Id. ¶¶ 317-22, 325-26, 332. In the same way, Microsoft's "First Wave" contracts provided crucial technical information to dozens of leading ISVs that agreed to make their Web-centric applications completely reliant on technology specific to Internet Explorer. Id. ¶¶ 337, 339-40. Finally, Apple's 1997 Technology Agreement with Microsoft prohibited Apple from actively promoting any non-Microsoft browsing software in any way or from pre-installing a browser other than Internet Explorer. Id. ¶¶ 350-52. This arrangement eliminated all meaningful avenues of distribution of Navigator through Apple. Id.

Notwithstanding the extent to which these "exclusive" distribution agreements preempted the most efficient channels for Navigator to achieve browser usage share, however, the Court concludes that Microsoft's multiple agreements with distributors did not ultimately deprive Netscape of the ability to have access to every PC user worldwide to offer an opportunity to install Navigator. Navigator can be downloaded from the Internet. It is available through myriad retail channels. It can (and has been) mailed directly to an unlimited number of households. How precisely it managed to do so is not shown by the evidence, but in 1998 alone, for example, Netscape was able to distribute 160 million copies of Navigator, contributing to an increase in its installed base from 15 million in 1996 to 33 million in December 1998. Id. ¶ 378. As such, the evidence does not support a finding that these agreements completely excluded Netscape from any constituent portion of the worldwide browser market, the relevant line of commerce.

The fact that Microsoft's arrangements with various firms did not foreclose enough of the relevant market to constitute a § 1 violation in no way detracts from the Court's assignment of liability for the same arrangements under § 2. As noted above, all of Microsoft's agreements, including the non-exclusive ones, severely restricted Netscape's access to those distribution channels leading most efficiently to the acquisition of browser usage share. They thus rendered Netscape harmless as a platform threat and preserved Microsoft's operating system monopoly, in violation of § 2. But virtually all the leading case authority dictates that liability under § 1 must hinge upon whether Netscape was actually shut out of the Web browser market, or at least whether it was forced to reduce output below a subsistence level. The fact that Netscape was not allowed access to the most direct, efficient ways to cause the greatest number of consumers to use Navigator is legally irrelevant to a final determination of plaintiffs' § 1 claims.

Other courts in similar contexts have declined to find liability where alternative channels of distribution are available to the competitor, even if those channels are not as efficient or reliable as the channels foreclosed by the defendant. In Omega Environmental, Inc. v. Gilbarco, Inc., 127 F.3d 1157 (9th Cir. 1997), for example, the Ninth Circuit found that a manufacturer of petroleum dispensing equipment "foreclosed roughly 38% of the relevant market for sales." 127 F.3d at 1162. Nonetheless, the Court refused to find the defendant liable for exclusive dealing because "potential alternative sources of distribution" existed for its competitors. Id. at 1163. Rejecting plaintiff's argument (similar to the one made in this case) that these alternatives were "inadequate substitutes for the existing distributors," the Court stated that "[c]ompetitors are free to sell directly, to develop alternative distributors, or to compete for the services of existing distributors. Antitrust laws require no more." Id.; accord Seagood Trading Corp. v. Jerrico, Inc., 924 F.2d 1555, 1572-73 (11th Cir. 1991).

III. THE STATE LAW CLAIMS

In their amended complaint, the plaintiff states assert that the same facts establishing liability under §§ 1 and 2 of the Sherman Act mandate a finding of liability under analogous provisions in their own laws. The Court agrees. The facts proving that Microsoft unlawfully maintained its monopoly power in violation of § 2 of the Sherman Act are sufficient to meet analogous elements of causes of action arising under the laws of each plaintiff state.(7) The Court reaches the same conclusion with respect to the facts establishing that Microsoft attempted to monopolize the browser market in violation of § 2,(8) and with respect to those facts establishing that Microsoft instituted an improper tying arrangement in violation of § 1.(9)

The plaintiff states concede that their laws do not condemn any act proved in this case that fails to warrant liability under the Sherman Act. States' Reply in Support of their Proposed Conclusions of Law at 1. Accordingly, the Court concludes that, for reasons identical to those stated in § II.B, supra, the evidence in this record does not warrant finding Microsoft liable for exclusive dealing under the laws of any of the plaintiff states.

