REGULARS

OPINION

Microsoft ruling: Foundation to settle

The Microsoft decision at the Court of Appeals level shows that neither complexity nor the deliberateness of judicial procedure precludes effective Sherman Act enforcement in dynamic, high tech markets. Coming scarcely three years after the filing of the complaint, this thorough, convincing, full bench opinion provides a solid foundation for settlement or, if that remains elusive, a lucid road map for party presentations and trial court deliberations that should lead to a decree restoring effective competition.

Microsoft scored some points: Divesture was reversed, Judge Jackson was castigated and removed, and his conclusions of both attempting to monopolize and of §1 tying in the browser market were reversed. How-ever, the government prevailed in very significant respects.

The detailed trial court findings were upheld in their entirety because scrupulous review showed them to be justified by the evidence and untainted by hint of bias. They remain in play on all remand issues, including remedy.

Moreover, the full court upheld almost all of the trial court rulings about unlawful monopolization of the PC operating system market, a matter of critical importance to the state of competition in software.

Microsoft's monopoly maintenance tactics, which violated §2, included restrictive software licenses; exclusive contracts with internet access providers; a product design that locked Microsoft's browser (Explorer) into Windows by commingling software supporting each functionality without any add/remove capacity; and subverting Sun Microsystem's Java technologies to favor Microsoft's Java version so that compatible applications would not run on operating systems other than Windows.

Though not directly attacking other operating systems, all these tactics helped to maintain the Windows monopoly by handicapping both Netscape's browser and Sun's Java, two "middleware" products with potential to ultimately erode that monopoly.

The tendency of such tactics to bolster the Windows monopoly can be illustrated with Netscape's browser. Because Windows is the standard for PCs, most applications are written for it. Comparatively few are available for competing operating systems. This reinforces and protects the Windows monopoly by creating (an applications barrier) to its erosion.

But Netscape's browser can sit on top of any operating system and can also expose application program interfaces (APIs) of its own. If it were to present enough of these, it could make numerous applications available to any computer using its browser, regardless of what operating system was installed. This would neutralize the applications barrier. Therefore, Microsoft tactics that stifle Netscape (or Java or any other middleware) protect the Windows monopoly.

The circuit court's most provocative holding dealt with tying. The district court, applying the analytically enhanced per se rule that the Supreme Court majority has never abandoned, held that by integrating Explorer into Windows, Microsoft not only violated §2 (by protecting Windows), it also violated §1 by stifling consumer choice in the browser market.

Concluding that the separate demand test incorporated in the per se rule is a poor proxy for overall efficiency of newly integrated products, the circuit court remanded for a rule of reason analysis of harms and benefits.

Whether or not such a revision of tying doctrine is thought to be warranted, the more significant facet of this holding is what the court refused to do. Microsoft contended that courts should never second-guess the purposes or effects of any software design decision - that any integration of any previously separate functionalities is per se lawful. The court first rejected this "Gates principle" when it ruled that integrating Explorer into Windows violated §2. It did so again when it remanded the §1 tying claim for a fuller efficiency analysis.

The remand issues must now be disposed of. Tactics violating §2 must be enjoined and Microsoft fenced in from using similar tactics to target any other newer software products that could expose their own APIs, or otherwise weaken Microsoft's control of the operating system market.

The impact of this unanimous, full court decision by this conservative court will impact the political climate for settlement. Microsoft will probably emerge whole, but certainly not unscathed. Serious constraints are appropriate and now seem inevitable.