253 F.3d 34 (D.C. Cir. 2001)
In July 1994 the Department of Justice filed suit against Microsoft Corporation alleging that the company unlawfully maintained a monopoly in the operating system market through anticompetitive terms in its licensing and software developer agreements.1 The parties entered into a consent decree that avoided a trial on the merits.2
Three years later the Justice Department brought a civil contempt action against Microsoft for allegedly violating one provision of the decree.3 This court held that Microsoft's technological bundling of Internet Explorer versions 3.0 and 4.0 with Windows 95 did not violate the consent decree.4 The court expressly reserved the question whether such bundling might independently violate §§ 1 or 2 of the Sherman Act.5
On May 18, 1998, shortly before issuance of the Microsoft II decision, the United States and a group of State plaintiffs filed separate complaints that were soon consolidated.6 The complaints charged Microsoft with four distinct Sherman Act violations arising from its efforts to unseat Netscape Navigator as the leading internet browser.7 Those violations were unlawful exclusive dealing arrangements in violation of § 1, unlawful tying of Internet Explorer to Windows 95 and Windows 98 in violation of § 1, unlawful maintenance of a monopoly in the PC operating system market in violation of § 2, and unlawful attempted monopolization of the internet browser market in violation of § 2.8 The States also asserted pendent claims under state antitrust laws.9
The District Court placed the case on a fast track.10 It consolidated the preliminary injunction hearing with the trial on the merits pursuant to Fed. R. Civ. P. 65(a)(2).11 The court limited each side to twelve trial witnesses plus two rebuttal witnesses.12 It required written direct testimony.13 The court scheduled trial to begin less than four months after the complaints were filed.14
Trial commenced on October 19, 1998 after three brief continuances and lasted seventy-six days.15 In November 1999 the District Court issued its Findings of Fact.16 The court then established a schedule for briefing on legal conclusions.17 It invited Professor Lawrence Lessig to participate as amicus curiae.18 The court referred the case to mediation before Chief Judge Richard A. Posner of the Seventh Circuit.19 Mediation failed after nearly four months.20
On April 3, 2000 the District Court issued its Conclusions of Law.21 The court found Microsoft liable on the § 1 tying claim and the § 2 monopoly maintenance and attempted monopolization claims.22 It ruled that there was insufficient evidence to support the § 1 exclusive dealing claim.23 The court also found the state antitrust laws conterminous with the federal claims.24
Plaintiffs submitted a proposed remedial order within four weeks.25 The proposal sought both conduct remedies and structural relief splitting Microsoft into an applications company and an operating systems company.26 The submission was supported by six supplemental declarations and more than fifty new exhibits.27 The District Court rejected Microsoft's request for further evidentiary proceedings.28 It held a single hearing on the remedy question.29 On June 7, 2000 the court issued its Final Judgment adopting plaintiffs' proposal without substantive change.30
Microsoft filed a notice of appeal within a week.31 This court ordered en banc review.32 The District Court certified direct appeal of the federal case to the Supreme Court and stayed the judgment.33 The Supreme Court declined to hear the appeal and remanded the matter to this court.34 The Court likewise denied the States' petition for certiorari.35
Microsoft's appeal challenged the District Court's liability conclusions.36 The appeal also challenged the remedial order on the grounds that the court failed to afford an evidentiary hearing on disputed facts and that the substantive provisions were flawed.37 Finally, the appeal challenged the trial judge's ethical conduct.38 The appeal asserted that the judge engaged in impermissible ex parte contacts by holding secret interviews with members of the media and made inappropriate public comments on the merits of the case while it was pending.39 Those actions compromised his appearance of impartiality and necessitated disqualification together with vacatur of the Findings of Fact, Conclusions of Law, and Final Judgment.40
Whether Microsoft possessed monopoly power in the market for Intel-compatible PC operating systems?41
Monopoly power under Sherman Act § 2 is the power to control prices or exclude competition.42
Yes. The District Court defined the market as the licensing of all Intel-compatible PC operating systems worldwide.43 It found that Microsoft possessed a greater than 95 percent share of that market.44 The court further found that this dominant position was protected by the applications barrier to entry.45
That barrier arose from the chicken-and-egg dynamic in which consumers prefer operating systems with many applications already written for them and developers prefer to write applications for operating systems with a large installed base.46 Microsoft did not challenge these factual findings on appeal.47
Microsoft possessed monopoly power in the Intel-compatible PC operating systems market.