Microsoft contends that a plaintiff cannot succeed in an antitrust claim under the laws of California, Louisiana, Maryland, New York, Ohio, or Wisconsin without proving an element that is not required under the Sherman Act, namely, intrastate impact. Assuming that each of those states has, indeed, expressly limited the application of its antitrust laws to activity that has a significant, adverse effect on competition within the state or is otherwise contrary to state interests, that element is manifestly proven by the facts presented here. The Court has found that Microsoft is the leading supplier of operating systems for PCs and that it transacts business in all fifty of the United States. Findings ¶ 9.(10) It is common and universal knowledge that millions of citizens of, and hundreds, if not thousands, of enterprises in each of the United States and the District of Columbia utilize PCs running on Microsoft software. It is equally clear that certain companies that have been adversely affected by Microsoft's anticompetitive campaign - a list that includes IBM, Hewlett-Packard, Intel, Netscape, Sun, and many others - transact business in, and employ citizens of, each of the plaintiff states. These facts compel the conclusion that, in each of the plaintiff states, Microsoft's anticompetitive conduct has significantly hampered competition.

Microsoft once again invokes the federal Copyright Act in defending against state claims seeking to vindicate the rights of OEMs and others to make certain modifications to Windows 95 and Windows 98. The Court concludes that these claims do not encroach on Microsoft's federally protected copyrights and, thus, that they are not pre-empted under the Supremacy Clause. The Court already concluded in § I.A.2.a.i, supra, that Microsoft's decision to bundle its browser and impose first-boot and start-up screen restrictions constitute independent violations of § 2 of the Sherman Act. It follows as a matter of course that the same actions merit liability under the plaintiff states' antitrust and unfair competition laws. Indeed, the parties agree that the standards for liability under the several plaintiff states' antitrust and unfair competition laws are, for the purposes of this case, identical to those expressed in the federal statute. States' Reply in Support of their Proposed Conclusions of Law at 1; Microsoft's Sur-Reply in Response to the States' Reply at 2 n.1. Thus, these state laws cannot "stand[] as an obstacle to" the goals of the federal copyright law to any greater extent than do the federal antitrust laws, for they target exactly the same type of anticompetitive behavior. Hines v. Davidowitz, 312 U.S. 52, 67 (1941). The Copyright Act's own preemption clause provides that "[n]othing in this title annuls or limits any rights or remedies under the common law or statutes of any State with respect to . . . activities violating legal or equitable rights that are not equivalent to any of the exclusive rights within the general scope of copyright as specified by section 106 . . . ." 17 U.S.C. § 301(b)(3). Moreover, the Supreme Court has recognized that there is "nothing either in the language of the copyright laws or in the history of their enactment to indicate any congressional purpose to deprive the states, either in whole or in part, of their long-recognized power to regulate combinations in restraint of trade." Watson v. Buck, 313 U.S. 387, 404 (1941). See also Allied Artists Pictures Corp. v. Rhodes, 496 F. Supp. 408, 445 (S.D. Ohio 1980), aff'd in relevant part, 679 F.2d 656 (6th Cir. 1982) (drawing upon similarities between federal and state antitrust laws in support of notion that authority of states to regulate market practices dealing with copyrighted subject matter is well-established); cf. Hines, 312 U.S. at 67 (holding state laws preempted when they "stand[] as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress").

The Court turns finally to the counterclaim that Microsoft brings against the attorneys general of the plaintiff states under 42 U.S.C. § 1983. In support of its claim, Microsoft argues that the attorneys general are seeking relief on the basis of state laws, repeats its assertion that the imposition of this relief would deprive it of rights granted to it by the Copyright Act, and concludes with the contention that the attorneys general are, "under color of" state law, seeking to deprive Microsoft of rights secured by federal law - a classic violation of 42 U.S.C. § 1983.

Having already addressed the issue of whether granting the relief sought by the attorneys general would entail conflict with the Copyright Act, the Court rejects Microsoft's counterclaim on yet more fundamental grounds as well: It is inconceivable that their resort to this Court could represent an effort on the part of the attorneys general to deprive Microsoft of rights guaranteed it under federal law, because this Court does not possess the power to act in contravention of federal law. Therefore, since the conduct it complains of is the pursuit of relief in federal court, Microsoft fails to state a claim under 42 U.S.C. § 1983. Consequently, Microsoft's request for a declaratory judgment against the states under 28 U.S.C. §§ 2201 and 2202 is denied, and the counterclaim is dismissed.

