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               UNITED STATES OF AMERICA, Plaintiff, v. MICROSOFT
                            CORPORATION, Defendant.

                        UNITED STATES v. MICROSOFT CORP.

                            Civil Action No. 94-1564

           UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA

                           1995 U.S. Dist. LEXIS 1654

 
                         February 14, 1995, Decided   
                            February 14, 1995, FILED

JUDGES:   [*1]   Stanley Sporkin, United States District Judge

OPINIONBY: Stanley Sporkin

OPINION: MEMORANDUM OPINION n1
 
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    n1 The findings and discussion contained in this opinion are for the
purposes of this opinion only and will have no bearing on or play any role in
any litigation that might follow this proceeding.
 
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   The issue before this Court is whether the entry of a proposed antitrust
consent decree between Microsoft Corporation and the United States is in "the
public interest." n2 Microsoft is the world's largest developer of computer
software. On July 15, 1994, the Government filed a complaint charging
Microsoft with violating Sections 1 and 2 of the Sherman Anti-Trust Act. 15
U.S.C. @@ 1-7 (1973). On the same day the parties filed a proposed consent
judgment. n3
 
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    n2 15 U.S.C. @ 16(e) (Supp. 1994) (Tunney Act).

    n3 The Court has held three hearings on the proposed consent decree -- (1) a
status call on September 29, 1994; (2) a status call on November 2, 1994; and
(3) a final hearing on January 20, 1995.
 
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[*2]   
 
I. Background

   The Government filed the complaint and proposed judgment after a four-year
investigation of Microsoft. The Federal Trade Commission ("FTC") initiated the
investigation in 1990. According to Microsoft, but not confirmed by the
Government, the FTC considered a wide range of practices including: (1) that
Microsoft gave its developers of applications software information about its
                                                                      PAGE    3
                         1995 U.S. Dist. LEXIS 1654, *2

operating systems software before providing it to other applications developers;
(2) that Microsoft announced that it was developing a non-existent version of
operating software to dissuade Original Equipment Manufacturers ("OEMs") from
leasing a competitor's operating system; (3) that Microsoft required OEMs that
licensed its operating system software also to license Microsoft applications;
and (4) that Microsoft licensed its operating systems to OEMs on a per processor
basis. n4 Microsoft asserts that before the FTC investigation was completed, it
was expanded to include every aspect of Microsoft's business. n5
 
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    n4 Per processor licenses, applications and operating systems software are
all defined below.  [*3]  

    n5 This would include operating systems software, applications software, and
computer peripherals.
 
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   There was never a majority vote among the FTC commissioners to file an
administrative complaint against Microsoft. In late 1993, after a 2-2 deadlock
by the commissioners, no administrative action was filed, and the FTC suspended
its investigation of Microsoft.

   Following the suspension of the FTC investigation, Assistant Attorney General
Bingaman, the head of the Antitrust Division of the Department of Justice,
decided to revive the investigation. In June, 1994 Microsoft and the Department
of Justice initiated settlement negotiations. Approximately a month later the
parties came to agreement and filed a proposed judgment with the Court. n6
 
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    n6 The Justice Department cooperated with the Directorate-General IV of the
European Commission ("DG IV"), the European Union's antitrust enforcement
authority. Microsoft has consented with the DG IV to comply with provisions
virtually identical to those in the consent decree presently before the Court.
 
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[*4]   
 
II. The Complaint

   The complaint charges that Microsoft violated Sections 1 and 2 of the Sherman
Anti-Trust Act. 15 U.S.C. @@ 1-7. The primary allegations in the complaint
concern licensing agreements between Microsoft and OEMs of personal computers
("PCs"). The complaint also addresses provisions of non-disclosure agreements
("NDAs") between Microsoft and other developers of applications software, known
as independent software developers ("ISVs"). The complaint narrowly tailors the
relevant product market to the market for certain operating systems software for
x86 microprocessors. The geographic market is not limited.

   In order to understand the complaint, one must understand something about
computers, microprocessors, and operations and applications software. A
microprocessor is the "brain" of the computer. The x86 microprocessor, or chip,
runs IBM and IBM-clone PCs. These chips are primarily, but not exclusively,
                                                                       PAGE    4
                         1995 U.S. Dist. LEXIS 1654, *4

made by Intel. n7 Operating systems software acts as the central nervous system
for a personal computer, linking up the keyboard, monitor, disk drive and other
components. Applications software enables the PC user to perform a variety
[*5]   of tasks including word processing and database management. Applications
software operates on top of the PC's operating system and must be designed to
function with that operating system. As a result, ISVs who design applications
software need information about an operating System's codes in order to design
their software. Microsoft designs both operating systems (e.g., MS-DOS) and
applications (e.g., Microsoft Word, a word processing program).
 
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    n7 The 486 and Pentium chips are examples of x86 microprocessors.
 
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   Microsoft has a monopoly on the market for PC operating systems.
Microsoft's share of the operating systems market identified in the complaint is
consistently well above 70%. n8 According to Microsoft's 1993 Annual Report, as
of June 30, 1993, 120 million PCs ran on Microsoft's MS-DOS. Microsoft also
developed and sells Windows, a sophisticated operating system that runs on top
of MS-DOS or a similar operating system. Windows allows a PC user to run more
than one application at a time and shift between them.   [*6]   Windows is known
as a "graphical user interface." Approximately 50 million PCs now use Windows.
Microsoft generally does not sell its operating systems directly to consumers.
Instead, it licenses its operating systems to OEMs for inclusion in the PCs they
make. n9 
 
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    n8 Apple computers do not run on x86 microprocessors and utilize Apple's own
proprietary operating system.

    n9 In the first half of 1994, 80% of Windows units sold by Microsoft were
through OEMs.
 
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   Microsoft, the Justice Department, and a number of competitors who oppose the
entry of the decree all agree that it is very difficult to enter the operating
systems market. There are two main reasons for this, each of which reinforces
the other. First, consumers do not want to buy PCs with an operating system that
does not already have a large installed base because of their concern that there
will not be a wide range of applications software available for that operating
system. The second, complementary reason why there are large barriers to entry
into the  [*7]   operating systems market is that ISVs do not want to spend time
and money developing applications for operating systems that do not have a large
installed base. They perceive that demand for that software will be low. As a
result, OEMs have little incentive to license an operating system that does not
have a large installed base and include it in their PCs.

   In addition to these "natural" barriers to entry the complaint identifies
Microsoft's use of per processor licenses and long term commitments as
"exclusionary and anti-competitive contract terms to maintain its monopoly." A
per processor license means that Microsoft licenses an operating system to an
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                         1995 U.S. Dist. LEXIS 1654, *7

OEM which pays a royalty to Microsoft for each PC sold regardless of whether a
Microsoft operating system is included in that PC. In other words, under a per
processor license, if an OEM sells some PCs with a competitor's operating system
installed (e.g., IBM'S OS/2), and others with MS-DOS installed, the OEM would
pay Microsoft royalties for all PCs sold. In effect, the OEM pays twice every
time it sells a PC with a non-Microsoft operating system -- once to the company
that licensed the operating system to the OEM and once to Microsoft.   [*8]  
The complaint charges that per processor licenses discourage OEMs from licensing
competing operating systems and/or cause OEMs to raise the price for PCs with a
competing operating system to recoup the fee paid to Microsoft.

   The complaint further alleges that Microsoft's use of long-term licensing
agreements with or without minimum commitments, and the rolling over of unused
commitments unreasonably extended some licensing agreements with Microsoft.
These practices allegedly foreclosed OEMs from licensing operating systems from
Microsoft's competitors.

   The other anticompetitive practice cited in the complaint is the structure of
Microsoft's non-disclosure agreements ("NDAs") with ISVs during the development
of its new Windows operating system. n10 ISVs work with Microsoft during the
development and testing of new operating systems so they can produce
applications that run with that operating system and release them around the
time the operating system is released. This collaboration benefits Microsoft in
two ways. First, Microsoft receives input from the ISVs on how to improve the
operating system. Second, a new operating system is more attractive to consumers
if there are compatible  [*9]   applications programs immediately available. In
order to protect confidential information about its new software, Microsoft
requires ISVs to sign NDAs in order to obtain product information.
 
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    n10 The newest version of Windows is scheduled for release sometime in 1995
and is code-named Chicago.
 
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   The complaint alleges that the recent NDAs Microsoft has executed with ISVs
are overly restrictive and anti-competitive. The Government alleges that the
NDAs not only legitimately protect against the disclosure of confidential
information to competing developers of operating systems but also discourage
ISVs from developing their own competing operating systems and/or from
developing applications for competing operating systems.

