IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA

UNITED STATES OF AMERICA,

Plaintiff,

vs.

MICROSOFT CORPORATION,

Defendant.

 

STATE OF NEW YORK ex rel.

Attorney General ELIOT SPITZER, et al.,

Plaintiffs,

vs.

MICROSOFT CORPORATION,

Defendant.

 

MICROSOFT CORPORATION,

Counterclaim-Plaintiff,

vs.

ELIOT SPITZER,

Attorney General of the State of New York,

In his official capacity, et al.,

Counterclaim-Defendants.

 

Civil Action No. 98-1232 (TPJ)

 

Civil Action No. 98-1233 (TPJ)

 

 

 

DEFENDANT MICROSOFT CORPORATION‚S COMMENTS ON PLAINTIFFS‚ REVISED PROPOSED FINAL JUDGMENT

With leave of the Court, Microsoft submits the following comments as to form on the government‚s revised proposed final judgment, filed on May 26, 2000. It remains Microsoft‚s firm belief, however, that the relief requested by the government is extreme and unjustified for the reasons Microsoft has stated in prior submissions. Microsoft‚s comments are set forth by means of numbers inserted in each subsection of the document followed by explanations in a different typeface that are keyed to those numbers.

Before setting forth its detailed comments on the government‚s revised proposed final judgment, Microsoft notes three points:

1. The government‚s proposed final judgment is defective in numerous respects, making the document vague and ambiguous. The government conceded in its May 17, 2000 reply brief (at 5) that Microsoft had raised some "legitimate questions of interpretation" regarding the government‚s proposed final judgment. Moreover, the government sought in that reply brief to clarify numerous provisions of the proposed final judgment in response to flaws that Microsoft had identified in its summary response. Nevertheless, those clarifications were not reflected in the revised proposed final judgment that the government filed last Friday. The revised proposed final judgment remains vague and ambiguous, as Microsoft‚s detailed comments make plain.

An injunction must "be specific in terms" and must "describe in reasonable detail, and not by reference to the complaint or other document, the act or acts sought to be restrained." Fed. R. Civ. P. 65(d). When an injunction is so vague and ambiguous that it "defies comprehension," it is void and unenforceable. International Longshoremen‚s Ass‚n v. Philadelphia Marine Trade Ass‚n, 389 U.S. 64, 76 (1967); accord Underwood v. Hilliard, 98 F.3d 956, 965 (7th Cir. 1996) (Posner, C.J.) ("[A]n injunction must be clear on its face."); Sanders v. Air Line Pilots Ass‚n, Int‚l, 473 F.2d 244, 247 (2d Cir. 1972) ("[T]he party enjoined must be able to ascertain from the four corners of the order precisely what acts are forbidden."). The government‚s revised proposed final judgment is anything but clear. Were the Court to accept all of Microsoft‚s proposed changes, the government‚s proposed final judgment would be improved, but much of the vagueness and ambiguity would remain because it is inherent in the structure of document.

2. The government contends that "Microsoft Has Not Engaged Responsibly on the Issue of Process." (Pls.‚ Mem. in Support of Proposed Final J. at 2.) This accusation is baseless. Suffice it to say that it was Microsoft‚s position and understanding that the hearing on May 24, 2000 was to be the beginningųnot the endųof proceedings on the issue of relief. Microsoft believed, and still believes, that its position and understanding were well-founded in both law and fact. Microsoft faithfully followed Scheduling Order No. 8; there was no occasion to take depositions between April 28, 2000 and May 24, 2000, given that discovery was closed long ago by the Court. That is why Microsoft in its request for further process sought, inter alia, that discovery be reopened.

Furthermore, Microsoft had no occasion in its May 22, 2000 reply brief in support of its motion for summary rejection of the government‚s breakup proposal to address the process required if that motion were denied. That was a subject Microsoft had addressed at length in other submissions.

Finally, Microsoft "secreted" nothing. There was no occasion prior to the close of the hearing on May 24, 2000 to tender Microsoft‚s Offer of Proofųwhich was, as stated, a work-in-progress that Microsoft had prepared for use solely in the event the Court determined, as the government urged, to terminate the remedies phase of the trial without affording Microsoft discovery or an evidentiary hearing. Had the Court not so ruled, the Offer of Proof would not have been tendered.

Rule 103(a)(2) of the Federal Rules of Evidence requires a party to make an offer of proof to preserve a claim of error relating to the exclusion of evidence, see Inselman v. S. & J. Operating Co., 44 F.3d 894, 896 (10th Cir. 1995), and courts require that such offers of proof be made at the time of, or soon after, a ruling by a court excluding evidence, see, e.g., Polys v. Trans-Colorado Airlines, Inc., 941 F.2d 1404, 1406-07 (10th Cir. 1991); Murphy v. City of Flagler Beach, 761 F.2d 622, 626 (11th Cir. 1985). No court of which Microsoft is aware has ever suggested, as the government has here, that a party is required to make an offer of proof before a court has ruled on whether it will receive particular evidence.

In the week between the May 24, 2000 hearing and today, Microsoft has continued to marshal evidence that, had it been given the opportunity to do so, Microsoft would have presented to the Court to support entry of its proposed final judgment and to oppose entry of the government‚s proposed final judgment. Accordingly, Microsoft is today submitting a Supplemental Offer of Proof.

3. Microsoft‚s comments on the government‚s revised proposed final judgment are, of course, without prejudice to its positions on the merits and as to the relief that should be awarded to remedy the antitrust violations found by the Court. No comment, or lack thereof, should be construed as reflecting Microsoft‚s (1) agreement with any aspect of the government‚s revised proposed final judgment, (2) waiver or withdrawal of any objection stated in Microsoft‚s May 10, 2000 summary response to the government‚s proposed final judgment, or (3) acquiescence in the proposition that any aspect of the government‚s revised proposed final judgment is justified under the law or by the record before the Court.

DETAILED COMMENTS

Plaintiff, United States of America, having filed its complaint herein on May 18, 1998;

Plaintiff States, having filed their complaint herein on the same day;

Defendant Microsoft Corporation ("Microsoft") having appeared and filed its answer to such complaints;

The Court having jurisdiction of the parties hereto and of the subject matter hereof and having conducted a trial thereon and entered Findings of Fact on November 5, 1999, and Conclusions of Law on April 3, 2000;

The Court having entered judgment in accordance with the Findings of Fact and the Conclusions of Law on April 3, 2000, 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

Upon the record at trial and all prior and subsequent proceedings herein, it is this _____ day of _____, 2000, hereby:

ORDERED, ADJUDGED, AND DECREED as follows:

  1. ReorganizationDivestiture [1]
    1. Not later than four>twelve [2] months after entry of this Final Judgment, Microsoft shall submit to the Court and the Plaintiffs a proposed plan of reorganizationdivestiture. The Plaintiffs shall submit any objections to the proposed plan of reorganizationdivestiture to the Court within 6090 [2] days of receipt of the plan, and Microsoft shall submit its response within 3060 [2] days of receipt of the plaintiffs‚ objections.

[1] Under the government‚s revised proposed final judgment, Microsoft is not being "reorganized" in any meaningful sense of that term. The government is demanding that Microsoft "separate," that is, divest, major parts of its integrated operations. The language of the Final Judgment should reflect that reality.

[2] The timetable proposed by the government for the divestiture is unrealistic. As Microsoft has previously explained (see Mem. in Support of Mot. for Summ. Rejection at 16-24), the forced breakup of a unitary company like Microsoft is unprecedented, and dividing the company in half would be an enormously difficult task. Four months is not remotely enough time to formulate a plan for attempting such an undertaking. For example, the form of divestiture would need to be explored in detail given that it likely would be subject to review by the Internal Revenue Service, the Securities and Exchange Commission, and (to the extent employee benefit plans subject to ERISA are implicated) the Department of Labor. Dealing with such complexities would take a considerable amount of time. Moreover, formulating a plan for duplicating Microsoft‚s unitary sales, marketing, research, technical support, information technology, operations, finance, facilities, human resources and other departments could not be completed in the time proposed. In addition, because Microsoft has subsidiaries in countries around the world, each of which is responsible for sales and marketing and product support for Microsoft‚s entire product line, Microsoft will need considerable time to consider country-specific issues generated in any attempt to break the company apart. Microsoft also proposes enlarging the time available to the government for commenting on the divestiture plan and for Microsoft to respond to those comments.

b. Following approval of a final plan of reorganizationdivestiture by the Court (the "Plan") (and the expiration of the stay pending appeal set forth in section 6.a.), Microsoft shall implement such Plan.

c. The Plan shall provide for the completion, within the later of (i) 12 months of the expiration of the stay pending appeal set forth in section 6.a., or (ii) such other period as may be required by laws of the United States or of other countries in which Microsoft does business, [1] of the following steps:

[1] Given the large number of countries in which Microsoft does business, including the more than 75 countries in which it has subsidiaries, any plan of divestiture may require Microsoft to seek approval from certain foreign governments. Obtaining such approvals could be a time-consuming process. The proposed change is designed to protect Microsoft from being forced to violate any laws in any jurisdiction by virtue of effectuating the divestiture sought by the government.

      1. The separation of the Operating Systems Business from the Applications Business, and the transfer of the assets of one of them (the "Separated Business") to a separate entity along with (a) all personnel, systems, and other tangible and intangible assets (including Intellectual Property) used to develop, produce, distribute, market, promote, sell, license and support the products and services of the Separated Business, and (b) such other assets as are necessary to operate the Separated Business as an independent and economically viable entity.
      2. Intellectual Property that is used both in a product developed, distributed or sold by the Applications Business and in a product developed, distributed or sold by the Operating Systems Business as of April 27, 2000the Effective Date of this Final Judgment [1], shall be assigned to the Applications Business, and the Operating Systems Business shall be granted a perpetual, royalty-free license to license and distribute such Intellectual Property in its products, and, except with respect to such Intellectual Property related to the Internet browser,[2] to develop, license and distribute modified or derivative versions of such Intellectual Property, [3] provided that the Operating Systems Business does not grant rights to such versions to the Applications Business. In the case of such Intellectual Property that is related to the Internet browser, the license shall not grant the Operating Systems Business any right to develop, license, or distribute modified or derivative versions of the Internet browser.
      3. [1] April 27, 2000 is an arbitrary date. For simplicity and internal consistency (see, e.g., Section 4.a, infra), the operative date should be the Effective Date of the Final Judgment established in Section 6.a, infra.

