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IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
UNITED STATES OF AMERICA,
Petitioner,
v.
MICROSOFT CORPORATION,
Defendant.
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Supplemental to
Civil Action No. 94-1564
Hon. Thomas Penfield Jackson
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REPLY BRIEF OF PETITIONER UNITED STATES OF AMERICA
Joel I. Klein
Assistant Attorney General
A. Douglas Melamed
Principal Deputy Assistant Attorney General
Rebecca P. Dick
Director of Civil Non-Merger Enforcement
Christopher S Crook
Chief
Phillip R. Malone
Steven C. Holtzman
Pauline T. Wan
Karma M. Giulianelli
Michael C. Wilson
Sandy L. Roth
John F. Cove, Jr.
Attorneys
U.S. Department of Justice
Antitrust Division
450 Golden Gate Ave., Room 10-0101
San Francisco, CA 94102
(415) 436-6660
.
Page 2
TABLE OF CONTENTS
1. INTRODUCTION................................................................................................................ 1
2. MICROSOFT'S REQUIREMENT THAT PC OEMS LICENSE ITS
SEPARATE INTERNET EXPLORER PRODUCT AS A CONDITION OF
RECEIVING WINDOWS 95 VIOLATES SECTION IV(E)(i) OF THE FINAL
JUDGMENT...................................................................................................................... 3
3. MICROSOFT'S FORCED DISTRIBUTION OF INTERNET EXPLORER IS
NOT MADE LAWFUL BY SECTION IV(E)(i)'S PROVISO REGARDING THE
DEVELOPMENT OF INTEGRATED PRODUCTS.......................................................... 5
a. The Plain Meaning of "Developing Integrated Products"........................................ 6
b. The Facts Alleged by Microsoft Regarding the
Background To and Negotiation of the Consent
Decree Are Consistent With the Government's Position......................................... 7
i. The Negotiation of the Decree..................................................................... 7
ii. Microsoft's Argument that the Government Was
"On Notice" of Its Plans Regarding Windows 95 and
IE is Legally and Factually Wrong............................................................... 9
c. Microsoft's Analogies to Other So-Called
"Integrated" Features of Windows Are Immaterial................................................ 13
4. THE RELIEF REQUESTED BY THE UNITED STATES IS SIMPLE,
STRAIGHTFORWARD, AND IN THE PUBLIC INTEREST........................................ 15
a. IE 4.0.................................................................................................................... 15
b. IE 3.0.................................................................................................................... 16
5. MICROSOFT'S NON-DISCLOSURE AGREEMENTS.................................................. 18
6. OTHER ISSUES................................................................................................................ 20
a. The United States' Petition is Not Barred By Equitable Estoppel......................... 20
b. Microsoft's Request for Extensive Proceedings and Discovery............................ 22
c. The Confidentiality of Microsoft Documents........................................................ 23
7. CONCLUSION.................................................................................................................. 25
.
Page 3 .
TABLE OF AUTHORITIES
Cases
Hecht Co. v. Bowles, 321 U.S. 321 (1944).............................................................................. 19, 20
Heckler v. Community Health Services, 467 U.S. 51 (1984)................................................... 20, 21
Jefferson Parish Hospital District No. 2 v. Hyde, 466 U.S. 2 (1984).............................................. 5
McComb v. Jacksonville Paper Co., 336 U.S. 187 (1949)............................................................ 19
United States v. Armour & Co., 402 U.S. 673 (1971)................................................................... 22
United States v. ITT Continental Baking Co., 420 U.S. 223 (1975).............................................. 22
Utah Power & Light Co. v. United States, 243 U.S. 389 (1916)................................................... 21
ATC Petroleum, Inc. v. Sanders, 860 F.2d 1104 (D.C. Cir. 1988)................................................ 21
Cia Petrolera Caribe, Inc. v. Arco Caribbean, Inc.,
754 F.2d 404 (1st Cir. 1985).......................................................................................................... 20
Clayman v. Goodman Properties, 518 F.2d 1026 (D.C. Cir. 1974).............................................. 22
Digidyne Corp. v. Data General Corp., 734 F.2d 1336 (9th Cir. 1983)......................................... 5
EEOC v. National Children's Center, 98 F.3d 1406 (D.C. Cir. 1996).................................... 24, 25
Food Lion, Inc. v. United Food and Commercial Workers Union,
103 F.3d 1007 (D.C. Cir. 1997)..................................................................................................... 22
GAO v. GAO Personnel Appeals Board, 698 F.2d 516 (D.C. Cir. 1983)...................................... 21
Grumman Ohio Corp. v. Dole, 776 F.2d 338 (D.C. Cir. 1985)..................................................... 21
Hospital Corp. of America v. FTC, 807 F.2d 1381 (7th Cir. 1986),
cert. denied, 481 U.S. 1038 (1987) (emphasis added)................................................................... 20
Multistate Legal Studies, Inc. v. Harcourt Brace Jovanovich
Legal & Professional Publications Inc., 63 F.3d 1540 (10th Cir. 1995)......................................... 5
Papago Trial Utility Authority v. Federal Energy Regulatory Comm'n,
723 F.2d 950 (D.C. Cir. 1983)....................................................................................................... 22
United States v. Microsoft Corp., 56 F.3d 1448 (D.C. Cir. 1995)............................................. 6, 23
Williams v. Edwards, 87 F.3d 126 (5th Cir. 1996)........................................................................ 20
Dixon v. Barry, 967 F. Supp. 535 (D.D.C. 1997).......................................................................... 20
In re Data General Corporation Antitrust Litigation,
490 F. Supp. 1089 (N.D. Ca. 1980)................................................................................................ 5
Martin Marietta Corp. v. Dalton, 974 F. Supp. 37 (D.D.C. 1997)................................................ 24
Statutes
15 U.S.C. &167; 16(b)-(h) (1994)......................................................................................................... 23
15 U.S.C. &167; 1313(c)(3)................................................................................................................... 24
15 U.S.C. &167; 1313(d)(1)................................................................................................................. 24
Legislative History
The Antitrust Procedures and Penalties Act: Hearings on S. 782 and S. 1088
before the Subcommittee on Antitrust and Monopoly of the Committee
on the Judiciary, 93rd Cong., 1st Sess. (1973).............................................................................. 23
Antitrust Procedures and Penalties Act, H.R. No. 93-1463, at 6539 (1974),
reprinted in 1974 U.S.C.C.A.N. 6535........................................................................................... 23
Page 1 .
.I. INTRODUCTION
. . . . [A]t the moment a lot of external people are asking if we will
be shipping internet apps [applications]. The position we have
taken so far is that Chicago [Windows 95] contains all the
plumbing you need to hook up to the net -- but cool apps like
Mosaic [the Internet browser] are stuff you need to obtain from
3rd parties.
E-mail from Alec Saunders of Microsoft to Steven Sinofsky, April 20, 1994. 1
[T]here are no plans to ship the Mosaic software in the Windows
95 box when it ships in August of this year. Our plan is to deliver
this capability shortly after Windows 95 ships.
Draft Q & As for Bill Gates' January 11, 1995 announcement that Microsoft was licensing
Mosaic Internet browser technology from Spyglass. 2
Microsoft's Internet Explorer browser was developed as, and in every significant way
continues to be, a separate product from Microsoft's Windows 95 operating system. Microsoft
has named, packaged, and positioned Internet Explorer as a separate product; it aggressively
advertises and markets it as a separate product; and it is currently in the midst of an all-out
"browser war" to gain users and browser share in what it sees and closely tracks as a separate
browser market. Indeed, as recently as December 1996, four months after IE 3.0 was released,
Microsoft internal documents continued to describe IE as a separate product -- "just an add-on to
Windows which is cross-platform" See Confidential Declaration of Mark C. Gaspar (hereinafter
"Gaspar Conf. Decl."), . 17, Exh. 14.
