IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF COLUMBIA

UNITED STATES OF AMERICA,

Petitioner,

v.

MICROSOFT CORPORATION,

Respondent.

Supplemental to

Civil Action No. 94-1564

Hon. Thomas Penfield Jackson

REPLY MEMORANDUM OF THE UNITED STATES IN SUPPORT

OF ITS MOTION FOR JUDGMENT OF CIVIL CONTEMPT AND

TO ENFORCE PRELIMINARY INJUNCTION

This Court's preliminary injunction prohibited Microsoft from conditioning a license to Windows 95 on OEMs' licensing and preinstalling Microsoft's Internet browser software. Seizing neither on the language of the Court's Order nor an analysis of its purpose, but rather upon a single sentence in the Court's Opinion, Microsoft argues that the Court required it to offer, as the sole alternative it need offer to its conditioned license, a version of Windows 95 that will not work. Because the practical consequence is to require that OEMs license Microsoft's browser, the injunction, as Microsoft implements it, serves only to entrench the very conditioning the Court clearly declared must "abate[]" (Memorandum and Order ("Mem.") at 17).

Microsoft's position is untenable. Microsoft's refusal to focus on the language of the injunction, or to read it "in light of the circumstances surrounding its entry," United States v. Christie, 465 F.2d 1002, 1007 (3d Cir. 1972), has produced a "patently unreasonable," "twisted" and "tortured construction" of the Court's Order that renders it "a nullity." United States v. Greyhound Corp., 508 F.2d 529, 532-33 (7th Cir. 1974). Microsoft's offer of another "option" -- an outdated, and therefore to OEMs commercially unviable, version of Windows 95 that Microsoft nowhere contends comports with its reading of the injunction -- demonstrates Microsoft's own discomfort with its position and reinforces the conclusion that the Court's Order cannot reasonably be read as Microsoft construes it.

Microsoft's refusal to obey the Court's Order required a swift response. The United States accordingly proposed a particular form of relief: that Microsoft make available to OEMs the most recent version of Windows 95 from which Internet Explorer has been (or readily can by OEMs be) "uninstalled" using Windows 95's "Add/Remove Programs" utility. This remedy, the United States explained, would fully effectuate the purpose of the preliminary injunction; namely, to ensure that Microsoft makes available to OEMs the most current version of Windows 95 (a commercial necessity for them) without also requiring OEMs to offer that which the market regards as Internet Explorer.

Microsoft argues that this proposal threatens an unwarranted intrusion into software design, but that is plainly incorrect. It is Microsoft that has chosen to respond to the Court's Order by jerry-rigging its own products -- deleting files that otherwise need not be deleted. In contrast, the relief proposed by the United States takes Microsoft's products as it has designed them. The proposed remedy simply requires Microsoft to stop enforcing its licensing agreements in a manner that prevents OEMs from obtaining the benefits of the uninstall capability that Microsoft already includes in Windows 95 and makes available to end users. Although Microsoft now claims that invoking this feature will "degrade" Windows 95 in some unspecified way, this belated assertion is belied by Microsoft's own promotion of Internet Explorer. Microsoft advertises: "IE uninstalls easily if you want . . . simply [to] get rid of it" (Gaspar Decl. ¶ 19 Ex. 9).

This Court has authority to enter the relief proposed by the United States. The purpose of the Court's injunction was to prevent Microsoft, through its conditioned licenses, from "reinforc[ing] its operating system monopoly" or "acquir[ing] yet another monopoly in the Internet browser market" (Mem. at 17). Microsoft was free to implement any solution it saw fit that avoided the forbidden conditioning; it failed to do so. The relief proposed by the United States merely enforces rather than impermissibly expands the injunction and is necessitated by Microsoft's contumacious failure to comply with the Court's Order.

I.	Microsoft Is Violating This Court's Order

Microsoft admits that its reading of the injunction yields a senseless result (Memorandum in Opposition ("Op.") at 3). But rather than draw from this the obvious inference – that its construction of the injunction is incorrect – Microsoft asserts that this Court entered a senseless Order (id.). The fault, however, lies with Microsoft, not the Court. Examination of the "language of the order and the objective circumstances surrounding [its] issuance," United States v. Young, 107 F.3d 903, 907 (D.C. Cir. 1997), demonstrates that Microsoft is in clear violation of both the injunction's "letter and spirit." Greyhound, 508 F.2d at 541; In re Arthur Treacher's Franchise Litig., 689 F.2d 1150, 1157 (3d Cir. 1989); Grove Fresh Distribs., Inc. v. John Labatt Ltd., 888 F. Supp. 1427, 1438 (N.D. Ill. 1995).