        [2] Although it contains 31 defined terms, the government‚s revised proposed final judgment fails to define the software that lies at the center of this case, namely, what the government refers to as the "Internet browser." That is a glaring omission. There must be a definition of the term "Internet browser" because the government is asking the Court to limit the ability of the Operating Systems Business "to develop, license, or distribute modified or derivative versions of the Internet browser." At the moment, there is no indication of what that limitation means because there is no indication of what the government is referring to as the "Internet browser." The government states that the Operating Systems Business would be free to develop and market "non-browsing functionality" related to the "Internet browser" (Pls.‚ Reply Mem. in Support of Proposed Final J. ("Pls.‚ Reply") at 42), but that assurance is meaningless unless one knows what software code makes up the "Internet browser." The government‚s technical expert, Professor Felten, defined the "Internet browser" in Windows as "that software which allows the user to browse the Web." (12/14/98 P.M. Tr. at 24.) Such a definition does nothing to delineate what software code the Operating Systems Business would and would not have a right to modify. For example, the government acknowledges that the HTML rendering engine, a file called MSHTML.DLL, is properly included in Windows because, among other things, it provides the user interface for the operating system. (See Pls.‚ Reply at 62.) Yet, MSHTML.DLL is a core Internet Explorer component, and rendering HTML is a basic function performed by an "Internet browser." When the government steadfastly insists that Microsoft can make "Internet Explorer" optionally removed by OEMs without causing Windows to malfunction (see Pls.‚ Reply at 59), does it have in mind the removal of files like MSHTML.DLL or not? The government has never taken a firm position on that critical question.

        [3] Correction of a typographical error.

      4. The transfer of ownership of the Separated Business by means of an issuance spin-off of [1] stock of the Separated Business to Non-Covered Shareholders of Microsoft, or by other disposition that does not result in a Covered Shareholder owning stock in both the Separated Business and the Remaining Business.

[1] Contrary to assertions by the government‚s investment banking experts, a "spin-off" transaction would be legally impermissible because stock in such a "spin-off" transaction must be distributed to all existing shareholders on a pro rata basis. That could not occur given the differential treatment of "Covered Shareholders." Accordingly, the provision should speak in terms of an "issuance" of stock or other means of effectuating the divestiture.

d. Until Implementation of the Plan, Microsoft shall:

i. preserve, maintain, and operate the Operating Systems Business and the Applications Business as ongoing, economically viable businesses, with management, sales, products, and operations of each business held as separate, distinct and apart from one another as they were on April 27, 2000, except to provide the accounting, management, and information services or other necessary support functions provided by Microsoft prior to the entry of this Final Judgment; [1]

[1] As Microsoft has explained previously (see Mem. in Support of Mot. for Summ. Rejection at 22-23), Microsoft is not comprised of "distinct" businesses that are held "apart." To the contrary, Microsoft‚s "management, sales, products, and operations" are all tightly integrated, reflecting the fact that Microsoft isųand always has beenųa unitary company. Since the Operating Systems Business and the Applications Business posited by the government do not currently exist, Microsoft should not be enjoined to maintain them as "economically viable businesses."

ii. use all reasonable efforts to maintain and increase the sales and revenues of both the products produced or sold by the Operating Systems Business and those produced or sold by the Applications Business prior to the Implementation of the Plan and to support research and development and business development efforts of both the Operating Systems Business and the Applications Business; [1]

[1] See Comment [1] to Section 1.d.1, supra.

iiii. take no action that knowingly or willfully [1] undermines, frustrates, interferes with, or makes more difficult the reorganizationdivestiture required by this Final Judgment without the prior approval of the Court; and

[1] Microsoft will, as it has in the past, comply with whatever orders are entered by the Court. This change is designed to protect Microsoft against the prospect that routine corporate actions will have unintended or unknown consequences that, after the fact, the government will allege made the divestiture "more difficult." Given the state of mind generally required to hold a party in contempt of a court order, the change should be unobjectionable to the government.

ivii. file a report with the Court 90150 [1] days after entry of this Final Judgment on the steps Microsoft has taken to comply with the requirements of this section 1.d.

[1] An additional 60 days will give Microsoft a reasonable opportunity to understand the implications of the Final Judgment and to detail for the Court the steps it has taken to ensure compliance with Section 1.d. As a general matter, Microsoft believes the government has substantially underestimated the scale and complexity of the tasks required under its revised proposed final judgment.

  1. Provisions Implementing ReorganizationDivestiture
    1. After Implementation of the Plan, and throughout the term of this Final Judgment, neither the Operating Systems Business nor the Applications Business, nor any member of their respective Boards of Directors, shall acquire any securities or assets of the other Business; no Covered Shareholder holding securities of either the Operating Systems Business or the Applications Business shall acquire any securities or assets of or shall be an officer, director, or employee of the other Business; and no person who is an officer, director, or employee of the Operating Systems Business or the Applications Business shall be an officer, director, or employee of the other Business.
    2. After Implementation of the Plan and throughout the term of this Final Judgment, the Operating Systems Business and the Applications Business shall be prohibited from:
  1. merging or otherwise recombining, or entering into any joint venture with one another;
  2. entering into any Agreement with one another [1] under which one of the Businesses develops, sells, licenses for sale or distribution, or distributes products or services (other than the technologies referred to in the following sentence) developed, sold, licensed, or distributed by the other Business, provided that nothing in this provision shall prohibit one Business from licensing technologies or Intellectual Property to or from the other Business on a nondiscriminatory basis [2];
  3. [1] Given the broad definition of Agreement in Section 7.a, infra, this provision could be read to prohibit the Applications Business from signing any contract with a third party to develop or market a product or service of a type already being developed or marketed by the Operating Systems Business and vice versa. The change eliminates the potential ambiguity.

    [2] The change codifies, essentially verbatim, the government‚s statement that this provision "will not prevent either firm from licensing technologies (as opposed to products) from the other on a nondiscriminatory basis." (Pls.‚ Reply at 40.) Even so, the more fundamental problem of distinguishing between technologies and products remains. Since Microsoft‚s software products are all comprised of software "technology" and nothing else, the semantic distinction the government seeks to draw is not sustainable.

  4. providing to the other any APIs, Technical Information, or Communications Interfaces, or technical information [1] that is not simultaneously published, disclosed, or made readily available to ISVs, IHVs, and OEMs; provided that this provision shall not apply when (a) representatives of the Operating Systems Business and the Applications Business are engaged in technical discussions to ensure (1) that their products work well together or (2) that developers in one Business take into account input from developers in the other Business [2]; (b) the two Businesses are working together cooperatively to develop new software technologies [3]; and
  5. [1] "Technical Information" is repeated, which presumably was a typographical error.

    [2] This change codifies, essentially verbatim, the government‚s statement that this provision "will permit the firms to have legitimate technical discussions for procompetitive purposes, whether to ensure that the applications company‚s tools, middleware, or applications work with Windows operating system [sic] or to ensure that Windows developers take into account input from the applications company‚s developers." (Pls.‚ Reply at 41.) Absent such a change, the provision would prohibit desirable cooperation because it is not feasible to engage in complex technical interactions while insuring that all information disclosed in the course of those interactions is "simultaneously published" to the entire computer industry. In addition, because development of closely complementary software products is a two-way process, the government‚s clarification should be expressed in such terms.

    [3] This change codifies, essentially verbatim, the government‚s statement that "the applications company and the operating systems company will be free to work cooperatively in genuine efforts to develop new software technologies." (Pls.‚ Reply at 39.)

  6. licensing, selling or otherwise providing to the other Business any product or service on terms more favorable than those available to any similarly situated third party.

Section 2.b.ii shall not prohibit the Operating Systems Business and the Applications Business from licensing technologies (other than Middleware Products) to each other for use in each others‚ products or services, provided that such technology (i) is not and has not been separately sold, licensed, or offered as a product, and (ii) [1] is licensed on terms that are otherwise consistent with this Final Judgment.

[1] The first proviso is unnecessary given the prohibition on licensing "products" contained in Section 2.b.ii, supra.

    1. Six months aAfter Implementation of the Plan and once every year thereafter throughout the term of this Final Judgment, the Operating Systems Business and the Applications Business shall file with the Plaintiffs a memorandum describing copy of each Agreement (and a memorandum describing each oral Agreement) entered into between them. [1]
    2. [1] As drafted, this provision would impose unreasonable burdens on the Applications Business and the Operating Systems Business that are not necessary to achieve reasonable oversight objectives. Given the broad discovery rights conferred on the Department of Justice to ensure Microsoft‚s compliance (see Section 5.a.i(1), infra), requiring the two Businesses to prepare memoranda once a year describing the "Agreements" between them would be fully sufficient. Because the definition of "Agreement" (see Section 7.a, infra) includes oral agreements, the parenthetical in the original text can be deleted.

    3. Throughout the term of this Final Judgment, Microsoft, the Operating Systems Business and the Applications Business shall be prohibited from taking adverse action against any person or entity in whole or in part because such person or entity provided evidence in this case.
    4. The obligations and restrictions set forth in sections 3 and 4 herein concerning Microsoft [1] shall, after the Implementation of the Plan, apply only to the Operating Systems Business.

[1] The government‚s addition of a definition for "Microsoft" (see Section 7.q, infra) makes the deleted text unnecessary and confusing.

3. Provisions In Effect Until Full Implementation of the Plan of Reorganization Divestiture. The provisions in this section 3 shall remain in effect until the earlier of three years after the Implementation of the Plan or the expiration of the term of this Final Judgment.

    1. OEM Relations.
      1. Ban on Adverse Actions for Supporting Competing Products. Microsoft shall not take or threaten any action adversely affecting any OEM (including but not limited to giving or withholding any consideration such as licensing terms; discounts; technical, marketing, and sales support; enabling programs; product information; technical information; information about future plans; [1] developer tools or developer support; hardware certification; and permission to display trademarks or logos) based directly or indirectly, in whole or in part, [2] on any actual or contemplated action by that OEM:
      1. to use, distribute, promote, license, develop, produce or sell any product or service that competes with any Microsoft product or service; or
      2. to exercise any of the options or alternatives provided under this Final Judgment.

