Microsoft Verdict Vacated

Everyone and their brother sent in this unsurprising news: the Appeals Court handling the Microsoft anti-trust case has overturned the break-up decision. A few story URLs: CNet, BBC, ABC, AP, Reuters, MSNBC. The decision is available in .pdf format. A brief summary: the Findings of Fact (Microsoft's conduct, etc.) are still in place, but Judge Jackson's evaluation of those facts and the penalty he imposed are thrown out. A new District Judge will examine the case, starting from the Findings of Fact. Update 2h later by J : Dan Gillmor's analysis is good. So is this Washington Post column, which is insightful except it doesn't go far enough. It also shows MS CEO Steve Ballmer's attitude even before today's ruling: "Is there any limit to what you think you can put into the operating system at all?" "...as a matter of law, no, I don't think so..."

Comments

Microsoft knew how to play the game

[Brian Kendig]

The ruling to split up Microsoft was overturned because the Appeals Court decided that Judge Jackson was biased, broke codes of conduct, and "motivated by a desire to punish the company."

I briefly read through the Appeals Court decision, and I found very little in it actually defending Microsoft's market practices.

Microsoft won because they knew how to play the game. This isn't about right or wrong, it's about Lawyer Vs. Lawyer. Microsoft only had to do three things:

1. Drag the court case on as long as they could, and postpone any verdict as long as they could.

2. Never EVER admit to even the slightest wrongdoing. Vehemently protest even the merest suggestion that anything they did was at all improper.

3. Flaunt the judge at every opportunity. Remember Bill Gates not being able to remember business decisions he made, not knowing the meaning of simple words, and trying to say that Netscape wasn't a competitor? Remember the faked videotape?

The first two tactics worked well for a long time. (Note that even Bill Clinton used these tactics to some success.) But it's the third tactic which cinched the win for them: by basically giving Judge Jackson the finger in court, ANY reaction Judge Jackson had as a result could be blamed on him being biased against Microsoft.

This will have a devastating effect on the software industry, since it's been proven that Microsoft has the money and the resources to buy any market they want to own, and the political power to get away with it. Even if you had the Next Big Idea and a million dollars to start with, how could you even hope to compete with Microsoft once they got wind of your idea and copied it?

We're only now seeing Microsoft begin to notice the free software industry. I don't think it will be long before they find a way to 'embrace and extend,' lock customers into Microsoft-only solutions, and make free software become irrelevant. Nobody thought it could happen to Apple, nobody thought it could happen to Netscape, nobody thinks it'll happen to Linux...

By replacing competent attorneys with buffoons

[maynard]

It's well known that the Bush administration replaced the entire team of lead attorneys at the justice department with junior lawyers who had never tried a significant anti-trust case. So, while the Justice Department didn't drop the case at executive request, they did manage to replace all competent staff associated with the original investigation with complete incompetents. That's how one kills an investigation behind the scenes. --M

Summary of the ruling

[sethg]

Summary of the summary: Almost all of the findings of fact, and the most damning conclusions of law, stand. The remedy is thrown out. All of the unresolved issues go to a lower court. Have a nice day.

