, which can effectively decrease price by increasing the value of a product even while its dollar price remains at zero). That power, as noted, may exist without 'driving non-Microsoft PC Web browsing software from the marketplace altogether'." Much of the DoJ's and the States' scorn at Microsoft's legal argument is reserved for Microsoft's arguments that it had a copyright defence to the restrictions it put on OEM licensing: "This argument is untenable". The Copyright Act was not intended to make it possible for Sherman Act constraints to be suppressed, and "as the Supreme Court has made clear, Congress 'has never accorded the copyright owner complete control over all possible uses of his work' but has instead limited the holder to those rights enumerated in the statute." Claiming that because IE and Windows were a single work because they were registered using the same form was perhaps Microsoft's most feeble argument: "The fact that a single copyright registration was employed for both Windows and Internet Explorer cannot support a claim that those two products are, for antitrust purposes or otherwise, one product. As the Copyright Office's regulations make clear, multiple copyrightable works may be registered on a single form, without thereby rendering them a single work. The number of distinct 'works' for purposes of the copyright law is determined not by the number of registration forms, but by the number of distinct copyrightable entities that are separately economically viable." The conclusion of the Reply was simple enough: "This Court should conclude that Microsoft has violated Sections 1and 2 of the Sherman Act and proceed to consider the appropriate remedy." Before that happens, Microsoft will be allowed to reply to the joint plaintiffs' Reply next week, and then have a day in court for legal argument on 22 February. ®

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