USA. v. Microsoft Corp.

Page 34

253 F.3d 34 (D.C. Cir. 2001)

United States of America, Appellee v. Microsoft Corporation, Appellant

No. 00-5212 and 00-5213

United States Court of Appeals FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued February 26 and 27, 2001

Decided June 28, 2001

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[Copyrighted Material Omitted] 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 appellant.

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 General, 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 General, 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.

Before: Edwards, Chief Judge, Williams, Ginsburg, Sentelle, Randolph, Rogers and Tatel, Circuit Judges.

Opinion for the Court filed Per Curiam.

Table of Contents
Summary.................................................................44
   I. Introduction......................................................47
      A. Background.....................................................47
      B. Overview.......................................................48
  II. Monopolization....................................................50
      A. Monopoly Power.................................................51
         1. Market Structure............................................51
            a. Market definition........................................51
            b. Market power.............................................54
         2. Direct Proof................................................56
      B. Anticompetitive Conduct........................................58
         1. Licenses Issued to Original Equipment Manufacturers.........59
            a. Anticompetitive effect of the license restrictions.......60
            b. Microsoft's justifications for the license restrictions..62
         2. Integration of IE and Windows...............................64
            a. Anticompetitive effect of integration....................65

            b. Microsoft's justifications for integration...............66
         3. Agreements with Internet Access Providers...................67
         4. Dealings with Internet Content Providers, Independent
            Software Vendors, and Apple Computer........................71
         5. Java........................................................74
            a. The incompatible JVM.....................................74
            b. The First Wave Agreements................................75
            c. Deception of Java developers.............................76
            d. The threat to Intel......................................77
         6. Course of Conduct...........................................78
      C. Causation......................................................78
 III. Attempted Monopolization..........................................80
      A. Relevant Market................................................81
      B. Barriers to Entry..............................................82
 IV.  Tying.............................................................84
      A. Separate-Products Inquiry Under the Per Se Test................85
      B. Per Se Analysis Inappropriate for this Case....................89
      C. On Remand......................................................95
   V. Trial Proceedings and Remedy......................................97
      A. Factual Background.............................................98
      B. Trial Proceedings.............................................100
      C. Failure to Hold an Evidentiary Hearing........................101
      D. Failure to Provide an Adequate Explanation....................103
      E. Modification of Liability.....................................103
      F. On Remand.....................................................105
      G. Conclusion....................................................107
 VI.  Judicial Misconduct..............................................107
      A. The District Judge's Communications with the Press............107
      B. Violations of the Code of Conduct for United States Judges....111
      C. Appearance of Partiality......................................114
      D. Remedies for Judicial Misconduct and Appearance of Partiality.116
         1. Disqualification...........................................116
         2. Review of Findings of Fact and Con clusions of Law.........117
VII.  Conclusion.......................................................118

Per Curiam:

Microsoft Corporation appeals from judgments of the District Court finding the company in violation of 1 and 2 of the Sherman Act and ordering various remedies.

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 Microsoft had maintained a monopoly in the market for Intelcompatible PC operating systems in violation of 2; attempted to gain a monopoly in the market for internet browsers in violation of 2; and illegally tied two purportedly separate products, Windows and Internet Explorer ("IE"), in violation of 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 1 and 2 of the Sherman Act mandated findings of liability under analogous state law antitrust provisions. Id. To remedy 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 remedial 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 District 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 compromised 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 appeal--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 2 of the Sherman Act by employing anticompetitive means to maintain a monopoly in the operating system market; we reverse the District Court's determination that Microsoft violated 2 of the Sherman Act by illegally attempting to monopolize the internet browser market; and we remand the District Court's finding that Microsoft violated 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...