BEFORE THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA

)
UNITED STATES OF AMERICA, )
Plaintiff, )
)
v. ) Civil Action No. 98-1232 (CKK)
)
MICROSOFT CORPORATION, )
Defendant. )
)
)

 

Reply Memorandum of Amici Curiae NetAction
And Computer Professionals for Social Responsibility

Audrie Krause
Executive Director
NetAction
601 Van Ness Avenue, #631
San Francisco, CA 94102
(415) 775-8674
(415) 673-3813 fax
Jeffrey Blumenfeld (#1817685)
Michael D. McNeely
Patrick O'Connor
Counsel for NetAction and
Computer Professionals for
Social Responsibility

Gray Cary Ware & Freidenrich
http://www.graycary.com
1625 Massachusetts Avenue, N.W.
Suite 300
Washington, D.C. 20036
(202) 955-6300
(202) 955-6460 fax


Coralee Whitcomb
President
Computer Professionals for Social Responsibility
P.O. Box 717
Palo Alto, CA 94302
(650) 322-3778
(650) 322-4748 fax

 

TABLE OF CONTENTS


BEFORE THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA

)
UNITED STATES OF AMERICA, )
Plaintiff, )
)
v. ) Civil Action No. 98-1232 (CKK)
)
MICROSOFT CORPORATION, )
Defendant. )
)
)

 

Reply Memorandum of Amici Curiae NetAction
And Computer Professionals for Social Responsibility


Amici curiae NetAction and Computer Professionals for Social Responsibility ("CPSR"), pursuant to 15 U.S.C. § 16(f)(3) and this Court's Memorandum Opinion and Order of March 4, 2002, through their counsel, respectfully submit this Reply Memorandum.

INTRODUCTION

In the final analysis, this proceeding is and should be about consumers. The antitrust laws are designed to protect consumers, and it is the charge of the Antitrust Division of the United States Department of Justice ("Government") to protect consumers' right to a competitive marketplace and the benefits of competition. Unfortunately, the Second Revised Proposed Final Judgment ("SRPFJ") does not protect the interests of consumers against continuing and future anticompetitive acts on the part of Microsoft, even in the limited areas that it purports to address.  As detailed below, certain provisions of the SRPFJ would put consumers at serious risk of further injury in their property and in their proper expectation of a competitive environment. NetAction and CPSR raised a number of issues of concern on behalf of consumers in their Comments,[1] but neither Microsoft nor the Government adequately addressed those concerns in response.

Because the SRPFJ will not effectively fulfill the Government's promise of "prompt, certain and effective remedies for consumers,"[2] this Court should find that the proposed decree is not in the public interest, as required by the Antitrust Procedures and Penalties Act, 15 U.S.C. § 16 ("Tunney Act").

ANALYSIS

I. Microsoft misinterprets the "public interest" inquiry required under the Tunney Act

Microsoft would severely and inappropriately constrain the Court's public interest inquiry by strictly limiting its scope to the narrowest possible understanding of the acts underlying the finding of monopolization that the Court of Appeals for the District of Columbia Circuit fully affirmed.[3] This limitation has no basis in law or fact and contradicts the plain language of the Tunney Act itself.[4] Moreover, even the Government interprets the public interest inquiry to extend beyond the incomplete findings of the D.C. Circuit to address issues within any related "class" of violations.[5] This Court should recognize that any such limitation cuts in favor of Microsoft and against the very public interest that the Tunney Act was designed to protect.

At several points in its Memorandum in Support of the SRPFJ, Microsoft makes statements to the effect that, "the 'public interest' determination to be made by this Court is bounded by ... actual liability findings [of the D.C. Circuit], rather than the broader allegations raised in the complaint."[6] Tellingly, Microsoft never provides legal support for these statements, but the Court's broad authority under the Tunney Act is made clear by the language of the statute itself:

Before entering any consent judgment proposed by the United States under this section, the court shall determine that the entry of such judgment is in the public interest. For the purpose of such determination, the court may consider-

  1. the competitive impact of such judgment, including termination of alleged violations, provisions for enforcement and modification, duration or relief sought, anticipated effects of alternative remedies actually considered, and any other considerations bearing upon the adequacy of such judgment;

  2. the impact of entry of such judgment upon the public generally and individuals alleging specific injury from the violations set forth in the complaint including consideration of the public benefit, if any, to be derived from a determination of the issues at trial.[7]

As the italicized portions of the statute make clear, this Court is in no way bound in its inquiry to the claims fully endorsed by the D.C. Circuit. The plain language of the Tunney Act leads to the conclusion that an examination of the public interest under the Tunney Act is meant to be very broad indeed.