[1] The phrase "future plans" is undefined and so broad that it could be read to encompass any action that Microsoft intended to take at some point in the future with regard to any aspect of its business. OEMs have no need for such wide-ranging information.

[2] Inclusion of the phrases "directly or indirectly" and "in whole or in part" makes the provision too vague and ambiguous to be enforceable in an injunction. It is unclear how an action by Microsoft that adversely affects an OEM could be "indirectly" based on one of the specified acts taken by the OEM. Either the two are causally connected or they are not. Use of the phrase "in whole or in part" would permit the government to contend that any action taken by Microsoft that had an adverse effect on an OEM was in some sense related to one of the specified acts taken by the OEM. That would make compliance with the provision infeasible and enforcement burdensome. Microsoft knows from past experience that OEMs that are unwilling or unable to pay the royalties they owe Microsoft or that are caught counterfeiting or pirating Microsoft‚s software are not hesitant to assert a wide array of frivolous claims against Microsoft in an effort to avoid their legal obligations.

      1. Uniform Pricing Terms for Windows Operating System Products Licensed to Covered OEMs. Microsoft shall license Windows Operating System Products to Covered OEMs pursuant to license agreements with uniform pricing uniform terms and conditions [1] and shall not employ market development allowances or discounts in connection with Windows Operating System Products [2]. Without limiting the foregoing, Microsoft shall charge each Covered OEM the applicable royalty for Windows Operating System Products as set forth on a schedule, to be established by Microsoft and published on its web site [3], that provides for uniform royalties for Windows Operating System Products, except that --
      1. the schedule may specify different royalties on the basis of for different language versions or other objective criteria, [4] and
      2. the schedule may specify reasonable [5] volume discounts based upon actual volume of total shipments of Windows Operating System Products.

[1] Microsoft‚s relationships with Covered OEMs are complicated by a variety of factors, including the extent to which those OEMs have significant patent portfolios, provide high-quality product support to their customers, assist Microsoft in the promotion of its products, etc. The largest of the Covered OEMs is roughly 40 times the size as the smallest of the Covered OEMs in terms of annual unit volume, and has far greater ability to engage in joint development and promotional activities with Microsoft. The Covered OEMs are not "similarly situated" (Pls.‚ Reply at 44), and forcing Microsoft to treat dissimilar OEMs in identical fashion will unfairly penalize the larger OEMs and reduce Microsoft‚s ability to work closely with them, to the detriment of consumers.

[2] Microsoft market development allowances are price reductions that Microsoft offers to OEMs to achieve various beneficial purposes, such as encouraging OEMs to support new hardware advances in their computers, providing improved customer support and assisting Microsoft in its efforts to combat software piracy. Microsoft should be permitted to continue providing incentives to OEMs to do things that increase demand for computers and software generally, which benefits both the OEMs and the rest of the industry.

[3] If Microsoft establishes a uniform royalty schedule pursuant to this provision, there is no reason why that schedule should be published to the world, including Microsoft‚s competitors. The government would obviously have access to the schedule and could easily verify that it was being followed. Moreover, as their requests for confidential treatment of their license agreements at trial demonstrated, OEMs do not want their competitors to know how much they are paying Microsoft for operating system software. Typically, the government disapproves of such disclosures of pricing information on the ground that they facilitate collusion. See, e.g., United States v. Container Corp. of Am., 393 U.S. 333, 337 (1969); United States v. Airline Tariff Publ‚g Co., 836 F. Supp. 9, 12 (D.D.C. 1993).

[4] The government‚s purported justification for requiring Microsoft to adopt a uniform schedule of royalties for Covered OEMs is to prevent price discrimination against OEMs that distribute or promote non-Microsoft software. (Pls.‚ Reply at 43-44.) As long as the criteria Microsoft uses to establish that schedule are objective and unrelated to OEMs‚ distribution or promotion of non-Microsoft software, it should not matter to the government what criteria Microsoft selects.

[5] There is no legal basis for imposing in an injunction a vague and subjective "reasonableness" limitation on Microsoft‚s creation of a uniform royalty schedule. Like Microsoft‚s existing internal price guidelines, such a schedule would provide lower royalties to OEMs that licensed larger volumes, as is common throughout the economy, and thus the government‚s stated concern about "manipulation" of the schedule is baseless. (Pls.‚ Reply at 44.) The size of such volume discounts is not a proper subject for judicial regulation absent a claim that the resulting royalties amount to predatory pricing. See Atlantic Richfield Co. v. USA Petroleum Co., 495 U.S. 328, 339-40 (1990).

Without limiting the foregoing, Microsoft shall not deny afford a request from a Covered OEMs equal for access to licensing terms; discounts;[1] technical, marketing, and sales support; product information; technical information; information about future plans; [2] developer tools or developer support; hardware certification; and permission to display trademarks or logos that Microsoft has already provided to another Covered OEM. [3] The foregoing requirement insofar as it relates to access to technical information and information about future plans [2] shall not apply to any bona fide joint development effort by Microsoft and a Covered OEM with respect to confidential matters within the scope of that effort. The foregoing requirement insofar as it relates to marketing and sales support shall not apply to any bona fide joint marketing or sales efforts by Microsoft and a Covered OEM. [4] Microsoft shall not terminate a Covered OEM‚s license for a Windows Operating System Product without having first given the Covered OEM written notice of the reason for the proposed termination and not less than thirty days‚ opportunity to cure. Microsoft shall not enter into enforce any provision in any new Agreement with a Covered OEM that is inconsistent with this Final Judgment. [5]

[1] This change is necessary to conform this provision to Section 3.a.ii, as modified by Microsoft. (See Comment [2] to Section 3.a.ii, supra.)

[2] See Comment [1] to Section 3.a.i, supra.

[3] There is no definition of what it would mean for Microsoft to provide Covered OEMs with "equal access" to the benefits specified in this provision, and the concept of "equal access" is too vague and ambiguous to be incorporated in an injunction. The change proposed by Microsoft would prohibit Microsoft from denying a Covered OEM one of the specified benefits if Microsoft had already provided that benefit to another Covered OEM. That would prevent the sort of discrimination among OEMs the government is seeking to prevent.

[4] Microsoft frequently enters into joint marketing and sales efforts with particular OEMs. Disseminating information about products and services that are available in the marketplace is good for consumers. Accordingly, such effortsųwhich also benefit both Microsoft and its OEM customersųare unobjectionable under the antitrust laws and should be encouraged.

[5] Under the 1994 consent decree, Microsoft‚s Windows license agreements with OEMs are limited to a one-year term with a one-year right of renewal by the OEM. Given the short duration of those agreements, and the impossibility of forcing OEMs that are not parties to this litigation to renegotiate their existing agreements, this provision should have only prospective application. The government‚s assertion that the provision would cause no difficulty (Pls.‚ Reply at 44-45) ignores the centrality of price terms to the individually-negotiated license agreements that Microsoft currently has with major OEMs. If the price OEMs are paying for Windows changes, so must other terms of the license agreements.

      1. OEM Flexibility in Product Configuration. Microsoft shall not restrict (by contract or otherwise, including but not limited to granting or withholding consideration) an OEM from modifying the boot sequence, startup folder, internet connection wizard, desktop, preferences, favorites, start page, first screen, or other aspect of a Windows Operating System Product to--
      1. include a registration sequence to obtain subscription or other information from the user;
      2. display icons of or otherwise feature other products or services, regardless of the size or shape of such icons or features, or to remove the icons, folders, start menu entries, or favorites of Microsoft products or services;
      3. display any user interfaces, provided that an icon is also displayed that allows the user to access the Windows user interface; or
      4. launch automatically any non-Microsoft Middleware, Operating System or application, offer its own Internet access provider or other start-up sequence, or offer an option to make non-Microsoft Middleware the Default Middleware and to remove the means of End-User Access for Microsoft‚s Middleware Product (unless the non-Microsoft Middleware is incapable of providing functionality that the Windows Operating System Product requires from one of its own components), [1]

provided, however, that nothing in this Final Judgment shall require Microsoft to (i) permit any OEM to remove any software code from a Windows Operating System Product or prevent either the Windows Operating System Product itself or any third-party software products from accessing the functionality provided by such software code [2], or (ii) permit any OEM that elects to (a) display an alternative user interface, (b) remove any of Microsoft‚s icons from the Windows desktop, or (c) deny "End-User Access" to any "Microsoft Middleware Product" to market its variant of the Windows Operating System Product using any of Microsoft‚s trademarks or logos, although the OEM may state that its variant was created under license from Microsoft and, if true, that the OEM‚s variant is capable of running applications designed for use with the Windows Operating System Product. [3]

[1] Microsoft designed Windows 95 and Windows 98 so that non-Microsoft Web browsing software like Netscape Navigator could be made the "default browser." That default concept cannot be extended to what the government calls Middleware generally, however, because Windows is not designed to permit random third-party products to be substituted for components of the operating system. In many instances, such third party products cannot provide the functionality that Microsoft operating systems derive from their own components.

[2] This change conforms the provision to the government‚s explanation of what it means. The government asserts that the provision "will not authorize OEMs to őrip and replace‚ anything in Windows" and that "no APIs will be removed in the process of exercising this flexibility." (Pls.‚ Reply at 46-47.) That should be made explicit because the current language is easily capable of a contrary interpretation given, for example, the government‚s broad definition of "End-User Access."

[3] The purpose of logos and trademarks is to identify the origin of products. See, e.g., BellSouth Corp. v. DataNational Corp., 60 F.3d 1565, 1569 (Fed. Cir. 1995) ("The primary function of a trademark is to identify and distinguish the goods or services of one source from those sold by all others . . . ."). Consumers should not be misled into thinking that OEM-modified versions of Windows, from which End-User Access to various features has been removed, are the same as the original version of the operating system as designed, developed and tested by Microsoft. Moreover, the value of Microsoft‚s logos and trademarks would soon be lost if they were used in connection with products whose quality Microsoft had no ability to control. See, e.g., Kentucky Fried Chicken Corp. v. Diversified Packaging Corp., 549 F.2d 368, 387 (5th Cir. 1977) ("If a trademark owner allows licensees to depart from its quality [or other] standards, the public will be misled, and the trademark will cease to have utility as an informational device.").

