Microsoft Memo – - unlawful tying

Unlawful Tying

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Previous page UNLAWFUL TYING The government claims that one of the primary means by which Microsoft has "foreclosed" Netscape’s ability to distribute its browser is through "tying" Internet Explorer to Windows. Yet the government has flip-flopped 180 degrees on this issue. Less than one year ago, the DOJ insisted that Windows and Internet Explorer were two entirely separate products (not a single, integrated product), connected only by an alleged contractual requirement that OEMs who want Windows must also take Internet Explorer. That claim has since been shown to be false—by Microsoft, by counsel for Netscape, by the Court of Appeals and even by the DOJ's own expert witnesses, all of whom understand that Internet Explorer software is an important aspect of Windows. So the government has now reversed course, arguing that Internet Explorer is indeed tightly integrated into Windows, but shouldn’t be because some customers might prefer a browser-less version of Windows. In other words, the government is simply arguing that a design other than the design chosen by Microsoft might be optimum. Several of the government witnesses have emphasized that Microsoft "could have" designed Windows differently. That conclusion, however, is legally irrelevant. The courts have long been clear that the government has little or no role to play in product design, for fear that any contrary approach would create undue legal risk and thus chill legitimate product innovation. In particular, in the June 1998 decision the Court of Appeals ruled that challenges to an integrated product fail as a matter of law (meaning without the need for further factual inquiry) if "there is a plausible claim that (the integration) brings some advantage". Judge Jackson has already determined that the framework set forth in the Court of Appeals decision applies in the current case. In this case, as noted above, we have exhaustively documented and demonstrated the clear ISV, OEM and customer benefits from Microsoft’s inclusion of Internet Explorer in Windows. The benefits are described in detail in the testimony of Paul Maritz and Jim Allchin. The benefits of Microsoft’s integrated design are so plain that the government knew it could not challenge them. Instead, it merely established that installing Internet Explorer 4.0 on Windows 95 provides many (though not all) of the Internet-related benefits of Windows 98. (The government established this point with great fanfare in court, asking variations on the same question 19 times.) Jim explained, of course, that the ability of IE 4 to provide many of the Internet-related benefits of Windows 98 merely reflects the fact that IE 4 was designed as an operating system upgrade, which overwrites key system files upon installation. Ignoring that statement of fact, the government argued to the press that Jim’s testimony showed that customers do not benefit from integration because they get almost the same benefits if IE 4 is delivered separately. This government argument was well-received by the press. The government argument is unlikely to fare well in court, however, because the identical argument, on identical facts, has already been flatly rejected by the Court of Appeals. The Court explained that consumers benefit from Microsoft's integrated design: "if Microsoft presented [OEMs] with an operating system and a stand-alone browser application, rather than the interpenetrating design of Windows 95 and IE 4, the OEMs could not combine them in the way in which Microsoft has integrated IE 4 into Windows 95." The fact that software can be upgraded after it is initially installed is a benefit for customers, not a reason to condemn a beneficial integrated design as "unlawful tying". Microsoft’s inclusion of Internet-related client services in Windows obviously does not prevent Netscape and others from building standalone Web browser applications for Windows, and they have done so with great success. In fact, Microsoft’s integrated design plainly facilitates development of such software (and thereby promotes competition) since browser developers can leverage all or some of the Internet Explorer components in Windows if they wish to do so. We showed in court, for example, that many leading PCs come with the Encompass browser pre-installed (even though the government alleges that OEMs are reluctant to install more than one browser). Through the testimony of Joachim Kempin, we have shown that OEMs are free to, and do, install competing browser software on new PCs running Windows, including Netscape Navigator. Indeed, all OEMs are free to configure Navigator as the default browser on the system. All OEMs are free to heavily optimize the appearance of new PCs to promote Netscape Navigator. In addition, we have introduced proof on all of the following points relating to the government’s tying claim: * Several of the government’s witnesses testified that Internet Explorer is integrated into Windows 98. In March 1998, Netscape’s counsel told the DOJ in writing that Internet Explorer was so tightly integrated into Windows 98 that it could not be removed without impairing the operating system. * The benefits of Microsoft’s integrated design, and much of the utility of the Windows platform generally, would be lost if OEMs were free to install as much or as little of Windows as they please, such as with or without IE (as the DOJ proposes). * All modern operating systems include Web browsing software. Microsoft is the leader in bringing customers the benefits of an integrated approach to accessing and displaying information across Internet and non-Internet related data stores. * Microsoft’s decision to build great Internet support, including full Web browsing capability, into Windows pre-dates the company’s awareness that Netscape even existed. Our integration efforts accelerated as competition with Netscape intensified. * The so-called "IE removal program" developed by Professor Felten does NOT remove IE from Windows and does not even fully hide access to the IE software in Windows. Felten’s testimony to the contrary is plainly false. Our video demonstration showed how to browse the Web in Windows 98 after Felten’s IE removal program is run. The DOJ never challenged this aspect of the videotape. * The government has failed even to identify what software constitutes the allegedly "tied" product. (The answer cannot be simply "Internet Explorer software" because the government proposes that nearly every line of that software remain in Windows.) * Nothing about Microsoft’s integrated design keeps Navigator from running well on Windows 95 and Windows 98. In fact, Navigator itself takes advantage of some of the Internet-related system services in Windows. * Jim Barksdale testified that Netscape distributes Navigator through such leading OEMs as Compaq, Fujitsu, Gateway, IBM, Hewlett-Packard, NEC and Sony. Next page

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