• The court is not buying the argument that antitrust laws are less relevant in the "new economy". (11-13)
• It upheld the finding that Microsoft is a monopoly -- you may think this is obvious, but Microsoft's lawyers tried very hard to redefine "monopoly" in a way that excluded Microsoft, and the appeals court didn't buy it. (19-25)
• It upheld the findings that Microsoft tried to illegitimately maintain its monopoly through its exclusionary contracts with OEMs. The court said that one of Microsoft's arguments in its defense -- that it is merely exercising its rights as the copyright-holder to Windows -- "borders upon the frivolous". However, the court said that Microsoft did have the right to require OEMs to make their machines display the Windows desktop when first booting up a Windows machine. (25-35)
• Microsoft's removal of IE from the "Add/Remove Progams" utility and its commingling of IE code with non-IE code in the same DLL were anticompetitive. However, Microsoft provided a valid technical justification for causing Windows to use IE instead of the user's preferred browser for certain browsing-related tasks, and since the plaintiffs did not try to rebut those justifications, that aspect of Windows/IE integration was OK. (35-40)
• It was OK for Microsoft to offer the "Internet Explorer Access Kit" to ISPs to induce them to support IE. However, its exclusive deals with ISPs that required them to support only IE were not OK. (40-47)
• Microsoft's exclusive contracts with third-party software developers that tied them to IE were anticompetitive, and Microsoft did not give any justification for the contracts that outweighed their anticompetitive effect. The same is true for its deal with Apple, in which Apple supported IE and Microsoft continued to provide Office for the Mac. (47-51)
• Microsoft's promotion of its incompatible-with-Sun JVM was OK. Its deals with developers requiring them to exclusively promote Microsoft's JVM was not OK. (Are we seeing a pattern here?) Likewise, Microsoft's attempt to deceive developers about how using their Java development tools would create applications that only ran on Windows was not OK. And its threats that led Intel to stop developing its own JVM were not OK. (52-58)
• The district court found that aside from these specific acts, Microsoft's "course of conduct" violated the antitrust laws. The appeals court thought that the district court didn't provide enough evidence to support this claim, and overturned it. (58-59)
• Even though we can't prove that Microsoft's actions were the only things preventing Netscape and Java from becoming serious competitors to Microsoft's monopoly, the appeals court said, we don't need to meet such a standard of proof to impose liability on Microsoft. (59-62)
• For the same anticompetitive behavior, the district court tried to make Microsoft liable for both illegally maintaining a monopoly (on the x86 PC OS market) and illegally trying to obtain a monopoly (on the browser market). However, the district court never proved that one company could monopolize the browser market, because they neither defined the market for browsers nor proved that barriers to entry would allow a monopoly browser to maintain its position. Therefore, the appeals court completely reversed the district court's verdict on this aspect of the judgement. (62-68)
• After a long discussion of "tying" in antitrust law, the appeals court decided that a lower court should analyze the question of whether bundling Windows with IE was illegal, and gave instructions for what the lower court should take into consideration when making its judgement on this issue. (68-90)
• Microsoft had complained on appeal regarding both the speed of the trial and the lack of any evidentiary hearings between the finding of guilt and the determination of Microsoft's penalty. The appeals court said the first complaint was groundless, but the second complaint was valid. Furthermore, the appeals court said, the district court hadn't explained how breaking up Microsoft would actually restore competition to the market. The appeals court provided guidlines for a lower court to use in deciding an appropriate remedy; it didn't flat out say "you can't break up the company", but it pointed out that divestiture is usually not the appropriate remedy for this kind of antitrust violation. (90-106)
• Judge Jackson said things in interviews that made him appear biased against Microsoft. He embargoed these interviews until after his judgement was entered, so that Microsoft's lawyers couldn't have challenged them in court at the time they were made -- but at the time he entered his judgement, he was still talking about a pending legal case. Because of this impropriety, the appeals court disqualified Judge Jackson retroactively to the point where he entered his breakup order, but the court did not throw out his earlier findings of fact or conclusions of law (except where the appeals court specifically found an erroneous finding or incorrect conclusion). Microsoft had wanted to throw out the entire decision and start a new trial from scratch. (106-125)

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Re:Of equal importance..

[Osty]

Sigh. Some people just didn't read the appellate finding, apparently. From the document:

In sum, for reasons more fully explained below, we affirm in part, reverse in part, and remand in part the District Court's judgment assessing liability. We vacate in full the Final Judgment emobdying the remedial order and remand the case to a different trial judge for further proceedings consistent with this opinion (Page 7, end of Summary)

Specifically, they reversed the DC's judgment that Microsoft violated part 2 of the Sherman Act, or in other words that they didn't illegally attempt to monopolize the internet browser market. They also remanded to the DC the finding that Microsoft violated part 1 of the Sherman Act, or the unlawful tying of the browser to the OS. The only part they did affirm, and this only partially (with the rest reversed, not remanded) was the violation of part 2 of the Sherman Act by using anti-competitive means to maintain it's OS monopoly. To see what exactly they affirm and what they reverse on that, feel free to dig deeper into the decision.

What this means is that the appellate court DID NOT uphold that Microsoft is guilty of defending its monopoly, and in fact actually REVERSED an important decision necessary to the monopolization case. They've also REMANDED the second Sherman violation back to the district court.

Cliff's Notes for the court's ruling:

[trcooper]

Here's a quick guide to the ruling as I've read it...

