Software Vault: The Diamond Collection/The Diamond Collection (Software Vault)(Digital Impact).ISO/cdr14/usvm.zip/USVMS

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        UNITED STATES DISTRICT COURT
        FOR THE DISTRICT OF COLUMBIA

  UNITED STATES OF AMERICA,)
         Plaintiff,        )
                           )
         v.                ) -Civil Action No. 94-1564
                           ) (Stanley Sporkin)
MICROSOFT CORPORATION,     )
         Defendant.        )

FILED Feb. 14 1995
CLERK, U.S. DISTRICT COURT District of Columbia

MEMORANDUM OPINION


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. FN 2 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. FN 3

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
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. FN 4 Microsoft  asserts
that before the FTC investigation was completed, it was  expanded
to include every aspect of Microsoft's business. FN 5

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.
FN 6

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, made by Intel. FN 7 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 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).

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%. FN 8 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. 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. FN 9

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
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 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.
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 longterm 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.
FN10 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
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.

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  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:

(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 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. FN 11 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 a fixed number of PCs,
whether or not the OEM actually sells that number of PCs with a
Microsoft operating system included.

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) 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
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. FN12

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 ("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. FN 13 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, or participation in any other manner and
extent which serves the public interest as the court may deem
appropriate.   16(f)(3).

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.
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). FN 14 These public comments did  not
provide much enlightenment about the proposed settlement.

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 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 Behave 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:

[I]n 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 the 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 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.
FN 15 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.

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 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:

[A]ll of the procedural devices cont[ain]ed 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 on the record already before the Court
(Wilson, Sonsini's February 1, 1995 filing). The Court specific
ally 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. FN16 Nor did the Court consider recent  comments
(dated February 13, 1995) submitted by Apple Computer, Inc.

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 interveners 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. FN 17 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) sec. 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 Court's discretion to grant or withhold
intervention.

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),
"[i]n 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
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 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. FN 18

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
factual matters 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. FN19

The Tunney Act envisions participation 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 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 "[t]he
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., 993 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). 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 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 (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 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 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. FN 20

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).FN21 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
language of the Act does not restrict the scope of inquiry into
the effect of the decree on the public to the specific injuries
alleged in the complaint.

The legislative history supports the position that the Court may
look beyond the face of the complaint in evaluating the public
interest. FN 22 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 war adequate. "[T]his  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). FN 23

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. 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 (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 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. 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 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

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 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 finding.
FN 24 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.

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
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 in 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 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.
FN25 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. FN 26

V.B.3. Ineffective Remedy

The 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 requested information to allay
its concerns, did the Government finally produce an affidavit
from Nobel Laureate economist, Professor Kenneth Arrow. FN 27

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 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. FN 28 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.

Professor Arrow's affidavit states that the operating systems
market is an increasing returns market. 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.FN29 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."

The proposed decree without going further, is not in the public
interest because it does not meet the test of an effective antitrust
remedy. FN 30 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 it s 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.

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 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 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. FN 31

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). FN 32 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." FN 33

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 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. FN34

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: "[P]roduct 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 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 licensing
and nondisclosure agreements certainly raises the 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 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.
FN 35 AT&T, 552 F.Supp at 214-17.

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 at does not and 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 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 refuses to give the
Court in any respect the same assurance. FN 36 It has refused to
take even a small step to meet any of the reasonable concerns
that have been raised by the Court. FN 37

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  bothersome
to this Court. "Vaporware is a practice that is  deceitful on its
face and everybody in the business community  known 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 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 Courts 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. 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
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 Governments earlier  proposed negotiated
settlement. Certainly, all parties to a  litigation face
certain risks. While the risks are greater, so are the rewards.
FN 38 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.

DATE: February 14, 1995

Stanley Sporkin United States District Judge

 FN 1 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.

FN 2 15 U.S.C.   16(e) (Supp. 1994) (Tunney Act).

FN 3 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.

FN 4 Per processor licenses, applications and operating systems
software are all defined below.

FN 5 This would include operating systems software, applications
software, and computer peripherals.

FN 6 The Justice Department cooperated with the DirectorateGeneral
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.

 FN 7 The 486 and Pentium chips are examples of x86  microprocessors.

FN 8 Apple computers do not run on x86 microprocessors and utilize
Apple's own proprietary operating system.

FN 9 In the first half of 1994, 80% of Windows units sold by
Microsoft were through OEMs.

FN 10 The newest version of Windows is scheduled for release
sometime in 1995 and is code-named Chicago.

FN 11 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.

FN 12 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).

FN 13 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).

FN 14 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.
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.

FN 15 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, allowing this Court to refer the matter
to a Special Master.

FN 16 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.

FN 17 CCIA is comprised of approximately 25 member companies,
many  of whom are manufacturers and/or providers of computer
products,  computer software and services.

FN 18 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.

FN 19 But see footnote 16, supra, with respect to certain  materials
not considered by the Court because they were not  submitted
to Microsoft.

FN 20 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." Kind v. St. Vincent's Hospital,
112 S.Ct 570, 574 (1991); see also DAE Corporation v.  Engeleiter,
958 F.2d 436, 439 (D.C. Cir. 1992).

FN 21 The legislative history shows that the inclusion in the
bill  of specific factors that the Court "may consider," such as
"termination of [the] alleged violations was not intended to
limit the scope of the Court's inquiry. 119 Cong. Rec. 24,599
(1973) (statements of Sen. Tunney).

FN 22 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
tions and the remedies in the decree. In fact, the statute gives
the Court a much broader scope of review. See supra.

FN 23 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.

FN 24 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.

FN 25 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.

FN 26 See discussion infra, at page 46.

FN 27 When to testify, the Government stated he was not available
to testify at the hearing.

FN 28 "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).

FN 29 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 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.

FN 30 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, 88-89 (1950); Wilk v. American Medical Association, 671 F.Supp.
1465, 1484-85 (N.D.Ill. 1987), aff'd 895 F.2d 352 (7th Cir.
1990), cert. denied, 496 U.S. 927 (199O).

FN 31 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 (1954) and Hartford-Empire Co. v. United States, 323
U.S. 386, 409 (1945)); see also United States Gypsum Co., 340
U.S. at 89.

FN 32 According to Mr. Reback, these documents come from public
sources.

FN 33 QB3 is Microsoft software; Turbo is software developed by
Borland, one of Microsoft's competitors.

FN 34 Transcript of Hearing, January 20, 1995, p. 110-11.

FN 35 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.

FN 36 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.

FN 37 See footnote 15, supra.

FN 38 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 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.