   In sum, the Government alleges that the practices outlined above deprive
competitors of substantial opportunities to license their operating systems to
OEMs, preventing them from developing a large installed base. This discourages
both ISVs from designing software for competing operating systems and consumers
[*10]   from buying PCs with these competing operating systems. These practices
also harm consumers by limiting the variety of available operating systems and
raising the prices for non-Microsoft operating systems.

   Based on the allegations in the complaint, the Government sought the
following relief:
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                        1995 U.S. Dist. LEXIS 1654, *10

   (1) That the Court adjudge and decree that Microsoft has monopolized the
interstate trade and commerce in the market for PC operating systems in
violation of Section 2 of the Sherman Act.

   (2) That the Court adjudge and decree that Microsoft has entered into
unlawful contracts and combinations which unreasonably restrain the trade in
interstate commerce in PC operating systems, in violation of Section 1 of the
Sherman Act.

   (3) That Microsoft and all persons, firms and corporations acting on its
behalf and under its direction or control be permanently enjoined from engaging
in, carrying out, renewing or attempting to engage, carry out or renew, any
contracts, agreements, practices, or understandings in violation of the Sherman
Act.

   (4) That plaintiff have such other relief that the Court may consider
necessary or appropriate to restore competitive conditions in the markets
affected by Microsoft's  [*11]   unlawful conduct.
 
III. The Proposed Decree

   The proposed decree negotiated and entered into by the parties is
significantly and substantially narrower than the requests contained in the
prayer for relief in the complaint. The consent decree limits certain of
Microsoft's contract and NDA practices. The prohibitions concern licensing
agreements and NDAs for certain operating systems software; operating systems
software for workstations are not covered. The decree does not address any of
Microsoft's applications software.

   The decree enjoins Microsoft from entering into any licensing agreement
longer than one year, though OEMs may at their discretion include in the
licensing agreement a one year option to renew. Microsoft can impose no penalty
or charge on an OEM for its choice not to renew the licensing agreement, nor can
it require an OEM to commit not to license a competitor's operating system.

   Microsoft may only license the operating systems covered by the decree on a
per copy basis, with one exception. n11 Microsoft cannot include minimum
commitments in its covered licensing agreements. The agreements cannot be
structured so that the OEM pays royalties for including MS-DOS in  [*12]   a
fixed number of PCs, whether or not the OEM actually sells that number of PCs
with a Microsoft operating system included.
 
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    n11 This exception allows for certain Per System Licenses. A per system
license means a license for a particular system or model. The decree allows OEMs
to designate identical machines containing different operating systems as
distinct systems. This is intended to prevent OEMs from paying royalties to
Microsoft for all the computers of a certain system even if some do not include
a Microsoft operating system.
 
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   The decree restricts the scope of the NDAs that Microsoft may negotiate with
ISVs. Microsoft cannot enter into an NDA whose duration extends beyond, (i)
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                        1995 U.S. Dist. LEXIS 1654, *12

commercial release of the operating system, (ii) an earlier public disclosure by
Microsoft, or (iii) one year from the date of the disclosure of information
covered by the NDA to a person subject to the NDA, whichever comes first. The
decree also prohibits the use of NDAs that would prevent persons covered by that
NDA from developing applications  [*13]   for competing operating systems unless
the application entailed use of proprietary Microsoft information.

   The decree explicitly states that it does not constitute "any evidence or
admission by any party with respect to any issue of fact or law." Indeed,
Microsoft has denied in its submissions to the Court that any of the allegations
set forth in the complaint constitute violations of the antitrust laws. n12 
 
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    n12 Entry of decrees containing denials by the defendant of the allegations
in the complaint are not favored in other government agencies. See 17 C.F.R. @
202.5(e) (1994) (Securities and Exchange Commission).
 
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IV. Motions To Participate

   Before addressing the question of whether the proposed decree is in the
public interest, the Court must decide whether to approve three opposed motions
to participate in this Tunney Act proceeding. I.D.E. Corporation ("IDEA") has
moved to intervene under Fed. R. Civ. P. 24. Anonymous persons, represented by
Gary Reback of the law firm of Wilson, Sonsini, Goodrich & Rosati  [*14]  
("Wilson, Sonsini"), have made a motion to file an amicus curiae memorandum in
opposition to the proposed final judgment. The Computer & Communications
Industry Association ("CCIA") has moved to intervene, or in the alternative,
moved to participate as amicus curiae.
 
IV.A. Tunney Act - Participation by Interested Persons

   Section 16(f) of the Tunney Act gives the Court wide latitude to gather
relevant information to make its public interest determination. In order to
exercise properly its independent role as mandated by Congress, the Court must
ensure that it is adequately informed about the intricacies and complexities of
the industry affected by the consent decree. n13 Section 16(f)(3) specifically
empowers the Court to gather relevant information by means of authorizing
intervention and amicus curiae participation:
 
(f) In making its determination under subsection (e) of this section, the court
may -
 
(3) authorize full or limited participation in proceedings before the court by
interested persons or agencies, including appearance amicus curiae, intervention
as a party pursuant to the Federal Rules of Civil Procedure, examination of
witnesses or documentary materials,   [*15]   or participation in any other
manner and extent which serves the public interest as the court may deem
appropriate.
 
@ 16(f)(3).
 
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                        1995 U.S. Dist. LEXIS 1654, *15

-

    n13 The Tunney Act envisioned that the courts were to be an "independent
force" rather than a "rubber stamp in reviewing consent decrees." Antitrust
Procedures and Penalties Act: Hearings on S.782 and S.1088 Before the Subcomm.
on Antitrust and Monopoly of the Senate Comm. on the Judiciary, 93d Cong., 1st
Sess. 1 (1973) [hereinafter "Senate Hearings"] (statement of Sen. Tunney).
 
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   The Act also encourages participation by interested persons by setting forth
a procedure for written public comments on the proposed consent decree. @ 16(b).
The United States is required to publish in the Federal Register the proposed
consent decree as well as a competitive impact statement. Id. The public has 60
days to submit written comments relating to the consent decree. The United
States is required to file such comments with the District Court and publish
such comments in the Federal Register.   [*16]    Id. At the expiration of the
60 day period, the United States must file a response with the Court and publish
such response in the Federal Register. @ 16(d).

   In Senate hearings before the Subcommittee on Antitrust and Monopoly, Judge
J. Skelly Wright, U.S. Court of Appeals for the District of Columbia Circuit,
emphasized the vital role of participation in the consent decree approval
process by outside persons:
 
The Antitrust Division of the Department of Justice, while no doubt among the
most competent and dedicated groups of professionals in Government service,
nevertheless is made up of human beings and, unfortunately, human beings
occasionally make mistakes.
 
In approving a particular decree, the Justice Department attorneys may overlook
certain issues, ignore certain concerns, or misunderstand certain facts. The
participation of additional interested parties in the consent decree approval
process helps to correct these oversights.
 
Senate Hearings, at 146.

   Only five public comments were received pursuant to the procedures outlined
in @ 16(b). n14 These public comments did not provide much enlightenment about
the proposed settlement.
 
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    n14 The law firm of Chan & Jodziewicz submitted a comment on behalf of a
number of small computer companies. The comment charged that Microsoft violated
copyright laws by not allowing purchasers of MS-DOS to resell it in any manner
they choose. In addition, the comment charged that Microsoft engaged in illegal
tying by leasing MS-DOS to OEMs and not selling it to the public. The basis of
the claim that this is illegal is that Microsoft "ties" the purchase of MS-DOS
to the purchase of a PC.

   Micro Systems Option commented that Microsoft's inclusion of a graphics
feature in its operating systems would reduce demand for Micro Systems own
product, which performs similar functions.
                                                                       PAGE    9
                        1995 U.S. Dist. LEXIS 1654, *16

   Anthony Martin commented that Microsoft had begun to engage in new
anticompetitive conduct, specifically pressuring software suppliers to switch
from old versions of Windows to the next version to be released. Mr. Martin
suggested that the Department of Justice should reopen its investigation.

   IDE Corporation, an OEM which has a licensing agreement with Microsoft,
commented that the decree should have forced Microsoft to repay certain
royalties received from IDE in an agreement of a type prospectively forbidden in
the decree.

   Finally, J. Adam Burden commented that the Government should have brought no
action at all against Microsoft, whose success is attributable to good products.
 
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[*17]  

   Since receipt of these public comments, the Court has received motions to
intervene and appear as amici in the proceeding.
 