A.	The Injunction Prohibits Microsoft From Effectively Conditioning A License To A Commercially Viable Version Of Windows On An OEM's Licensing Microsoft's Browser Software

The plain meaning of the preliminary injunction is this: Microsoft cannot require an OEM, either as a matter of contract or practical economics, to take what in ordinary commercial parlance is "Microsoft['s] browser software" -- specifically, software ordinary users employ for Internet browsing -- as a condition of obtaining a commercially viable version of Windows 95. At the same time, the injunction does not compel any particular mode of compliance with its proscription as long as Microsoft avoids the forbidden conditioning. Save for this limitation, the injunction, far from amounting to a sweeping "intrusion into product design" (Op. at 2) that "dictate[s] on a file-by-file basis what features and functionality Microsoft can and cannot include in Windows 95" (Op. at 4), leaves the composition of Microsoft's products to Microsoft.

This reading of the preliminary injunction is clearly contemplated by its plain language. If, as a practical matter, OEMs cannot obtain a commercially viable version of Windows 95 except also by licensing and preinstalling software ordinary users invoke to obtain browser functionality, then Microsoft plainly has "implied[ly]" "condition[ed]" a license to "Microsoft personal computer operating system software" on OEMs "also licens[ing] and preinstall[ing]" "Microsoft Internet browser software" (Mem. at 19). On the other hand, if the mode of compliance selected by Microsoft permits OEMs to license a commercially viable version of Windows 95 without "also licens[ing] and preinstall[ing]" what in ordinary commercial parlance is "Microsoft Internet browser software," then the forbidden "condition[ing]" is absent, and the injunction is not violated.

This reading of the injunction is confirmed by "the circumstances surrounding [the Order's] entry" including "the mischief the injunction seeks to prevent." Christie, 465 F.2d at 1007. The United States commenced this proceeding in order to restrain Microsoft from using its Windows 95 monopoly to injure competition among browsers in violation of Section IV(E)(i) of the consent decree. The government argued, and the Court tentatively accepted, that Internet Explorer is a separate and not an "integrated" product within the meaning of Section IV(E)(i) in large measure because such web-browsing software "enjoys substantial" "consumer demand" "independent" from operating system software (Mem. at 12, 15, 16-17). Concluding that Microsoft's licensing practices must "abat[e]" because they threaten "to reinforce [Microsoft's] operating system monopoly" and to garner for Microsoft "yet another monopoly in the Internet browser market," (Mem. 16-17), the Court entered the preliminary injunction.

The purpose of the injunction, in other words, is to ensure that market forces, and not Microsoft's monopoly power, determine how OEMs satisfy the "independent consumer demand" for browsers. This purpose would be thwarted if the injunction permitted Microsoft to offer a commercially viable version of Windows 95 only to OEMs that also license the separate software intended to satisfy "independent consumer demand" for browsers -- that which enables ordinary users to invoke browser functionality. At the same time, the Court's objective can be met without requiring from Microsoft a particular form of compliance. The purpose of the injunction is not to determine the composition of Microsoft's products, but rather to prevent Microsoft from achieving through its licenses the practical conditioning that threatens to protect and extend its monopoly power.

B.	Microsoft's Construction Of The Injunction Is Misconceived And Amounts To A Flouting Of The Court's Order

Microsoft does not seriously contest that, contrary to what the injunction demands, it has failed to provide OEMs with a commercially viable alternative to its conditioned licenses. Instead, Microsoft insists this straightforward reading of the injunction is "utterly unsustainable" (Op. at 5). Despite the stridency with which it asserts that it is in full compliance with the "letter" and "spirit" of the Court's Order (Op. at 7), Microsoft nowhere addresses either the injunction's actual language or its purposes. The reason for these omissions is plain. Microsoft's construction of the injunction, although it conveniently fits Microsoft's theory of Section IV(E)(i), cannot be squared with elementary principles of interpretation.