Now, however, following the commencement of the United States' investigation and the
filing of this contempt action, Microsoft seeks to rewrite this history -- to disavow everything it
has told millions of consumers -- by attempting to characterize Internet Explorer as an
"integrated" component of Windows 95, rather than a separate product.
Section IV(E)(i) of the Final Judgment expressly prohibits Microsoft from requiring PC
OEMs, as a condition of licensing Windows 95, also to license another product such as Internet
Explorer. Microsoft does not dispute most of the elements of the United States case against it:
Page 2
that Windows 95 is a "Covered Product" under the Final Judgment; that Windows 95 is
"licensed" to OEMs; that this license is "conditioned" on OEMs licensing Internet Explorer; and
that Internet Explorer is essentially a separate or "other product."
In fact, rhetoric aside, Microsoft's Memorandum in Opposition (hereinafter "MS Opp.")
disputes only one element of the United States' case -- specifically, the legal issue whether,
notwithstanding the express prohibition in Section IV(E)(i), Microsoft is permitted to require
OEMs to license Internet Explorer, as a condition of licensing Windows 95, because of the
proviso regarding "integrated products." Although Microsoft concedes that "the proviso does not
have some specialized meaning" (MS Opp. at 3), and presumably therefore that discovery is not
necessary to understand it, Microsoft's interpretation of the proviso would rob the main clause of
Section IV(E)(i) -- the prohibition on coercive marketing of separate products -- of any practical
meaning. In essence, Microsoft asserts that "integrated" means whatever Microsoft says it means
and that the proviso enables it to put any separate product into a package with Windows 95,
whenever doing so will suit its strategic objectives. That interpretation of the proviso would of
course render Section IV(E)(i) meaningless. Not surprisingly, it finds no support in the language
of the Final Judgment or the circumstances that led to the Court's decision to enter it.
The basic fallacy in Microsoft's position is that it confuses the Final Judgment's
prohibition on coercive marketing practices with the assurance of the proviso that Microsoft will
be free to develop new, integrated products. Internet Explorer 4.0 is the perfect example of this
fallacy. Even under Microsoft's own definition of "integrated" (i.e., "combined," "united," or
"incorporated into"), IE 4.0 cannot be said to be integrated with Windows 95. The two products
are not now, and have never been, combined, united, or incorporated with each other in any way,
except after an OEM or an end user independently chooses to combine them by purchasing or
downloading and installing Internet Explorer 4.0 separately, on a PC running Windows 95. In
February 1998, when Microsoft has said it will require OEMs to license and distribute Internet
Explorer 4.0 as a condition of licensing Windows 95, nothing will change about the nature or
characteristics of either product or the technical relationship between them. To the contrary, the
only thing that will change, unless prevented by the Court, is Microsoft's use of its market power
to force OEMs to license both products, rather than allowing them to choose between IE 4.0 and
Page 3
other browsers. This kind of exercise of Microsoft's contracting power has nothing to do with
"developing integrated products."
Even as it admits that this case is straightforward, Microsoft nevertheless seeks to turn it
into a prolonged antitrust proceeding and thereby ensure extensive delay -- which will render the
critical issues moot and work to Microsoft's commercial advantage and harm consumers by
denying them the choices to which they are entitled. The Court should reject this effort and
instead rule on the present record that Microsoft is violating the Final Judgment. As will be seen,
Microsoft has not raised any genuine dispute about any fact necessary in order for the Court to so
rule. 3
It is especially important that the Court rule expeditiously regarding the intended forced
bundling of IE 4.0. Microsoft introduced that product on September 30, 1997, and the United
States was informed during a deposition of a Microsoft executive on October 2 that Microsoft
intended to require OEMs to license and preinstall it beginning in February 1998. After learning
of Microsoft's intent in this regard, and almost immediately after IE 4.0's introduction, the United
States filed its Contempt Petition, in the belief that the Court should order Microsoft to comply
with the Final Judgment in time to prevent that new, intended violation. Because OEMs need
substantial lead time -- often 60 to 90 days -- to decide what software, including browsers, to
install on new PC products, the Court should act quickly to enjoin Microsoft's imminent
violation and to maintain the status quo with regard to IE 4.0.
II. MICROSOFT'S REQUIREMENT THAT PC OEMS LICENSE ITS
SEPARATE INTERNET EXPLORER PRODUCT AS A CONDITION OF
RECEIVING WINDOWS 95 VIOLATES SECTION IV(E)(i) OF THE
FINAL JUDGMENT
As set forth in the United States' Petition and supporting Memorandum, Section IV(E)(i)
of the Final Judgment expressly provides that Microsoft may not require OEMs to license any
"other product" in order to license Windows 95. Microsoft concedes that it requires OEMs to
Page 4
license IE in order to license Windows 95.
Microsoft does not genuinely dispute the mass of evidence that Internet Explorer is
treated by Microsoft, and regarded by the market and the industry, as a product separate and apart
from Windows 95. This evidence, detailed in the United States' Memorandum in Support of
Contempt Petition and supplemented here, shows, among other things, that
Regardless of what it could have called it (see MS Opp. at 29), Microsoft pervasively
markets, distributes, and describes Internet Explorer as a product of its own, and not
as an operating system update, see Gaspar Conf. Decl., .. 5, 8, 10, 16, Exh. 2, 5, 7,
13; Declaration of Mark C. Gaspar (hereinafter "Gaspar Decl."), .. 11-20, Exh. 8-9;
Microsoft tracks consumer usage of each version of Internet Explorer in a separate
"space" or "market" from Windows 95; see Gaspar Conf. Decl. .. 4-8, 11-13, 15-16,
Exh. 1-5, 8-10, 12-13; 4
Microsoft describes Internet Explorer as a product or an "application" that works
well with or on top of -- not as part of -- Windows 95, see U.S. Memorandum in
Support of Petition at 23, App. Exhibit 22; Gaspar Conf. Decl. . 7, Exh. 4;
Microsoft actively makes Internet Explorer available for non-Microsoft operating
systems, markets those versions of Internet Explorer in an identical way as, and often
even in the same box with, the version of Internet Explorer for Windows 95, and
counts usage of all versions when measuring its Internet Explorer market share; see
Gaspar Conf. Decl. .. 5, 9, 11, 15, Exh. 2, 6, 8, 12; and
There are separate and very different demands for Internet Explorer browsers, on the
one hand, and Windows 95, on the other hand. See U.S. Memorandum in Support of
Petition, p. 20.
These undisputed facts are precisely the kinds of facts that are ordinarily used in antitrust
proceedings to determine whether items sold or packaged together are one product or, as here,
Page 5 . . . . .
two separate products. 5 These facts make clear that Internet Explorer is an "other product" under
Section IV(E)(i). Microsoft's requirement that OEMs take Internet Explorer as a condition of
licensing Windows 95 thus violates Section IV(E)(i) of the Final Judgment.
III. MICROSOFT'S FORCED DISTRIBUTION OF INTERNET EXPLORER
IS NOT MADE LAWFUL BY SECTION IV(E)(i)'S PROVISO
REGARDING THE DEVELOPMENT OF INTEGRATED PRODUCTS
Microsoft ignores the prohibition in the main clause of Section IV(E)(i) and focuses,
instead, on the "develop[] integrated products" proviso to that Section. The problem is that, by
ignoring the prohibition in the main clause, Microsoft has proposed an arid, senseless reading of
"developing integrated products" that would render Section IV(E)(i) meaningless. According to
Microsoft, the proviso gives it "unfettered freedom" to create whatever "packages" of products it
chooses (MS Opp. at 17) and to require OEMs to take the whole package without violating the
Final Judgment; indeed, in its discussions with the government before the Petition was filed,
Microsoft flatly stated that its interpretation of the Final Judgment would enable it to require
OEMs to put "orange juice" or "a ham sandwich" in the box with a PC preinstalled with
Windows 95. 6
Microsoft's position defies common sense, and violates elementary principles of
interpretation, because it makes Section IV(E)(i) meaningless. Microsoft's reliance, elsewhere in
its Opposition, on a dictionary definition of the single word "integrated" -- "'combined,' 'united,'
Page 6 . .
or incorporated into'" (MS Opp. at 21) -- cannot save its position because those terms, read
without any contextual limit, as Microsoft proposes to read them, could encompass complements
like a lamp and a lightbulb, and even unrelated products like PCs and ham sandwiches, so long
as they are "combined" in a package selected by Microsoft. What is required here, as in all
consent decree cases -- and what the government offers -- is a straightforward reading of Section
IV(E)(i) as a whole that gives meaning to all its provisions. See id. at 20.