IV.B. Timeliness of Motions to Participate

   Both the Justice Department and Microsoft argue that the motions to intervene
and the motion to appear as amicus curiae (hereinafter "motions to participate")
are untimely because they were served three months after the close of the Tunney
Act's 60 day public comment period pursuant to @ 16(b), and were served only
days before the scheduled final hearing held on January 20, 1995.

   These motions to participate were brought under @ 16(f) which specifically
gives the court a wide variety of alternatives to gather information necessary
to its public interest determination Section 16(f) and @ 16(b), while
complementing each other in the sense that they both help to insure that the
proposed consent decree receives a thorough public airing, are wholly separate
provisions.

   The Justice Department and Microsoft suggest that granting the "late" motions
to participate would be prejudicial because it would delay the approval process.
The Court is well-aware that Congress directed that the public interest inquiry
should be conducted  [*18]   in "the least complicated and least time-consuming
means possible." S. Rep. No. 296, 93d Cong., 1st Sess. 6 (1973) [hereinafter "S.
Rep."] accord H.R. Rep. No. 1463, 93d Cong., 2d Sess. at 12 (1974) [hereinafter
"H.R. Rep."] "Extended proceedings" might "have the effect of vitiating the
benefits of prompt and less costly settlement through the consent decree
process." 119 Cong. Rec. 24,598 (1973) (statement of Sen. Tunney).

   But the Court cannot sacrifice the thoroughness of its inquiry, and hence,
the validity of its determination that the consent decree is in the public
interest in order to increase the speed with which the decree is approved. Judge
J. Skelly Wright aptly recognized that in cases of national import the Tunney
Act process would be turned on its head if the Court considered the speed of
review to be more important than the accuracy of review:
 
In many cases, I would think, and have seen, no opposition filed, where the case
is of great national importance, then time should be taken -- court's time and
counsels' time should be taken to study the decree, to get information from the
public concerning the ramification of the decree, the anticipated results of
                                                                       PAGE   10
                        1995 U.S. Dist. LEXIS 1654, *18

the  [*19]   decree and, in my judgment, this time is well spent, even though it
may take day, even though it might take weeks; it could have a trial that would
last months and months.
 
So, to suggest that S. 782 will not require judicial time and counsel time would
be misleading. In important cases, S. 782 would require judicial time,
necessarily so, and I believe rightfully so.
 
Senate Hearings, at 151.

   The Court is simply not willing to find that because the motions were made
days before the scheduled final hearing on January 20, 1995 that the motions
should be denied on timeliness grounds. The lack of any demonstrated prejudice
to the parties, along with the need for a thorough review of the proposed decree
are factors that weigh against denying these late filings.

   Despite the complexity and the national importance of this case, until these
new motions to participate were filed, there was a severe lack of information
regarding the proposed consent decree. Only five public comments were filed
during the public comment period. Neither the Justice Department nor Microsoft
provided the Court with affidavits of experts. Moreover, the Justice Department
failed to make available to the Court   [*20]   and to the public "any other
materials and documents [in addition to the proposed consent decree] which the
United States considered determinative in formulating" the proposed consent
decree. @ 16(b). At the hearings held prior to receipt of the motions to
participate, the Court expressed its concern over the lack of meaningful
information. n15
 
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    n15 On January 19, 1995 the Court issued the following order in an attempt
to supplement the record and obtain information necessary to make its public
interest determination.

   A hearing in the above captioned case has been scheduled for January 20,
1995. At that hearing, the Court requests the parties to respond to the
following:
(1) How the proposed consent decree will restore competitive balance to the
operating systems market?
(2) Why the proposed consent decree should not be amended to include:
(a) A provision that would clearly state that the consent decree applies to all
operating systems commercially offered by Microsoft;
(b) A provision barring Microsoft from engaging in the practice of "vaporware"
i.e., releasing misleading information concerning the status of the introduction
into the marketplace of new software products;
(c) A provision establishing a wall between the development of operating systems
software and the development of applications software at Microsoft;
(d) A provision requiring disclosure of all instruction codes built into
operating systems software designed to give Microsoft an advantage over
competitors in the applications software market;
(e) A provision establishing an appropriate compliance apparatus (e.g., private
inspector general, business practices officer or compliance officer) to ensure
compliance with the decree;
(g) In the event Microsoft chooses not to pay I.D.E. Corporation the damages
that it seeks, a provision that would avoid costly litigation. For example,
                                                                       PAGE   11
                        1995 U.S. Dist. LEXIS 1654, *20

allowing this Court to refer the matter to a Special Master.
 
Microsoft's response was that it would countenance no changes in the proposed
decree. The Government stated that while it would not oppose the inclusion of a
monitoring provision in the decree, it would oppose all other changes.
 
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[*21]  

   The Government has declined to provide the Court any meaningful information
concerning the substance of its investigation, i.e., what it investigated and
the findings it made. Microsoft has gone a little further than the Government
and tried to allay certain of the Court's concerns. However, based on
information received from the law firm of Wilson, Sonsini, some of the
assurances provided by Microsoft have proved to be unreliable and contrary to
fact.

   If a Court is asked to approve a decree without information regarding the
effect of the decree, then the Court's role becomes a nullity, exactly what the
Tunney Act sought to prevent. The Justice Department and Microsoft's attempt to
prevent the Court from considering information provided by third parties when
they have not been forthcoming serves to thwart the Court's inquiry mandated by
the Tunney Act. It was not until the third party motions were received that the
Justice Department even filed an affidavit by an economist regarding whether the
proposed decree will restore competitive balance to the operating systems
market.

   The Court will invoke the procedures found in @ 16(f). In such an important
and complex case, if the Court  [*22]   were not to invoke @ 16(f) procedures
for gathering relevant information, the proper exercise of the Court's
discretion could be questioned. As Senator Tunney observed:
 
All of the procedural devices contained in this subsection are discretionary in
nature. They are tools available to the district court for its use, but use of a
particular procedure is not required . . . . There are some cases in which none
of these procedures may be needed. On the other hand, there have been and will
continue to be cases where the use of many or even all of them may be necessary.
In fact, in a very few complex cases, failure to use some of the procedures
might give rise to an indication that the district court had failed to exercise
its discretion properly.
 
119 Cong. Rec. 3453 (statement of Sen. Tunney).

   All third party submissions received prior to the January 20, 1995 hearing
will be made part of the record and have been considered in the Court's
decision. Submissions by outside participants after the January 20, 1995
hearings were only considered if they had already been permitted by the Court
(IDEA'S January 24, 1995 and related filings) and to the extent that they
offered legal arguments  [*23]   on the record already before the Court (Wilson,
Sonsini's February 1, 1995 filing). The Court specifically did not consider the
section of the February 1, 1995 filing by the law firm of Wilson, Sonsini that
dealt with a certain redacted document. n16 Nor did the Court consider recent
comments (dated February 13, 1995) submitted by Apple Computer, Inc.
 
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                                                                       PAGE   12
                        1995 U.S. Dist. LEXIS 1654, *23

-

    n16 In response to the allegations made in the submissions that this Court
has considered, the Government has insisted that Microsoft's illicit activities
covered by the proposed consent decree be considered apart from the other
matters addressed in the submissions. The Court knows of no theory of
compartmentalization in carrying out its responsibilities under the Tunney Act.
Of course, related relevant conduct must be considered and all such conduct has
been considered except for conduct outlined in the redacted document attached to
the supplemental submission filed by Gary Reback on February 1, 1995. Since that
information has not been made available to Microsoft, it has not been considered
by the Court. This, however, should not preclude the Government from considering
the new submission it has received from Mr. Reback, and if it believes such
information is pertinent to this case, on notice to defendant, it may request
the Court to reopen these proceedings so the information appropriately may be
considered.
 
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[*24]  

   While untimely filings ordinarily should not be condoned, the Court has
allowed them in this case for two reasons. First and foremost, the information
and arguments submitted are helpful, particularly the submissions received from
Wilson, Sonsini. Second, the parties have not provided the Court with adequate,
meaningful information. The Government, time after time, has refused to provide
the Court with information concerning the substance of its investigation, i.e.,
what it investigated and the findings it made.

   The next question presented to the Court is whether the motions to
participate as intervenors and/or amici curiae should be granted in the form
requested.
 