Microsoft's entire argument proceeds from the assumption that "[t]he preliminary injunction prevents Microsoft `from forcing OEMs to accept and preinstall the software code that Microsoft itself now separately distributes at retail as "Internet Explorer 3.0"'" (Op. at 6. (quoting Mem. at 15-16)). Although Microsoft represents that the quoted passage is the "explicit language of the preliminary injunction" (Op. at 6), it is not. Rather, it is simply a passage from the Court's Opinion that explains why the injunction will not cause Microsoft irreparable harm.

Microsoft appears to take this passage to define the phrase "any Internet browser software" in the injunction (Op. at 10) and thus to supply the injunction's plain meaning. Microsoft, however, has "confuse[d] `plain meaning' with literalism." Bell Atlantic Tel. Cos. v. FCC, 1997 WL 783993, at *1 (D.C. Cir. Dec. 23, 1997). The plain meaning of the injunction cannot be the construction that "for all practical purposes" "renders" the Order "a nullity." E.g., United States v. Greyhound Corp., 508 F.2d 529, 533 (7th Cir. 1974); Grove Fresh Distribs., Inc. v. John Labatt Ltd., 888 F. Supp. 1427, 1438 (N.D. Ill. 1995); cf. United States v. Granderson, 511 U.S. 39, 59 (1994) (Scalia, J., concurring) (statute cannot be read to produce a "result" that is "utterly absurd"). Yet, that is precisely the result Microsoft's literal adherence to the passage produces. Under Microsoft's reading of the injunction, it is entitled to offer as the only alternative to its conditioned license a version of Windows 95 that simply will not work. Because this effectively requires that OEMs continue to license Microsoft's browser software in order to license Windows 95, Microsoft's construction plainly renders the injunction's prohibition on conditioning the latter on the former a dead letter; it is, therefore, a "patently unreasonable" reading. Greyhound, 508 F.2d at 533.

Not surprisingly, when the passage to which Microsoft points is read in light of "the circumstances surrounding [the injunction's] entry" including "the relief sought by the moving party, the evidence produced" in this proceeding and "the mischief that the injunction seeks to prevent," Christie, 432 F.2d at 1007, it lends Microsoft no support. Microsoft explained to the Court, well before the Court entered its Order, that Microsoft included in its retail version of Internet Explorer 3 a small number of files that replaced and upgraded certain Windows 95 files and that, as a result, requiring Microsoft to offer OEMs a version of Windows 95 without any of those files would produce a version of Windows that would not work. See Cole Decl. ¶¶ 47, 51, 55, 78-80, 83-85, 92-93; Supp. Cole Decl. ¶¶ 2-4, 6-8. To argue, as Microsoft now does, that the Court directed it to remove all the files Microsoft includes in its retail version of Internet Explorer 3 is to presuppose that the Court completely ignored this submission. To the contrary, the Court acknowledged this exact point two pages earlier in its opinion. See Mem. at 13-14.

Perhaps recognizing that it must find a justification for its position elsewhere than in the Court's Memorandum and Order, Microsoft contends that it simply reads the preliminary injunction to require the precise relief the United States requested. Even if it the Court simply adopted the United States' position, the United States asked for no such thing. To be sure, the United States did request an Order prohibiting "Microsoft from forcing OEMs to accept and preinstall the software code Microsoft separately distributes at retail as `Internet Explorer 3.0'" (U.S. Reply Br. at 16). But Microsoft neglects to mention the government's careful qualification -- that the United States did not mean to suggest that Microsoft should be required to offer a version of Windows that did not work because it failed to include system files Microsoft also happens to distribute in its retail version of Internet Explorer 3 (U.S. Reply Br. at 17). Indeed, presaging the most reasonable reading of the sentence to which Microsoft points, the United States explained that Microsoft offered no reason why it would need to withhold from OEMs those system files Microsoft plainly would include in a functional version of Windows (see id.). It is Microsoft, not the United States, "that is engaged in revisionist history" (Op. at 5).

Moreover, Microsoft's reading of the injunction is undermined by its own conduct. If, as Microsoft contends, it were reasonable to construe the injunction to require that Microsoft make available to OEMs only a nonfunctional version of Windows as an alternative to its present conditioned license, Microsoft would have done nothing else. However, effectively conceding that the injunction cannot reasonably be read to mean what Microsoft now says it means, Microsoft also offered OEMs a second option: "the current retail version of Windows" "minus" what Microsoft characterizes "as the Internet Explorer 3.0 update" (Op. at 6). As it turns out, this option is as commercially worthless to OEMs as the first option and thus also fails to secure compliance with this Court's injunction. But the very fact Microsoft hedged its bets with this option -- which Microsoft nowhere contends by itself satisfies the injunction -- demonstrates that Microsoft's construction of the injunction is a contrivance, adopted not in order "to give effect to its spirit and purpose," Grove Fresh, 888 F. Supp. at 1438, but rather to advance its own interests.