    1. Disclosure of APIs, Communications Interfaces and Technical Information. Microsoft shall disclose to ISVs, IHVs, and OEMs in a Timely Manner, in whatever media Microsoft disseminates such information to its own personnel, all APIs, Technical Information and Communications Interfaces that Microsoft employs to enable--
      1. Microsoft applications to Iinteroperate [1] with Microsoft Platform Software installed on the same Personal Computer, or
      2. a Microsoft Middleware Product to Iinteroperate [1]with Windows Operating System software (or Middleware distributed with such Operating System) installed on the same Personal Computer, orprovided, however, that nothing in this provision shall require Microsoft to disclose any internal interfaces of a Microsoft Operating System Product. [2]
      3. any Microsoft software installed on one computer (including but not limited to server Operating Systems and operating systems for handheld devices) to interoperate with a Windows Operating System (or Middleware distributed with such Operating System) installed on a Personal Computer. [3]

To facilitate compliance, and monitoring of compliance, with the foregoing, Microsoft shall create a secure facility where qualified representatives of OEMs, ISVs, and IHVs shall be permitted to study, interrogate and interact with relevant and necessary portions of the source code and any related documentation of Microsoft Platform Software for the sole purpose of enabling their products to Iinteroperate effectively [4] with Microsoft Platform Software (including exercising any of the options in section 3.a.iii). The source code made available to such representatives shall not include any source code licensed by Microsoft from others that Microsoft is not permitted to disclose to third parties. [5] Representatives of OEMs, ISVs, and IHVs having access to Microsoft‚s source code shall be bound by customary restrictions designed to prevent their use of knowledge gained through their review of that source code to develop any competing products or services. [6]

In connection with any disclosure of APIs, Communications Interfaces or Technical Information required under this provision, Microsoft may require the persons to whom such disclosures are made to:

i. pay a reasonable royalty to Microsoft for use of its intellectual property; [7]

ii. disclose to Microsoft any APIs or Communication Interfaces that such persons have implemented in their products to permit them to Interoperate with Microsoft Platform Software; [8] and

iii. allow qualified representatives of Microsoft to inspect the source code for such persons‚ products in a secure facility for the sole purpose of ensuring their compliance with the requirement that Microsoft‚s source code be used only to enable third-party products to Interoperate with Microsoft Platform Software. [9]

[1] The concept of "interoperability" is a hotly debated topic in computer science, which may explain why the government has not sought to define the term. Without some definition of "interoperate," however, this provision is too vague and ambiguous to be enforceable in an injunction. As Microsoft has explained previously (see Summ. Resp. to Pls.‚ Proposed Final J. at 32-33), the provision could easily be read to require Microsoft to disclose to its competitors large amounts of information about the internals of its operating systems. To provide some indication of the scope of the disclosure obligation being imposed, the Court should adopt the only legal definition of "interoperability" of which Microsoft is aware. In its directive on the legal protection of computer software, the European Commission defines "interoperability" as "the ability to exchange information and mutually use the information that has been exchanged." 1991 O.J. (L 122/42) Council Directive of 14 May 1991.

[2] This change conforms the provision to the government‚s explanation of what it means. The government disclaims any intention to require Microsoft to disclose internal interfaces in its operating systems. (Pls.‚ Reply at 51-52.) Rather, the government says that "Microsoft will be required to disclose only őexternal interfaces used by Microsoft‚s own products to obtain services from Microsoft operating systems.‚" (Pls.‚ Reply at 51 (quoting Felten Decl. ¶ 69).) The provision should thus be changed to make clear that it "would require the disclosure only of what Microsoft actually uses for the interoperation of . . . plainly operating system-external software." (Pls.‚ Reply at 51 n.14.)

[3] As Microsoft has noted previously (see Summ. Resp. to Pls.‚ Proposed Final J. at 53-54), servers and handheld devices are outside the markets defined by the Court and thus should not be encompassed in any relief awarded. This is especially so given that the Court dismissed the only monopoly leveraging claim in the case on summary judgment on the ground that such claims are not legally cognizable in this Circuit. United States v. Microsoft Corp., No. 98-1232, 1998 WL 614485, at *26-27 (D.D.C. Sept. 14, 1998).

[4] Addition of the term "effectively" to the concept of interoperability adds a subjective element to the provision that renders it vague and ambiguous.

[5] Portions of the source code for certain Microsoft products belong to companies from which Microsoft has licensed technology for inclusion in those products. Such source code is not owned by Microsoft, and in most cases Microsoft has no legal right to disclose the source code to third parties.

[6] This change conforms the provision to the government‚s explanation of what it means. The government insists that "Microsoft will be able to protect any legitimate interest it may have in confidentiality . . . by disclosing the information subject to confidentiality agreements . . . that prohibit dissemination of the information and limit its use to the intended purposes." (Pls.‚ Reply at 52-53.) Given the importance to Microsoft of protecting its intellectual property from misappropriation, it should be explicitly stated that Microsoft is permitted to require competitors that receive access to Microsoft‚s source code to agree to customary restrictions that will prevent them from using information they glean from that source code to clone Microsoft‚s products.

[7] The government dismisses Microsoft‚s claim that this provision would effect a royalty-free transfer of Microsoft‚s intellectual property to competitors as "overheated rhetoric." (Pls.‚ Reply at 49.) To effectuate the government‚s intention (see Pls.‚ Reply at 54), an explicit provision should be added to enable Microsoft to charge reasonable royalties for use of its intellectual property, which is the product of extensive research and development efforts. The undertaking that IBM entered into with the European Commission in 1984 regarding disclosure of interfaces between IBM mainframe computers and peripheral devices such as disk drivesųwhich is arguably the closest analogue (albeit much narrower and more precisely defined) to the disclosure requirement the government seeks to impose on Microsoftųexpressly permitted IBM to charge for the use of its intellectual property. See Undertaking given by IBM, § 16, Bulletin of the European Communities, Vol. 17, No. 10 at 98 (1984).

[8] Such a reciprocity provision is also contained in the undertaking that IBM entered into with the European Commission. See Undertaking given by IBM, Appendix B, ¶ 3, Bulletin of the European Communities, Vol. 17, No. 10 at 102 (1984). Given the government‚s stated interest in promoting interoperability between Microsoft and non-Microsoft software, it should have no problem with the addition of this provision, which would make it easier for Microsoft to create products that work well with UNIX servers supplied by IBM and Sun Microsystems, as well as with non-PC devices using software from Liberate, Palm, Sony, Symbian and others.

[9] This compliance provision is also contained in the undertaking that IBM entered into with the European Commission in 1984. See Undertaking given by IBM, Appendix B, ¶ 6, Bulletin of the European Communities, Vol. 17, No. 10 at 102 (1984). If the government believes what it says about the small risk to Microsoft of having its source code studied by competitors under the conditions specified, then the government should have no objection to giving Microsoft the reciprocal right to inspect the source code of competitors‚ products under the same conditions to confirm that they are not using Microsoft‚s source code for an improper purpose. Absent such inspection, it would be effectively impossible for Microsoft to determine whether competitors that had access to Microsoft‚s source code had misappropriated Microsoft‚s programming methods for use in their own products.

    1. Knowing and Intentional Interference with Performance. Microsoft shall not knowingly and intentionally [1] take any action for the sole purpose of that it knows will interfereing with or degradeing the performance of any non-Microsoft Middleware when interoperating with any Windows Operating System Product without notifying the supplier of such non-Microsoft Middleware in writing that Microsoft intends to take such action, Microsoft‚s reasons for taking the action, and any ways known to Microsoft for the supplier to avoid or reduce interference with, or the degrading of, the performance of the supplier‚s Middleware.
    2. [1] As Microsoft has explained previously (see Summ. Resp. to Pls.‚ Proposed Final J. at 40-41), the process of improving an operating system often has adverse effects on products designed for use with previous operating systems. Microsoft knows that particular types of products will not be compatible with its new operating systems, but that is a necessary consequence of the improved design, which itself provides substantial benefits to consumers. Unless the government can show that Microsoft changed one of its products for the sole purpose of interfering with or degrading the performance of a "non-Microsoft Middleware Product," then Microsoft should have no obligation to do anything vis-à-vis the vendor of that product. As drafted, the provision would not be feasible for Microsoft to comply with and would be burdensome for the Court to administer because there would be endless disputes with large numbers of software suppliers about what was causing performance problems with their software. The change suggested by Microsoft would clarify that the provision is intended only to ensure that Microsoft not "undermine" the ability of third-party products to run well on Windows "to further an anticompetitive objective by undermining a rival." (Pls.‚ Reply at 55.)

    3. Developer Relations. Microsoft shall not take or threaten any action adversely [1] affecting any ISV or IHV (including but not limited to giving or [1] withholding any consideration such as licensing terms; discounts; technical, marketing, and sales support; enabling programs; product information; technical information; information about future plans; [2] developer tools or developer support; hardware certification; and permission to display trademarks or logos) based directly or indirectly, in whole or in part, [3] on any actual or contemplated action by that ISV or IHV to --
      1. use, distribute, promote or support any Microsoft product or service, or[4]

ii>i. develop, use, distribute, promote or support software that runs on non-Microsoft Middleware or a non-Microsoft Operating System or that competes with any Microsoft product or service, or

iiiii.exercise any of the options or alternatives provided under this Final Judgment.

The foregoing requirement insofar as it relates to access to product information and technical information shall not apply to any bona fide joint development effort by Microsoft and an ISV or IHV with respect to confidential matters within the scope of that effort. [5]

[1] The word "adversely" should be added and the phrase "giving or" should be deleted from the provision to place some reasonable limitation on its scope. Otherwise, the provision could be read to apply even when actions taken by Microsoft, such as assisting ISVs and IHVs in the creation of products that are compatible with Windows, had only beneficial effects on them.

[2] See Comment [1] to Section 3.a.i, supra.

[3] See Comment [2] to Section 3.a.i, supra.

[4] As Microsoft has explained previously (Summ. Resp. to Pls.‚ Proposed Final J. at 42), Microsoft treats ISVs and IHVs that are developing products for use with Windows differently than it treats those that are not. There is nothing remarkable about that. Microsoft has a wide variety of programs, including the Microsoft Developer Network, that are designed to assist ISVs and IHVs that are creating products that are compatible with Windows. Obviously, Microsoft does not provide similar programs for ISVs and IHVs developing products for use with Apple‚s MacOS, IBM‚s OS/2 or other competitive operating systems. The change suggested by Microsoft would conform the provision to the government‚s assertion that "the provision plainly will not prohibit Microsoft from providing technical information and other benefits necessary for developers to support its products." (Pls.‚ Reply at 56.) Forcing Microsoft to treat all ISVs and IHVs the same way would advance no legitimate purpose under the antitrust laws.