IV.D. Intervention

   Both IDEA and CCIA have filed motions to intervene under Rule 24 of the
Federal Rules of Civil Procedure. n17 Intervention is not a matter of right
under the Tunney Act, as IDEA concedes. United States v. Airline Tariff
Publishing Co., 1993-1 Trade Cas. (CCH) P 70,191, at 69,894 (D.D.C. Mar. 8,
1993) ("there is no right to intervene in a Tunney Act proceeding to determine
whether a proposed consent decree is in the public interest."). As such, it is
within the   [*25]   Court's discretion to grant or withhold intervention.
 
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    n17 CCIA is comprised of approximately 25 member companies, many of whom are
manufacturers and/or providers of computer products, computer software and
services.
 
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   The Court declines to confer party status on IDEA and CCIA, with the
concomitant right to participate fully in the proceeding, including the right to
file an appeal. Pursuant to Rule 24(b), "in exercising its discretion the court
shall consider whether the intervention will unduly delay or prejudice the
adjudication of the rights of the original parties." The Tunney Act allows for
                                                                       PAGE   13
                        1995 U.S. Dist. LEXIS 1654, *25

a variety of alternatives for the Court to receive relevant information in
making its public interest determination. Intervention, while one method for
gathering such information, would be too cumbersome and would unduly complicate
these proceedings. Although the Court welcomes the submissions by IDEA and CCIA
and will consider them in making its public interest determination, the Court
does not find that allowing IDEA and CCIA  [*26]   to intervene would enhance
the Court's inquiry. Moreover, such intervention could serve unduly to delay the
resolution of this case. The rights of IDEA and CCIA to proceed as private
litigants remain unaffected.

   The Court will deny the motions by IDEA and CCIA to intervene. In the
alternative, the Court will permit IDEA and CCIA to participate in the
proceedings under the Court's authority pursuant to @ 16(f)(3) to allow
"participation in any other manner and extent which serves the public interest
as the court may deem appropriate."
 
IV.E. Participation as Amicus

   The law firm of Wilson, Sonsini, Goodrich & Rosati by its partner, Gary
Reback, filed a motion to enter an appearance amicus curiae on behalf of certain
clients in the computer industry, who wish to remain anonymous. Both the
Government and Microsoft argue that amici's request to appear anonymously is
inappropriate. Section 16(f), however, authorizes the Court to accept
submissions by "any interested persons or agencies." Thus, the Court could
accept the submission directly from the law firm or the economists identified in
the submission. n18 
 
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    n18 It is interesting to note that one of the public comments was filed by a
law firm on behalf of certain unnamed clients and neither the Justice Department
nor Microsoft objected.
 
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[*27]  

   The Tunney Act confers broad powers to gather information. There is nothing
in the statute that would preclude the Court from receiving information from
those unwilling to identify themselves. It is preferable for persons to identify
themselves to permit the Court to ascertain any bias on their part. However,
there could be instances where the fear of retaliation by an alleged monopolist
could deprive the public of relevant, material information. Indeed, Mr. Reback's
clients have asserted the fear of retaliation as their reason for requesting
anonymity. Nothing has been presented that would put into question the sincerity
of their position.

   Microsoft argues that to allow the amici to appear anonymously stymies the
efforts of the parties and the Court to determine if there would be grounds for
the Court's recusal. The Court does not know the identity of Mr. Reback's
clients, whom Mr. Reback has identified as competitors of Microsoft. As a member
of the Bar, it clearly would be incumbent on Mr. Reback to bring any
disqualifying information to the Court's attention.

   Microsoft's next challenge is that the submission goes beyond an analysis of
the legal issues presented and seeks to introduce  [*28]   factual matters
                                                                       PAGE   14
                        1995 U.S. Dist. LEXIS 1654, *28

into the record. Microsoft contends that it is not the function of an amicus
curiae to seek to introduce factual matters or to present the opinions of
experts.

   The actual label of "amicus curiae" on the submission is not relevant.
Section 16(f) specifically permits the Court to authorize "participation in any
other manner and extent which serves the public interest as the court may deem
appropriate." To argue that the Court should not consider the amici submission
because it goes beyond the role of the usual amici submission runs counter to
the plain language and purpose of the statute. That the law enables this Court
to consider a brief such as was submitted by amici is without question.
Accordingly, the Court hereby grants the motion to file the memorandum of amici
curiae in opposition to the proposed final judgment. n19 
 
- - - - - - - - - - - - - - - - - -Footnotes- - - - - - - - - - - - - - - - - -

    n19 But see footnote 16, supra, with respect to certain materials not
considered by the Court because they were not submitted to Microsoft.
 
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   The Tunney Act envisions participation  [*29]   by interested persons in the
consent decree approval process, and such participation is meant to ensure that
the Court's public interest determination is fully informed. The Court as well
as the parties would have preferred to receive these motions to participate at
an earlier date during these proceedings. However, the substantive comments
received from these third parties provide the process with the information
necessary to foster an appropriate public airing of the issues. If the Court is
to serve its role as an independent check, then it is vital that the Court
receive responsible information from the public. The delay caused, which was
minimal, certainly is justified by the need to consider the important issues
presented.
 
V. The Public Interest Determination
 
V.A. Standard and Scope of Review

   The Tunney Act requires that "before entering any consent judgment proposed
by the United States . . ., the court shall determine that entry of such
judgment is in the public interest." 15 U.S.C. @ 16(e). Congress passed the
Tunney Act so that the courts would play an independent role in the review of
consent decrees as opposed to serving  [*30]   as a mere rubber stamp. See S.
Rep., at 4; H.R. Rep., at 8. In determining whether to approve or reject a
consent decree, the Court must consider that "the balancing of competing social
and political interests affected by a proposed antitrust decree must be left, in
the first instance, to the discretion of the Attorney General." United States v.
Western Electric Co., 992 F.2d 1572, 1577 (D.C. Cir. 1993) (quoting United
States v. Bechtel Corp., 648 F.2d 660, 666 (9th Cir. 1981)). It is not for the
Court to determine whether the settlement is the best possible in the Court's
view, but instead, whether it is "within the reaches of the public interest."
United States v. Gillette Co., 406 F. Supp. 713, 716 (D. Mass. 1975).

   In passing the Tunney Act Congress was concerned with the secrecy of
corporations' dealings with the Government and the immense power that such
corporations may wield. Senate Hearings, at 1 (statement of Sen. Tunney).
                                                                       PAGE   15
                        1995 U.S. Dist. LEXIS 1654, *30

Therefore, it would be an abdication of the Court's responsibility, as mandated
by Congress, not to conduct a thorough review of this proposed decree. The role
[*31]   of the Court is to scrutinize the exercise not only of the Government's
expertise but also of its good faith. See Gillette, 406 F. Supp. at 715.
Approval should not automatically follow the review process no matter how
incomplete or ineffective the Court finds the decree to be. See United States v.
American Tel. and Tel. Co., 552 F. Supp. 131, 151 (D.D.C. 1982) aff'd sub nom
Maryland v. United States, 460 U.S. 1001, 75 L. Ed. 2d 472, 103 S. Ct. 1240
(1983) ("It does not follow from these principles, however, that courts must
unquestioningly accept a proffered decree as long as it somehow, and however
inadequately, deals with the antitrust and other public policy problems
implicated in the lawsuit.")

   The Department of Justice argues that the scope of the Court's review is
limited to both the alleged anticompetitive practices and the relevant markets
set forth in the complaint. This position is not supported by the language of
the statute, its legislative history, precedent or common sense.

   The Justice Department relies on the Act's reference to both "termination
[*32]   of the alleged violations" and the "violation set forth in the
complaint" to support its position. 15 U.S.C. @ 16(e)(1)-(2). In citing small
portions of the Act's language, the Government fails to consider the language of
the statute as a whole:
 
Before entering any consent judgment proposed by the United States under this
section, the court shall determine that the entry of such judgment is in the
public interest. For the purpose of such determination, the court may consider--
 
(1) the competitive impact of such judgment, including termination of alleged
violations, provisions for enforcement and modification, duration or relief
sought, anticipated effects of alternative remedies actually considered, and any
other considerations bearing upon the adequacy of such judgment;
 
(2) the impact of entry of such judgment upon the public generally and
individuals alleging specific injury from the violations set forth in the
complaint including consideration of the public benefit, if any, to be derived
from a determination of the issues at trial.
 
15 U.S.C. @ 16(e)(1-2). Fifteen U.S.C. @ 16(e)(1) merely informs the  [*33]  
Court that the "termination of alleged violations" is one factor the Court "may
consider" in making its determination. Section 16(e)(1) also explicitly states
that the Court "may consider . . . any other considerations bearing upon the
adequacy of such judgment." The broad language of this last provision clearly
shows that the court is not limited in its inquiry to the more specific
provisions set forth in the same section.