A. The Plain Meaning of "Developing Integrated Products"
Microsoft concedes that the Final Judgment is "straightforward" and that the term
"integrated products" has a plain and unambiguous meaning. 7 In the United States' view, on the
undisputed facts of this case, that meaning is this: Microsoft may not condition an OEM's
license to Windows 95 on the OEM's acceptance of what, in the ordinary commercial and
antitrust sense, Microsoft distributes, markets, or otherwise treats as an "other" or separate
product. Microsoft is free, however, to develop new, integrated products and to offer those
products to OEMs and others.
Under this straightforward reading of Section IV(E)(i), all three operative words -- "other
product," "developing," and "integrated product" -- remain operative. Microsoft is prevented
from engaging in certain marketing conduct, such as requiring OEMs to license Internet Explorer
or other separate software products as a condition of their Windows 95 licenses. At the same
time, the proviso ensures that Microsoft may develop new products, such as Windows 95 itself,
and may innovate in product development without restriction. 8
Page 7 . .
B. The Facts Alleged by Microsoft Regarding the
Background To and Negotiation of the Consent
Decree Are Consistent With the Government's Position
The facts alleged by Microsoft, far from refuting the government's position, support it.
Those allegations thus do not raise a genuine dispute of material fact that would prevent this
Court from ruling on the present record that Microsoft is violating the Final Judgment.
1. The Negotiation of the Decree
According to Microsoft, Section IV(E)(i) was added to the decree because of allegations
that it was providing incentives to OEMs to take its version of DOS in order to license its
Windows 3.1 product. (MS Opp. at 12-13; Urowsky Decl. . 17). Section (IV)(E)(i) was thus
intended to prevent Microsoft from bundling two separate products in that way and thereby
protecting or extending its monopoly power. See, e.g.,Competitive Impact Statement filed in
connection with the Final Judgment (hereinafter "CIS"), pp.10-11, 59 Fed. Reg. 42845, 42852
(1994).
According to Microsoft, the proviso to Section IV(E)(i), though not the original
prohibition, was drafted by it and added to ensure that Microsoft "reserved its right to continue to
develop integrated products like Chicago. . . ." See MS Opp. at 13 (emphasis added). It was the
development of "Chicago," now called Windows 95, that occasioned Microsoft's concern and
that was discussed in the decree negotiations. Windows 95 was a next-generation operating
system that began with parts of the existing MS-DOS and Windows 3.1 products but went far
beyond them to become a fundamentally new system -- one that Microsoft has never claimed to
be, and that it could not plausibly claim to be, simply a package of MS-DOS and Windows 3.1.
See Gaspar Decl. . 22, Exh. 10. Windows 95 was precisely the type of "integrated product"
whose development, Microsoft argues, was intended to be permitted by the proviso. See MS
Opp. at 13.
The effect of Microsoft's argument, however, is to prove the United States' point. The
story of the development of a wholly new Windows 95 is fundamentally different from the story
of the mere packaging or bundling together of the existing, separate Internet Explorer and
Windows 95 products:
First, Microsoft's fundamental plan in developing what ultimately became Windows 95
Page 8
was to fully integrate the kinds of functions provided by Windows 3.1 and MS-DOS with
many new functions into a complete new architecture. By contrast, as will be seen,
Microsoft's own documents make clear that Internet Explorer was developed not as an
integral part of Windows 95, but rather as a freestanding technology. Microsoft chose to
"bundle" Internet Explorer with Windows 95 at a later time; it was not even shipped
along with the initial retail version of the Windows 95 operating system. 9
Second, Windows 95 was not developed as, and is not, just an amalgamation of DOS and
Windows 3.1. Rather, it is a fundamentally new and different product, which began with
those precursors but resulted in something much larger and greater than the two of them
combined. See Gaspar Decl. .22, Exh. 10; McCarthy Conf. Decl. .. 10-12, Exh.'s 6-8.
By contrast, Internet Explorer has been and continues to be offered as a separate, stand-
alone product which, like all such separate software products, performs certain functions
when used in conjunction with Windows 95. See Gaspar Decl., .. 3-10, Exh. 2-7. It
perform the same functions whether it is obtained and installed by the user or preinstalled
by the OEM.
Third, IE 4.0 was developed separately from the Windows 95 development efforts. See,
e.g., Gaspar Conf. Decl, . 14, Exh. 11 (April 1997 e-mail titled "RE: IE 4," stating in
pertinent part that "it's important to realize that IE [4] is not an OS development effort
and does not have the same programs and resources.") IE 4.0 was, moreover, released to
the market independent of any new release or version of Windows 95, and Microsoft does
not now require it to be shipped with Windows 95. 10
Page 9 .
Fourth, neither DOS 6.2 nor Windows 3.1 is designed to or can be installed or run on top
of Windows 95. Internet Explorer, by contrast, was developed to do exactly that and is
often described by Microsoft as an "application" or "product" that works "with" -- not as
part of -- Windows 95. See Section II, supra.
Fifth, Microsoft claims it has never required OEMs to license either Windows 3.1 or
DOS 6.2 as a condition of licensing the other, or to license either of them as a condition
of licensing Windows 95. By contrast, Microsoft requires OEMs to take Internet
Explorer as a condition of licensing Windows 95.
In short, the negotiating history, even as described by Microsoft, supports the
government's position. The purpose of the decree was to prevent forced bundling in the
marketplace of separate products like MS-DOS and Windows 3.1 -- and similarly, the United
States submits, like Windows 95 and Internet Explorer. The limited proviso was intended to
ensure that Microsoft would remain able to develop new products that combined together new or
additional functions. Thus, under the proviso, Microsoft is permitted to develop new, single
products, as it did with Windows 95, and to offer them to the market. What Microsoft cannot do
under Section IV(E)(i) of the Final Judgment, however, is require OEMs to take a separate
product like MS-DOS, Windows 3.1, or Internet Explorer in order to license Windows 95.
2. Microsoft's Argument that the Government Was "On Notice" of Its
Plans Regarding Windows 95 and IE is Legally and Factually Wrong
Microsoft argues that the United States was on notice that Windows 95 "would
include . . . Web browsing functionality" when the consent decree was negotiated. See MS Opp.
at 18. For several reasons, this argument is way wide of the mark -- both as a matter of law and
as a matter of fact.
First, Microsoft does not even allege that browsers or anything related to browsers were
Page 10
ever discussed in the consent decree negotiations. Instead, Microsoft relies entirely on five
documents that it has culled from among hundreds of thousands that Microsoft submitted to the
government in 1994 and 1995, in the course of investigations that were focused on other issues.
Under these circumstances, it cannot be said that the government is charged with knowledge of
anything about browsers, much less that the parties had an understanding that Microsoft would
be permitted under the consent decree to bundle Windows 95 and a separate browser product.