[5] The change to this provision, which tracks a similar provision in Section 3.a.ii relating to Microsoft‚s joint development efforts with OEMs, is necessary to ensureųas the government statesųthat the provision "does not involve joint development in any way" and does nothing to "restrict[ ] Microsoft from entering into bona fide joint development efforts." (Pls.‚ Reply at 56.)

    1. Ban on Exclusive Dealing. Microsoft shall not enter into or enforce any Agreement in which a third party agrees, or is offered or granted consideration, to-
      1. limit its development, production, distribution, promotion or use of, or payment for, any non Microsoft Platform Software, [1]

ii.i. distribute, promote or use any Microsoft Platform Software exclusively,

iii.ii. degrade the performance of any non-Microsoft Platform Software, or

iv.iii. in the case of an agreement with an Internet access provider or Internet content provider, limit the distributeion, promoteion or use of any non-Microsoft [2] software in exchange for placement with respect to any aspect of a Windows Operating System Product.

[1] All contracts "limit" to some extent the ability of the contracting parties to deal with one another‚s competitors during the term of the contract. That is why the Sherman Act applies only to "unreasonable" restraints of trade. Despite the government‚s claim that this provision has no bearing on "independent decisions" by customers "about whether to buy or promote non-Microsoft products" (Pls.‚ Reply at 58), it could easily be read to proscribe any agreement between Microsoft and a customer that has the practical effect of reducing that customer‚s distribution or promotion of "non-Microsoft Platform Software."

[2] As drafted by the government, this provision would prohibit Microsoft from entering into deals with Internet access providers or Internet content providers that provide them with placement in Windows even if those deals do not restrict the ability of those other companies to distribute, promote or use non-Microsoft software in any way. Deals of that type have no conceivable exclusionary effect and thus are unobjectionable under the antitrust laws. As modified by Microsoft, the provision would still prevent Microsoft from offering placement in Windows in exchange for any limitation, no matter how small, on the ability of an Internet access provider or Internet content provider to distribute, promote or use non-Microsoft software.

    1. Ban on Contractual Tying. Microsoft shall not condition the granting of a Windows Operating System Product license, or the terms or administration of such license, on an OEM or other licensee agreeing to license, promote, or distribute any other Microsoft software product that (i) Microsoft distributes separately from the Windows Operating System Product in the retail channel or through Internet access providers, Internet content providers, ISVs or OEMs, whether or not for a separate or positive price, and (ii) is not relied on by other components of the Windows Operating System Product or by third-party software products running on top of the Windows Operating System Product. [1] This provision does not apply to improvements to a Windows Operating System Product that are supplied to the installed base of users via electronic downloading from the Windows Update Web site or other means. [2]
    2. [1] This change conforms the provision to the government‚s explanation of what it means. The government states that the provision is intended to apply only to a "separate" software product that is "already removable" and does not "call for removal of . . .shared code." (Pls.‚ Reply at 59-60.) Accordingly, Microsoft should be entitled to require OEMs to leave software code in a Windows Operating System Product if that software code is either relied on by other parts of the operating system or by third-party software products running on top of the operating system. Otherwise, the provision will lead to precisely the sort of "fragmentation of the Windows platform" that the government disavows any desire to cause. (Pls.‚ Reply at 60.)

      [2] This addition makes explicit what the government claims is already implicit in the provision, namely, that it "will not restrict Microsoft‚s ability to continue to distribute any Windows improvements by downloading from the Windows Update site." (Pls.‚ Reply at 59-60.)

    3. Restriction on Binding Middleware Products to Operating System Products. Microsoft shall not, in any Operating System Product that is commercially released distributed [1] six or more months after the Eeffective Ddate of this Final Judgment, Bind any Middleware Product to a Windows Operating System unless:
    4. i. Microsoft also offers an otherwise identical version of that Operating System Product in which all means of End-User Access to that Middleware Product can readily be removed (a) by OEMs as part of standard OEM preinstallation kits and (b) by end users using add-remove utilities readily accessible in the initial boot process and from the Windows desktop; and

      ii. when an OEM removes End User Access to a Middleware Product from any Personal Computer on which Windows is preinstalled, the royalty paid by that OEM for that copy of Windows is reduced in an amount not less than the product of the otherwise applicable royalty and the ratio of the number of amount in bytes of binary code of (a) the Middleware Product as distributed separately from a Windows Operating System Product to (b) the applicable version of Windows. [2]

      [1] As Microsoft has explained previously (see Summ. Resp. to Pls.‚ Proposed Final J. at 49-50), it cannot in six months redesign all of its existing operating systemsųincluding ones outside the markets defined by the Courtųin an effort to eliminate all cross-dependencies among components that could be said to fall within the government‚s vague definition of "Middleware Product." The provision should therefore have prospective application only.

      [2] The government has stated that the provision does not entail OEMs removing any APIs or software code from a Windows Operating System Product or "degrading any other part of the operating system." (Pls.‚ Reply at 63.) Any "Middleware Products" that an OEM has hidden from end users will still be supplying functionality to other parts of the operating system and to third-party software products running on top of the operating system. Accordingly, there is no justification for giving OEMs a reduced royalty. The fact that end users cannot access particular functionality in the operating system does not mean it is not there and still providing value.

    5. Agreements Limiting Competition. Microsoft shall not offer, agree to provide, or provide any consideration to any actual or potential Platform Software competitor in exchange for such competitor‚s agreeing to refrain or refraining in whole or in part from developing, licensing, promoting or distributing any Operating System Product or Middleware Product competitive with any Windows Operating System Product or Middleware Product. Nothing in this provision shall restrict Microsoft‚s ability to (i) enter into joint development agreements, (ii) exchange information about products and technologies with other companies, (iii) enter into agreements ancillary to lawful joint ventures, (iv) hire employees away from competitors, and (v) merge with other companies or acquire them or their products and technologies. [1]
    6. [1] This addition is a paraphrase of the gloss the government itself has place on the vague and overbroad language of the provision. (See Pls.‚ Reply at 64.) Such explanatory language is necessary to ensure that the provision does not prevent routine interactions with other companies in the computer industry, which are necessary to the development of compatible products.

    7. Continued Licensing of Predecessor Version. Microsoft shall, when it makes a major Windows Operating System Product release (such as Windows 95, OSR 2.0, OSR 2.5, [1] Windows 98, Windows 2000 Professional, Windows "Millennium," "Whistler," "Blackcomb," and successors to these), continue for three years after said release to license on the same terms and conditions the initial version of the [2] previous Windows Operating System Product to any OEM that desires such a license. The net royalty rate for the previous Windows Operating System Product shall be no more than the average royalty paid by the OEM for such Product prior to the release. The OEM shall be free to market Personal Computers in which it preinstalls such an Operating System Product in the same manner in which it markets Personal Computers preinstalled with other Windows Operating System Products.

[1] OEM Service Releases are not major operating system releases; they are upgrades of existing operating systems. Requiring Microsoft to maintain multiple versions of the same obsolescent operating system will be burdensome and provide no obvious benefit to OEMs.

[2] This change will ensure that OEMS, if any, that do not want the additional features and functionality included in upgrades to Microsoft‚s previous major operating system release will not need to take them.

4. Internal Antitrust Compliance. This section shall remain in effect throughout the term of this Final Judgment, provided that, consistent with section 2.e., this section shall not apply to the Applications Business after the Implementation of the Plan. [1]

[1] Given the new definition of "Microsoft" (see Section 7.q, infra) and the directive contained in Section 2.e., use of the term "Microsoft" creates an internal inconsistency in the government‚s proposed final judgment that the added text removes.

    1. Within 90 days after the effective date of this Final Judgment, Microsoft shall establish a Compliance Committee of its corporate Board of Directors, consisting of not fewer than three members of the Board of Directors who are not present or former employees of Microsoft.
    2. The Compliance Committee shall hire a Chief Compliance Officer, who shall report directly to the Compliance Committee and to the Chief Executive Officer of Microsoft.
    3. The Chief Compliance Officer shall be responsible for development and supervision of Microsoft‚s internal programs to ensure compliance with the antitrust laws and this Final Judgment.
    4. Microsoft shall give the Chief Compliance Officer sufficient authority and resources to discharge the responsibilities listed herein.
    5. The Chief Compliance Officer shall:
      1. within 90 days after the Effective Dateentry [1] of this Final Judgment, cause to be delivered to each Microsoft officer, director, and Mmanager [2], and each platform software developer and employee involved in relations with OEMs, ISVs, or IHVs, a copy of this Final Judgment together with additional informational materials describing the conduct prohibited and required by this Final Judgment;
      2. [1] In the interest of internal consistency, and as previously explained (see Comment [1] to Section 1.c.ii, supra), the Effective Date of the Final Judgment provides a more appropriate reference date.

        [2] The term "manager" at Microsoft is applied to many levels of employees, including those who may "manage" only one or two other people. The government presumably did not intend the term "manager" to cover such a broad category of employees. Accordingly, Microsoft has proposed a definition of "Manager" in Section 7.p, infra, that sensibly limits the reach of the term.

      3. distribute in a timely manner a copy of this Final Judgment and such additional informational materials to any person who succeeds to a position of officer, director, or Mmanager[1], or platform software developer or employee involved in relations with OEMs, ISVs or IHVs;
      4. [1] See Comment [2] to Section 4.e.i, supra.

      5. obtain from each officer, director, and manager, and each platform software developer and employee involved in relations with OEMs, ISVs or IHVs, within 90 days of entry of this Final Judgment, and for each person thereafter succeeding to such a position within 5 days of such succession, a written certification that he or she:
      1. has read, understands, and agrees to abide by the terms of this Final Judgment; and
      2. has been advised and understands that his or her failure to comply with this Final Judgment may result in conviction for criminal contempt of court;

iv. maintain a record of persons to whom this Final Judgment has been distributed and from whom, pursuant to Section 4.e.iii, such certifications have been obtained; [1]

[1] Microsoft believes the government‚s revised proposed final judgment is vague and ambiguous in numerous respects. Microsoft‚s counsel and senior executives do not know how to interpret various provisions of the revised proposed final judgment because of the many flaws detailed in this document. Accordingly, Microsoft‚s employees should not be expected to understand what the document means and should not be required to sign a certification stating that they do.

viii. establish and maintain a means by which employees can report potential violations of this Final Judgment [1] on a confidential basis; and

[1] The suggested text conforms Section 4.e.iv to the language used in Section 4.e.iii.

viiv. report immediately to Plaintiffs and the Court any violation of this Final Judgment.