   The Justice Department also narrowly focuses on the wording in one part of
Section 16(e)(2) (i.e. "violations set forth in the complaint."). In so doing,
it ignores the language of the rest of the provision and therefore misreads its
meaning. n20 Section 16(e)(2) states "the court may consider . . . the impact of
entry of such judgment upon the public generally and individuals alleging
specific injury from the violation set forth in the complaint." 15 U.S.C. @
16(e)(2). n21 This section gives the Court the authority to consider not only
the effect of the entry of the decree on those claiming to be hurt by the
violations alleged in the complaint, but also the effect on the public. The
                                                                       PAGE   16
                        1995 U.S. Dist. LEXIS 1654, *33

language of the Act does not restrict the  [*34]   scope of inquiry into the
effect of the decree on the public to the specific injuries alleged in the
complaint.
 
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    n20 By focusing only on snippets of Section 16 to defend its position as to
the narrow scope of the Tunney Act, the Department ignores the cardinal rule of
statutory interpretation "that a statute is to be read as a whole." King v. St.
Vincent's Hospital, 502 U.S. 215, 112 S. Ct. 570, 574, 116 L. Ed. 2d 578 (1991);
see also DAE Corporation v. Engeleiter, 294 U.S. App. D.C. 218, 958 F.2d 436,
439 (D.C. Cir. 1992).

    n21 The legislative history shows that the inclusion in the bill of specific
factors that the Court "may consider," such as "termination of [the] alleged
violation," was not intended to limit the scope of the Court's inquiry. 119
Cong. Rec. 24,599 (1973) (statements of Sen. Tunney).
 
- - - - - - - - - - - - - - - - -End Footnotes- - - - - - - - - - - - - - - - -

   The legislative history supports the position that the Court may look beyond
the face of the complaint   [*35]   in evaluating the public interest. n22 In
hearings on the Tunney Act, the then Deputy Assistant Attorney General of the
Antitrust Division made clear that the Justice Department's interpretation of
the bill was that the Court, in certain circumstances, would look not only at
whether the decree adequately addressed the complaint, but also at whether the
complaint itself was adequate. "This inquiry apparently would encompass not only
whether the relief is adequate in view of that sought in the complaint, but
whether the Government sought appropriate relief in the complaint itself."
Consent Decree Bills: Hearings Before the Subcommittee on Monopolies and
Commercial Law of the Committee on the Judiciary, House of Representatives, 93d
Cong., 1st Sess. 87 (1973) (statement of Hon. Bruce B. Wilson, Deputy Assistant
Attorney General, Antitrust Division, United States Department of Justice). n23
 
- - - - - - - - - - - - - - - - - -Footnotes- - - - - - - - - - - - - - - - - -

    n22 The Justice Department has cited a statement from the Senate Reports to
support its position that the Court is restricted to considering only the
allegations in the complaint in analyzing whether the decree is in the public
interest. See Department of Justice Motion for Final Judgment at 12 (citing S.
Rep. No. 298, 93d Cong., 1st Sess. at 3 (1973)). Their motion mischaracterizes
the statement. The statement simply stands for the proposition that the Court
needs to know what other relief the Department considered when the Court
evaluates whether relief is appropriate with reference to the allegations in the
complaint. The statement does not support the Government's assertion the Court
may consider only the relationship between the actual allegations and the
remedies in the decree. In fact, the statute gives the Court a much broader
scope of review. See supra.  [*36]  

    n23 The then Deputy Attorney General made clear that the Justice Department
did not approve of the broad scope of the bill. His testimony made equally clear
that the bill appeared to give the Court authority to look beyond the
allegations in the complaint. Id.
 
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                                                                       PAGE   17
                        1995 U.S. Dist. LEXIS 1654, *36

-

   In some instances, courts evaluating consent decrees under the provisions of
the Tunney Act have considered markets and practices outside the scope of the
complaint. For example, in AT&T, Judge Harold Greene conditioned the Court's
approval of the decree, in part, on the addition of a provision that would bar
AT&T's entry into the nascent electronic publishing market. AT&T, 552 F. Supp.
at 181-83. Judge Greene did this even though the Government had not alleged any
anticompetitive practices by AT&T in this market. In addition, the electronic
publishing market is arguably not part of the relevant market identified in the
complaint.

   Judge Greene's opinion in AT&T clearly explained why, in some instances, the
Court cannot limit itself to the decree's effect on the practices alleged in the
complaint.   [*37]   In order to determine whether a decree is in the public
interest, the Court must evaluate whether it meets the test of a valid antitrust
remedy, to "effectively pry open to competition a market that has been closed by
defendant['s] illegal restraints." AT&T, 552 F. Supp. at 150 (quoting
International Salt Co. v. United States, 332 U.S. 392, 401, 92 L. Ed. 20, 68 S.
Ct. 12 (1947)). Simply prohibiting repetition of the specific conduct in the
complaint may not in all cases achieve that goal. Therefore, the Court cannot
limit the scope of its considerations in the way the Government has suggested.

   While the Court must show some deference to the discretion of the Justice
Department, see Western Electric, 993 F.2d at 1577, such deference does not
preclude the Court's taking into consideration practices and markets that the
Government has failed to address. Cf. Gillette, 406 F. Supp. at 715 ("Congress
did not intend the court's action to be merely pro forma, or to be limited to
what appears on the surface.").

   Senator Tunney, the law's   [*38]   co-sponsor, recognized the possible
adverse consequences from entry of a consent decree that fails to address
anticompetitive practices outside the scope of the decree. "[A] bad or
inadequate consent decree may as a practical matter foreclose further review of
a defendant's practices both inside and outside the scope of the decree." 119
Cong. Rec. 3451 (statement of Sen. Tunney). The public interest may be
ill-served if the Court can look only at the market and practices alleged in the
complaint because of the opportunity costs of failing to address severe
anticompetitive practices that do not appear in the complaint.

   If the Court's scope of review is as narrow as the Government claims, the
Government could effectively foreclose judicial review of the decree. For
example, the Government could initiate a massive antitrust probe and find
significant violations in a large market. Then, bowing to political or other
pressures, the Government could write a complaint that alleges only minor
anticompetitive practices in a very small market and file it contemporaneously
with a decree that addresses those limited violations. Under the Government's
rationale, the Court could only consider whether  [*39]   the decree adequately
addressed the alleged violations. If its scope of review were so limited, the
Court would have to approve the decree. The Tunney Act as well as common sense
dictate that entry of such a decree would not be in the public interest.
 
V.B. Public Interest Determination
                                                                       PAGE   18
                        1995 U.S. Dist. LEXIS 1654, *39

   The Court cannot find the proposed decree to be in the public interest for
four reasons. First, the Government has declined to provide the Court with the
information it needs to make a proper public interest determination. Second, the
scope of the decree is too narrow. Third, the parties have been unable and
unwilling adequately to address certain anticompetitive practices, which
Microsoft states it will continue to employ in the future and with respect to
which the decree is silent. Thus, the decree does not constitute an effective
antitrust remedy. Fourth, the Court is not satisfied that the enforcement and
compliance mechanisms in the decree are satisfactory.
 
V.B.1. Insufficient Information

   The parties did not create the necessary record to enable the Court to make
its public interest determination. While the scrutiny that a proposed consent
decree requires is dependent upon the particular  [*40]   facts of the case, at
a minimum, the Court should be apprised of the following:
 
(1) The broad contours of the investigation i.e., the particular practices and
conduct of the defendant that were under investigation along with the nature,
scope and intensity of the inquiry;
 
(2) With respect to such particular practices and conduct, what were the
conclusions reached by the Government;
 
(3) In the settlement discussions between the Government and defendant: (a) what
were the areas that were discussed, and (b) what, if any, areas were bargained
away and the reasons for their non-inclusion in the decree;
 
(4) With respect to the areas not discussed at the bargaining table or not
bargained away, what are the plans for the Government to deal with them i.e., is
the investigation to continue, and, if so, at what intensity, or if the
investigation is to be closed, then the Government must explain why it is in the
public interest to do so.

   Basically, other than being told the Government spent a great deal of time on
a wide ranging inquiry and that the defendant is a tough bargainer, the Court
has not been provided with the essential information it needs to make its public
interest  [*41]   finding. n24 To make an objective determination, a court must
know not only what is included in the decree but also what has been negotiated
out, directly as well as indirectly i.e., what is the understanding of the
parties as to what, if any, additional action the Government will or will not
take with respect to matters that were inquired into, but with respect to which
the decree is silent.
 