Second, at most, Microsoft's selected documents show only that some people at Microsoft
thought about including basic Internet connectivity, and possibly rudimentary browsing
functionality (called, well after those documents were written, "O'Hare") in Windows 95 (then
called "Chicago"). But none of those documents suggests that Microsoft at that point intended to
do what it ultimately did -- put browsing functionality in a separate product, Internet Explorer;
treat it as separate in all the ways detailed above; and require OEMs to take it as a condition of
licensing Windows 95. In other words, even if the government could be charged with knowledge
that some people at Microsoft thought about putting O'Hare in Chicago, Microsoft did not in fact
do that. Instead, it put the airport in St. Louis. That is, it created two separate products, not one
integrated product. By now requiring OEMs to take both of these separate products, Microsoft
runs afoul of the restrictions of Section IV(E)(i) in the Final Judgment.
Third, Microsoft's description of its intention to include browsing functionality in
Windows 95 "in late 1993 and early 1994" -- i.e., during the time when the consent decree was
being negotiated -- is simply false. Microsoft relies on the declaration of its executive Steven
Sinofsky and five attached Microsoft documents dating from December 1993 to April 1994
(Exh's A-D, G). According to the Sinofsky declaration, Microsoft adopted, at an April 6, 1994,
retreat, "concrete plans" for including "Internet-related technologies" in Windows 95 and that
Bill Gates discussed those plans in two speeches, on April 7 and April 19, 1994, that were
publicized in newspaper articles. Sinofsky Decl. at .. 8 & 9, Exh.'s E & F. As a result,
Microsoft alleges, "the DOJ has known about the inclusion of Internet-related technologies in
Windows 95 for more than three years." MS Opp. at 35.
Microsoft's own documents -- documents that Microsoft did not provide to this Court and
Mr. Sinofsky did not attach to his declaration -- belie this story. These documents, many of
Page 11
which were authored by Mr. Sinofsky himself, include the following:
April 17, 1994 -- In a cover e-mail distributing the Internet "retreat memo" (Sinofsky
Exh. D), Mr. Sinofsky described the outcome of the retreat, not as "concrete plans," but as
"suggestions from the groups that are not yet the definitive strategic directions."
McCarthy Conf. Decl. . 5, Exh.1 at MS 5022492. (emphasis added)
April 20, 1994 -- Mr. Sinofsky explained in an e-mail what Bill Gates meant in his
publicized April 19 speech (Sinofsky Exh. F):
"Chicago will have all the pieces necessary to connect to the internet in the
box." Taken litterally [sic], this just means TCP/IP and PPP. Never talks
about front ends, etc. . . . there is no answer to the question "Does
Microsoft support Mosaic," since Mosaic is just a tcp/ip winsocket app,
"yes, but that doesn't imply we ship it, etc."
McCarthy Conf. Decl. . 6, Exh. 2 (emphasis added). "Mosaic" was the only widely used
Internet browser at the time and, as will be seen, was the product that Microsoft
ultimately licensed, some nine months later, to use in developing its Internet Explorer.
April 20, 1994 -- Replies to Mr. Sinofsky's e-mail confirm:
at the moment a lot of external people are asking if we will be shipping
internet apps [applications]. The position we have taken so far is that
Chicago contains all the plumbing you need to hook up to the net -- but
cool apps like Mosaic are stuff you need to obtain from 3rd parties.
* * * * *
"yes, only talk about plumbing, because we may not deliver the other
pieces."
McCarthy Decl. . 6, Exh. 2 (emphasis added).
June 10, 1994 -- Another Sinofsky e-mail makes this point even more strongly:
We do not currently plan on any other client software, especially
something like Mosaic . . . . [Rather,] [w]hat we should be doing is getting
as many third parties writing as many internet things on top of WinSock
as possible, including as many WWW [world-wide web], gopher,
TN3270, etc clients as they can afford to do.
McCarthy Conf. Decl. . 7, Exh. 3 (emphasis added).
January 11, 1995 -- Microsoft announces that it has just licensed the Mosaic technology
Page 12
from Spyglass. The accompanying draft press questions and answers make clear that it
was this technology, first acquired some six months after the consent decree was signed,
and not some long-standing Microsoft development work, that was to be used to create
Internet Explorer. "The Mosaic software will be the basis for WWW browser capability
in a variety of ways in our product lines." This document also shows that Microsoft's
browser development and shipment plans were separate from Windows 95:
Q. So this means that Windows 95 will ship with Mosaic built-in?
A. At the present time there are no plans to ship . . . the Mosaic
software in the Windows 95 box when it ships in August of this
year. . . . Our plan is to deliver this capability shortly after
Windows 95 ships.
McCarthy Conf. Decl. . 9, Exh. 5 (emphasis added, redline and strikeout omitted). 11 See
also McCarthy Conf. Decl. . 8, Exh. 4.
This sequence of documents demonstrates not only that the United States was not on
notice of the alleged "integration" of Internet Explorer, but that in fact Internet Explorer was not
designed or "developed" to be an integrated product with Windows 95. Instead, it was
independently created out of a separate existing product, Mosaic, which Microsoft only licensed
in January 1995. Internet Explorer was designed and intended to be released as a separate
application product, after the release of Windows 95, to work along with or in conjunction with
Windows 95. Consistent with this plan, Microsoft did not distribute Internet Explorer with the
version of Windows 95 initially released for retail purchase.
Indeed, nearly two years later -- and four months after IE 3.0 was released to the market
and some three months after Windows 95 version OSR 2 was released -- Jim Allchin, a top
Microsoft executive, made clear both that IE 3.0 is a separate product and that Microsoft
intended to "leverage" its Windows 95 market power in order to help IE 3.0 "win" the browser
war. Mr. Allchin's document, titled "concerns for our future," states:
1. Ensuring that we leverage Windows. I don't understand how IE is
Page 13 .
going to win. The current path is simply to copy everything that Netscape
does packaging and product wise. . . . My conclusion is that we must
leverage Windows more. Treating IE as just an add-on to Windows which
is cross-platform [is] losing our biggest advantage -- Windows
marketshare. We should dedicate a cross group team to come up with
ways to leverage Windows technically more. . . . . We should think first
about an integrated solution -- that is our strength.
Gaspar Conf. Decl. . 17, Exh. 14 (December 20, 1996 e-mail from Jim Allchin to Paul Maritz).
IE 3.0 had been released four months before this document was written. Clearly, Mr. Allchin
regarded IE 3.0 not as integrated into Windows, but rather as "just an add-on to Windows." For
IE 4.0, of course, there is no basis for considering it to be integrated, in light of its wholly
separate existence from Windows 95.
Mr. Allchin's memorandum also makes clear the true reason Microsoft chooses to require
OEMs to install and distribute Internet Explorer on all PCs with Windows 95. That reason has
nothing to do with updating Microsoft's operating system or developing an integrated product.
Rather, it has everything to do with Microsoft using the "leverage" of its "Windows marketshare"
in order to increase distribution of Internet Explorer and thus to "win" the browser war. This is
precisely what Section IV(E)(i) is designed to prevent.
C. Microsoft's Analogies to Other So-Called
"Integrated" Features of Windows Are Immaterial
Microsoft relies heavily on various analogies to other products and other functions of
Windows 95. As has often been said, the problem with relying on analogies is that it requires
determining both that the two situations are really analogous and that the analogous case was
correctly decided. Microsoft's analogies show, at most, that different facts may support different
conclusions. 12
Page 14
Microsoft misperceives the United States to contend that "if a particular feature has ever
had what might be characterized as a separate existence, it cannot be an element of an integrated
product' under Section IV(E)(i)" See MS Opp. at 20 (emphasis added). This is not the United
States' position. Rather, the United States contends simply that a product is an "other product" if
Microsoft simultaneously treats it as a separate product for purposes of distribution, marketing,
and tracking. See Petition, .. 22, 24; U.S. Memorandum in Support of Petition, pp. 21, 23-26.