Significantly, the Government does not share Microsoft's grudging view of the scope of the public interest inquiry. The Government states that "an antitrust conduct remedy is not limited to enjoining precisely the conduct found to be unlawful ... [Instead,] the remedies must be of the same type or class as the violations[.]"[8] Thus, not even the Government's view of the scope of this Court's inquiry can be squared with Microsoft's insistence that "the public interest determination is bounded by the actual antitrust violation that has survived these proceedings[.]"[9]

As the language of the Tunney Act itself makes clear, this Court is entitled to consider any issue it deems relevant in its public interest inquiry. Given the focus of the Tunney Act itself, potential benefits and detriments to consumers should be at the very top of the list of issues considered.

II. Microsoft's and the Government's responses to public comments allayed none of the concerns of NetAction and CPSR

While NetAction and CPSR applaud the parties' recognition that some terms of the Revised Proposed Final Judgment required revision, the parties' alterations diminished none of the consumer-based concerns that NetAction and CPSR have expressed. Microsoft provided no responses to commenters' particular concerns. And while the Government nominally responded to certain concerns, it failed to substantively address (1) the omission of any remedy for consumers using legacy versions of the Windows operating system, (2) Microsoft's ability to avoid API disclosure by integrating middleware into Windows and ceasing to distribute it separately, (3) Microsoft's ability to unilaterally determine what constitutes a "major" release of Microsoft Middleware, (4) Microsoft's ability to escape its API disclosure obligations by claiming a "security" threat, and (5) the anticompetitive advantage afforded Microsoft by the timing of API disclosures.

A. The Parties have provided no justification for ignoring consumers using legacy versions of Windows

Antitrust relief must, at a minimum, end the unlawful conduct, prevent its recurrence, and "undo its anticompetitive consequences."[10] In this case, those consequences have been estimated to have cost consumers $20 million over the period 1995-2000 alone.[11] Despite this, as Net Action and CPSR demonstrated in their Comments, the proposed decree would perversely extract payment from consumers (accruing to Microsoft) in exchange for the right to participate in a competitive marketplace that is theirs by law.[12] Thus, consumers will be forced to bear the cost of undoing the anticompetitive effects of Microsoft's behavior.

Vast numbers of consumers continue to use legacy versions of the Windows operating system, including Windows 95, Windows 98, and Windows Me. The anticompetitive acts that are the subject of this proceeding were perpetrated by Microsoft utilizing these legacy versions of Windows. In fact, the anticompetitive consequences of Microsoft's acts have always been and continue to be disproportionately visited upon users of legacy Windows operating systems. Despite these circumstances, the SRPFJ does not require Microsoft to do anything to address anticompetitive acts, which continue to have an effect upon consumers, in these legacy markets. As a result, the SRPFJ definitively fails to "undo ... anticompetitive consequences" with respect to these markets as required.[13]

The Government's response to this criticism makes reference to the more limited "commercial and competitive significance" of the legacy operating systems. Certainly provisions designed to prevent a recurrence of Microsoft's anticompetitive behavior in newer versions of Windows are warranted. However, this does not diminish the need to address the anticompetitive consequences that befall consumers from the very behavior at issue in this proceeding.

The Government further states, "[g]oing forward, developers are unlikely to write middleware or applications to any significant degree to the older, 9x operating systems, because those versions are built on a different code base than that underlying Windows 2000, Windows XP and future versions of Windows."[14] The Government provides no basis for this prediction of what will or will not develop in the marketplace, and, given the substantial base of consumers that continue to operate on these legacy systems, the Government's conclusion seems counterintuitive.

