Consumers Win as Judges Grant Microsoft’s Appeal in DOJ Lawsuit Over Windows’ Internet Integration

REDMOND, Wash., June 23, 1998 — A three-judge panel for the U.S. Court of Appeals today ruled in favor of Microsoft in its appeal of a district court decision concerning Microsoft’s Windows operating system software. The Court unanimously overturned the preliminary injunction issued last December by U.S. District Court Judge Thomas Penfield Jackson, which ordered Microsoft to give personal computer manufacturers the option of licensing Microsoft’s Windows 95 operating system without its Internet Explorer software.

In overturning the injunction, the Court stated that Microsoft has “clearly” demonstrated “benefits to its integrated design” of Windows 95 with Web browsing functionality. The Court recognized that “integration of functionality into the operating system can bring benefits” for customers.

As the Court explained, “Antitrust scholars have long recognized the undesirability of having courts oversee product design, and any dampening of technological innovation would be at cross-purposes with antitrust law.”

“This decision is good news for consumers and the entire computer industry,” said Bob Herbold, Microsoft executive vice president and chief operating officer. “Our integration of Internet technology into Windows makes our operating system and the personal computer a more powerful and useful tool for our customers.”

“The Court today has helped focus the legal issues squarely where they belong, by concentrating on whether a product innovation brings new benefits to consumers.”
William H. Neukom,

Microsoft senior vice president for law and corporate affairs

William H. Neukom, Microsoft senior vice president for law and corporate affairs, added: “We’re gratified the Appeals Court has agreed with Microsoft that there was no basis for the entry of a preliminary injunction against our efforts to add new Internet capabilities to Windows.The Court today has helped focus the legal issues squarely where they belong, by concentrating on whether a product innovation brings new benefits to consumers. We have long been confident that our Internet improvements to both Windows 95 and Windows 98 meet this test.”

The Appeals Court action effectively rejects the main claim that the Government made in its October 1997 lawsuit: that Windows and Internet Explorer are separate products. In its ruling today, the Appeals Court noted that “the Department [of Justice] has not shown a reasonable probability of success on the merits,” and added: “Microsoft has clearly met the burden of ascribing facially plausible benefits to its integrated design as compared to an operating system combined with a stand-alone browser such as Netscape’s Navigator [W]e are inclined to conclude that the Windows 95/IE package is a genuine integration; consequently, [the Consent Decree] does not bar Microsoft from offering it as one product.”

For the full text of the appellate court’s ruling, see (http://www.cadc.uscourts.gov/common/opinions/199806/97-5343a.txt).

Highlights of today’s ruling by the U.S. Court of Appeals:

“Antitrust scholars have long recognized the undesirability of having courts oversee product design, and any dampening of technological innovation would be at cross-purposes with antitrust law.”

“We think that an “integrated product” is most reasonably understood as a product that combines functionalities (which may also be marketed separately and operated together) in a way that offers advantages unavailable if the functionalities are bought separately and combined by the purchaser.”

“[I]ntegration may be considered genuine if it is beneficial when compared to a purchaser combination. But we do not propose that in making this inquiry the court should embark on product design assessment. In antitrust law, from which this whole proceeding springs, the courts have recognized the limits of their institutional competence and have on that ground rejected theories of ‘technological tying.'”

“[T]he limited competence of courts to evaluate high-tech product designs and the high cost of error should make them wary of second-guessing the claimed benefits of a particular design decision.”

“On the facts before us, Microsoft has clearly met the burden of ascribing facially plausible benefits to its integrated design as compared to an operating system combined with a stand-alone browser such as Netscape’s Navigator.”

“[W]e are inclined to conclude that the Windows 95/IE package is a genuine integration; consequently, [the consent decree] does not bar Microsoft from offering it as one product.”

“The preliminary injunction was issued without adequate notice and on an erroneous reading of the consent decree. We accordingly reverse and remand. The reference to the [special] master was in effect the imposition on the parties of a surrogate judge and either a clear abuse of discretion or an exercise of wholly non-existent discretion.”

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