Thus, Microsoft's reference to the presence of utilities that at one time were available
separately is irrelevant. None of its examples -- whether a disk compression utility, a
defragmentation utility, or any other function that was once provided in a separate product -- is
analogous to Internet Explorer. None is offered as a separate product by Microsoft; and none is
marketed, advertised, or tracked separately from Windows 95. By contrast, Microsoft
distributes, markets, and tracks Internet Explorer in a host of ways separate from Windows 95.
Microsoft's suggestion that "other elements of Windows 95 also have names and are
promoted to some extent separately from the remainder of the operating system" (MS Opp. at 7)
is similarly inapposite. Indeed, Microsoft's brief cites only one example, Microsoft Exchange,
and makes no attempt to show how Exchange is analogous to Internet Explorer as an "other
product." 13 In fact, Exchange has virtually no presence as a separate product in the market and
Microsoft has replaced Exchange with another product, Outlook Express, which represents its
current market offering outside Windows 95. 14 Moreover -- in sharp contrast to the
circumstances that have caused the government to bring this proceeding, and that have given rise
to so much industry concern about Internet Explorer -- Microsoft is not attempting to bundle
Page 15 . .
Exchange in order to entrench its Windows 95 monopoly. 15
IV. THE RELIEF REQUESTED BY THE UNITED STATES IS SIMPLE,
STRAIGHTFORWARD, AND IN THE PUBLIC INTEREST
The basic relief requested by the United States in this case is an order requiring Microsoft
to comply with the Final Judgment, stop compelling OEMs to license Internet Explorer 3.0, and
not compel OEMs to license Internet Explorer 4.0 as a condition of licensing Windows 95. The
relief sought is straightforward and, in two basic respects, is in the public interest. First, the
relief will maintain the integrity of, and secure compliance with, this Court's order. Second, by
requiring Microsoft to cease using its market power to force OEMs to take IE, the requested
relief will serve the purpose of the Final Judgment and the antitrust laws, protecting OEMs and
consumers by enabling them to choose which browser, if any, they want, without that choice
being burdened by the compulsion to accept or install Internet Explorer.
Microsoft repeatedly suggests that this relief is not workable. It says that it cannot
discern what relief the United States is seeking in referring generically to "Internet Explorer" (see
MS Opp. at 5), and that the requested relief will cause Windows 95 to "break" (see id. at 8-9).
These arguments do not raise serious concerns and present no reason why the Court should not
rule in the government's favor on the present record.
A. IE 4.0
As explained above, IE 4.0 is presently offered only as a separate, stand-alone product.
OEMs are not required to license it, to include IE 4.0 disks in their computer boxes, or to install
it, as a condition of licensing Windows 95. Consumers currently therefore have the choice
whether to acquire or install IE 4.0. Under these circumstances, fashioning an appropriate
remedy is simple. The United States believes the Court should order Microsoft not to require
Page 16 .
OEMs to take IE 4.0 as a condition of licensing Windows 95. Such an order will not prevent
Microsoft from developing new products. Moreover, Microsoft will remain free to market and
promote IE 4.0 however it sees fit, so long as it continues to give the OEMs, and through them
consumers, the ability to choose whether to take the product or not.
As noted above, this is a matter of considerable urgency. Microsoft has stated that it
intends to require OEMs to license and preinstall IE 4.0 beginning in February 1998 for new PC
product lines, and most OEMs must begin to take significant steps to prepare for such
preinstallation 60 to 90 days in advance -- which means almost immediately. The United States
thus requests that the Court grant relief regarding IE 4.0 quickly, in order for OEMs to have a
meaningful and timely opportunity to make the marketplace choices to which they are entitled in
devising their plans for their new 1998 product lines.
B. IE 3.0
Microsoft's Opposition repeatedly suggests that the United States is seeking to require it
or OEMs to delete IE 3.0 from PCs on which it has already been installed. That is not the case.
The United States seeks with regard to OEMs only prospective relief, regarding PCs not yet sold.
The requested relief is a simple order that would prohibit Microsoft from forcing OEMs
to accept and preinstall the software code Microsoft separately distributes at retail as "Internet
Explorer 3.0." 16 Microsoft should have no difficulty complying with that order. Indeed, its own
Internet website states that "IE uninstalls easily if you want to use a newer version or simply get
rid of it (and so does Navigator!)." Gaspar Decl. . 19, Exh. 9.
Microsoft asserts that removing IE 3.0 from a PC with the OEM version of Windows 95
installed will (1) cause certain Windows 95 features to "break" (MS Opp. at 8-9) and (2) cause
Page 17
certain applications not to run properly on Windows 95 because those applications need certain
codes that are included in IE 3.0. With respect to the impact on the functioning of Windows 95
itself, however, the only purported operating system feature that Microsoft specifically identifies
as being affected is certain access software for connecting to online services and Internet Service
Providers. See Cole Decl. .. 51, 62, 65, 72, 77, 80, 84, 90. And, Microsoft concedes that users
can easily obtain the access software directly from the service providers or from other sources.
For example, America On Line distributes disks containing its access software widely. Similarly,
although Microsoft suggests that Windows 95 itself will not operate without a particular system
file from IE 3.0 called COMCTL32, Cole Decl. .. 83-84, it does not claim that the OEM release
of Windows 95 must use the version of COMCTL32 that is included in IE 3.0. In fact, Microsoft
makes COMCTL32 available to third parties to redistribute with their applications on a routine
basis, and could do so for OEMs.
According to Microsoft, if developers of applications for the Windows 95 platform lose
the certainty of knowing that all OEMs will ship the same version of Windows 95 with the same
set of system services, those developers will lose the ability to write their applications to a single
platform. This policy argument provides no defense to a consent decree violation. Moreover, it
rests on factual assertions that are refuted by Microsoft's own papers.
David Cole, the Microsoft executive in charge of development of Internet Explorer,
admitted in his declaration that tens of millions of PCs do not include the version of Windows 95
that comes bundled with Internet Explorer 3.0 and that, because of this existing fragmentation
among users of the Windows 95 platform, applications developers typically include in their own
software products the necessary Microsoft system services on which their products depend. In
other words, the applications developers themselves ensure that all users can successfully run
their applications no matter which version of Windows 95 they have and regardless of whether or
not they have Internet Explorer preinstalled. See Cole Decl., . 61. See also Department of
Justice Declaration of Jesse Boudreau (Pictorius) (hereinafter "DOJ Boudreau Decl."), . 3;
Declaration of John Gailey (Novell, Inc.), . 4; Department of Justice Declaration of Joseph J.
Allaire (Allaire Corp.) (hereinafter "DOJ Allaire Decl."), .. 2-3. Indeed, all the declarations
Microsoft has submitted from applications developers state that their products include the
Page 18 .
necessary services provided by Internet Explorer 3.0 or 4.0 to ensure that the products will run
whether or not Internet Explorer is installed on any particular user's computer. See Allaire Decl.,
. 8; Boudreau Decl., . 6; Devlin Decl., . 5; Ramadan Decl., . 7. Thus, if this Court orders
Microsoft to give OEMs the choice whether or not to preinstall Internet Explorer on future
machines they ship with Windows 95, none of these applications will break when an OEM
chooses not to preinstall IE.. 17 DOJ Boudreau Decl. . 2-3; DOJ Allaire Decl. .. 2-3.
Accordingly, the relief the United States seeks is measured, reasonable, and will not harm
third parties. The Court safely can, and should, grant the requested relief.
V. MICROSOFT'S NON-DISCLOSURE AGREEMENTS
The issues regarding Microsoft's non-disclosure agreements ("NDAs") are likewise
straightforward. Microsoft has in place a vast network of NDAs that by their terms prohibit other
parties from disclosing to anyone anything about Microsoft and, in many instances, expressly
require those parties to give Microsoft advance notice of even compelled communications with
government enforcement agencies. While these broad agreements may not be entirely unique,
they are certainly unusual. Moreover, in the context of this industry, it is reasonable to think that
the NDAs might be deterring persons with relevant information from voluntarily coming forward
to the government.