    1. The Chief Compliance Officer may be removed only by the Chief Executive Officer with the concurrence of the Compliance Committee.
    2. Microsoft shall, with the supervision of the Chief Compliance Officer, maintain for a period of at least four years the e-mail of all Microsoft officers, directors and managers engaged in software development, marketing, sales and developer relations related to Platform Software. [1]

[1] Given the enormous volume of e-mail sent at Microsoft every day, the hundreds of servers on which such e-mail is stored, and the fact that the e-mail of literally thousands of Microsoft employees would be covered, this provision is overbroad and unduly burdensome. The government‚s suggestion that the cost of complying with the provision would be modest (see Pls.‚ Reply at 66) is wrong. The problem lies not in buying storage media, but in designing, building and maintaining a system for collecting e-mail on particular subjects that is sent or received by the large number of covered employees, each of whose messages may be routed through hundreds of different servers in a given day. The government has never had any difficulty obtaining relevant e-mail from Microsoft in conducting its investigations, so the huge burden that would result from this provision is unjustified.

5. Compliance Inspection. This section shall remain in effect throughout the term of this Final Judgment.

    1. For purposes of determining or securing implementation of or compliance with this Final Judgment, including the provisions requiring a plan of reorganization, or determining whether this Final Judgment should be modified or vacated, and subject to any legally recognized privilege, from time to time:
      1. Duly authorized representatives of the Department of Justicea Plaintiff [1], upon the written request of the Assistant Attorney General in charge of the Antitrust Division of the United States Department of Justice, or the Attorney General of a Plaintiff State, as the case may be [1], and on reasonable notice to Microsoft made to its principal office, shall be permitted:

[1] The Plaintiff States are not authorized to bring enforcement actions under the Sherman Act and are not empowered by, or subject to the strictures of, the Antitrust Civil Process Act, 15 U.S.C. § 1311 et seq. Accordingly, it is inappropriate to treat the Plaintiff States and the Department of Justice identically for purposes of Section 5.

      1. Access during office hours to inspect and copy or, at Plaintiffs‚ option, demand Microsoft provide copies of all books, ledgers, accounts, correspondence, memoranda, source code, and other non-privileged [1] records and documents in the possession or under the control of Microsoft (which may have counsel present), relating to the matters contained in this Final Judgment; and
      2. [1] The government cannot be seeking unfettered access to materials protected by the attorney-client privilege or other immunities from discovery. This change clarifies the point.

      3. Subject to the reasonable convenience of Microsoft and without restraint or interference from it, to interview, either informally or on the record, its officers, employees, and agents, who may have their individual and/or Microsoft‚s [1] counsel present, regarding any such matters.

[1] Particularly to the extent that "on the record" interviews authorized by this provision would be taken of Microsoft officers or employees whose statements would be attributable to the corporation itself, Microsoft is entitled to have its counsel present at any such interviews.

      1. Upon the written request of the Assistant Attorney General in charge of the Antitrust Division of the United States Department of Justice, or the Attorney General of a Plaintiff State, as the case may be, [1] made to Microsoft at its principal offices, Microsoft shall submit such written reports, under oath if requested, as may be requested with respect to any matter contained in this Final Judgment.
      2. [1] See Comment [1] to Section 5.a.i, supra.

      3. No information or documents obtained by the means provided in this section shall be divulged by a representative of a Plaintiff to any person other than a duly authorized representative of a Plaintiff, except in the course of legal proceedings to which the Plaintiff is a party (including grand jury proceedings), or [1] for the purpose of securing compliance with this Final Judgment, or as otherwise required by law.
      4. [1] Section 5 is entitled "Compliance Inspection," and it is both reasonable and appropriate to limit the use of materials obtained under the section to proceedings brought to enforce "compliance" with the Final Judgment. The government does not contest that this provision (a) circumvents the requirements of the Antitrust Civil Process Act; (b) denies Microsoft‚s rights under that statute; (c) subjects Microsoft documentsųeven those containing trade secrets or other confidential informationųto unrestricted use in judicial proceedings, including those to which Microsoft is not a party; and (d) permits both the Department of Justice and the Plaintiff States to ignore normal limits on discovery under the Federal Rules of Civil Procedure. (Compare Summ. Resp. to Pls.‚ Proposed Final J. at 59-60 with Pls.‚ Reply at 67-69.)

      5. If at the time information or documents are furnished by Microsoft to a Plaintiff, Microsoft represents and identifies in writing the material in any such information or documents to which a claim of protection may be asserted under Rule 26(c)(7) of the Federal Rules of Civil Procedure, and Microsoft marks each pertinent page of such material, "Subject to claim of protection under Rule 26(c)(7) of the Federal Rules of Civil Procedure," then 10 calendar days notice shall be given by a Plaintiff to Microsoft prior to divulging such material in any legal proceeding (other than a grand jury proceeding) to which Microsoft is not a party. [1]

[1] For the reasons explained in Comment [1] to Section 5.a.iii., supra, materials furnished pursuant to the "Compliance Inspection" provisions should not be used "in any legal proceeding . . . to which Microsoft is not a party." Accordingly, this provision should be deleted in its entirety. This provision should be retained, however, if Microsoft‚s suggested change to Section 5.a.iii is not made.

6. Effective Date, Term, Retention of Jurisdiction, Modification.

    1. This Final Judgment shall take effect 90 days after the date on which it is entered; provided, however that sections 1.b and 2 (except 2.d) shall be stayed pending completion of any appeals from this Final Judgment.
    2. Except as provided in section 2.e. or otherwise herein [1], the provisions of this Final Judgment apply to Microsoft as defined in section 7.oq of this Final Judgment.
    3. [1] This change conforms this provision to the first sentence of Section 4 as modified by Microsoft.

    4. This Final Judgment shall expire at the end of ten four [1] years from the date on which it takes effect.
    5. [1] The record demonstrates that a four-year duration for the Final Judgment would be more than adequate to accomplish the government‚s apparent goals. Ten years is an extraordinarily long time in the software industry, and forcing Microsoft to operate under the strictures of the Final Judgment for that period of time would be punitive.

    6. The Court may, subject to the requirements of due process [1], act sua sponte to issue orders or directions for the construction or carrying out of this Final Judgment, for the enforcement of compliance therewith, and for the punishment of any violation thereof.
    7. [1] This change makes clear that Microsoft is entitled to due process, notably reasonable notice and an adequate opportunity to be heard, before the Court enters any order that affects Microsoft‚s legal rights. The government cannot suggest otherwise.

    8. Jurisdiction is retained by this Court for the purpose of enabling any of the parties to this Final Judgment to apply to this Court at any time for such further orders or directions as may be necessary or appropriate for the construction or carrying out of this Final Judgment, for the modification of any of the provisions hereof, for the enforcement of compliance herewith, and for the punishment of any violation hereof.
    9. In accordance with the Court‚s Conclusions of Law, the plaintiff States shall submit a motion for costs and fees, with supporting documents as necessary, no later than 45 days after the entry of this Final Judgment.

7. Definitions.

    1. "Agreement" means any agreement, arrangement, alliance, understanding or joint venture, whether written or oral.
    2. "Application Programming Interfaces (APIs)" mean the interfaces, service provider interfaces, and protocols that enable a hardware device or an application, Middleware, or server Operating System to obtain services from (or provide services in response to requests from) Platform Software in a Personal Computer and to use, benefit from, and rely on the resources, facilities, and capabilities of such Platform Software. APIs do not include internal interfaces or protocols used by any Microsoft Operating System Product or Middleware. [1]
    3. [1] This addition is necessary to make explicit the limitation to which the government and its computer science expert have now agreed. (Pls.‚ Reply at 51 (citing Felten Decl. ¶ 69).)

    4. "Applications Business" means all businesses carried on by Microsoft Corporation on the effective date of this Final Judgment except the Operating Systems Business. [1] Applications Business includes but is not limited to the development, licensing, promotion, and support of client and server applications and Middleware (e.g., Office, BackOffice, Internet Information Server, SQL Server, etc.), Internet Explorer, Mobile Explorer and other web browsers, Streaming Audio and Video client and server software, Mobile Explorer, [2] transaction server software, SNA server software, indexing server software, XML servers and parsers, Microsoft Management Server, Java virtual machines, Frontpage Express (and other web authoring tools), Outlook Express (and other e-mail clients), Media player, voice recognition software, Net Meeting (and other collaboration software), developer tools, hardware, MSN, MSNBC, Slate, Expedia, and all investments owned by Microsoft in partners or joint venturers, or in ISVs, IHVs, OEMs or other distributors, developers, and promoters of Microsoft products, or in other information technology or communications businesses.
    5. [1] As Microsoft has explained previously (see, e.g., Comment [1 ] to Section 1.d.i, supra), Microsoft is an integrated enterprise, not a conglomerate comprised of semiautonomous businesses. There is no Applications Business that bears any resemblance to the government‚s definition. Moreover, the government would assign technologies such as transaction services and Web services to the Applications Business, despite the fact they are components of Microsoft‚s operating systems. Separating such technologies from operating systems would be disadvantageous because Microsoft‚s competitors include similar functionality in their products.

      [2] "Mobile Explorer" appears twice in the list.

    6. "Bind" means to include a product in an Operating System Product in such a way that either an OEM or an end user cannot readily remove or uninstall hide End-User Access to [1] the product.
    7. [1] Given the government‚s insistence that it does not contemplate the actual removal of software code or APIs by OEMs or end users (Pls.‚ Reply at 46, 60, 62), the definition of "bind" should make clear that the term refers only to the inability of OEMs to hide functionality.

    8. "Business" means the Operating Systems Business or the Applications Business.
    9. "Communications Interfaces" means the interfaces and protocols that enable software installed on other computers (including servers and handheld devices) to interoperate with the Microsoft Platform Software on a Personal Computer. The term Communications Interfaces does not include proprietary protocols supported in Windows Operating System Products, such as IPX/SPX from Novell, that Microsoft does not control and has no legal right to disclose to third parties. [1]
    10. [1] Microsoft obviously cannot be forced to disclose other companies‚ proprietary protocols.