• Upheld MS is a monopoly and abused monopoly powers.
• Stated that the IE intergration claim by the DOJ was unfounded
• Upheld that MS aggreements with Internet providers violates the Sherman Act.
• Upheld exclusive dealings with Apple are excusionary and violate the Sherman Act
• Upheld MS threats to Intel regarding Java support were in violation of the Sherman Act
• Reversed conclusion that MS' course of conduct separately violates Sherman Act
• Found that the plaintiffs did not sufficently define a relevant market
• Reversed finding of liability for Attempted Monopolization
• Heeded Microsoft 's warning that the separate-products element of the per se rule may not give newly integrated products a fair shake.
• Found that DOJ's Tying argument cause severe problems for product innovation.
• neither the use of the summary witnesses nor any other aspect of the District Court 's conduct of the trial phase amounted to an abuse of discretion.
• The District Court erred when it resolved the parties 'remedies-phase factual disputes by consulting only the evidence introduced during trial and plaintiffs 'remedies- phase submissions,without considering the evidence Micro- soft sought to introduce.
• Vacated final judgement and ordered a remedies-specific evidentiary hearing.
• Found that the District Court did not have adequate reason for the remedies it imposed.
• Found that Jackson created an appearance of partiality, particularly during the remedy phase.
• There was not proof of bias, only an appearance, so the entire ruling was not overturned.
• Finally the Conclusion: The judgment of the District Court is affirmed in part, reversed in part,and remanded in part.We vacate in full the Final Judgment embodying the remedial order,and remand the case to the District Court for reassignment to a different trial judge for further proceedings consistent with this opinion.

Misleading headline

[tbo]

OK, folks, I know you're all just jumping to flame George W. Bush and any other right-wingers you can find, but slow down a second.

What really happened is that the appeals court says that the original judge gave the impression he was biased against Microsoft, due to the nasty remarks he made about the company and the secret press conferences he held. The appeals court then overturned the sentencing portion of the verdict, and remanded the case to a different judge, to craft a new sentence. Nobody's saying Microsoft isn't guilty, they just want a judge who's not biased to sentence MS.

If you remember some of the comments Judge Thomas Jackson made about MS, you'll probably agree he was about as biased against MS as the average Slashdotter. As much as we may think that he was biased "the right way", a judge is supposed to be unbiased, and to allow otherwise is to corrupt the judicial system. This is justice being done (slowly), even if we don't like all the steps along the way.

Besides, who here thinks that just splitting MS in half is the best remedy? Each half will just be as bad as before... I'd much rather see carefully tailored prohibitions against some of the nastier anti-competitive elements of .NET and their new licensing system, and a ban on the embrace-and-extend strategy.

Maybe you think splitting MS is suitable "punishment". But who does it punish? Microsoft itself is a name and some legal documents, and can't feel pain or unhappiness. The executives won't mind, because, with a split, there will be twice as many positions, and all but the most senior execs will probably get promoted. Does Bill Gates care? It would probably hurt his pride a little (about as much as a cream pie in the face), but it's not like he'll end up homeless on the street. Shareholders might get burned. Before you get excited, remember that your grandmother's pension (or yours, or your teachers') may be heavily invested in MS, without their knowledge. Burning MS might also send the tech economy even farther down the toilet. How many more of you want to be unemployed?

Seriously, folks, this is probably just justice being done (very) slowly and carefully, and it's probably for the best, even if it means we don't get the satisfaction of seeing MS split in two.

Somebody is going to mod me down as a troll, because they think that no person in their right mind could be anything but foaming-at-the-mouth anti-MS. Before you do, ask yourself, what contributes more to a debate, a hundred people agreeing with each other, or rational disagreement?

Re:not really

[mjh]

From the decision (pp 10-11):

What is somewhat problematic,however,is that just over six years have passed since Microsoft engaged in the first conduct plaintiffs allege to be anticompetitive.As the record in this case indicates,six years seems like an eternity in the computer industry.By the time a court can assess liability, firms,products,and the marketplace are likely to have changed dramatically.This,in turn,threatens enormous practical difficulties for courts considering the appropriate measure of relief in equitable enforcement actions,both in crafting injunctive remedies in the first instance and reviewing those remedies in the second.Conduct remedies may be unavailing in such cases,because innovation to a large degree has already rendered the anticompetitive conduct obsolete (although by no means harmless).And broader structural remedies present their own set of problems,including how a court goes about restoring competition to a dramatically changed,and constantly changing,marketplace.That is just one reason why we find the District Court s refusal in the present case to hold an evidentiary hearing on remedies to update and flesh out the available information before serious- ly entertaining the possibility of dramatic structural relief so problematic.

