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IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA

Plaintiff,

vs.

MICROSOFT CORPORATION,

Defendant.

 

STATE OF NEW YORK ex rel.

Attorney General ELIOT SPITZER, et al.,

Plaintiffs,

vs.

MICROSOFT CORPORATION,

Defendant.

 

MICROSOFT CORPORATION,

Counterclaim-Plaintiff,

vs.

ELIOT SPITZER,

Attorney General of the State of New York,

In his official capacity, et al.,

Counterclaim-Defendants.

 

 

 

Civil Action No. 98-1232 (TPJ)

 

Civil Action No. 98-1233 (TPJ)

 

 

 

 

 

DEFENDANT MICROSOFT CORPORATION’S REPLY TO PLAINTIFFS’ RESPONSE TO MICROSOFT’S COMMENTS ON THEIR REVISED PROPOSED FINAL JUDGMENT

The comments Microsoft submitted on May 31, 2000 detailed numerous flaws in the government’s revised proposed final judgment that would impose undue hardship on both Microsoft and third parties. Such flaws should be corrected even if one accepts—which Microsoft decidedly does not, for reasons stated previously—that relief of the sort requested by the government is either necessary or appropriate in this case.

Instead of agreeing to correct the many defects in the revised proposed final judgment, and thereby minimize the damage that its entry would inflict on a wide range of participants in the computer industry, the government has agreed to only a few cosmetic changes. None of those cosmetic changes addresses the fundamental problems that Microsoft specified in its May 10, 2000 summary response to the proposed final judgment or in its May 31, 2000 comments on the revised proposed final judgment.

First, the government has abandoned any pretense that the structural relief it seeks is something other than a divestiture of major portions of Microsoft’s business (Pls.’ Comment Reply at 3); but use of the proper terminology does nothing to ameliorate the severe economic dislocation certain to be caused by forcibly dismembering an integrated enterprise.

Second, the government has made plain that it contemplates a wholesale transfer of proprietary information about Microsoft’s operating systems to competitors on a royalty-free basis (Pls.’ Comment Reply at 15), a radical step that will undermine Microsoft’s incentives to innovate.

Third, the government has confirmed that it seeks to regulate the manner in which Microsoft designs its operating systems (Pls.’ Comment Reply at 12, 17-18), controlling what new features Microsoft can add to its operating systems to meet customer demand and respond to competition, and enabling computer manufacturers to fragment Windows, impairing its utility as a development platform.

Fourth, the government has admitted that it wants to force Microsoft to treat all Covered OEMs, ISVs and IHVs exactly the same way, regardless of the extent to which such companies cooperate with Microsoft in developing and marketing its products (Pls.’ Comment Reply at 10-11, 16-17), thereby restricting competition among OEMs, ISVs and IHVs by preventing them from working closely with Microsoft to develop products that differentiate them from their competitors.

In fact, the government’s reply to Microsoft’s comments makes the government’s revised proposed final judgment worse than Microsoft initially thought by (i) confirming that certain provisions are more extreme than they might appear at first blush, (ii) repudiating limitations on the sweep of various provisions that the government had proffered in its May 17, 2000 reply brief in support of its proposed final judgment, and (iii) blithely ignoring substantial problems Microsoft identified regarding the feasibility of complying with many of the provisions as drafted.

As to the government’s extreme readings of various provisions, three examples will suffice to make the point.