    11. "Covered OEM" means one of the ten20[1] OEMs with the highest volume of licenses of Windows Operating System Products from Microsoft [2] sales of Personal Computers in the United States in the previous 12 monthscalendar year preceding the effective date of the Final Judgment. At the beginning of each year, starting on January 1, 2002, Microsoft shall determine the Covered OEMs for the new calendar year, based on sales volume during the preceding calendar year. [3]
    12. [1] Microsoft‚s 20th largest OEM customer licensed less than 1/40th the volume of operating systems as did Microsoft‚s largest OEM customer. Treating such dissimilar OEMs identically is neither fair nor appropriate. The ten largest OEMs resemble one another more closely than do the 20 largest OEMs. Moreover, the ten largest OEMs accounted for more than 70% of Microsoft‚s total volume of operating systems licensed during the last year.

      [2] As the government knows from past experience, Microsoft does not know where OEMs sell personal computers containing Microsoft operating systems because they have no contractual obligation to report such information to Microsoft. All that Microsoft knows is how many copies of its operating systems those OEMs are licensed to install on their machines during a given period. This provision should be changed to take account of this fact.

      [3] The list of "Covered OEMs" will not remain static for the duration of the Final Judgment. There has been, and in all probability will continue to be, substantial changes in the relative sales of leading OEMs over time. Accordingly, Microsoft proposes that the list of Covered OEMs be determined on an annual basis, starting on January 1, 2002.

    13. "Covered Shareholder" means a shareholder of Microsoft on the date of entry of this Final Judgment who is a present or former employee, officer or director of Microsoft and who owns directly or beneficially more than 5 percent of the voting stock of the firm on the record date for the transaction that effects the transfer of ownership of the Separated Business under Section 1.c.iii. [1]
    14. [1] See Comment [1] to Section 7.t, infra.

    15. "Default Middleware" means Middleware configured to launch automatically (that is, by "default") to provide particular functionality when other Middleware has not been selected for this purpose. For example, a default browser is Middleware configured to launch automatically to display Web pages transmitted over the Internet or an intranet that bear the .htm extension, when other software has not been selected for this purpose.
    16. "End-User Access" means the invocation of Middleware directly or indirectly [1] by an end user of a Personal Computer or the ability of such an end user to invoke Middleware. "End-User Access" does not includes invocation of Middleware by end users which is compelled by the design of the Operating System Product, for example, the invocation of Internet Explorer components to display the Windows 98 user interface and to implement the Windows Help and Windows Update features of the operating system. [2]
    17. [1] Addition of the words "or indirectly" makes the definition vague and ambiguous. For example, if an end user clicks on various links presented in the user interface of Intuit‚s Quicken personal finance software, the application will invoke Internet Explorer components in Windows to obtain information from the Internet. Under a plausible reading of the government‚s definition of End-User Access, that would constitute the "indirect" invocation of Middleware by an end user. Elsewhere, however, the government has disclaimed any intention to prevent third party software products from relying on the Internet Explorer components of Windows. (See Pls.‚ Reply at 62.)

      [2] This change conforms the definition to the government‚s explanation of what it means. The government asserts that "Microsoft‚s statement that features like the user interface, HTML Help and Windows Update would be őprecluded‚ because they őare dependent on Internet Explorer‚ is erroneous." (Pls.‚ Reply at 62.) If that is so, then the definition of End-User Access should not include automatic invocation by a Microsoft Operating System Product of what the government refers to as Middleware.

    18. "IHV" means an independent hardware vendor that develops hardware to be included in or used with a personal computer that includes an Intel x86 or compatible microprocessor. [1]
    19. [1] This change ensures that hardware vendors, particularly those with access to Microsoft‚s source code under Section 3.b, are manufacturing hardware that is used with "operating systems for Intel-compatible PCs," the market defined by the Court.

    20. "Implementation of the Plan" means full completion of all of the steps described in section 1.c.
    21. "Intellectual Property" means copyrights, patents, trademarks, service marks, and trade secrets, or other form of invention, innovation or know-how protected by federal, state or foreign law [1] that are used by Microsoft or licensed by Microsoft to third parties, but does not include copyrights, patents, trademarks, service marks or trade secrets licensed from third parties that Microsoft does not own and has no right to convey to others. [2]
    22. [1] This change makes the government‚s definition of "Intellectual Property" coextensive with the generally recognized legal meaning of the term.

      [2] The government fails to account for the fact that many Microsoft products contain Intellectual Property that has been licensed by Microsoft from third parties. Particularly in connection with the licenses contemplated by Section 1.c.ii, there must be an explicit recognition that Intellectual Property does not include patents, copyrights, trade secrets, etc. that belong to third parties and that Microsoft has no right to convey to others.

    23. "Interoperate" means the ability of two software products to exchange information and mutually to use the information that has been exchanged. [1]

[1] As explained in Comment [1] to Section 3.b, supra, this definition comes from the European Commission‚s directive on the legal protection of computer software, 1991 O.J. (L 122/42) Council Directive of 14 May 1991.

n.o. "ISV" means any entity other than Microsoft (or any subsidiary, division, or other operating unit of any such other entity) that is engaged in the development and licensing (or other marketing) of software products intended to interoperate with Microsoft Platform Software. a personal computer that includes an Intel x86 or compatible microprocessor. [1]

[1] This change conforms the definition of ISV to the definition of IHV as modified by Microsoft. (See Section 7.k, supra.)

p. "Manager" means a Microsoft employee who is responsible for the day-to-day supervision of more than 100 other employees. [1]

[1] This definition addresses the issue raised in Comment [2] to Section 4.e.i, supra.

o.q. "Microsoft" means Microsoft Corporation, the Separated Business, the Remaining Business, their successors and assigns (including any transferee or assignee of any ownership rights to, control of, or ability to license the patents referred to in this Final Judgment), their subsidiaries, affiliates, directors, officers, managers, agents, and employees, and all other persons in active concert or participation with any of them who shall have received actual notice of this Final Judgment by personal service or otherwise.

p.r. "Middleware" means software that operates, directly or through other software, between an Operating System and another type of software (such as an application, a server Operating System, or a database management system) by offering services via APIs or Communications Interfaces to such other software, and, by virtue of having been [1] could, if ported to or made interoperable with multiple Operating Systems, enables software products written for that Middleware to be run on multiple Operating System Products. Examples of Middleware within the meaning of this Final Judgment include Internet browsers, e-mail client software, multimedia viewing software, Office, and the Java Virtual Machine. Examples of software that are not Middleware within the meaning of this Final Judgment are disk compression and memory management. Middleware does not include software designed for use with a particular operating system. [2]

[1] Any software code could, with the devotion of sufficient time and engineering resources, be made to expose APIs and to run on multiple operating systems. The change is designed to avoid having Middleware encompass virtually all software written for a Windows Operating System Product, a result the government has explicitly said it does not intend. (See Pls.‚ Reply at 55.) Given the government‚s focus on cross-platform applications as a means to penetrate the "applications barrier to entry," the definition of Middleware should be limited to software products like Netscape Navigator that have versions which run on multiple operating systems.

[2] A great deal of software that would otherwise fall within the government‚s definition of middleware was designed for use with a particular operating system and is dependent on system services provided by that operating system. Such software does not have the cross-platform characteristics of middleware like Sun‚s Java class libraries, and thus cannot sensibly be said to pose a platform threat to Windows. The definition of "Middleware" should exclude such platform specific software because it is not analogous to Netscape Navigator even on the government‚s theory of this case.

q.s. "Middleware Product" means

      1. Internet browsers, e-mail client software, multimedia viewing software, instant messaging software, and voice recognition software, or
      2. software distributed by Microsoft that--
      1. is, or has in the applicable preceding year been, distributed separately from an Operating System Product in the retail channel or through Internet access providers, Internet content providers, ISVs or OEMs, and
      2. provides functionality similar to that provided by Middleware offered by a competitor to Microsoft.

Middleware Product does not include (i) any component of a Windows Operating System Product that Microsoft does not separately distribute on a standalone basis through any channel of distribution [1] or (ii) any improvement to a Windows Operating System Product that Microsoft makes separately available to its installed base of users. [2]

[1] This change conforms the definition of Middleware Product to the government‚s statement that it is "much narrower" than the definition of Middleware. (Pls.‚ Reply at 61.) The government should have no objection to the change given its emphatic insistence that "őMiddleware Product‚ is narrowly limited to a small number of products that Microsoft distributes separately from the operating system." (Pls.‚ Reply at 52 n.15.)

[2] This change is required to conform this definition with the government‚s definition of Operating System Product (see Section 7.w, infra), which states that "[a]n Operating System Product includes Operating System Product upgrades that may be distributed separately from the Operating System Product." Moreover, as Microsoft has explained previously, consumers benefit from its willingness to make upgraded versions of operating system components like DirectX freely available to the installed base of users. The alternative, i.e., requiring consumers to wait for the next major operating system release that contains such upgraded components, would slow the rate of innovation in the software industry and delay the ability of consumers to benefit from Microsoft‚s research and development efforts.

r.t. "Non-Covered Shareholder" means a shareholder of Microsoft who is not a Covered Shareholder on the date of entry of this Final Judgment the record date for the transaction that effects the transfer of ownership of the Separated Business under Section 1.c.iii. [1]

[1] The Final Judgment, by its terms (see Section 6.a, supra), stays implementation of the divestiture indefinitely pending appeal. Therefore, recipients of stock in the Separated Business should not be the persons who held Microsoft shares on the date the Final Judgment is entered but, instead, the persons who hold Microsoft shares at the time the divestiture is effectuated. Indeed, read literally, the only way Microsoft could distribute shares using the government‚s definition of "Non-Covered Shareholder" would be to halt trading in Microsoft stock between entry of the Final Judgment and effectuation of the divestiture. Accordingly, consistent with recognized practice in transactions governed by state corporate law and regulated by federal securities laws, Microsoft proposes that a "Non-Covered Shareholder" be a shareholder of record on the "record date" set forth in the documents that describe the issuance of shares to effectuate the divestiture.