Whether Microsoft maintained monopoly power in the operating systems market through anticompetitive conduct in violation of Sherman Act § 2?48
A monopolist violates Sherman Act § 2 by willfully maintaining monopoly power through exclusionary conduct that harms the competitive process rather than through growth or development as a consequence of a superior product, business acumen, or historic accident, as set forth in United States v. Grinnell Corp.49
Yes. The District Court found that Microsoft engaged in a course of exclusionary conduct.50 This conduct included restrictive OEM license provisions that prevented removal of Internet Explorer icons and alteration of the boot sequence.51 It also included technological integration that commingled browser and operating system code and excluded Internet Explorer from the Add/Remove Programs utility.52
Microsoft entered exclusive deals with Internet Access Providers that foreclosed the most efficient distribution channels for rival browsers.53 It entered agreements with Independent Software Vendors and Apple that further reduced rival browser usage share.54 These actions protected the applications barrier to entry and thereby maintained Microsoft's monopoly power.55 Microsoft failed to provide adequate procompetitive justifications that outweighed the anticompetitive effects.56
Microsoft maintained its monopoly through anticompetitive conduct in violation of Sherman Act § 2.57
Whether Microsoft attempted to monopolize the internet browser market in violation of Sherman Act § 2?58
To establish attempted monopolization under Sherman Act § 2, a plaintiff must prove predatory or anticompetitive conduct, specific intent to monopolize, and a dangerous probability of achieving monopoly power in a properly defined relevant market protected by significant barriers to entry, as required by Spectrum Sports, Inc. v. McQuillan.59
No. Plaintiffs failed to define the relevant browser market with the requisite specificity.60 They also failed to demonstrate that substantial barriers to entry protected that market.61 The District Court made no findings identifying the technological components of a browser or explaining why other products were not reasonable substitutes.62 Plaintiffs offered no evidence establishing significant barriers such as network effects that would prevent new entry.63 Without these threshold showings, no dangerous probability of monopolization could be established.64
Microsoft did not attempt to monopolize the internet browser market in violation of Sherman Act § 2.65
Whether Microsoft unlawfully tied its Internet Explorer browser to Windows in violation of Sherman Act § 1?66
A tying arrangement is unlawful per se under Sherman Act § 1 only when the tying and tied goods are separate products, the defendant has market power in the tying product market, consumers are forced to purchase the tied product, and the arrangement forecloses a substantial volume of commerce.67
No. Although the District Court found that Microsoft bound Internet Explorer to Windows through contractual and technological means and that Windows and Internet Explorer were separate products under the Jefferson Parish consumer-demand test, per se analysis is inappropriate for platform software integration.68 The arrangement involves novel efficiencies from bundling APIs that may benefit third-party developers and consumers.69 Wooden application of per se rules risks chilling innovation in rapidly changing software markets.70 The case is therefore remanded for evaluation under the rule of reason.71
The District Court's finding of per se tying liability is vacated and the claim is remanded for rule-of-reason analysis.72
Whether the District Court erred by failing to hold an evidentiary hearing on disputed facts relevant to remedies?73
A district court must hold an evidentiary hearing before entering injunctive relief when the parties dispute facts material to the remedy, because factual disputes must be resolved through trial-like proceedings and predictions about future events remain factual issues requiring an opportunity for the parties to present evidence.74
Yes. Microsoft submitted two detailed offers of proof identifying twenty-three witnesses who would have testified that divestiture would raise prices, reduce innovation, harm shareholders, and disrupt product development, directly contradicting plaintiffs' submissions. The District Court acknowledged sharp divisions between the parties on the likely effects of the remedy yet declined to hold a hearing, relying instead on its own experience and the parties' trial evidence. This refusal violated Microsoft's right to judicial resolution of disputed factual issues material to the remedy.75
The District Court erred by failing to hold an evidentiary hearing on disputed facts relevant to remedies.76
Whether the District Court's remedial order requiring divestiture of Microsoft into separate operating systems and applications businesses was flawed?77
An antitrust remedial decree must be tailored to the specific violations found, must rest on a sufficient causal connection between the unlawful conduct and the defendant's market power, and must be supported by adequate reasons explaining how the relief will unfetter the market and prevent future violations.
Yes. The District Court ordered divestiture without explaining how the remedy would achieve the objectives of terminating the illegal monopoly and denying the defendant the fruits of its violation.78 The court relied on only four brief paragraphs that did not address causation or the practical difficulties of splitting a unitary company.79 Because this court has reversed the attempted-monopolization finding, remanded the tying claim, and narrowed the monopolization liability, the original remedial order resting on the broader liability determinations cannot stand.80
The District Court's remedial order is vacated in its entirety.81
Whether the trial judge's ex parte contacts with the media and public comments on the merits of the case required his disqualification and vacatur of the judgment?82
Under 28 U.S.C. § 455(a), a judge must disqualify himself when his impartiality might reasonably be questioned.
Yes. The District Judge gave repeated secret interviews to reporters while the case was pending, disclosing his views on witness credibility, the defendant's culpability, the appropriate remedy, and the merits of integration defenses. These comments, embargoed until after judgment, would lead a reasonable informed observer to question the judge's impartiality.83 Although actual bias was not shown, the appearance of partiality warrants disqualification retroactive to the entry of the remedial order.84
The District Judge is disqualified retroactive to the remedial order, which is vacated; the Findings of Fact and Conclusions of Law are left in place for further proceedings before a different judge.85