New York v. Microsoft Corp.

531 F.Supp.2d 141

State of NEW YORK, et al., Plaintiffs, v. MICROSOFT CORPORATION, Defendant.

Civil Action No. 98-1233 (CKK).

United States District Court, District of Columbia.

January 29, 2008.

Jay L. Himes, New York Department of Law, Alan R. Kusinitz, Richard L. Schwartz, New York Attorney General's Office, New York, NY, Kevin J. O'Connor, Office of the Attorney General of Wisconsin, Madison, WI, Steven R. Kuney, Brendan V. Sullivan, Jr., Williams & Connolly, Washington, DC, Adam Miller, California Department of Justice, San Francisco, CA, Ellen S. Cooper, Office of the U.S. Attorney General, Baltimore, MD, Douglas Lee Davis, Office of. Attorney General, Charleston, WV, for Plaintiffs.

Bradley Paul Smith, John L. Warden, Richard J. Uroksky, Steven L. Holley, Sullivan & Cromwell LLP, New York, NY, William H. Neukom, Microsoft Corporation, Redmond, WA, Charles F. Rule, Cadwalader Wickersham & Taft LLP, Washington, DC, for Defendant.

MEMORANDUM OPINION¹

COLLEEN KOLLAR-KOTELLY, District Judge.

Currently pending before the Court `are the motions to extend the Final Judgments in this action filed by the California Movants and the New York Movants (collectively, the "Moving States").<sup>2</sup> The Final Judgments arise out of a single civil complaint filed by a group of state plaintiffs on May 18, 1998, alleging antitrust violations by Defendant Microsoft Corporation and asserting claims pursuant to federal and state law.<sup>3</sup> The two Final Judgments are premised upon the same liability finding affirmed by the United States Court of Appeals for the District of Columbia Circuit, and are virtually identical in their substantive provisions. Nevertheless, the two Final Judgments were reached via different paths: the New York Movants' Final Judgment was the result of a negotiated consent decree settling the remedy portion of this case as to certain state plaintiffs, while `the California Movants' Final Judgment was entered by the Court following a thirty-two day remedy-specific evidentiary hearing.

The Moving States' motions seek the same objective: the extension of the relevant Final Judgment until November 12, 2012. The Court has conducted a searching and dedicated review of the Moving States' motions, Microsoft's Opposition, the Moving States' Reply, and the exhibits attached to those memoranda: In addition, the Court has requested further targeted briefing from the, Moving States and Microsoft, and has reviewed each party's filings carefully. The Court has also given due consideration to the amicus curiae brief filed by the United States of America, Plaintiff in the related action, United States v. Microsoft Corporation, Civil Action No. 98-1232.⁴ Upon a thorough review of all of the foregoing, the relevant statutes and case law, and the entire record herein, the Court shall GRANT-IN-PART and DENY-IN-PART the Moving States' motions to extend the Final Judgments.

Overview of Court Findings

The Court's decision in this matter is based upon the extreme and unforeseen delay in the availability of complete, accurate, And useable technical documentation relating to the Communications Protocols that Microsoft is required to make avail able to licensees under Section III.E of the Final Judgments. Thee Court concludes that the Moving States have met their burden of establishing that this delay constitutes changed circumstances, which have prevented the Final Judgments from achieving their principal objectives. As such, the Court shall extend until November 12, 2009 those provisions of the Final Judgments that have not yet been extended until that date (collectively the "Expiring Provisions"),⁵ thus making all provisions of the Final Judgments coterminous. The Court declines the Moving States' invitation to extend the entirety of the Final Judgments through 2012 at this point in time, concluding that it is premature to do so.

The Court's extension should not be viewed as a sanction against Microsoft; to the contrary, the Court commends Microsoft for its willingness to cooperate with the Plaintiffs in this action and in United States v. Microsoft in negotiating solutions to issues as they have arisen throughout the past five years. Indeed, because the parties have negotiated solutions to each of the myriad issues that have arisen regarding the technical documentation, the Court has never been asked to find Microsoft out of compliance with the Final Judgments, and has not deemed a sua sponte finding of non-compliance necessary or fruitful in achieving compliance. Nevertheless, the fact remains that more than five years after the Final Judgments were entered, the technical documentation required by Section III.E is still not available to licensees in a certifiably complete, accurate, and useable form. Further, as a result of the delay, the various provisions of the Final Judgments have not yet been given the opportunity to operate together as the comprehensive remedy the Court and the parties envisioned when the Final Judgments were entered. The Court's extension should thus be viewed as a means to allow the comprehensive remedial scheme embodied in the Final Judgments the chance to maximize Section III.E's pro-competitive potential.