Thomas Penfield Jackson
U.S. District Judge
Date:


UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA

_______________________________________
                                       )
UNITED STATES OF AMERICA,              )
                                       )
Plaintiff,                             )
                                       )
v.                                     ) Civil Action 
                                       ) No. 98-1232 (TPJ)
MICROSOFT CORPORATION,                 )
                                       )
Defendant.                             )
_______________________________________)
                                       )
STATE OF NEW YORK, et al.,             )
                                       )
Plaintiffs,                            )
                                       )
v.                                     )
                                       )
MICROSOFT CORPORATION,                 )
                                       )
Defendant.                             )
_______________________________________) Civil Action 
                                       ) No. 98-1233 (TPJ)
MICROSOFT CORPORATION,                 )
                                       )
Counterclaim-Plaintiff,                )
                                       )
                                       )
ELIOT SPITZER, attorney general of the )
State of New York, in his official     )
capacity, et al.,                      )
                                       )
Counterclaim-Defendants.               )
_______________________________________)


ORDER


In accordance with the Conclusions of Law filed herein this date, it is, this ______ day of April, 2000,

ORDERED, ADJUDGED, and DECLARED, that Microsoft has violated §§ 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1, 2, as well as the following state law provisions: Cal Bus. & Prof. Code §§ 16720, 16726, 17200; Conn. Gen. Stat. §§ 35-26, 35-27, 35-29; D.C. Code §§ 28-4502, 28-4503; Fla. Stat. chs. 501.204(1), 542.18, 542.19; 740 Ill. Comp. Stat. ch. 10/3; Iowa Code §§ 553.4, 553.5; Kan. Stat. §§ 50-101 et seq.; Ky. Rev. Stat. §§ 367.170, 367.175; La. Rev. Stat. §§ 51:122, 51:123, 51:1405; Md. Com. Law II Code Ann. § 11-204; Mass. Gen. Laws ch. 93A, § 2; Mich. Comp. Laws §§ 445.772, 445.773; Minn. Stat. § 325D.52; N.M. Stat. §§ 57-1-1, 57-1-2; N.Y. Gen. Bus. Law § 340; N.C. Gen. Stat. §§ 75-1.1, 75-2.1; Ohio Rev. Code §§ 1331.01, 1331.02; Utah Code § 76-10-914; W.Va. Code §§ 47-18-3, 47-18-4; Wis. Stat. § 133.03(1)-(2); and it is

FURTHER ORDERED, that judgment is entered for the United States on its second, third, and fourth claims for relief in Civil Action No. 98-1232; and it is

FURTHER ORDERED, that the first claim for relief in Civil Action No. 98-1232 is dismissed with prejudice; and it is

FURTHER ORDERED, that judgment is entered for the plaintiff states on their first, second, fourth, sixth, seventh, eighth, ninth, tenth, eleventh, twelfth, thirteenth, fourteenth, fifteenth, sixteenth, seventeenth, eighteenth, nineteenth, twentieth, twenty-first, twenty-second, twenty-fourth, twenty-fifth, and twenty-sixth claims for relief in Civil Action No. 98-1233; and it is

FURTHER ORDERED, that the fifth claim for relief in Civil Action No. 98-1233 is dismissed with prejudice; and it is

FURTHER ORDERED, that Microsoft's first and second claims for relief in Civil Action No. 98-1233 are dismissed with prejudice; and it is

FURTHER ORDERED, that the Court shall, in accordance with the Conclusions of Law filed herein, enter an Order with respect to appropriate relief, including an award of costs and fees, following proceedings to be established by further Order of the Court.

Thomas Penfield Jackson
U.S. District Judge



1. Proof that the defendant's conduct was motivated by a desire to prevent other firms from competing on the merits can contribute to a finding that the conduct has had, or will have, the intended, exclusionary effect. See United States v. United States Gypsum Co., 438 U.S. 422, 436 n.13 (1978) ("consideration of intent may play an important role in divining the actual nature and effect of the alleged anticompetitive conduct").

2. While Microsoft is correct that some courts have also recognized the right of a copyright holder to preserve the "integrity" of artistic works in addition to those rights enumerated in the Copyright Act, the Court nevertheless concludes that those cases, being actions for infringement without antitrust implications, are inapposite to the one currently before it. See, e.g., WGN Continental Broadcasting Co. v. United Video, Inc., 693 F.2d 622 (7th Cir. 1982); Gilliam v. ABC, Inc., 538 F.2d 14 (2d Cir. 1976).

3. Microsoft contends that Windows and Internet Explorer represent a single "integrated product," and that the relevant market is a unitary market of "platforms for software applications." Microsoft's Proposed Conclusions of Law at 49 n.28.

4. In Microsoft II the D.C. Circuit acknowledged it was without benefit of a complete factual record which might alter its conclusion that the "Windows 95/IE package is a genuine integration." 147 F.3d at 952.

5. Most of the quantitative evidence was presented in units other than monetary, but numbered the units in millions, whatever their nature.