In any case, the success or failure of a legacy-systems middleware provider is for the market to sort out. It is the Government's charge in this case to undo the consequences that flow from the series of anticompetitive acts perpetrated by Microsoft. In carrying out that charge the Government should have negotiated provisions designed to restore competition for middleware in legacy systems. Unfortunately for consumers, it did not. Unfortunately for this Court, it has failed to credibly explain why not.

B. The Parties fail to justify Microsoft's power to avoid the SRPFJ's requirements by integrating middleware into its operating system and ceasing separate distribution of middleware.

Serious and enduring competitive injury will result from Microsoft's continued ability to integrate middleware into its operating system and, thereby, avoid the requirements of API disclosure under the SRPFJ. API disclosures, upon which prospective competition in middleware depends, are limited to the APIs required by what the SRPFJ defines as Microsoft Middleware.[15] However, "Microsoft Middleware" is limited to "software code that Microsoft distributes separately from a Windows Operating System Product."[16] Section VI.U of the SRPFJ permits Microsoft to unilaterally determine the code that comprises a Windows Operating System Product. These provisions, when combined, would allow Microsoft to integrate actual or potential middleware products into its operating system, thereby avoiding its API disclosure obligations under the SRPFJ.

The Government responds to the numerous criticisms leveled against these provisions by pointing out that "nothing in Definition U alters the fact that, under the RFPJ, software code that Microsoft ships labeled as 'Windows' can also constitute 'Microsoft Middleware' or a 'Microsoft Middleware Product' ... Thus, for example, Internet Explorer is both Microsoft Middleware Product and part of a Windows Operating System Product."[17] This argument does not, however, respond to the fundamental problem noted by commenters: nothing in the SRPFJ prevents Microsoft from integrating actual or potential middleware products into its operating system and discontinuing separate distribution, thereby avoiding entirely the API disclosure requirements of Section III.D. Indeed, as the Government recognizes, Microsoft has stopped distributing Windows Media Player, an important middleware offering, separately.[18]

Because this stratagem would permit Microsoft to protect its recognized monopoly in the operating system market from erosion by competitive middleware, it is entirely in Microsoft's interest to foreclose competition in this manner. This approach could be replicated by Microsoft for any middleware that posed a threat to its Windows monopoly. Each time such a middleware technology was developed, Microsoft could simply integrate that functionality into its Windows operating system and forego separate distribution, avoiding disclosure of the APIs that are essential for competition.

The Government argues that Microsoft will not forego separate distribution of its middleware updates, because "then it will not be able to reach the large installed base of Windows machines," while competing middleware products would not be so limited.[19] This argument, however, overlooks Microsoft's ability to use operating system updates to update "integrated" middleware. Nor is the Government correct that this strategy would make the competitive significance of the affected middleware "relatively small." Nothing in the SRPFJ prevents Microsoft from aggressively marketing its middleware functionalities, even if they are integrated into and updated along with Windows. The ability that these provisions give Microsoft to avoid the evident intent of the SRPFJ mean that it is not in the public interest and must be rejected.

C. The Parties have failed to justify Microsoft's ability to determine its API disclosure obligations by defining what constitutes a "major" middleware update release

Under the SRPFJ, Microsoft need not disclose APIs used by Microsoft Middleware to competitors unless the software is "identified as a major version of that Microsoft Middleware Product."[20] SRPFJ Section VI.J then defines a major version of a "Microsoft Middleware Product" as one "identified by a whole number or by a number with just a single digit to the right of the decimal point." The determination of the software upgrades that merit classification as "major" lies exclusively in the hands of Microsoft. In their Comments, NetAction and CPSR noted the concern that "Microsoft would avoid disclosure ... simply by denominating the release anything other than a whole number or a number with just a single digit to the right of the decimal point."[21]

In response, the Government ducks the substantive point of this criticism, focusing on the need for a version numbering system rather than the germane question of whether Microsoft's control of that system gives it an unacceptable ability to define its own obligations under the SRPFJ. Indeed, in the very course of its discussion, the Government recognizes the potential for Microsoft to avoid its API disclosure obligations by downplaying the significance of changes to its middleware:

Although Microsoft maintains these version numbers, they are not always advertised to the public because small changes are not advertised as new, improved, or updated products ... Significantly improved features, including those based on better APIs, are most likely to be designated by new major version numbers ... [S]hould Microsoft Middleware use a new API in an update that is not a new major version, then that API still will be disclosed, at a minimum, when the next new major version is released. The only way for Microsoft to hide an API indefinitely is to never release a new major version, which historically has not happened and is not likely to happen in the future.[22]

Of course, in basing this prediction on Microsoft's past behavior, the Government fails to mention that Microsoft has never before had an incentive to withhold the release of major versions of its Microsoft Middleware. Under the SRPFJ, it does.