The Court cannot know what impact the technical documentation required by Section III.E will have on the market once it is finally available in a complete, accurate, and useable form. The Moving States, however, proffer realistic examples of ways in which the Expiring Provisions of the Final Judgments can yet play a significant role in helping Section III.E achieve its full potential. In the face of these examples, the Court concludes that allowing the Expiring Provisions of the Final Judgments to lapse before Section III.E has even been given a chance to succeed might threaten the ability of the Final Judgments to achieve their full pro-competitive impact. The Court therefore concludes that the limited extension it is approving is consonant with the policies of encouraging consent decrees, as well as the Court's authority to modify court-ordered judgments.

I: BACKGROUND

A. Proceedings Leading to the Remedial Final Judgments

On May 18, 1998, simultaneous with the filing of the complaint in United States v. Microsoft, a group of state plaintiffs filed a civil complaint alleging antitrust violations by Microsoft and seeking preliminary and permanent injunctions barring, the company's allegedly unlawful conduct. New York v. Microsoft Corporation, 224 F.Supp.2d 76, 86 (D.D.C.2002) (hereinafter "Remedy Opinion").⁶ The instant action asserted claims pursuant to federal and state law, and was consolidated with the United States' action, which asserted only federal law claims. Id. Following a bench trial in the consolidated cases, Judge Thomas Penfield, Jackson found Microsoft liable for violating §§ 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1, 2, and ordered the division of Microsoft into two separate corporations to remedy those findings of liability, Id. (citing United States v. Microsoft Corp., 87 F.Supp.2d 30, 35 (D.D.C. 2000) and United States v. Microsoft Corp., 97 F.Supp.2d 59, 64 (D.D.C.2000)).

On Microsoft's appeal of those rulings, the D.C. Circuit deferred to Judge Jackson's factual findings, affirmed-in-part and reversed-in-part his findings of liability, and vacated the remedy decree. Id. (citing United States v. Microsoft Corp., 253 F.3d 34 (D.C.Cir.2001) (hereinafter "Microsoft")). Specifically, the D.C. Circuit affirmed only limited violations based on § 2 of the Sherman Act for illegal monopoly maintenance, and reversed all other grounds for liability. Soon thereafter, the consolidated cases were randomly reassigned to this Court, with instructions to hold a "`remedies-specific evidentiary hearing,' and to `fashion an appropriate remedy' in light of the revised liability findings." Id. at 87 (citing Microsoft, 253 F.3d at 103, 105). As the remedies crafted on remand were thus cabined by the D.C. Circuit's findings and instructions in its liability opinion, the Court briefly discusses the key portions of that opinion.

1. Appellate Findings and Instructions

The D.C. Circuit's opinion began by affirming the district court's definition of the relevant market as "the licensing of all Intel-compatible PC operating systems worldwide."⁷ Microsoft, 253 F.3d at 52. The D.C. Circuit also adopted the district court's determination that "circumstantial evidence proves that Microsoft possesses monopoly power," and noted that Microsoft's behavior "may well be sufficient to show the existence of monopoly power," if direct proof were required. Id. at 56-57. The D.C. Circuit's adoption of the market definition was premised on its simultaneous acceptance of Plaintiffs' theory of Microsoft's market dominance. The district court and appellate court both noted that Microsoft's lawfully-acquired monopoly was naturally protected by a "structural barrier" known as the "applications barrier to entry." Id. at 55. The applications barrier to entry arises because: "(1) most consumers prefer operating systems for which a large number of applications have already been written; and (2) most developers prefer to write for operating systems that already have a substantial consumer base." Id. The applications, barrier to entry creates a network effects situation, which perpetuates Microsoft's operating system dominance. Remedy Opinion, 224 F.Supp.2d at 89-90. This is because "[e]very operating system has different APIs," such that "applications written for one operating system will not function on another unless the developer undertakes the `time consuming and expensive' process" of "porting" the application to an alternative operating system. Id. (quoting' Microsoft 253 F.3d at 53, 55).

During the liability phase of this case, Plaintiffs proceeded on the theory that certain kinds of software products, known as "middleware," could weaken the applications barrier to entry "by serving as platforms for...