s.u. "OEM" means one of the 30 largest the manufacturers or assembler of a personal computers, determined according to the method set forth in the definition of "Covered OEM" above. [1]

[1] The government‚s definition of "OEM" includes tens of thousands of firms, some of which do nothing more than assemble components manufactured by others. No reasonable remedial goal is accomplished by such a definition, which will force Microsoft to disclose proprietary information to large numbers of companies that Microsoft has no basis to trust and with which it has only the most intermittent business dealings. Microsoft proposes that the definition be limited to the 30 largest OEMs, determined according to the method set forth in revised Section 7.g ("Covered OEM"). Any other definition would make the provisions relating to OEMs infeasible for Microsoft to comply with. Microsoft‚s proposed definition would encompass the OEMs that account for more than 90% of operating systems licensed from Microsoft. The very small OEMs excluded by the definition lack the resources to take advantage of rights afforded OEMs under Section 3 in any event.

t.v. "Operating System" means the software that, inter alia, (i) controls the allocation and usage of hardware resources (such as memory, central processing unit time, disk space, and peripheral devices) of a Personal Ccomputer, [1] (ii) provid esing a "platform" for ISVs by exposing APIs that applications use to "call upon" the Operating System‚s underlying software routines in order to perform functions, and (iii) supplies a user interface for consumers that allows them to access the Operating System‚s features and functionality and provides an environment in which they can run applications. [2]

[1] The market defined by the Court is operating systems for Intel-compatible personal computers, not operating systems for computers generally. The relief awarded should not extend to operating systems that were not addressed at trial and as to which there is no finding that Microsoft has substantial market power or engaged in any unlawful conduct.

[2] As Microsoft has explained previously (see Summ. Resp. to Pls.‚ Proposed Final J. at 30), the definition of Operating System is too narrow and could be read to cover only the "kernel" or core of a modern operating system, excluding large portions of the software code of products like Windows 98 and Windows 2000. Presumably, the government intends that such "additional software shipped with the Operating System" (see Section 7.w, infra) be viewed as Middleware. It must be one or the other. Given the government‚s insistence that "Microsoft reads őMiddleware" (§ 7.o) far too broadly" (Pls.‚ Reply at 61), the definition of Operating System should be modified to clarify that Middleware is as narrowly defined as the government contends.

u.w. "Operating System Product" means an Operating System and additional software shipped with the Operating System, whether or not such additional software is marketed for a positive price. An Operating System Product includes Operating System Product upgrades that may be distributed separately from the Operating System Product. Operating System Product does not include any version of Windows CE or Windows 2000 Server, Windows 2000 Advanced Server, or Windows 2000 Datacenter Server and their successors. [1]

[1] Microsoft‚s operating systems for non-PC devices and servers are outside the markets defined by the Court and should not be covered by the Final Judgment. The government has made no showing that Microsoft has substantial market power, or that Microsoft has engaged in unlawful conduct with regard to, either type of operating system.

v.x. "Operating Systems Business" means the development, licensing, promotion, and support of Operating System Products for computing devices including but not limited to (i) Personal Computers, (ii) other computers based on Intel x-86 or competitive microprocessors, such as servers, (iii) handheld devices such as personal digital assistants and cellular telephones, and (iv) television set-top boxes. [1]

[1] See Comment [1] to Section 7.c, supra.

w.y. "Personal Computer" means any computer configured so that its primary purpose is to be used by one person at a time, that uses a video display and keyboard (whether or not the video display and keyboard are actually included), and that contains an Intel x86, successor, or competitive microprocessor, and computers that are commercial substitutes for such computers. [1]

[1] At trial, the government insisted that computers like the Apple Macintosh were not "commercial substitutes" for Intel-based personal computers and thus were in a different product market. (See Pls.‚ Joint Proposed Conclusions of Law at 4-5.) Having persuaded the Court to adopt such a narrow product market definition, the government should not be allowed to take a contrary position in the remedies stage in an effort to broaden the scope of relief awarded.

x.z. "Plaintiff" means the United States or any of the plaintiff States in this action.

y.aa. "Plan" means the final plan of reorganizationdivestiture [1] approved by the Court.

[1] See Comment [1] to Section 1.

z.bb. "Platform Software" means an Operating System or Middleware or a combination of an Operating System and Middleware. [1]

[1] To the extent that the Court corrects the problems in the government‚s definitions of "Operating System" and "Middleware," this definition is unobjectionable.

aa.cc. "Remaining Business" means whichever of the Operating Systems Business and the Applications Businesses is not transferred to a separate entity pursuant to the Plan.

bb.dd. "Separated Business" means whichever of the Operating Systems Business and the Applications Businesses is transferred to a separate entity pursuant to the Plan.

cc.ee. "Technical Information" means all information regarding the identification and means of using APIs and Communications Interfaces that competent software developers require to make their products running on any computer interoperate effectively with Microsoft Platform Software running on a Personal Computer. Technical information includes but is not limited to reference implementations, communications protocols, file formats, data formats, syntaxes and grammers, data structure definitions and layouts, error codes, memory allocation and deallocation conventions, threading and synchronization conventions, functional specifications and descriptions, algorithms for data translation or reformatting (including compression/decompression algorithms and encryption/decryption algorithms), registry settings, and field contents. [1]

[1] The government claims that its forced disclosure provision is "expressly limited to information that Microsoft itself őemploys to enable‚ interoperability between three well-defined classes of software external to the Windows platform software and the Windows platform software itself." (Pls.‚ Reply at 51 (emphasis in original).) The definition of Technical Information extends far beyond that to include a wide range of information about the internals of Microsoft operating systems that are not exposed to software developers. Excluding such information would be fully consistent with the government‚s statement that "nothing in the proposed remedy requires disclosure of any internal interfaces, unless they are actually used by Microsoft applications, separate Microsoft Middleware Products (as narrowly defined by Section 7.p), or Microsoft software installed on a different computer (such as a server or computing device) to interoperate with the Windows platform software running on a personal computer." (Pls.‚ Reply at 52 (emphasis in original).)

dd.ff. "Timely Manner": disclosure of APIs, Technical Information and Communications Interfaces in a timely manner means, at a minimum, publication on a web site accessible by ISVs, IHVs, and OEMs at the earliest of the time that such APIs, Technical Information, or Communications Interfaces are first included in (1) disclosed to Microsoft‚s applications developers, (2) used by Microsoft‚s own Platform Software developers in software released by Microsoft in alpha, beta test, release candidate, final or other form. [1], (3) disclosed to any third party, or (4) within In the 90 days preceding Microsoft‚s of a final release of a Windows Operating System Product, Microsoft shall publish material changes in APIs, Technical Information and Communication Interfaces no moreless than 105 days after such a material change is made between the most recent beta or release candidate version and the final release. [2]

[1] As drafted, it would be completely infeasible for Microsoft to comply with the definition because software developers around the company talk with one another all the time, and Microsoft has no mechanism for monitoring such communications. Given the length of Microsoft‚s beta testing process for operating systems, disclosing the required information in the first beta test version would give developers of compatible products ample opportunity to make use of that information.

[2] The time period provided is unreasonably short. Imposing such a disclosure burden on Microsoft is unjustified given the absence of any evidence that anyone was disadvantaged by Microsoft‚s failing to disclose material changes in its operating systems immediately prior to their commercial release. As a matter of good engineering practice, Microsoft seeks to avoid any such material changes in the final stages of developing its operating systems and, if it is forced to make changes, Microsoft has every incentive to inform developers of compatible products that such changes have been made.

ee.gg. "Windows Operating System Product" means the software code (including source code and binary code, and any other form in which Microsoft distributes its Windows Operating Systems for Personal Computers) of Windows 95, Windows 98, Windows 2000 Professional, and their successors, including the Windows Operating Systems for Personal Computers codenamed "Millennium," "Whistler," and "Blackcomb," and their successors.

[1] Disclosure of source code is dealt with explicitly in Section 3.b of the government‚s proposed final judgment. There is thus no reason to define Windows Operating System Product to include source code. With few exceptions, what Microsoft licenses to its customers is binary code which can be installed on a computer and executed. Given the importance to Microsoft of preserving the confidentiality of its source code, the Final Judgment should make clear that Microsoft has no obligation to provide source code broadly to OEMs and other licensees.

CONCLUSION

Microsoft respectfully requests that, should the Court determine to enter a final judgment embodying, in whole or in part, the provisions requested by the government in its revised proposed final judgment, the Court incorporate such of the modifications suggested by Microsoft as may pertain to the judgment actually entered.

Respectfully submitted,

 

______________________________

William H. Neukom
Thomas W. Burt
David A. Heiner, Jr.
Diane D‚Arcangelo
Christopher J. Meyers
MICROSOFT CORPORATION
One Microsoft Way
Redmond, Washington 98052
(425) 936-8080
John L. Warden (Bar No. 222083)
Richard J. Urowsky
Steven L. Holley
Theodore Edelman
Michael Lacovara
Richard C. Pepperman, II
Christine C. Monterosso
Bradley P. Smith
SULLIVAN & CROMWELL
125 Broad Street
New York, New York 10004
(212) 558-4000

Counsel for Defendant

Counterclaim-Plaintiff

Microsoft Corporation

CERTIFICATE OF SERVICE

I hereby certify that on this 31st day of May, 2000, I caused a true and correct copy of the foregoing Defendant Microsoft Corporation‚s Comments on Plaintiffs‚ Revised Proposed Final Judgment to be served by facsimile and by overnight courier upon:

Phillip R. Malone, Esq.
Antitrust Division
U.S. Department of Justice
450 Golden Gate Avenue, Room 10-0101
San Francisco, California 94102
Fax: (415) 436-6687

Kevin J. O‚Connor, Esq.
Office of the Attorney General of Wisconsin
P.O. Box 7857
123 West Washington Avenue
Madison, Wisconsin 53703-7957
Fax: (608) 267-2223

Christine Rosso, Esq.
Chief, Antitrust Bureau
Illinois Attorney General‚s Office
100 West Randolph Street, 13th Floor
Chicago, Illinois 60601
Fax: (312) 814-2549

And by facsimile and by hand upon:
Richard L. Schwartz, Esq.
Deputy Chief, Antitrust Bureau
New York State Attorney General‚s Office
120 Broadway, Suite 2601
New York, New York 10271
Fax: (212) 416-6015

______________________

Bradley P. Smith