6. Amicus curiae Lawrence Lessig has suggested that a corollary concept relating to the bundling of "partial substitutes" in the context of software design may be apposite as a limiting principle for courts called upon to assess the compliance of these products with antitrust law. This Court has been at pains to point out that the true source of the threat posed to the competitive process by Microsoft's bundling decisions stems from the fact that a competitor to the tied product bore the potential, but had not yet matured sufficiently, to open up the tying product market to competition. Under these conditions, the anticompetitive harm from a software bundle is much more substantial and pernicious than the typical tie. See X Phillip E. Areeda, Einer Elhauge & Herbert Hovenkamp, Antitrust Law ¶1747 (1996). A company able to leverage its substantial power in the tying product market in order to force consumers to accept a tie of partial substitutes is thus able to spread inefficiency from one market to the next, id. at 232, and thereby "sabotage a nascent technology that might compete with the tying product but for its foreclosure from the market." III Phillip E. Areeda & Herbert Hovenkamp, Antitrust Law ¶ 1746.1d at 495 (Supp. 1999).

7. See Cal. Bus. & Prof. Code §§ 16720, 16726, 17200 (West 1999); Conn. Gen. Stat. § 35-27 (1999); D.C. Code § 28-4503 (1996); Fla. Stat. chs. 501.204(1), 542.19 (1999); 740 Ill. Comp. Stat. 10/3 (West 1999); Iowa Code § 553.5 (1997); Kan. Stat. §§ 50-101 et seq. (1994); Ky. Rev. Stat. §§ 367.170, 367.175 (Michie 1996); La. Rev. Stat. §§ 51:123, 51:1405 (West 1986); Md. Com. Law II Code Ann. § 11-204 (1990); Mass. Gen. Laws ch. 93A, § 2; Mich. Comp. Laws § 445.773 (1989); Minn. Stat. § 325D.52 (1998); N.M. Stat. § 57-1-2 (Michie 1995); N.Y. Gen. Bus. Law § 340 (McKinney 1998); N.C. Gen. Stat. §§ 75-1.1, 75-2.1 (1999); Ohio Rev. Code §§ 1331.01, 1331.02 (Anderson 1993); Utah Code § 76-10-914 (1999); W.Va. Code § 47-18-4 (1999); Wis. Stat. § 133.03(2) (West 1989 & Supp. 1998).

8. See Cal. Bus. & Prof. Code § 17200 (West 1999); Conn. Gen. Stat. § 35-27 (1999); D.C. Code § 28-4503 (1996); Fla. Stat. chs. 501.204(1), 542.19 (1999); 740 Ill. Comp. Stat. 10/3(3) (West 1999); Iowa Code § 553.5 (1997); Kan. Stat. §§ 50-101 et seq. (1994); Ky. Rev. Stat. §§ 367.170, 367.175 (Michie 1996); La. Rev. Stat. §§ 51:123, 51:1405 (West 1986); Md. Com. Law II Code Ann. § 11-204(a)(2) (1990); Mass. Gen. Laws ch. 93A, § 2; Mich. Comp. Laws § 445.773 (1989); Minn. Stat. § 325D.52 (1998); N.M. Stat. § 57-1-2 (Michie 1995); N.Y. Gen. Bus. Law § 340 (McKinney 1988); N.C. Gen. Stat. §§ 75-1.1, 75-2.1 (1999); Ohio Rev. Code §§ 1331.01, 1331.02 (Anderson 1993); Utah Code § 76-10-914 (1999); W.Va. Code § 47-18-4 (1999); Wis. Stat. § 133.03(2) (West 1989 & Supp. 1998).

9. See Cal. Bus. & Prof. Code §§ 16727, 17200 (West 1999); Conn. Gen. Stat. §§ 35-26, 35-29 (1999); D.C. Code § 28-4502 (1996); Fla. Stat. chs. 501.204(1), 542.18 (1999); 740 Ill. Comp. Stat. 10/3(4) (West 1999); Iowa Code § 553.4 (1997); Kan. Stat. §§ 50-101 et seq. (1994); Ky. Rev. Stat. §§ 367.170, 367.175 (Michie 1996); La. Rev. Stat. §§ 51:122, 51:1405 (West 1986); Md. Com. Law II Code Ann. § 11-204(a)(1) (1990); Mass. Gen. Laws ch. 93A, § 2; Mich. Comp. Laws § 445.772 (1989); Minn. Stat. § 325D.52 (1998); N.M. Stat. § 57-1-1 (Michie 1995); N.Y. Gen. Bus. Law § 340 (McKinney 1988); N.C. Gen. Stat. §§ 75-1.1, 75-2.1 (1999); Ohio Rev. Code §§ 1331.01, 1331.02 (Anderson 1993); Utah Code § 76-10-914 (1999); W.Va. Code § 47-18-3 (1999); Wis. Stat. § 133.03(1) (West 1989 & Supp. 1998).

10. The omission of the District of Columbia from this finding was an oversight on the part of the Court; Microsoft obviously conducts business in the District of Columbia as well.