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MS denies everything in Trial II bid

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MS on Trial Microsoft's brief to the Court of Appeals yesterday has too many unconvincing dimples, and not enough real chad. Even if Microsoft were entirely innocent, it has not made a sufficient case in the light of the evidence, Judge Jackson's findings of fact, and his conclusions of law. The technical parts of Microsoft's brief will most likely be scanned by the appellate judges and largely ignored, but the legal part is likely to be examined more minutely as part of what many observers believe will be the court's desire not to break up Microsoft.

It is worth recalling that this Court of Appeals has twice ruled against Microsoft - once when Microsoft tried to stop public and media attendance at depositions, and also when Microsoft tried to subpoena notes, and particularly interviews, from two academics who had written a book about Netscape's battle with Microsoft. However, on both occasions, these were of limited importance to Microsoft and the court's legal latitude was not very great.

The bid for Trial II

It becomes increasingly clear that Microsoft wants to turn the appeal into a new mini-trial and include arguments it foolishly omitted first time around, This is not what appeals are supposed to be about, and the DoJ - if not politically mugged - should make this abundantly clear in its response. Microsoft did not make much earlier of the substitutability of the Mac or a PC running Unix, because it knew that it would be hammered on the definition of the market. The fact that there is no substitutability between PC and Mac applications is of course the strongest argument for the separateness of these markets. Microsoft also claims to its new audience with a brave dash of black-is-whiteism that it "cannot control prices or exclude competition", that it "does not behave like a monopolist", that "market share is not determinative of monopoly power" and that there are no significant barriers to entry. Nor did Microsoft "engage in anticompetitive conduct".

The DoJ has plenty of time to work up its brief, which is not due until 12 January, and will no doubt pick up on Microsoft's many unsustainable claims to have lowered the cost of browsing, or cutting off the air supply to Netscape, as Microsoft referred to Netscape's revenue from browser sales. Perhaps the appellate judges will ponder why Microsoft spent "hundreds of millions of dollars" to provide "Internet integration" when it is possible to load a stand-alone version of IE without integration and get the same benefits, according to Microsoft's hapless Jim Allchin. There's also the issue as to why IE is "free" and where the money comes from to pay the high costs of development. The DoJ should also prepare a table of Windows prices to show the increase over the years, when the price of everything else was falling - a sure sign of monopolisation.

Microsoft moans that breaking it up would be an extreme remedy, but in that case it should have acted more prudently; Judge Jackson has indicated in his public remarks that it was Microsoft's unwillingness to admit it had done wrong that convinced him to order the structural remedy. Throughout the present brief, Microsoft protests its innocence with as much conviction as an old lag before a magistrate.

Oppressive thumb? Moi?
Microsoft asks how the US computer industry could be so strong and admired if it were "under the thumb of an oppressive monopoly". Well, quite easily actually, since monopoly is an efficient economic process, and there are other winners apart from Microsoft that win as well, as Intel, Compaq and Dell could testify. The losers are the users who have to put up with poor quality software because of the lack of effective competition.

Microsoft claims to have a business model, which may be news to its executives, but the four basic elements that it describes can be otherwise characterised. The "operating system" becomes the bottleneck that Microsoft controls by ensuring there is no viable alternative in the same market. The "consistent user interface" is the way that Microsoft controls user applications by holding back significant information in order that its own developers can exploit the hidden capabilities. Microsoft "promotes the widespread use" of its operating systems by controlling OEMs through highly restrictive licences. Finally, Microsoft says it works closely with OEMs, ISVs and users, but this is done more to control them than to help them.

Microsoft gives its own rather coloured versions of its relationships with some major vendors, and it will be for the DoJ to point out in detail where its highly selective brief is faulty. There are many cases where Microsoft uses self-serving value judgements (such as "the district court's failure to distinguish procompetitive from anticompetitive conduct") that cannot be substantiated. In a discussion of the relevant market, Microsoft makes no mention of its failure to propose even its own definition of a market. Microsoft says it "did not act with a 'specific intent' to monopolise, but rather sought to prevent Navigator from dominating the 'alleged' browser market".