Microsoft is surely entitled to take reasonable precautions to protect its business
confidences. Those precautions do not, however, include actions which may have the effect of
interfering with legitimate government investigations. Microsoft has thus appropriately
recognized that the NDAs should not be construed to prevent other parties from speaking to the
Page 19 . .
government or to require them to notify Microsoft if they do so and has authorized the United
States to so inform those that it seeks out.
The only remaining issue, which Microsoft for some reasons vigorously resists, is
whether Microsoft should be required to notify the other parties to the NDA agreements that they
should not be so construed. The United States clearly is not asking the Court for "wholesale
abrogation" or "voiding" of any Microsoft contracts or NDAs. See MS Opp. at 37-38. Instead, it
requests only that Microsoft make clear to its many NDA partners, some of whom may have
relevant information they would like to volunteer to the government, that which Microsoft seems
perfectly willing to have the government advise companies that the government has already
decided to seek out.
There should be no misunderstanding: The United States is not seeking contempt
sanctions for Microsoft's NDAs, and it does not allege that the NDAs are illegal. It seeks only an
order from the Court ensuring that these NDAs do not have the effect, intended or otherwise, of
impeding the Court's review, and the United States' investigation, of Microsoft's compliance
with the decree. The Court has this authority under the general supervisory powers set forth in
Section VII(B) of the Final Judgment, which provides that:
Jurisdiction is retained by this Court over this action and the parties
thereto for the purpose of enabling any of the parties thereto to apply to
this Court at any time for further orders and directions as may be necessary
to carry out or construe this Final Judgment, to modify or terminate any of
its provisions, to enforce compliance, and to punish violations of its
provisions.
In addition, the cases make clear that a consent decree court may order such ancillary relief in aid
of decree enforcement especially where, as here, the defendant has violated the decree.
The Court should wide-ranging discretion in fashioning mechanisms to monitor
compliance with its orders. See, e.g., McComb v. Jacksonville Paper Co., 336 U.S. 187, 193
(1949) ("We are dealing here with the power of a court to grant the relief that is necessary to
effect compliance with its decree. The measure of the court's power in civil contempt
proceedings is determined by the requirements of full remedial relief.") (emphasis added). This
discretion stems from the flexibility inherent in its equitable jurisdiction: "The essence of equity
jurisdiction has been the power of the Chancellor to do equity and to mold each decree to the
Page 20 . . . . . . . .
necessities of the particular case. Flexibility rather than rigidity has distinguished it." Hecht Co.
v. Bowles, 321 U.S. 321, 329 (1944). The power of a federal court to take broad remedial action
to effectuate compliance with its orders has been repeatedly invoked by this Circuit. See, e.g.,
Dixon v. Barry, 967 F. Supp. 535, 540 (D.D.C. 1997) (appointing a receiver to monitor and
enforce compliance with a court order, and noting that "the past is a prologue to the future"). See
also Williams v. Edwards, 87 F.3d 126, 130-31 (5th Cir. 1996) (a district court retains
jurisdiction to issue orders necessary for relief and supervision of a consent decree). 18
The Court should consider the public interest in determining the appropriate method by
which to ensure effective monitoring of, and continued compliance with, its Final Judgment.
See, e.g., Hecht, 321 U.S. at 329. This is exactly why the potentially silencing NDA provisions
should be stricken -- they offend the strong public policy of maintaining unrestrained citizen
access to governmental agencies and they tend to undermine the effectiveness of the Final
Judgment, explicitly found to be in the "public interest."
VI. OTHER ISSUES
A. The United States' Petition is Not Barred By Equitable Estoppel
Microsoft contends that the doctrine of equitable estoppel precludes the United States
from proceeding with this case because the United States "has known about Microsoft's inclusion
of Internet-related technologies" since at least July 1994. See MS Opp. at 35. As discussed
above (see supra, section III(B)(2)), this contention is factually incorrect. Moreover, even if true,
it would be of no legal significance.
Equitable estoppel applies as a defense against an enforcement action by the United
States only in the narrowest of circumstances, if at all. See, e.g., Heckler v. Community Health
Services, 467 U.S. 51, 60 (1984); Utah Power & Light Co. v. United States, 243 U.S. 389, 409
Page 21 . . . . .
(1916). As this Circuit has explained:
[Equitable estoppel's] application to the government must be rigid and
sparing. The case for estoppel against the government must be
compelling, and will certainly include proof of each of the traditional
elements of the doctrine -- "false representation, a purpose to invite action
by the party to whom the representation was made, ignorance of the true
facts by that party, and reliance" as well as ". . . a showing of an injustice
. . . and lack of undue damage to the public interest."
ATC Petroleum, Inc. v. Sanders, 860 F.2d 1104, 1111 (D.C. Cir. 1988) (citations omitted). The
complaining party must show misconduct on the part of the United States that rises to the level of
"actual misrepresentation or concealment." Grumman Ohio Corp. v. Dole, 776 F.2d 338, 347
(D.C. Cir. 1985); see also GAO v. GAO Personnel Appeals Board, 698 F.2d 516, 526 (D.C. Cir.
1983). Additionally, as the Supreme Court made clear in Heckler, in order for a defendant to
succeed with a defense of equitable estoppel against the United States, any reliance on the
government's alleged misrepresentation must be "reasonable." Such reasonableness is measured
by the following:
If, at the time when [defendant] acted, such party had knowledge of the
truth, or had the means by which with reasonable diligence [defendant]
could acquire the knowledge so that it would be negligence on
[defendant's] part to remain ignorant by not using those means,
[defendant] cannot claim to have been misled by relying upon the
representation or concealment.
Heckler, 467 U.S. at 59 n. 10.
None of those requirements is met here. Microsoft has known since the summer of 1996
that the United States was and is concerned about the conditioning of OEM Windows 95 licenses
on acceptance of Internet Explorer; it discussed that issue with the government in detail in
November 1996; and it has known ever since that the United States has been gathering facts on
that issue in order to make an informed enforcement decision. Microsoft could not reasonably
have relied since then on any expectation that the United States was unconcerned about these
issues.
In any event, Microsoft began offering IE 4.0 only on September 30, 1997, and informed
the government only shortly before then that it intends to require OEMs to license it in February
Page 22 . . . . . .
1998. The government moved promptly, gave Microsoft additional opportunities to express its
views, and filed the Petition on October 20, less than 3 weeks later. This is not the stuff of
equitable estoppel.
B. Microsoft's Request for Extensive Proceedings and Discovery
Microsoft's request for a full evidentiary hearing should be denied. Microsoft is entitled
to an evidentiary hearing only if it raises a genuine issue of material fact. Food Lion, Inc. v.
United Food and Commercial Workers Union, 103 F.3d 1007, 1019-20 (D.C. Cir. 1997). Here,
Microsoft does not dispute the facts that warrant concluding that Microsoft is violating the Final
Judgment. There is no dispute at all regarding: (1) Windows 95 constituting a "Covered
Product," (2) Microsoft licensing Windows 95 to OEMs, or (3) Microsoft requiring OEMs to
license Internet Explorer as a condition of licensing Windows 95.
The only dispute is the legal issue whether the proviso to Section IV(E)(i) relating to
"developing integrated products" authorizes Microsoft to require OEMs to take IE in order to
license Windows 95. No discovery or evidentiary hearing is needed to resolve that issue.