Assurances and guesswork like this are not substitutes for an effective order. The problems inherent in these provisions of the SRPFJ do not relate to the numbering system itself, but rather to the entity that is charged with control of that numbering system. The parties' responses to comments never come to grips with the fact, by granting Microsoft an exception to API disclosure for "minor" version updates, the SRPFJ gives new incentives for evasion and significant control over the SRPFJ's coverage to an entity that has proven its willingness and ability to manipulate its technology to harm consumers.

D. Microsoft retains the ability to unilaterally identify a "security" threat and avoid required API disclosures

Under the provisions of the SRPFJ, Microsoft is able to avoid all of its disclosure obligations whenever "disclosure ... would compromise the security of a particular installation or group of installations of anti-piracy, anti-virus, software licensing, digital rights management, encryption or authentication systems, including without limitation, keys, authorization tokens or enforcement criteria."[23] A number of commenters, including NetAction and CPSR, identified the overly-broad nature of this provision and the anticompetitive use to which it may be put if the determination of a "security threat" is left in the hands of Microsoft.[24]

In its Response to Public Comments, the Government presents a detailed description of the situations that the security provision is designed to cover.[25] As with the determination of a "major" update to Microsoft Middleware (discussed in Section III.C supra.), the Government fails to discuss the more important question of why important interpretive provisions of the SRPFJ are left in the hands of Microsoft. In this instance, Microsoft will be able to prevent competition by unilaterally determining that a competitor's product is a security threat. This provision, which could lead to serious consequences in the short term, takes on added importance once the networked environment of Microsoft's .NET initiative becomes a reality. 

E. Microsoft retains an anti-competitive advantage due to the timing of its API disclosure obligations under the SRPFJ

In addition to its ability to avoid API disclosure as described above, the SRPFJ grants Microsoft an unfair advantage by allowing it to withhold API disclosures from competitors until such disclosures are no longer competitively significant. Section III.D requires API disclosure at the "last major beta test release" of the relevant major version of Microsoft Middleware. As described in NetAction/CPSR's Comments, this provides Microsoft with two incentives: (1) to push the date of release of the last major beta test as close as possible to commercial release of the product, and (2) to use the interval up until the last beta test release to plan a subsequent and improved version of the same middleware.[26] Under these provisions, by the time competitors can develop competing middleware products, Microsoft will be ready to release a new (and improved) version of its own middleware.

The Government fails to directly address this argument in its Response to Public Comments. In discussing the timing of releases, however, the Government recognizes that Microsoft developers would perpetually have the advantage under these provisions of the SRPFJ: "[t]he time when a Microsoft developer first receives information about a new API may be considerably before the API is finalized, tested and documented ... [T]he Microsoft developer may be part of the testing cycle and may be required to work extensively with the Windows Operating System product developer to write the interface."[27] Obviously, by keeping new APIs in the "testing" phase for as long as possible, Microsoft will be able to gain a considerable advantage over its competitors in the development of middleware applications. By delaying release of the last beta test and working toward rapid release of a subsequent version of Microsoft Middleware, Microsoft will be able to foreclose competition entirely.

In order to avoid this anticompetitive effect of the SRPFJ, information about new APIs should be freely available. Specifically, Microsoft should be required to disclose potential new APIs to competitors at the same time as it discloses that information to its own developers. The SRPFJ does no such thing.

CONCLUSION

Approval of the proposed decree without correcting the evident loopholes noted by Tunney Act commenters will result in serious anticompetitive consequences for competitors and consumers alike. NetAction and CPSR continue to favor further proceedings designed to ensure that a "meeting of the minds" has occurred among all parties to the SRPFJ and, thus, that the public interest will be served by entry of the proposed decree. Otherwise, based upon the foregoing, NetAction and CPSR respectfully request that the Court find the SRPFJ not to be in the public interest.