Citizens confronted with court orders, whether or not they believe them lawful, have an obligation to "obey [them] out of `respect for judicial process.'" GTE Sylvania, Inc. v. Consumers Union of the United States, 445 U.S. 375, 387 (1980) (quoting Walker v. City of Birmingham, 388 U.S. 307, 321 (1967)). If Microsoft had genuine difficulty discerning its obligations under the injunction, it "could have petitioned the District Court for a modification, clarification or construction of the order." McComb v. Jacksonville Paper Co., 336 U.S. 187, 192 (1949). But Microsoft "did not take that course." Id. Nor did it so much as attempt a reasonable interpretation of the injunction's language in light of its context. Rather, Microsoft, "mak[ing] its own determination of what the [injunction] meant," id., contumaciously implemented a "twisted construction" of the Order that reads it in effect to authorize the very conduct the Court intended to enjoin.

II.	The Relief Proposed By The United States Is Appropriate And Ensures Full Compliance With The Injunction

In response to Microsoft's intransigence, the United States proposed a particular form of compliance: that Microsoft be required to permit OEMs to license the latest version of Windows 95 from which Internet Explorer has been "uninstalled" using Windows 95's "Add/Remove Programs" utility (Motion for Judgment of Contempt at 3-4). Such relief, the United States explained, will give OEMs the choice of licensing Windows 95 without the attributes that meet "independent consumer demand" for the browser -- the visible signs of, and easy user access to, browser functionality -- without harming the underlying operating system (see id. at 4).

Microsoft complains that the relief proposed by the United States fails to ensure compliance with this Court's Order and, in any event, will not achieve the result the United States represents. Microsoft's first contention falls with its unreasonable reading of the injunction. Microsoft objects that the proposed relief will not bring it into "compliance with the Order" because "the great bulk of Internet Explorer 3.0 remains even after it has supposedly been uninstalled" (Op. at 9-10). But the injunction prohibits Microsoft, through its conditioned licenses, from distorting competition among browsers. The remedy suggested by the United States prevents the forbidden conditioning; Microsoft's response does not.

Microsoft's conduct not only is unfaithful to the purposes of the Court's Order, but also is less than faithful to Microsoft's purported interest in preserving for itself the right to design its products as it sees fit. Microsoft's construction of the Order requires it to redesign its own products -- by deleting files and impairing functionality -- in a manner for which there is otherwise no occasion. By contrast, the remedy proposed by the United States takes Microsoft's products just as Microsoft has designed them. It is Microsoft that designed the "uninstall" feature, that advertises it to the world on its web-site, and that uses it to induce computer users to install Internet Explorer (telling them "IE uninstalls easily if you want . . . simply [to] get rid of it" (Gaspar Decl. ¶ 19, Ex. 9)). And it is Microsoft that enables users to uninstall what it calls "Internet Explorer" (not "some files from" Internet Explorer) in recognition of the commercial significance of the files that are deleted by the "uninstall" procedure. The United States simply asks that OEMs be permitted to benefit from this very uninstall procedure that Microsoft has already created. For precisely these reasons, Microsoft's further contention -- that the relief proposed by the United States will degrade functionality users associate with the operating system (Op. 4, 9-10) -- is curious. Microsoft, as just explained, expressly represents to consumers that "IE uninstalls easily if you want . . . simply [to] get rid of it" (Gaspar Decl. ¶ 19 Ex. 9), and continues to do so, see IE Challenge (Dec. 25, 1997) <www.microsoft.com/ie/challenge/easy/> (same); McCarthy Decl. ¶ 4 App. 3 (explaining how to "uninstall Microsoft Internet Explorer" from OSR 2 by reinstalling it from another source and then "uninstall[ing] [it by] using the Add/Remove Programs tools"), without warning them of any "degradation" they might experience.