- - - - - - - - - - - - - - - - - -Footnotes- - - - - - - - - - - - - - - - - -

    n24 In the hearing on January 20, 1995, the following colloquy took place:

   The Court: Well, every time I ask you I get stonewalled. Every time -- not
you -- I ask your people what is it? What are the facts? They stone-wall me. And
I don't like to be stonewalled.

   Ms. Bingaman: Okay. You know why I'm stone-walling you? You bet.
 
Transcript of Hearing, January 20, 1995, p. 46.
                                                                       PAGE   19
                        1995 U.S. Dist. LEXIS 1654, *41

 
- - - - - - - - - - - - - - - - -End Footnotes- - - - - - - - - - - - - - - - -

   One of the main purposes of the Tunney Act was to bring the consent decree
process into the open. Senate Hearings, at 1 (statement of Sen. Tunney). In this
case, the Government has filed its complaint and decree contemporaneously so the
Court has no insight  [*42]   into what charges the Government originally
intended to file. The Court does not know whether the Government has bargained
away other pernicious practices that were deleterious to the public. The
Government has steadfastly refused to address any conduct of the defendant
beyond that presented in the four corners of the decree. The Government has
taken the position that the Tunney Act limits the Court's review to only those
matters contained in the decree and the Court is not permitted to explore any
other areas and cannot even consider evidence received from third parties (i.e.,
pursuant to their comments) that legitimately raise questions as to whether the
defendant has been engaged in anticompetitive practices not included in the
decree. The Tunney Act does not dictate this kind of sterile review nor does it
justify the stonewalling that has taken place in these proceedings. There is
absolutely nothing in the Tunney Act that would circumscribe the Court's review
as the Government suggests. See Section V. A., supra. To so hold would render
the Act a nullity. "Tunney Act courts" are not mushrooms to be placed in a dark
corner and sprinkled with fertilizer.
 
V.B.2. Scope   [*43]    of the Decree

   The Court finds the decree on its face to be too narrow. Its coverage is
restricted to PCs with x86 or Intel x86 compatible microprocessors. The decree
covers only MS-DOS and Windows and its predecessor and successor products.
Neither party has even addressed the Court's concern that the decree be expanded
to cover all of Microsoft's commercially marketed operating systems. Given the
pace of technological change, the decree must anticipate covering operating
systems developed for new microprocessors. n25 In addition, taking into account
Microsoft's penchant for narrowly defining the antitrust laws, the Court fears
there may be endless debate as to whether a new operating system is covered by
the decree. n26
 
- - - - - - - - - - - - - - - - - -Footnotes- - - - - - - - - - - - - - - - - -

    n25 It is difficult to imagine in this dynamic area that by the end of the
period (7 years) the decree will be in effect, there will not be wholesale
change with respect to microprocessors and operating systems.

    n26 See discussion infra, at page 46.
 
- - - - - - - - - - - - - - - - -End Footnotes- - - - - - - - - - - - - - - - - 
 
V.B.3. Ineffective Remedy

   The   [*44]   Court cannot find the proposed decree to be in the public
interest because it does not find that the decree will "effectively pry open to
competition a market that has been closed by defendant['s] illegal restraints."
AT&T, 552 F. Supp. at 150. During the period in which this matter was before the
Court the Government did little to show that the decree would meet this test
beyond telling the Court that it had labored hard, that the decree was good, and
that it should be approved. At the eleventh hour, only after the Court again
                                                                       PAGE   20
                        1995 U.S. Dist. LEXIS 1654, *44

requested information to allay its concerns, did the Government finally produce
an affidavit from Nobel Laureate economist, Professor Kenneth Arrow. n27
 
- - - - - - - - - - - - - - - - - -Footnotes- - - - - - - - - - - - - - - - - -

    n27 When asked whether Professor Arrow was present and prepared to testify,
the Government stated he was not available to testify at the hearing.
 
- - - - - - - - - - - - - - - - -End Footnotes- - - - - - - - - - - - - - - - -

   The affidavit made three main points: 1) that the market is an increasing
returns market with large barriers to entry; 2) that the violations set forth in
the complaint  [*45]   contributed in some part to Microsoft's monopoly
position; and 3) that the decree will eliminate "artificial barriers that
Microsoft had erected to prevent or slow the entry of competing suppliers of
operating system software products."

   The Court does not doubt the Government's position that the practices alleged
in the complaint are artificial barriers. n28 Nor does it doubt that the decree
does address those practices. But what the Government fails to show is that the
proposed decree will open the market and remedy the unfair advantage Microsoft
gained in the market through its anticompetitive practices.
 
- - - - - - - - - - - - - - - - - -Footnotes- - - - - - - - - - - - - - - - - -

    n28 "The decree is to be tested on the basis of the relief provided, on the
assumption that the government would have won." Gillette, 406 F. Supp. at 716
n.2; see also United States v. Airline Tariff Pub. Co., 836 F. Supp. 9, 12 n.4
(D.D.C. 1993).
 
- - - - - - - - - - - - - - - - -End Footnotes- - - - - - - - - - - - - - - - -

   Professor Arrow's affidavit states that the operating systems market is an
increasing returns market.   [*46]   In layman's terms that means that once a
company has a monopoly position, it is extremely hard to dislodge it. Professor
Arrow and the Government also concur that part of Microsoft's monopoly position
is attributable to the artificial barriers it erected. Professor Arrow only
argues that the decree prospectively removes these artificial barriers. He does
not explain how the decree remedies the monopolist position Microsoft has
achieved through alleged illegal means in an increasing returns market. If it is
concededly difficult to open up an increasing returns market to competition once
a company has obtained a monopoly position, the Government has not shown how
prospectively prohibiting violative conduct that contributed to defendant's
achieving its monopoly position will serve to return the market to where it
should have been absent its anticompetitive practices. n29 Simply telling a
defendant to go forth and sin no more does little or nothing to address the
unfair advantage it has already gained. In short, given the Government's
expert's own analysis of this market, the decree is "too little, too late."
 
- - - - - - - - - - - - - - - - - -Footnotes- - - - - - - - - - - - - - - - - -

    n29 The legislative history of The Tunney Act gives further support to the
argument that the Court may find a decree is not in the public interest because
of its failure to go beyond mere prospective remedies. Senator Tunney cited the
antitrust decrees in the "smog case" and the IT&T consent decree as examples
                                                                       PAGE   21
                        1995 U.S. Dist. LEXIS 1654, *46

of abuses the Act was drafted to remedy. In the "smog case" Senator Tunney noted
the failure of the decree to "require the auto industry to undo its past
damage." Senator Tunney criticized the failure of the IT&T decree to force IT&T
to disgorge its profits even though IT&T prospectively had to divest itself of
certain companies. 119 Cong. Rec. 24,598 (1973). See also testimony of Judge J.
Skelly Wright, Senate Hearings, at 147.
 
- - - - - - - - - - - - - - - - -End Footnotes- - - - - - - - - - - - - - - - -
[*47]  

   The proposed decree without going further, is not in the public interest
because it does not meet the test of an effective antitrust remedy. n30 The
decree deals with licensing and nondisclosure practices that the Government
found to be anticompetitive and detrimental to a free and open market. What the
decree does not address are a number of other anticompetitive practices that
from time to time Microsoft has been accused of engaging in by others in the
industry. Since a Court cannot shut its eyes to the obvious, it has asked the
parties to discuss these widespread public allegations. The Government has
refused, and Microsoft has claimed that the accusations are false.
 
- - - - - - - - - - - - - - - - - -Footnotes- - - - - - - - - - - - - - - - - -

    n30 The goal of the remedy is not only to prevent future occurrences of
illegal conduct, but also to cure the ill effects of such conduct and to deny
the violator future benefits of that conduct. See United States v. United States
Gypsum Co., 340 U.S. 76, 85-89, 95 L. Ed. 89, 71 S. Ct. 160 (1950); Wilk v.
American Medical Association, 671 F. Supp. 1465, 1454-85 (N.D.Ill. 1987), aff'd
895 F.2d 352 (7th Cir. 1990), cert. denied, 496 U.S. 927 (1990).
 
- - - - - - - - - - - - - - - - -End Footnotes- - - - - - - - - - - - - - - - -
[*48]  

   The accusations range from charges that Microsoft engages in the practice of
vaporware i.e., the public announcement of a computer product before it is ready
for market for the sole purpose of causing consumers not to purchase a
competitor's product that has been developed and is either currently available
for sale or momentarily about to enter the market. Other allegations include
charges that Microsoft uses its dominant position in operating systems to give
it an undue advantage in developing applications software and that it
manipulates its operating systems so competitors' applications software are
inoperable or more difficult for the consumers to utilize effectively.

