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Appeals Court Ruling:
United States v. Microsoft Corp.

Thursday, June 28, 2001

United States Court of Appeals


Argued February 26 and 27, 2001

Decided June 28, 2001

No. 00-5212

United States of America,



Microsoft Corporation,


Consolidated with


Appeals from the United States District Court

for the District of Columbia

(No. 98cv01232)

(No. 98cv01233)

Richard J. Urowsky and Steven L. Holley argued the

causes for appellant. With them on the briefs were John L.


Warden, Richard C. Pepperman, II, William H. Neukom,

Thomas W. Burt, David A. Heiner, Jr., Charles F. Rule,

Robert A. Long, Jr., and Carter G. Phillips. Christopher J.

Meyers entered an appearance.

Lars H. Liebeler, Griffin B. Bell, Lloyd N. Cutler, Louis R.

Cohen, C. Boyden Gray, William J. Kolasky, William F.

Adkinson, Jr., Jeffrey D. Ayer, and Jay V. Prabhu were on

the brief of amici curiae The Association for Competitive

Technology and Computing Technology Industry Association

in support of appellant.

David R. Burton was on the brief for amicus curiae

Center for the Moral Defense of Capitalism in support of


Robert S. Getman was on the brief for amicus curiae

Association for Objective Law in support of appellant.

Jeffrey P. Minear and David C. Frederick, Assistants to

the Solicitor General, United States Department of Justice,

and John G. Roberts, Jr., argued the causes for appellees.

With them on the brief were A. Douglas Melamed, Acting

Assistant Attorney General, United States Department of

Justice, Jeffrey H. Blattner, Deputy Assistant Attorney Gen-

eral, Catherine G. O'Sullivan, Robert B. Nicholson, Adam D.

Hirsh, Andrea Limmer, David Seidman, and Christopher

Sprigman, Attorneys, Eliot Spitzer, Attorney General, State

of New York, Richard L. Schwartz, Assistant Attorney Gen-

eral, and Kevin J. O'Connor, Office of the Attorney General,

State of Wisconsin.

John Rogovin, Kenneth W. Starr, John F. Wood, Elizabeth

Petrela, Robert H. Bork, Jason M. Mahler, Stephen M.

Shapiro, Donald M. Falk, Mitchell S. Pettit, Kevin J. Arquit,

and Michael C. Naughton were on the brief for amici curiae

America Online, Inc., et al., in support of appellee. Paul T.

Cappuccio entered an appearance.

Lee A. Hollaar, appearing pro se, was on the brief for

amicus curiae Lee A. Hollaar.

Carl Lundgren, appearing pro se, was on the brief for

amicus curiae Carl Lundgren.

Table of Contents

Summary 5

I. Introduction 7

A. Background 7

B. Overview 10

II. Monopolization 13

A. Monopoly Power 14

1. Market Structure 15

a. Market definition 15

b. Market power 19

2. Direct Proof 23

B. Anticompetitive Conduct 25

1. Licenses Issued to Original Equip-

ment Manufacturers 28

a. Anticompetitive effect of the li-

cense restrictions 29

b. Microsoft's justifications for the

license restrictions 33

2. Integration of IE and Windows 36

a. Anticompetitive effect of inte-

gration 36

b. Microsoft's justifications for inte-

gration 39

3. Agreements with Internet Access

Providers 40

4. Dealings with Internet Content Pro-

viders, Independent Software Ven-

dors, and Apple Computer 47

5. Java 52

a. The incompatible JVM 52

b. The First Wave Agreements 53

c. Deception of Java developers 55

d. The threat to Intel 56

6. Course of Conduct 58

C. Causation 59

III. Attempted Monopolization 62

A. Relevant Market 63

B. Barriers to Entry 65









IV. Tying 68

A. Separate-Products Inquiry Under the

Per Se Test 70

B. Per Se Analysis Inappropriate for this

Case 77

C. On Remand 86

V. Trial Proceedings and Remedy 90

A. Factual Background 91

B. Trial Proceedings 95

C. Failure to Hold an Evidentiary Hearing 96

D. Failure to Provide an Adequate Explana-

tion 99

E. Modification of Liability 100

F. On Remand 103

G. Conclusion 106

VI. Judicial Misconduct 106

A. The District Judge's Communications

with the Press 107

B. Violations of the Code of Conduct for

United States Judges 113

C. Appearance of Partiality 117

D. Remedies for Judicial Misconduct and

Appearance of Partiality 120

1. Disqualification 120

2. Review of Findings of Fact and Con-

clusions of Law 123

VII. Conclusion 125

Before: Edwards, Chief Judge, Williams, Ginsburg,

Sentelle, Randolph, Rogers and Tatel, Circuit Judges.