  • The government has now underscored its intention to force Microsoft to redesign its existing operating systems, including Windows 98 and Windows 2000 Professional, to eliminate cross-dependencies between what the government calls the Operating System and what the government calls Middleware Products (which are, in reality, all elements of a single product). (See Pls.’ Comment Reply at 18.) The government’s assurance that this forced redesign of shipping products would pose no problem "because Microsoft will have nine months from entry of the Final Judgment to prepare the modified version[s] required by this provision" (Pls.’ Comment Reply at 18) is a cynical response to the substantial injury the public will sustain if Microsoft is forced to cease distributing these products next winter because it simply cannot do what the government suggests in the time provided.
  • The government has now confirmed its intention to force Microsoft to disclose to its competitors not only source code that Microsoft developed itself but also source code that Microsoft has licensed from third parties—parties not even before the Court. (See Pls.’ Comment Reply at 14.) The government says this problem is solved because such third parties can petition the government "for relief from the provision" (Pls.’ Comment Reply at 14-15), an option that would provide them with cold comfort given the government’s cavalier treatment of Microsoft’s valuable intellectual property.
  • The government has acknowledged that the "simple prohibitions" of Section 3.h would encompass routine interactions with other software developers and has rejected Microsoft’s effort to narrow the provision consistent with the government’s own gloss on it. (See Pls.’ Comment Reply at 18-19.) The government defends the vagueness and overbreadth of the provision on the astounding basis that the government "intend[s] to enforce the provision only against anticompetitive agreements." (Pls.’ Comment Reply at 19.) Obviously, the scope of an injunction cannot be based on the purported intentions of the party charged with enforcing it.

The government’s responses to Microsoft’s comments merely confirm that its requested relief is punitive in concept and effect, and that entry of the revised proposed final judgment will inflict severe harm on Microsoft and third parties. Inflicting such harm is not necessary to remedy the antitrust violations found by the Court.

As to the government’s repudiation of its earlier limitations on various provisions, two examples will suffice to make the point.

  • The government argued in its reply brief in support of its proposed final judgment that Section 2.b.iii would permit the Applications Business and the Operating Systems Business "to ensure that the applications company’s tools, middleware, or applications work with Windows operating system [sic] or to ensure that Windows developers take into account input from the applications company’s developers." (Pls.’ Reply at 41.) When Microsoft sought to change the provision to reflect that statement (see MS Comments at 10-11), the government objected, claiming that Microsoft was "selectively quoting" what the government had said. (Pls.’ Comment Reply at 9.) In doing so, the government makes crystal clear that the Applications Business and the Operating Systems Business would not be able to cooperate with one another in developing closely complementary products without simultaneously sharing all information they exchange in the course of such cooperation with everyone in the computer industry—a practical impossibility.
  • The government argued in its reply brief in support of its proposed final judgment that Section 3.f would "not restrict Microsoft’s ability to continue to distribute any Windows improvements by downloading from the Windows Update site." (Pls.’ Reply at 59-60.) When Microsoft sought to change the provision to reflect that statement and extend it to other means routinely used to distribute improvements to Microsoft’s operating systems (MS Comments at 24), the government objected to Microsoft’s proposed change in its entirety, claiming that it "would permit Microsoft unilaterally to evade the restriction on contractual tying." (Pls.’ Comment Reply at 18.) In doing so, the government makes crystal clear that Microsoft would no longer be able to provide updated versions of Windows components to the installed base of users between major operating system releases—a change that would slow the pace of innovation and harm consumers.

The government’s May 17, 2000 reply brief cannot be incorporated by reference into the revised proposed final judgment under Rule 65(d) of the Federal Rules of Civil Procedure. As a result, the government’s refusal to incorporate any of the "clarifications" contained in that reply brief into the text of the decree confirms that the decree is too vague and ambiguous to be enforceable as an injunction. That situation is made worse by the government’s efforts to walk away from its earlier "clarifications," making it entirely unclear what the government itself thinks the provisions mean.

As to the government’s refusal to acknowledge problems with various provisions identified by Microsoft, two examples will suffice to make the point.