   Throughout these proceedings, this Court has expressed repeated concern about
these allegations, in part, because it is concerned that if they are true and
defendant continues to engage in them, it will continue to hold and possibly
expand its monopoly position, even if it ceases the practices alleged in the
complaint.

   The Court has been particularly concerned about the accusations of
"vaporware." Microsoft has a dominant position in the operating systems market,
from which the Government's expert concedes it  [*49]   would be very hard to
dislodge it. Given this fact, Microsoft could unfairly hold onto this position
with aggressive preannouncements of new products in the face of the introduction
of possibly superior competitive products. In other words, all participants
concede that consumers and OEMs will be reluctant to shift to a new operating
                                                                       PAGE   22
                        1995 U.S. Dist. LEXIS 1654, *49

system, even a superior one, because it will mean not only giving up on both its
old operating systems and applications, but also risking the possibility that
there will not be adequate applications to run on the superior product. If this
is true, Microsoft can hold onto its market share gained allegedly illegally,
even with the introduction of a competitor's operating system superior to its
own. By telling the public, "we have developed a product that we are about to
introduce into the market (when such is not the case) that is just as good and
is compatible with all your old applications," Microsoft can discourage
consumers and OEMS from considering switching to the new product. It is for this
reason that courts may consider practices outside the complaint. See AT&T, 552
F. Supp. at 150. n31
 
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    n31 The Court may not only consider practices outside the complaint, it may
also prohibit such practices even if they have not been found to be unlawful if
that is necessary to formulate an effective decree to prevent the recurrence of
monopolization. See AT&T, 552 F. Supp. at 150 n.80 (citing with approval United
States v. United Shoe Machinery Corp., 110 F. Supp. 295, 346-47, aff'd, 347 U.S.
521, 98 L. Ed. 910, 74 S. Ct. 699 (1954) and Hartford-Empire Co. v. United
States, 323 U.S. 386, 409, 89 L. Ed. 322, 65 S. Ct. 373 (1945)); see also United
States Gypsum Co., 340 U.S. at 89.
 
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[*50]  

   With respect to the vaporware claim when this matter was raised at the
November 2, 1994 status call, counsel for Microsoft stated the charge was false.
The colloquy with the Court was as follows:
 
The Court: Well how do you answer those charges?
 
Counsel for Microsoft: Those charges we believe are entirely false.
 
The Court: In other words, the vaporware charge is false?
 
Counsel for Microsoft: That's correct.
 
Transcript of Hearing, September 29, 1994, p. 15.

   When questioned about the practice, the Government refused to disclose what
it knew about the practice or what investigation it had conducted with respect
to it.

   This was the state of the record until Mr. Reback submitted two documents to
the Court (Court Exhibits 1 and 2). n32 Both of these documents are internal
Microsoft records. They are part of two Microsoft employee evaluation forms. In
the first, the Microsoft employee writes that during the past six months he
engaged in the following beneficial activities for Microsoft, "QB3 preannounce
to hold off Turbo buyers." n33 
 
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    n32 According to Mr. Reback, these documents come from public sources.
[*51]  
                                                                       PAGE   23
                        1995 U.S. Dist. LEXIS 1654, *51

    n33 QB3 is Microsoft software; Turbo is software developed by Borland, one
of Microsoft's competitors.
 
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   The second document is even more specific. In a self-evaluation, a
Microsoft employee wrote, "I developed a rollout plan for QuickC and CS that
focused on minimizing Borland's first mover advantage by preannouncing with an
aggressive communications campaign." (emphasis added) These documents indicate
that the highest officials of the company knew of the practices that were
utilized to impact adversely on the market plans of a competitor. Whether the
documents are actionable or not, certainly at a minimum they require explanation
from the parties. No satisfactory explanation has been given.

   Although Microsoft acknowledges the authenticity of the documents, it denies
they describe the practice of vaporware and indeed, states that the practice
that is described is a perfectly legitimate competitive practice. When pressed
as to why the practices described in the documents were not vaporware, counsel
for Microsoft stated he would limit "vaporware" to those instances where no
product at all exists  [*52]   at the time of the so-called "preannouncement."
According to counsel, it does not even matter that the date for introduction of
the preannounced product is not met. Counsel further advised the Court that he
would advise his client to continue to engage in the described practices. n34
 
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    n34 Transcript of Hearing, January 20, 1995, p. 110-11.
 
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   At the January 20, 1995 hearing, the Government merely acknowledged receipt
of the documents. It outright refused to discuss them or to state what
consideration it has given to them. It declined to state whether it had even
interviewed the authors of the documents. In a subsequent filing, the Government
has taken the following position: "Product preannouncements do not violate
antitrust laws unless those preannouncements are knowingly false and contribute
to the acquisition, maintenance, or exercise of market share." Of course, this
is not the time or place to debate the Government's rather narrow view of this
highly questionable practice. It is obvious that the Government has adopted
[*53]   a criminal standard and may have ignored the fact that it also has
plenary civil authority to enjoin violative practices without having to prove
criminal culpability.

   Regardless of how narrow the Government's view is, it is incumbent on the
Government to address whether the defendant has been preannouncing products and
what effect, if any, such preannouncements have had in eliminating competition
in an increasing returns market where the market has clearly been tipped. Even
if Microsoft's current practice of "preannouncing" did not meet the Government's
definition of vaporware, shouldn't the Court be advised whether there is a basis
for seeking to limit the practice in fashioning an antitrust remedy? As Judge
Green held in the AT&T case, even practices that have not been found to be
unlawful can be prohibited if they prevent the prying open of the market that
has been closed through illegal restraints. AT&T, 552 F. Supp. at 150. Even if
these practices might be legal in another context, defendant's ability to use
them to maintain a monopoly position that it gained in part through improper
                                                                       PAGE   24
                        1995 U.S. Dist. LEXIS 1654, *53

licensing and non-disclosure agreements certainly raises the  [*54]   question
whether a decree that does not address such anticompetitive practices, is in the
public interest.

   This Court cannot ignore the obvious. Here is the dominant firm in the
software industry admitting it "preannounces" products to freeze the current
software market and thereby defeat the marketing plans of competitors that have
products ready for market. Microsoft admits that the preannouncement is solely
for the purpose of having an adverse impact on a competitor's product. Its
counsel states it has advised its client that the practice is perfectly legal
and it may continue the practice. This practice of an alleged monopolist would
seem to contribute to the acquisition, maintenance, or exercise of market share.

   The Government has pressed for the adoption of its decree on the grounds that
it will open up competition. Given the Government's desire to open up
competition why does it not want to take on the vaporware issue?

   When the Court gave Microsoft the opportunity to disavow this practice by an
undertaking it declined to do so. What is more, the Government told the Court
that if it conditioned its approval on Microsoft's undertaking no longer to
engage in the practice, the   [*55]   Government would withdraw its approval of
the decree even if Microsoft agreed to the undertaking.

   The Court cannot sign off on a decree knowing that the defendant intends to
continue to engage in an anticompetitive practice without the Government
providing a full explanation as to its "no action" stance. It would almost be
the equivalent of a Court accepting a probationary plea from a defendant who has
told the Court he will go out and again engage in inappropriate conduct.
 
V.B.4. Compliance

   The only change in the decree that the Government stated it would accept is
the Court's suggestion that Microsoft establish an internal mechanism to monitor
the decree. This too Microsoft has declined even to consider. Microsoft's
position is that its 50 or so in-house lawyers, along with its outside retained
counsel, are sufficient to monitor the decree. This is the same group that has
advised its client that "product preannouncements" to impede competition is
proper behavior.

   This Court finds itself in a position similar to that of Judge Greene in
AT&T, who refused to approve the decree without modification because of his
concern as to its compliance and enforcement. n35 AT&T, 552 F. Supp. at 214-17.
[*56]   
 
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    n35 The proposed AT&T decree and the decree before this Court contain almost
identical provisions regarding the Court's role in enforcement and continuing
jurisdiction.
 
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   Based on Microsoft's counsel's representations to this Court, the Court is
concerned about the question of compliance. This concern is heightened because
even though the Company on prior occasions has publicly stated it does not and
                                                                       PAGE   25
                        1995 U.S. Dist. LEXIS 1654, *56

will not abuse its dominant position in the operating systems market vis-a-vis
its development of application products, it has refused to give the Court the
same assurance. Without a compliance mechanism, the Court cannot make the public
interest finding. This is particularly so because Microsoft denies that the
conduct charged in the Government's complaint to which it has consented,
violates the antitrust laws.