As noted, Microsoft concedes that the Final Judgment is straightforward and that the
proviso has no specialized meaning. The court should thus discern the meaning of Section
(IV)(E)(i) from within the four corners of the Final Judgment. See, e.g., United States v. Armour
& Co., 402 U.S. 673, 681-62 (1971); Papago Trial Utility Authority v. Federal Energy
Regulatory Comm'n, 723 F.2d 950, 954 (D.C. Cir. 1983) ("in the absence of an ambiguity the
intent of the parties to a contract must be ascertained from the language thereof without resort to
parol evidence or extrinsic circumstances"); Clayman v. Goodman Properties, 518 F.2d 1026,
1033 (D.C. Cir. 1974) (refusing to apply parol evidence of antecedent understandings and
negotiations for the purpose of varying or contradicting the clear meaning of the terms used). If
the Court determines that it needs to look beyond the Final Judgment itself, it should look only to
contemporaneously produced public records. In United States v. ITT Continental Baking Co.,
420 U.S. 223 (1975), for example, the Court examined the documents in the public record -- the
complaint filed in the original case, and other written documents expressly incorporated by
reference within the decree.
A narrow, focused review is especially appropriate here because the Final Judgment was
Page 23 . . . . .
entered by the Court pursuant to the Tunney Act, 15 U.S.C. &167; 16(b)-(h) (1994). The Tunney Act
was designed to ensure that the process underlying an antitrust consent decree is transparent to
the public; in the words of Senator Tunney, "it will assure that the courtroom rather than the
backroom becomes the final arbiter in antitrust enforcement." The Antitrust Procedures and
Penalties Act: Hearings on S. 782 and S. 1088 before the Subcommittee on Antitrust and
Monopoly of the Committee on the Judiciary, 93rd Cong., 1st Sess. (1973). As this Court knows,
the Tunney Act proceedings were especially substantial and visible in this case. The Court of
Appeals spoke of the need to consider the "purpose, meaning and efficacy of the decree" as well
as its "clarity." Microsoft, 56 F.3d at 1461-62. The Court had before it, not only a Competitive
Impact Statement expressing the broad purpose of the decree and numerous memoranda from the
United States urging entry of the decree, but also a Memorandum by Microsoft Corporation in
Support of the Proposed Final Judgment. Microsoft had ample opportunity to comment on the
meaning of Section IV(E)(i). Indeed, an express legislative intent underlying the Tunney Act
was "to foreclose future disputes following entry of the proposal as a consent judgment
concerning decree language or the intentions of the parties." Antitrust Procedures and Penalties
Act, H.R. No. 93-1463, at 6539 (1974), reprinted in 1974 U.S.C.C.A.N. 6535.
Microsoft nevertheless asks the Court to permit far-reaching discovery and to hold an
evidentiary hearing on unspecified issues -- with all the delay and costs and confusion that would
entail. There is no need for such prolonged proceedings. The Court should resolve the one
disputed issue on the present record as a matter of law.
C. The Confidentiality of Microsoft Documents
As previously ordered by the Court, the United States has filed each Microsoft document
cited in this Reply under seal. (See accompanying Notice of Filing Under Seal.) But for the
Court's order, however, the United States had no legal obligation to do so. The United States'
statutory right to use information in a "legal proceeding" is obtained through a Civil Investigative
Demand, issued pursuant to 15 U.S.C. &167; 1313. There is no statutory limitation on the ability of
the United States to file, in the public record, materials produced pursuant to the CID. The
relevant passage of 15 U.S.C. &167; 1313(c)(3), from which Microsoft cites for the authority that the
United States is prohibited from disclosing such information to the public, begins with the
Page 24 . . . .
critical phrase: "Except as otherwise provided in this section, . . . ." The relevant subsection that
expressly permits the United States to disclose the CID materials to this Court, 15 U.S.C. &167;
1313(d)(1), provides:
Whenever any attorney of the Department of Justice has been designated
to appear before any court, . . . in any case or proceeding, the custodian of
any documentary material, answers to interrogatories, or transcripts of oral
testimony may deliver to such attorney such material, answers, or
transcripts for official use in connection with any such case . . . or
proceeding as such attorney determines to be required.
Furthermore, Microsoft has cited no authority that limits the United States' right to use the
documents against Microsoft in the current proceeding. As such, because the Microsoft
documents were produced pursuant to a CID and Visitation Letters, the United States may use
them in the current proceedings, without limitation.
This Circuit applies a "strong presumption in favor of public access to judicial
proceedings." EEOC v. National Children's Center, 98 F.3d 1406, 1409 (D.C. Cir. 1996), and
has stated that "[t]he courts are public institutions that best serve the public when they do their
business openly and in full view." Id. at 1408. Moreover, this Circuit has recognized the
importance of making court records accessible to the public, especially when the Government is
a party to the lawsuit and objects to the sealing of documents. Id. at 1409; see also Martin
Marietta Corp. v. Dalton, 974 F. Supp. 37 (D.D.C. 1997) (responding to a Freedom of
Information Act request, this Court stated that disclosure of potentially confidential information
in the hands of the Government is important to "open agency action to the light of public
scrutiny"). Further, the fact that public filings refer to exhibits and attachments may enhance the
need that the exhibits and attachments be part of the public record. EEOC, 98 F.3d at 1410-
1411. As such, the presumption of openness favors unsealing the Microsoft documents in this
matter.
Microsoft has made no real effort to suggest that any document submitted by either party
to this action contains any real confidences. The documents filed under seal by Microsoft, for
example, were all created in or before April 1994. Inasmuch as Microsoft has not made the
showing it must make in order to qualify for a protective order, see United States Motion to
Unseal, attached herewith, the documents now under seal should be placed in the public record.
Page 25 . .
VII. CONCLUSION
For the foregoing reasons, the United States respectfully requests that the Court rule on
the present record that Microsoft is violating the Final Judgment and order the relief requested in
the United States' Petition.
Date: Respectfully submitted,
_____________________________
JOEL I. KLEIN
Assistant Attorney General
A. DOUGLAS MELAMED
Principal Deputy Assistant Attorney General
REBECCA P. DICK
Director of Civil Non-Merger Enforcement
CHRISTOPHER S CROOK
Chief
PHILLIP R. MALONE
STEVEN C. HOLTZMAN
PAULINE T. WAN
KARMA M. GIULIANELLI
MICHAEL C. WILSON
SANDY L. ROTH
JOHN F. COVE, Jr.
Attorneys
Attorneys for the United States
.
FOOTNOTES
1 Confidential Declaration of Michael McCarthy (hereinafter McCarthy Conf. Decl.) . 6, Exh. 2.
2 McCarthy Conf. Decl. . 9, Exh. 5.
3 As detailed in Section III.B, below, the United States is willing, so that the Court can resolve this matter now in the manner of a summary judgment motion, to accept the assertions concerning the written communications and exchanges between the parties set forth in the Urowsky and Holley declarations. If the court allows discovery, of course, the United States reserves its right to dispute those facts and pursue appropriate reciprocal discovery.
4 Indeed, just this week, on its own Internet website, Microsoft announced that IE's share of the browser business has reached 40 percent, that certain trade journals had recommended IE 4.0 over Netscape's comparable browser product, and that Internet Explorer is now more popular than Netscape in the home PC market -- which of course is the market most influenced by OEM distribution. See Gaspar Decl. . 20, Exh 9.
5 See Jefferson Parish Hospital District No. 2 v. Hyde, 466 U.S. 2, 19 (1984) ("whether one or two products are involved turns not on the functional relation between them, but rather on the character of the demand for the two items"). Microsoft asserts that including a new product with its operating system can never be a violation of "tying" law. However, courts frequently have rejected similar arguments. See Multistate Legal Studies, Inc. v. Harcourt Brace Jovanovich Legal & Professional Publications, Inc., 63 F.3d 1540, 1547 n.3 (10th Cir. 1995) (rejecting argument including a formerly separate supplemental bar review course with the full service course was merely an improvement of a single product); see also Digidyne Corp. v. Data General Corp., 734 F.2d 1336 (9th Cir. 1984) (computer manufacturer illegally tied its central processing unit with its copyrighted operating system); In re Data General Corporation Antitrust Litigation, 490 F. Supp. 1089 (N.D. Ca. 1980) (pointing to Data General's marketing practices in finding the existence of two separate products).