Because it simply makes available to OEMs alternatives that Microsoft's own conduct shows it believes consumers will find desirable, the proposed remedy, far from "advanc[ing] no conceivable goal of the antitrust laws" (Op. at 11), furthers antitrust objectives. The point, of course, is not to hinder Microsoft's efforts to create improved products, but rather to prevent Microsoft from using its Windows monopoly to place a thumb on the scale in browser competition. As this Court noted, "[t]he probability that Microsoft will not only continue to reinforce its operating system monopoly by its licensing practices, but might yet acquire another monopoly in the Internet browser market, is simply too great to tolerate until [this case] is finally resolved" (Mem. at 17).

III.	This Court Has Jurisdiction To Enter The Proposed Order

Microsoft asserts that the relief proposed by the United States amounts to an improper request to modify the injunction during the pendency of Microsoft's appeal (Op. 12-14). This contention, premised as it is on Microsoft's incorrect reading of the injunction, is a "deft semantic [mis]characterization." United States v. Microsoft, 56 F.3d 1448, 1456 (D.C. Cir. 1995). As explained, requiring Microsoft to make available to OEMs the benefits of its own "uninstall" option simply brings Microsoft into compliance with, and thus enforces rather than expands, the existing injunction. It is well-settled that "[a] district court" "after the notice of appeal has been filed" "may take action to enforce its order in the absence of a stay." E.g., NLRB v. Cincinnati Bronze, Inc., 829 F.2d 585, 588 (6th Cir. 1987) (upholding entry of subsequent, more specific order that "enforced and clarified" an appealed but unstayed order) (citing Deering Milliken, Inc. v. FTC, 647 F.2d 1124, 1128-29 (D.C. Cir.) (Mem.), cert. denied, 493 U.S. 958 (1978)).

The ancillary relief proposed by the United States -- a prohibition on retaliation against OEMs for invoking the "uninstall" option and a requirement that Microsoft notify the Court and the United States, in advance of releasing a product within the injunction's scope, of the nature of the release and the steps Microsoft believes will ensure compliance with the injunction -- similarly is carefully calibrated merely to ensure that Microsoft complies with the preliminary injunction and works no impermissible modification. See, e.g., Meinhold v. United States Department of Defense, 34 F.2d 1469, 1480 n.14 (9th Cir. 1994) (explaining that a court retains jurisdiction to "issue[ an] amended order to clarify its original injunction and to supervise compliance in the wake of [a subsequent] motion for contempt"). In any event, Microsoft concedes that "new fact[ual] develop[ments]" might warrant imposing on Microsoft additional obligations in furtherance of the injunction (Op. at 14). The new fact that justifies ordering the proposed relief is Microsoft's contumacious failure to comply with this Court's Order. "[I]n enforcing its orders, the district court may adapt the form of the application of its power according to the resistance to enforcement with which it is confronted." Madden v. Grain Elevator, Flour and Feed Mill Workers, 334 F.2d 1014, 1020 (7th Cir. 1964), cert. denied, 379 U.S. 967 (1965).

It is Microsoft, not the United States, that improperly seeks to rewrite the Court's injunction. The Court should end Microsoft's disobedience and bring it into compliance.

Dated: December 29, 1997	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.

Mark S. Popofsky

Attorneys

Antitrust Division

U.S. Department of Justice

Room 10-0101

450 Golden Gate Avenue

San Francisco, CA 94102

415/436-6660

CERTIFICATE OF SERVICE

The undersigned certifies that on December 29, 1997, copies of the foregoing REPLY MEMORANDUM OF THE UNITED STATES IN SUPPORT OF ITS MOTION FOR JUDGMENT OF CIVIL CONTEMPT AND TO ENFORCE PERMANENT INJUNCTION were served by facsimile transmission and Federal Express overnight delivery upon:

Special Master

Professor Lawrence Lessig

1525 Massachusetts Avenue

G-502

Cambridge, MA 02138

Counsel for Microsoft Corporation

William H. Neukom, Esq.

Microsoft Corporation

One Microsoft Way

Redmond, Washington 98052

Richard J. Urowsky, Esq.

Sullivan & Cromwell

125 Broad Street

New York, New York 10004

James R. Weiss, Esq.

Preston Gates Ellis & Rouvelas Meeds

1725 New York Avenue, NW

Washington, DC 20006

__________________________

Mark S. Popofsky

Attorney

Antitrust Division

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