   This is clearly the kind of case that Congress had in mind when it passed the
Tunney Act. Microsoft is a company that has a monopolist position in a field
that is central to this country's well being, not only  [*57]   for the balance
of this century, but also for the 21st Century. The Court is certainly mindful
of the heroic efforts of the Antitrust Division to negotiate the decree. There
is no doubt its task was formidable. Here is a company that is so feared by its
competitors that they believe they will be retaliated against if they disclose
their identity even in an open proceeding before a U.S. District Court Judge.

   The picture that emerges from these proceedings is that the U.S. Government
is either incapable or unwilling to deal effectively with a potential threat to
this nation's economic well being. How else can the four year deadlocked
investigation conducted by the FTC be explained. What is more, the Justice
Department, although it labored hard in its follow up investigation, likewise
was unable to come up with a meaningful result.

   It is clear to this Court that if it signs the decree presented to it, the
message will be that Microsoft is so powerful that neither the market nor the
Government is capable of dealing with all of its monopolistic practices. The
attitude of Microsoft confirms these observations. While it has denied publicly
that it engages in anticompetitive practices, it  [*58]   refuses to give the
Court in any respect the same assurance. n36 It has refused to take even a small
step to meet any of the reasonable concerns that have been raised by the Court.
n37
 
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    n36 Microsoft has stated to the Press over the years that there is a
"Chinese Wall" between its operating systems and applications divisions. See
Memorandum of Amici Curiae in Opposition to Proposed Final Judgment, p. 19. In
Microsoft's submission to the Court, it maintains that there is no such
separation and that one is not necessary. See Memorandum of Microsoft
Corporation in Support of Proposed Final Judgment, p. 7 n.12.

    n37 See footnote 15, supra.
 
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   The Government itself is so anxious to close this deal that it has
interpreted certain anticompetitive practices so narrowly that it possibly has
given the green light for persons to engage in anticompetitive practices with
impunity. To in any way condone the practice of announcing products before they
are ready for market to freeze a competitor's product is terribly  [*59]  
bothersome to this Court. "Vaporware" is a practice that is deceitful on its
face and everybody in the business community knows it. Why else has the business
community dubbed the practice "vaporware?" It is interesting that business
leaders know that the practice is improper but the Government does not. Philip
K. Howard's comment from his book "The Death of Common Sense" might well be
                                                                       PAGE   26
                        1995 U.S. Dist. LEXIS 1654, *59

right: "Law designed to make Americans' lives safer and fairer has now become an
enemy of the people."

   The Tunney Act provides that a Court must find that a proposed consent decree
is in the public interest before it shall enter an order to that effect. Because
of the many concerns that the Court has, that finding cannot be made on the
present record.

   The Court fully understands the role the judiciary plays in this society. It
has no interest in intruding on the prerogatives of the executive branch. The
Court's only reason for being involved in this case is because of the dictates
of the Tunney Act. To make the public interest finding required by the Tunney
Act, the Court has to be confident of its decision. It does not have the
confidence in the proposed antitrust decree that has been presented to it.
[*60]   In part, this lack of confidence is a result of the Government's
"stonewalling" position.

   Microsoft has done extremely well in its business in a relatively short
period of time, which is a tribute both to its talented personnel and to this
nation's great ethic that affords every citizen the ability to rise to the top.
Microsoft, a rather new corporation, may not have matured to the position where
it understands how it should act with respect to the public interest and the
ethics of the market place. In this technological age, this nation's cutting
edge companies must guard against being captured by their own technology and
becoming robotized.

   Some might suggest that disapproval of the proposed decree serves little
purpose since all that the Government will be able to achieve if it prevails
after a lengthy trial would be the relief set forth in the proposed consent
decree.

   This is not necessarily so. First after a fully successful litigated case and
findings made, the judgment may have preclusive effect in other cases. Second,
unlike a denial in a consent decree, once a court issues its findings and
conclusions, a party's denial of liability has no effect unless the party is
successful  [*61]   on appeal. Third, a court of equity has a wide range of
remedies it can fashion to protect the public interest. After a trial in which
the Government prevails, the Court is not limited solely to the relief set forth
in the Government's earlier proposed negotiated settlement. Certainly, all
parties to a litigation face certain risks. While the risks are greater, so are
the rewards. n38 For all of the above reasons, the Court finds that the proposed
antitrust consent decree is not in the public interest. An appropriate order
accompanies this memorandum opinion.
 
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    n38 The Government has expressed concern that if the Court rejects the
consent decree, Microsoft would be able to reinstitute the prohibited practices
that have been banned by the consent decree with which Microsoft has voluntarily
agreed to comply pending this Court's determination. The Government's fears are
misplaced. The Government is reminded that it has filed with the Court a
complaint in which it has prayed for an injunction against Microsoft enjoining
it "from engaging or carrying out, renewing or attempting to engage, carry out
or renew any contracts, agreements, practices or understandings in violation of
the Sherman Act [and] (4) that plaintiffs have such other relief that the
                                                                       PAGE   27
                        1995 U.S. Dist. LEXIS 1654, *61

court may consider necessary or appropriate to restore competitive conditions in
the markets affected by Microsoft's unlawful conduct."

   If Microsoft wants to dissolve its "standstill" agreement with the Government
pending the completion of these proceedings, the Government certainly can move
for a preliminary injunction pending conclusion of the litigation. If it can
prove to the Court the merits of its position, it will be entitled to
appropriate relief.
 
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[*62]   
 
DATE: February 14, 1995

   Stanley Sporkin

   United States District Judge

   ORDER RE MOTION TO APPROVE THE CONSENT DECREE

   The issue before this Court is whether the entry of the proposed antitrust
consent decree between Microsoft Corporation and the United States is in "the
public interest." n1 The Court cannot find the proposed consent decree to be in
the public interest for four reasons. First, the Government has declined to
provide the Court with the information it needs to make its proper public
interest determination. Second, the scope of the decree is too narrow. Third,
the parties have been unable and unwilling adequately to address certain
anticompetitive practices which Microsoft states it will continue to employ in
the future and with respect to which the decree is silent. Thus, the decree does
not constitute an effective antitrust remedy. Fourth, the Court is not satisfied
that the enforcement and compliance mechanisms in the decree are satisfactory.
Based on the above reasons, the Court hereby ORDERS that the motion to approve
the consent decree be DENIED.
 
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    n1 15 U.S.C. @ 16(e) (Supp. 1994) (Tunney Act).
 
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[*63]  

   A status call on this matter will be held on March 16, 1995 at 10:00 a.m. in
Courtroom 6.
 
DATE: February 14, 1995

   Stanley Sporkin

   United States District Judge

   ORDER RE MOTIONS TO PARTICIPATE AND MOTION TO STRIKE

   There are three motions by interested persons to participate in the Tunney
Act proceedings before the Court: 1) I.D.E. Corporation's ("IDEA") motion for
intervention; 2) anonymous persons' motion to file an amicus curiae memorandum
                                                                       PAGE   28
                        1995 U.S. Dist. LEXIS 1654, *63

in opposition to proposed final judgment; and 3) Computer & Communications
Industry Association's ("CCIA") motion to intervene, or in the alternative,
motion to participate as amicus curiae.

   With respect to these motions to participate, the Court hereby ORDERS as
follows:
 
1) The motions to intervene by IDEA and CCIA are DENIED. In the alternative, the
Court authorizes IDEA and CCIA to participate in the proceedings under the
Court's authority pursuant to @ 16(f)(3) to allow "participation in any other
manner and extent which serves the public interest as the court may deem
appropriate."
 
2) The motion to file the memorandum of amici curiae in opposition to the
proposed final judgment is GRANTED pursuant to the Court's authority  [*64]  
under @ 16(f)(3).

   Also before the Court is Microsoft's motion to strike the "Supplemental
Submission in Support of Memorandum of Amici Curiae in Opposition to the
Proposed Final Judgment" ("Supplemental Submission") filed by the law firm of
Wilson, Sonsini, Goodrich & Rosati on behalf of anonymous persons. The Court
hereby ORDERS that Microsoft's motion to strike is GRANTED as it relates to a
contested redacted document. The Court DENIES the motion to strike in so far as
the Supplemental Submission provides legal argument based on the record properly
before the Court.
 
DATE: February 14, 1995

   Stanley Sporkin

   United States District Judge