The court seems to be directly expressing concern of the effectiveness of either conduct remedies, or structural remedies in such a rapidly changing market. I wonder if the new judge reviewing the case will look at this, and interpret it as, "Hey, find a solution that really does prevent Microsoft from continuing to be a monopoly."

One can hope!
--

Most importantly...

[aidoneus]

It's not over yet, the most important part is tucked away on page 123 of the brief.

Given the limited scope of our disqualification of the District Judge,we have let stand for review his Findings of Fact and Conclusions of Law.

This means that the Findings of Fact (the abuse of monopoly power) still stand, and the case is only subject to review in terms of penalty. The case is being turned over to another judge at the circuit level, and if that other judge reccommends that MS be broken up (more likely he would rec. a lesser penalty) the break-up may still come to pass.

The question implies that there is some middle ground,but we believe there is none.As the rules are written,district court fact findings receive either full deference under the clearly erroneous standard or they must be vacated. There is no de novo appellate review of fact findings and no intermediate level between de novo and clear error,not even for findings the court of appeals may consider sub-par.

This section essentially says that while Judge Jackson's statements showed a bias, the facts still show that MS broke the law. (It says a lot more, but essentially says that the facts are still there, and MS cannot dispute them).

Essentially what this biolds down to is that the Findings of Fact stand, but the Conclusions of Law (the breakup order) show evidence of judicial bias, and as such will be submitted to another judge to determine a new conclusion (ie: may issue a new breakup order, order release of code, pay a fine to gov't, etc.)

Hope this helps. While I'm not a lawyer yet, IP, antitrust, and constitutional law are in my field.

Of equal importance..

[MikeTheYak]

Is that the appeals court upheld that Microsoft is guilty of illegally defending its monopoly. This clears the way for a whole slew of lawsuits.

Re:Of equal importance..

[ackthpt]

Consider W. wishing to settle with Tobacco.

Does anyone really expect Ashcroft to pursue Microsoft?

As I read it:

Deputy Atty: There's still blood in the water, shall we go after them, Mr. Ashcroft?
Ashcroft: Oh, I think they've learned their lesson, if we can't trust Mr. Gates, whom can we trust? He just wants what's best for America, just like the President does.

Meanwhile, in Redmond...

Bill Gates: Smithers, did our monopoly crush that small yet promising software company and put all it's people out of work and into homeless shelters?
Smithers: I believe so, Sir.
Bill Gates: Excellent.

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All your .sig are belong to us!

not really

[edmudama]

The order is not quite being interpreted the way everyone says it is. According to the legal commentary I heard on NPR this morning on the way to work, part of the reason for throwing out this remedy is that they didn't feel it would prevent Microsoft from exerting its monopolistic strengths in OS and Browser markets even after the company was split in two. They have asked for a new court to come up with a remedy that should actually weaken Microsoft's position with regards to its control of these markets.

Appeals Court upholds that Java isn't for Apps

[JWhitlock]

Every Linux Geek should read the decision, both so they know what they are talking about, and to recognize Microsoft strategy when they see it. Microsoft is still very clever and plays good strategy, and we should be aware of it...

In the first few pages (around page 19), the decision reports that the Appeals Court upheld that MiddleWare would not count when determining that Microsoft was a monopoly. Microsoft defined middleware as any system that supplied an API for applications programming (Java was an example). If the middleware layer became an industry standard, then the API could be mapped to other operating systems, making Microsoft's monopoly irrelevalent. Application designers could write an application, using the API, that ran on Windows as well as other operating systems, and consumers could then move to another operating system with a significantly lessened cost-of-entry. Thus, Microsoft would be unable to leverage it's monopoly power - the market would take care of the remedy. With increased processing power making indirect APIs more attractive, Microsoft thinks this is a real threat.

The Appeals Court upheld what we all know - the current middleware software (Java et all) isn't good enough - you can't write a fully portable, fully powered application on top of it. Thus, it doesn't factor into the court's decision that Microsoft is a monopoly.

So, what does Microsoft do? They try to invent an API that is powerful enough - .NET, C#, and the rest. Why? For one, if it is standardized, then Microsoft could claim anyone could make a .NET clone, it's just that consumers and developers, acting as consumers with full market knowledge, yada, yada, decide to purchase the superior Microsoft produce. Freedom to Innovate. Checkmate, bastards.

What if they don't buy it, and split the company up anyway? Well, Microsoft, while it was one company, already created the application-to-operating system interface, and can seemlessly use it as two companies. Plus, they can port it to other systems, and leverage their market share on office applications in other markets.