6 Microsoft met directly with representatives of the Antitrust Division on two separate occasions prior to the filing of this case. Contrary to the assertions in Microsoft's Opposition (see MS Opp. at 5), in those meetings the United States specifically asked Microsoft to address these consent decree issues and the interaction between Internet Explorer and Windows 95, and Microsoft did so.
7 After its extensive review of the decree and the Tunney Act record in this case, the Court of Appeals explained that a court should "pay special attention to the [proposed] decree's clarity," held that it could "perceive no continuing ambiguity" in response to a concern that had been raised about a different provision, and concluded that the decree "is in the public interest." United States v. Microsoft Corp., 56 F.3d 1448, 1461-62 (D.C. Cir. 1995).
8 As the United States envisions it, under Section IV(E)(i) of the decree, either something is a single "integrated" product or, as here, there are two or more separate products. Microsoft argues to the contrary that an integrated product can include multiple separate "other" products. (See MS Opp. at 19, 21.) But Microsoft's ultimate position in this proceeding would not be correct, even if there were circumstances in which separate products could be "integrated" within the meaning of the section. In that event, the Final Judgment would both prohibit Microsoft's forced bundling of the separate products and, through the proviso, ensure that Microsoft is entitled to "develop" the "integrated" product and to offer it as an alternative for customers who choose to license it.
9 Throughout its papers, Microsoft carefully says that "Windows 95 as supplied to computer manufacturers has always included Internet Explorer." See MS Opp. at 18 (emphasis added). Microsoft's careful choice of words is no accident. Microsoft offered Windows 95 without Internet Explorer at all in its initial retail version, and continues to offer it physically separate in retail and other distribution channels. Microsoft has always offered Internet Explorer through various channels without Windows 95. See, e.g., Gaspar Conf. Decl., . . 9, 13, Exh. 6 (IE a "separate product"), 10 (Windows 95 and IE completely separate at retail); Gaspar Decl. .. 21-22, Exh. 10 (user's guide for Windows 95).
10 Microsoft's argument that various commentators have described Windows and Internet Explorer as "integrated" is of no significance. In fact, commentators similarly describe as "integrated" a variety of non-Microsoft software and even hardware products. See Gaspar Decl. . 2, Exh. 1. Integration in this sense is no different from the integration of any software application and the operating system or, indeed, any complementary products like a lamp and a lightbulb. There is no basis to conclude that reviewers have intended to use the term "integrated" as Microsoft would have the Court take it. Rather, it is relatively commonplace to describe two products as integrated by virtue of the mere fact that they work well together, regardless of by whom installed and regardless of whether installed at the same time or apart from one another. Moreover, to the extent Microsoft suggests the views of commentators are relevant, many commentators have rejected the notion that Windows 95 and Internet Explorer are integrated in any more real sense, see, e.g., Gaspar Decl. . 24, Exh. 12, and numerous commentators have described IE not as integrated but rather as a separate browser product competing directly with similar products in the "browser war." See, e.g., Gaspar Decl. . 23, Exh. 11.
11 This document further demonstrates that the vague "Internet-related technologies" referred to throughout Microsoft's Opposition had nothing to do with browsers, but instead were merely "connectivity" features such as "TCP/IP stack, internet Dial-up capability using either PPP or SLIP, and internet utilities like telnet, ftp, and ping." See McCarthy Conf. Decl., . 9, Exh. 5.
12 For this reason, Microsoft's reliance on the government's response to a comment filed during the Tunney Act review period by Micro System Options is unavailing. See MS Opp. at 14, 24-25. Micro Systems had complained that Microsoft had included a feature in a different product, Windows NT 3.5, similar to a feature in a Micro Systems product. The NT 3.5 product is not a "Covered Product" under the Final Judgment, so the conduct complained of did not violate Section IV(E)(i) of the decree. Micro Systems speculated that Microsoft might include a similar feature in one of its Windows products in the future and urged that it be prevented from doing so. The government took the position there that a "broader injunction" prohibiting the inclusion of new features in such products was not appropriate and that "case-by-case analysis" is required with respect to "such behavior generally" of the type Micro Systems was complaining about.
13 Microsoft suggests, in paragraphs 17-19 of the Chase Declaration, that several other Windows 95 features have been at some point simultaneously distributed as separate products. None have any of the characteristics of Internet Explorer or Microsoft's treatment of it.
14 To avoid confusion, it should be stressed that when both Microsoft and the United States refer in this proceeding to "Exchange," the reference is only to the "client" e-mail software known by that name, and specifically not to Microsoft's "Exchange Server" product, which is not included with Windows 95 and is visibly marketed separately from the operating system.
15 Even if it were true that Exchange or other so-called "features" of Windows 95 have a dual existence (both in and out of Windows 95) analogous to that of Internet Explorer 3.0, all this fact would prove is that, thus far, the United States has declined to exercise its prosecutorial discretion to challenge Microsoft's requirement that OEMs accept such "features." In this case, the United States has exercised that same discretion to bring Microsoft into compliance with the Final Judgment for a particular and distinctive reason: browser technology, among the various so-called "features" of Windows 95, has acquired a particular significance in the marketplace (including Microsoft's recognition of this significance) as an important piece of ongoing and potential competition in the operating system market.
16 Inasmuch as end users perceive "Internet Explorer" as the icon present on the Windows 95 desktop's graphical user interface, and because of the simplicity of removing that icon, the United States' Petition requested that the Court order Microsoft to inform end users as to how to delete only the IE icon from their Windows 95 desktops. See Petition, p. 19, . 4. The United States seeks more than that with respect to licensing of IE by OEMs, because it believes that OEMs, and through them new PC purchasers, should, under the terms of the Final Judgment have the ability to freely choose among browser products in all respects. Nonetheless, permitting OEMs not to install the icon (or other visible manifestations of the browser) could achieve much of the value of complete relief and would be consistent with the Final Judgment. Of course, an order requiring only that Microsoft not compel OEMs to display the IE icon on the Windows 95 desktop or in easily accessible files as a condition of licensing Windows 95 would not cause any application or other part of Windows 95 to "break," if that were otherwise a concern, because the code on which such software depends could remain.
17 In this respect, it is immaterial whether, as Microsoft repeatedly insists, Internet Explorer contains functions or features that may be viewed as "core operating system services" or "logical extensions" of operating system technology. See MS Opp. at 21-22. Again, Microsoft's declarants are illustrative, simultaneously describing IE as a set of operating system services and noting that for this reason customers expect IE technology to be included in their products, not necessarily Windows 95. See Allaire Decl., . 7; Devlin Decl., . 4. The point is fundamental: Internet Explorer and Windows 95 provide the same services whether installed (1) at the same time or months apart; (2) by Microsoft or by an OEM; or (3) by preinstallation together or by download of Internet Explorer from a separate CD-ROM or the Internet; and whether IE is bundled with Windows 95 or included with application developers' software products. See, e.g., DOJ Allaire Decl., . 3; DOJ Boudreau Decl., . 3. Mere description of these services as "natural" fits for an operating system does not lead to the conclusion that OEMs must be compelled as a licensing matter to accept them as part of Windows 95.
18 Especially in an antitrust case, where the Clayton and Sherman Acts give the United States the power "to institute proceedings in equity to prevent and restrain" violations of the antitrust laws, courts have a duty to "do complete justice" in fashioning relief. See, e.g., Hospital Corp. of America v. FTC, 807 F.2d 1381, 1393 (7th Cir. 1986) (Posner, J.) (the "FTC has a broad discretion, akin to that of a court of equity, in deciding what relief is necessary to cure a violation of law and ensure against its repetition"), cert. denied, 481 U.S. 1038 (1987) (emphasis added); Cia Petrolera Caribe, Inc. v. Arco Caribbean, Inc., 754 F.2d 404, 417-21 (1st Cir. 1985) (citations omitted).
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