Opinion for the Court filed Per Curiam.

Per Curiam: Microsoft Corporation appeals from judg-

ments of the District Court finding the company in violation

of ss 1 and 2 of the Sherman Act and ordering various


The action against Microsoft arose pursuant to a complaint

filed by the United States and separate complaints filed by

individual States. The District Court determined that Micro-

soft had maintained a monopoly in the market for Intel-

compatible PC operating systems in violation of s 2; attempt-

ed to gain a monopoly in the market for internet browsers in

violation of s 2; and illegally tied two purportedly separate

products, Windows and Internet Explorer ("IE"), in violation

of s 1. United States v. Microsoft Corp., 87 F. Supp. 2d 30

(D.D.C. 2000) ("Conclusions of Law"). The District Court

then found that the same facts that established liability under

ss 1 and 2 of the Sherman Act mandated findings of liability

under analogous state law antitrust provisions. Id. To rem-

edy the Sherman Act violations, the District Court issued a

Final Judgment requiring Microsoft to submit a proposed

plan of divestiture, with the company to be split into an

operating systems business and an applications business.

United States v. Microsoft Corp., 97 F. Supp. 2d 59, 64-65

(D.D.C. 2000) ("Final Judgment"). The District Court's re-

medial order also contains a number of interim restrictions on

Microsoft's conduct. Id. at 66-69.

Microsoft's appeal contests both the legal conclusions and

the resulting remedial order. There are three principal

aspects of this appeal. First, Microsoft challenges the Dis-

trict Court's legal conclusions as to all three alleged antitrust

violations and also a number of the procedural and factual

foundations on which they rest. Second, Microsoft argues

that the remedial order must be set aside, because the

District Court failed to afford the company an evidentiary

hearing on disputed facts and, also, because the substantive

provisions of the order are flawed. Finally, Microsoft asserts

that the trial judge committed ethical violations by engaging

in impermissible ex parte contacts and making inappropriate

public comments on the merits of the case while it was

pending. Microsoft argues that these ethical violations com-

promised the District Judge's appearance of impartiality,

thereby necessitating his disqualification and vacatur of his

Findings of Fact, Conclusions of Law, and Final Judgment.

After carefully considering the voluminous record on ap-

peal--including the District Court's Findings of Fact and

Conclusions of Law, the testimony and exhibits submitted at

trial, the parties' briefs, and the oral arguments before this

court--we find that some but not all of Microsoft's liability

challenges have merit. Accordingly, we affirm in part and

reverse in part the District Court's judgment that Microsoft

violated s 2 of the Sherman Act by employing anticompetitive

means to maintain a monopoly in the operating system mar-

ket; we reverse the District Court's determination that Mi-

crosoft violated s 2 of the Sherman Act by illegally attempt-

ing to monopolize the internet browser market; and we

remand the District Court's finding that Microsoft violated

s 1 of the Sherman Act by unlawfully tying its browser to its

operating system. Our judgment extends to the District

Court's findings with respect to the state law counterparts of

the plaintiffs' Sherman Act claims.

We also find merit in Microsoft's challenge to the Final

Judgment embracing the District Court's remedial order.

There are several reasons supporting this conclusion. First,

the District Court's Final Judgment rests on a number of

liability determinations that do not survive appellate review;

therefore, the remedial order as currently fashioned cannot

stand. Furthermore, we would vacate and remand the reme-

dial order even were we to uphold the District Court's

liability determinations in their entirety, because the District

Court failed to hold an evidentiary hearing to address reme-

dies-specific factual disputes.

Finally, we vacate the Final Judgment on remedies, be-

cause the trial judge engaged in impermissible ex parte

contacts by holding secret interviews with members of the

media and made numerous offensive comments about Micro-

soft officials in public statements outside of the courtroom,

giving rise to an appearance of partiality. Although we find

no evidence of actual bias, we hold that the actions of the trial

judge seriously tainted the proceedings before the District

Court and called into question the integrity of the judicial

process. We are therefore constrained to vacate the Final

Judgment on remedies, remand the case for reconsideration

of the remedial order, and require that the case be assigned

to a different trial judge on remand. We believe that this

disposition will be adequate to cure the cited improprieties.

In sum, for reasons more fully explained below, we affirm

in part, reverse in part, and remand in part the District

Court's judgment assessing liability. We vacate in full the

Final Judgment embodying the remedial order and remand

the case to a different trial judge for further proceedings

consistent with this opinion.

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