  • The government has yet again failed to define the "Internet browser" that the Court found was illegally tied to Windows. (See Pls.’ Comment Reply at 7.) Starting with interrogatories served a week after the complaints were filed, Microsoft has been attempting to require the government to identify that "Internet browser" for more than two years now—to no avail. It is bad enough that the government has steadfastly refused to identify the tied product with any specificity, speaking instead of "functionality" supplied by Windows. The problem is now exacerbated because Section 1.c.ii of the government’s revised proposed final judgment limits the ability of the Operating Systems Business to develop "modified or derivative versions" of Intellectual Property "related to the Internet browser." (See MS Comments at 7-8.) Given the importance of providing Internet support in a modern operating system, the Operating System Business must know what software code it does and does not have a right to improve. At the moment, the answer to that question is completely obscure. While it may suffice in defining pornography for purposes of regulating obscenity, see Jacobellis v. Ohio, 378 U.S. 184, 197 (1964) (Stewart, J., concurring), "I know it when I see it" does not provide a workable basis for defining critical terms in an injunction.
  • The government ignores the fact that Microsoft’s employees—many of whom are engineers accustomed to precision in the ascertainment of objectively verifiable facts—would be unable to certify that they understand the revised proposed final judgment because it is, in many respects, so vague and ambiguous as to be unintelligible. Instead, the government baldly asserts that such provisions are "common in antitrust decrees" and states that "Microsoft has no justification for objecting" to the provision. (Pls.’ Comment Reply at 19.) While it may be true that such provisions appear in antitrust decrees that contain straightforward prohibitions against obvious violations like price fixing or customer allocation agreements, the provisions of the revised proposed final judgment—including many definitions that are inconsistent with standard industry usage—are anything but straightforward. Faced with the prospect of certifying that they understand something they do not, many Microsoft employees might choose to resign instead.

In short, all of the significant problems that Microsoft previously identified with the government’s revised proposed final judgment remain. The government has either ignored those problems completely or made them more pronounced with its extreme readings of various provisions and with its repudiation of its earlier attempt to "clarify" other provisions. The few changes to which the government has agreed are purely cosmetic and do nothing to remedy the serious substantive deficiencies of the decree.

CONCLUSION

For the reasons stated in this memorandum and in Microsoft’s earlier comments, Microsoft respectfully requests that, should the Court determine to enter a final judgment embodying, in whole or in part, the provisions requested by the government in its revised proposed final judgment, the Court incorporate the modifications suggested by Microsoft insofar as they pertain to the judgment actually entered.

Respectfully submitted,

______________________________

William H. Neukom
Thomas W. Burt
David A. Heiner, Jr.
Diane D’Arcangelo
Christopher J. Meyers
MICROSOFT CORPORATION
One Microsoft Way
Redmond, Washington 98052
(425) 936-8080
John L. Warden (Bar No. 222083)
Richard J. Urowsky
Steven L. Holley
Theodore Edelman
Michael Lacovara
Richard C. Pepperman, II
Christine C. Monterosso
Bradley P. Smith
SULLIVAN & CROMWELL
125 Broad Street
New York, New York 10004
(212) 558-4000

Counsel for Defendant

Counterclaim-Plaintiff

Microsoft Corporation

June 6, 2000 Microsoft Corporation

CERTIFICATE OF SERVICE

I hereby certify that on this 6th day of June, 2000, I caused a true and correct copy of the foregoing Defendant Microsoft Corporation’s Reply to Plaintiffs’ Response to Microsoft’s Comments on Their Revised Proposed Final Judgment to be served by facsimile and by overnight courier upon:

Phillip R. Malone, Esq.
Antitrust Division
U.S. Department of Justice
450 Golden Gate Avenue, Room 10-0101
San Francisco, California 94102
Fax: (415) 436-6687

Kevin J. O’Connor, Esq.
Office of the Attorney General of Wisconsin
P.O. Box 7857
123 West Washington Avenue
Madison, Wisconsin 53703-7957
Fax: (608) 267-2223

Christine Rosso, Esq.
Chief, Antitrust Bureau
Illinois Attorney General’s Office
100 West Randolph Street, 13th Floor
Chicago, Illinois 60601
Fax: (312) 814-2549

And by facsimile and by hand upon:
Richard L. Schwartz, Esq.
Deputy Chief, Antitrust Bureau
New York State Attorney General’s Office
120 Broadway, Suite 2601
New York, New York 10271
Fax: (212) 416-6015

______________________
Bradley P. Smith

© 2000 The Washington Post Company




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