The tone throughout the brief is one of self-righteousness, with Microsoft unwilling to concede even the smallest indiscretion. "Windows is a single product", Microsoft claims, and congratulates the court for articulating the correct test for the non-separateness of Windows and IE, such as the integrated design, and the additional benefits. The problem for Microsoft however is that since the Court of Appeals made this judgement, evidence from Microsoft's emails and the cross-examination of Jim Allchin has indicated that the court made an erroneous determination. This time, the Supremes will be looking over the Court of Appeals' shoulder so it may not have been wise for Microsoft to press this claim.

Microsoft keeps returning to the claim that the Windows-IE tie did not foreclose competition on merit in the browser market. Again, this argument cannot be sustained since there is abundant evidence that the most efficient distribution channel was closed as a result of Microsoft's OEM contract conditions, which made the cost of distributing the Netscape browser much higher. Judge Jackson erred in his decision about this, since the market was significantly foreclosed.

Microsoft also claims that it "did not maintain a monopoly through anticompetitive conduct", and "does not even possess monopoly power in a properly defined product market". Microsoft's only economist witness refused to give a definition of a relevant market because it was not relevant, he said, despite the fact that in other cases where he had been a witness he had been only too keen to do this, and contradicted his sworn evidence in his writings. For the first time Microsoft tries to make the case that the DoJ's definition of the relevant product market as being "Intel-compatible PC operating systems" is "far too narrow", and tries of course to include the Mac OS as well as "the most serious competitive threats to Windows" which Microsoft says were Netscape and Java class libraries. Even worse, in the picture that Microsoft paints, "over time, middleware could extend 'downward' to the hardware, assuming more and more operating system functions and thereby rendering the operating system unnecessary".

OEM licences quite nice really

One of the more absurd claims is that "Microsoft's OEM licence agreements simply restate its rights under Federal Copyright Law", but if you read one of these licences - not something to be undertaken lightly - it's clear that the notion of copyright is not significant at all, and that one of Microsoft's main concerns is to prevent disclosure of the highly restrictive terms it contains. Another claim is that "Microsoft did not attempt to monopolise the alleged 'browser' market", but the evidence to the contrary is overwhelming. Microsoft does speak the truth when it claims that there is "no dangerous probability of [browser market] monopolisation", but only because the threat has turned into reality.

Microsoft then turns to the district court and claims its "extreme relief is unsustainable" for the procedural reason that there was no hearing about remedies. The weakness of Microsoft's argument is that it has not been able to cite any law that says this is required, nor find any precedent where a court has said it was needed. Microsoft is forced to fall back on "general equity principles" that a judgement should be "no more burdensome than necessary" and moan that the remedy "would interfere with the design of Microsoft's operating systems".

The final kicking is reserved for Judge Jackson, for (allegedly) "relying on hearsay", making public comments (which Microsoft has been unable to show were prejudicial), and not being impartial. It seems that Microsoft can accept no criticism of its behaviour outside the courtroom, despite its own behaviour. The judge comes in for some considerable flack for commenting on the case to the media and at conferences after his judgement, and for granting interviews during the case - although they were given on the condition that the material not be used until after his judgement. This may have been unwise, but it would be unreasonable to reverse his decision for this reason.

The role of Richard Urowsky of Microsoft's lawyers Sullivan and Cromwell in the case is now clear: his job was to prepare the appeal, but to leave the conduct of the case in the district court to John Warden. Urowsky previously popped up to castigate Judge Stanley Sporkin in an earlier case against Microsoft when the DoJ incompetently found itself on the same side as Microsoft arguing against the judge's refusal to agree to the consent decree because it was not in the public interest. Some of the same judges are hearing the present appeal, and the odds in favour of Microsoft getting its sentence reduced must be more than even - but on political grounds rather than the merits of this brief. ®

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