So, yeah, I expect a Linux port of C# and .NET in the works, although it may not be released until the last second, and will be a business and legal win for the company. In time, your grandmother (or, by that time, your mother) will be running Linux on her home system - but it will be the Microsoft distro, running .NET and Passport.

Not surprising, but not even near finished...

[DarkEdgeX]

As was said on the MSNBC article covering this ruling (or rather, it was a link to other antitrust cases in history, eg: AT&T, IBM, etc) these cases are usually drawn out for DECADES before they're either given up or ruled on. IBM's case started in 1969 and didn't end until the 80's, and AT&T's case lasted almost as long too. Considering Microsoft's case started in 1998, we've got atleast 8 more years of this in the courts before they get around to doing something meaningful..

The thing that's really too bad is Judge Jackson did this to himself-- if he'd kept his mouth shut, not appeared on TV and in the media making public remarks about the case, there's a decent chance he'd have atleast been able to continue presiding as Judge over the case. Now they're handing it to a different Judge, possibly one that will be more in line with what Microsoft's lawyers want.

No evidence of bias, but a taint nonetheless

[Private Essayist]

The appeals court vacated the verdict because there could be the appearance of bias in the matter. Yet they said they found no actual evidence of bias in the case. This is what many of us predicted would happen. The case itself was solid (and yes, I read every page of what Jackson wrote). But Jackson then went and shot his mouth off, saying the kind of stuff we all say from time to time.

There you have it: The case was vacated because Jackson said some commonplace things. Being a judge, he used bad judgment, for he needed to appear to ride above such matters. But the fact is that what he said is what pretty much everyone in the computer world knows to be true. It is so obvious that MS is a monopoly it's not worth discussing. When Jackson said something along those lines, he doomed his verdict.

Still, it is interesting that the appeals court couldn't actually find evidence of bias in the ruling. They just didn't like what Jackson said on his own time. And you know that MS hired plenty of guns to find bias anywhere they could. They failed. MS is a monopoly, and there was no official bias. Merely unofficial bias. Just as we all have.
________________

Alright Linux, now is your time...

[corky6921]

The important battle was still won.

The important battle was the one that got IT managers looking at alternatives instead of blindly choosing a Microsoft product.

The important battle was one that got Microsoft's internal documents out on the Internet for all to see and read. These showed how Microsoft's goal was domination with IE. (Never mind that, in the end, they did make a better browser than Netscape.)

The important battle got Linux thousands of headlines and millions of dollars in IPO money and venture capital.

The important battle was the one that got the phrase "open source" in the vocabulary of millions of people.

The important battle was the one that IBM joined -- Linux as a viable server alternative.

The other important battle was the one that got embedded Linux rolling. I love my TiVO, and I don't have to worry about anything dealing with regular Linux -- I can just sit back and let it record for me. That's what consumers want, and Linux delivered.

Folks, it ain't over. Linux has the mindshare now. Linux has IBM. Microsoft has been forced to make a really stable OS (2000) to compete.

Competition is a good thing. Microsoft sees the threat on its horizon. Even if Linux dies (which I don't think it will), Microsoft will have changed dramatically. Microsoft now is competing on features and stability, not on "well, everyone buys our product anyway, so we can afford to make it crappy."

In short, don't forget how far Linux has come, or how far it can go. Don't get caught up in these "anti-open-source" agendas; they are meant to take away from the real issue. Some of the best programs in the world are released as open-source, some are not. It's not the issue. The issue is that Linux/Apache/etc. has started to be taken seriously. This is a good thing.

Re:Oh joy

[Sarcasmooo!]

Exhibit-A, Exhibit-B, Exhibit-C.

Re:Do the findings of fact stand?

[Cletus the yokel]

From the ruling: "Given the limited scope of our disqualification of the District Judge,we have let stand for review his Findings of Fact and Conclusions of Law.The severity of the District Judge 's misconduct and the appearance of partiality it created have led us to consider whether we can and should subject his factfindings to greater scrutiny.For a number of reasons we have rejected any such approach." - IV.D.2.Review of Findings of Fact and Conclusions of Law "The judgment of the District Court is affirmed in part, reversed in part,and remanded in part.We vacate in full the Final Judgment embodying the remedial order,and remand the case to the District Court for reassignment to a different trial judge for further proceedings consistent with this opinion." - VII.CONCLUSION It seems what they really had a problem with was the Judge, his behaviour, and his remedies.