Dated: March 11, 2002

Respectfully submitted,

Audrie Krause
Executive Director
NetAction
601 Van Ness Avenue, #631
San Francisco, CA 94102
(415) 775-8674
(415) 673-3813 fax
Jeffrey Blumenfeld (#1817685)
Michael D. McNeely
Patrick O'Connor
Counsel for NetAction and
Computer Professionals for
Social Responsibility

Gray Cary Ware & Freidenrich
http://www.graycary.com
1625 Massachusetts Avenue, N.W.
Suite 300
Washington, D.C. 20036
(202) 955-6300
(202) 955-6460 fax


Coralee Whitcomb
President
Computer Professionals for Social Responsibility
P.O. Box 717
Palo Alto, CA 94302
(650) 322-3778
(650) 322-4748 fax

FOOTNOTES

  1. United States v. Microsoft, Comments of NetAction and Computer Professionals for Social Responsibility on the Proposed Final Judgment, Civil Action No. 98-1232, filed Jan. 28, 2002 (D.C.Cir.) ("NetAction/CPSR Comments").

  2. United States v. Microsoft, Competitive Impact Statement of the United States Department of Justice Antitrust Division, Civil Action Nos. 98-1232, 98-1233, filed Nov. 15, 2001, § I (D.C.Cir.) ("Competitive Impact Statement").

  3. United States v. Microsoft, 253 F.3d 34 (D.C.Cir. 2001).

  4. 15 U.S.C. § 16.

  5. United States v. Microsoft, Response of the United States to Public Comments on the Revised Proposed Final Judgment, Civil Action No. 98-1232, filed February 27, 2002 at 33 (D.C.Cir.) ("Government Response to Public Comments").

  6. United States v. Microsoft, Defendant Microsoft Corporation's Memorandum in Support of the Second Revised Proposed Final Judgment, Civil Action No. 98-1232, filed February 27, 2002 at 5 (D.C.Cir) ("Microsoft Memorandum in Support"); see also Microsoft Memorandum in Support at 13, 18.

  7. 15 U.S.C. § 16(e) (emphasis added).

  8. Government Response to Public Comments at 33 (internal citations omitted).

  9. Microsoft Memorandum in Support at 13.

  10. Nat'l Soc'y of Prf'l Eng'rs v. United States, 435 U.S. 679, 697 (1978); United States v. E.I. du Pont de Nemours & Co., 366 U.S. 316, 326 (1961); Int'l Salt Co. v. United States, 332 U.S. 392, 401 (1947); United States v. Microsoft Corp., 253 F.3d 34, 103, 107 (D.C.Cir. 2001).

  11. United States v. Microsoft, Comments of Consumer Federation of America, et al., Civil Action No. 98-1232, filed Jan. 28, 2002, § IV.2.ii (D.C.Cir.) ("CFA Comments").

  12. See e.g. 15 U.S.C. §§ 1-7 (Sherman Act), 15 U.S.C. §§ 12-27, 29 U.S.C. §§ 52-53 (Clayton Act, as modified by the Robinson-Patman Act), 15 U.S.C. §§ 41-51 (Federal Trade Commission Act).

  13. Competitive Impact Statement § IV.B.

  14. Government Response to Public Comments at 68.

  15. SRPFJ § III.D.

  16. Id.

  17. Government Response to Public Comments at 66.

  18. Government Response to Public Comments at 45.

  19. Government Memorandum in Support at 44-45.

  20. SRPFJ § VI.J.

  21. NetAction/CPSR Comments at 13 (emphasis in original; internal citations omitted). 

  22. Government Response to Public Comments at 51-52 (emphasis added).

  23. SRPFJ § III.J.1.

  24. See NetAction/CPSR Comments at 14-15.

  25. Government Response to Public Comments at 178-180.

  26. NetAction/CPSR Comments at 13.

  27. Government Response to Public Comments at 184.

 

NetAction/CPSR Memorandum in Reply
March 11, 2002
http://netaction.org/msoft/doj-reply.html