Question

In the court finding of facts dated November 5, 1999, what evidence did the court cite in claiming that Microsoft charged above-competitive prices (see "Microsoft's Pricing Behavior")

Answer 1

The Court did not attempt to quantify the benefits to consumers from giving away Internet Explorer and the intensification of competition that resulted. Also, the Court did not try to assign a monetary value to the losses to consumers resulting from the anti-competitive actions for which it found Microsoft liable.

The Washington DC Court of Appeals ruled on June 28, 2001 on the appeal by Microsoft of the District Court’s decision in the Microsoft antitrust case. The basic points of the Appeals Court decision are:
1. Microsoft’s breakup and other remedies imposed by the District Court are vacated.
2. Microsoft is found liable of monopolization of the operating systems market for PCs.
3. Microsoft is found not liable of bundling of Internet Explorer with Windows.
4. Microsoft is found not liable of attempting to monopolize the Internet browser market.
5. The district court judge Thomas Penfield Jackson is taken out of the case for improper behavior.
6. The case is remanded to the District Court for remedies determination for the monopolization charge.
7. The Appeals Court instructs the District Court to examine the bundling of IE and Windows (if plaintiffs bring it up) under “a rule of reason” where the consumer benefits of bundling are balanced against the damage of anti-competitive actions.

This was seen as a major victory for Microsoft because:
1. Its breakup is rescinded.
2. Microsoft is found not liable for two thirds of the liability found by the lower court.
3. Given the limited liability verdict, it seemed very unlikely that the remedy will be a breakup.
4. Given the way the Appeals Court instructs the District Court to examine the bundling of IE and Windows, it is unlikely that the District Court will find Microsoft guilty of tying.  

Analysis of the Court of Appeals Decision
1. Monopolization of the operating systems market for PCs The court finds Microsoft guilty of monopolization of the operating systems market for PCs. To reach this finding, the court accepts the plaintiff’s position that Netscape had a chance to reduce Microsoft’s market power in the operating systems market by creating a cross-OS platform on which applications could be run. The court recognizes that the success of this was small. Despite this fact, it finds that various actions of Microsoft to suppress Netscape were anti-competitive. The Court finds a number of anticompetitive acts under Sherman section 2 taken by Microsoft to preserve its monopoly:
(i) Restrictions on OEM licenses that made it difficult or prohibited inclusion of a second browser
(ii) Exclusion of IE from the Add/Remove program utility and commingling of browser and operating system code
(iii) Excusive arrangements with Internet Access Providers
(iv) Exclusive arrangement with Apple Computer not to distribute Netscape
(v) Deception of Java developers, but the court of appeals reverses the lower court and finds Microsoft innocent in the development and promotion of its Java Virtual Machine
(vi) Threatening Intel on cross-platform support of Java
Microsoft is found innocent of liability upon its general “course of conduct.”

2. Attempting to monopolize the Internet browser market Microsoft is found not liable of attempting to monopolize the Internet browser market. Among others, the court notes that the plaintiffs and the lower court did not make the appropriate market definition and did not demonstrate that there were substantial barriers to entry in that market or that Microsoft was likely to erect barriers to entry upon acquisition of a dominant market share.
3. Tying Internet Explorer with Windows The appeals court vacates the lower court guilty verdict which was based on a per se reasoning. The court of appeals finds that the per se analysis is inappropriate in this case for a number of reasons. The court sends back the tying claim to the lower court to be judged (if plaintiffs pursue it) under a “rule of reason” approach. Under this approach, the plaintiffs will have to prove that the harm done by the tying was larger than any proconsumer or pro-competitive benefits of the tying act.

Final Settlement On November 2, 2001, the United States and Microsoft proposed a settlement in the major antitrust case. U.S. District Judge Colleen Kollar-Kotelly gave until Tuesday 11/6/2001 to the plaintiff States to decide whether to settle as well. Among the States, New York, Illinois, North Carolina, Kentucky, Michigan, Louisiana, Wisconsin, Maryland and Ohio settled on 11/6/2001. California, Connecticut, Iowa, Massachusetts, Minnesota, West Virginia, Florida, Kansas, Utah, and the District of Columbia said they will pursue the suit further to a full remedies trial. Final judgment was imposed by Judge Colleen Kollar-Kotelly on November 12, 2002 with small modifications in the settlement. On November 29, 2002, California, Connecticut, Iowa, Minnesota, Florida, Kansas, Utah, and the District of Columbia decided to accept the settlement. The attorneys general of Massachusetts and West Virginia did not accept the settlement and are currently appealing the case.