With the antitrust trial in Minnesota resuming today, I thought it would be useful to have the complaint as text. It's here as PDF and thanks to Frank Jaffe and especially to LvilleDebugger, we have it as searchable text. One compelling reason to follow this trial is that they will be presenting evidence regarding Microsoft's actions with respect to DR-DOS.
IBM in discovery asked SCO for documents regarding the Caldera v. Microsoft case. SCO said they didn't have them and suggested they should ask Microsoft. Canopy arranged for the documents from the Caldera v. Microsoft lawsuit to be destroyed. But it seems at least some of the evidence is being presented fresh, as you will see when you read the complaint. Why IBM wanted the documents on this case, I don't know, but I expect with time it will become clear. Meanwhile, the facts in documents about the DR-DOS case that were turned into toilet paper may now reappear in testimony in this class action. According to paragraph 20, this case will try to establish the following: 20. There are questions of law and fact common to the Class which predominate over any questions affecting only individual Class members. Such common questions include, but are not limited to:
a. Whether Microsoft is a monopolist in the markets for Intel-compatible personal computer operating system and applications software;
b. Whether Microsoft and its co-conspirators engaged in anti-competitive conduct in unreasonable restraint of trade;
c. Whether Microsoft engaged in conduct by which Microsoft unlawfully acquired, used and/or maintained its monopoly;
d. Whether the alleged conduct violates the Minnesota Antitrust law, Minn. Stat Sections 325D.49, et seq.:
e. Whether Microsoft's unlawful conduct has caused legally cognizable injury to each Class by increasing, maintaining, or stabilizing the prices that Plaintiffs and the Class members have paid for Microsoft software above competitive levels and/or by denying them a free choice in a competitive market, as well as the benefits of software innovation;
f. Whether Microsoft unlawfully tied its browser, Microsoft Internet Explorer, with the Windows software; and
g. Whether Plaintiffs and the Class members are entitled to damages and the appropriate measure of such damages. So those are the issues. If those in the proofreaders' group especially could look this over against the original to make sure we didn't miss anything in our haste, I'd appreciate it. By the way, according to an internetnews.com article, the firm representing the plaintiffs in Minnesota, Zelle, Hofmann, Voelbel, Mason & Gette, "helped negotiate a $1.1 billion settlement with Microsoft on behalf of California residents in January 2003". The article quotes some of the exhibit emails showing the deliberate incompatibilities Microsoft put in to make DR-DOS not work quite right. Laura DiDio immediately springs to Microsoft's defense: "'Going back to 1988, the industry was in its infancy,' said Yankee Group analyst Laura Didio. 'A lot of engineers simply did not have enough experience or know-how to fix these problems.' In that era, according to Didio, 'Integration between disparate software platforms ranged from barely adequate to extremely poor and unworkable. What you're reading in these memos was widely practiced by vendors at the time, including Microsoft competitors.'" Compare that "explanation" with the memos: "Pages of e-mails and memos filed by the state and published by the Fourth Judicial District Court are filled with tidbits that could show Microsoft chose to break Windows unless it ran on MS-DOS. For example, one September 1988 e-mail from 'billg' asks, 'You never sent me a response on the question of what things an app would do that would make it run with MSDOS and not run with DR-DOS. Is there any version check or API that they fail to have? Is their feature (sic) they have that might get in our way? I am not looking for something they can't get around. I am looking for something that their current binary fails on.'
"The e-mails filed as evidence also show there was much back-and-forth about whether an application could identify the flavor of DOS on the PC. According to another e-mail, 'Bill Gates ordered ... if it is non MS-DOS (such as DR-DOS), application will display messages saying "Since you use different environment, this application may not work correctly."' In a July 1991 e-mail, davidcol (David Cole, now vice president of the MSN and personal services group) writes, 'We should not consider things that stop Windows from working on Netware. (Netware here = netware + DR-DOS.) If it was just DR-DOS alone, then we should prevent Windows from working there.'
"In a September 1991 e-mail, philb (former Microsoft engineer Phil Barrett) responds to a developer's question sbout how to make Windows 3.1 run on DR-DOS 6 by writing, 'The approach we will take is to detect dr6 and refuse to load.'" Does that sound like a bunch of engineers who couldn't figure out how to fix a problem to you? Or a bunch of executives trying to figure out how to make some? Then there is this pearl of wisdom from an attorney: "The state will have to prove that if Microsoft hadn't taken exclusionary actions, there would be more competition today in the operating system market, said Allan Van Fleet, co-head of the antitrust practice group at the Houston law firm Vinson & Elkins. 'If you get a monopoly because you honestly have the best product or service, it's not a crime to charge whatever you can for it,' he said." I don't want to make fun of anybody based on one quotation, because I've learned that reporters almost never get things exactly right, but he surely can't have said that.
**************************************************
STATE OF MINNESOTA DISTRICT COURT
COUNTY OF HENNEPIN FOURTH JUDICIAL DISTRICT
_____________________________________
SECOND AMENDED CLASS
ACTION
COMPLAINT AND
JURY
TRIAL DEMAND
____________________________________
DANIEL
GORDON, MICHAEL STOLLE,
VOCAL
SIGNS, INC., BRANDON WELTER,
DAVID
ELLINGSON, KARI A. WALLACE,
RECLAIM
CENTER, INC., Individually and
On
Behalf of All Others Similarly Situated,
Plaintiffs,
v.
MICROSOFT CORPORATION,
Defendant.
____________________________________
Civil
No. 00-5994
Honorable
Bruce A. Peterson
___________________________________
Plaintiffs, for their Second Amended Class Action Complaint, by and
through counsel, on behalf of themselves and all others similarly
situated, against defendant Microsoft Corporation ("Microsoft"), on
information and belief, formed after an inquiry reasonable under the
circumstances, allege as follows:
NATURE
AND BASIS OF THE ACTION
1.
Plaintiffs bring this class action under the laws of Minnesota for
damages for injuries sustained as a result of defendant Microsoft's
anti-competitive and monopolistic practices in the conduct of trade or
commerce, specifically those acts or practices that it intended to use,
did use, and continues to use to prevent and destroy competition and
unlawfully acquire and/or maintain monopoly power, to deny fundamental
product choice in the operating systems and applications software
markets for word processing, spreadsheets and office suites, and to
raise prices to supra-competitive levels in Minnesota in the following
product markets:
a)
The licensing of Intel-compatible personal computer ("PC") operating
system software; and
b)
The licensing of Intel-compatible PC applications system software,
including word processing, spreadsheet, and office suite software.
2.
The purpose and effect of this illegal conduct has been to deny
purchasers of Microsoft operating system and applications software a
competitive price and free choice among competing software products, as
well as the benefit of software innovation. Microsoft has restricted
trade in the relevant software markets, resulting in substantial harm
both to competition and to the ultimate consumers in those markets.
3.
These claims are prosecuted by two classes. The first class, the
"Windows Operating Software Class," is comprised of Minnesota indirect
purchasers of Microsoft Windows or MS-DOS operating software. For
purposes of this class, "Microsoft Windows or MS-DOS operating
software" means Microsoft Windows operating software for use in
personal computers which includes, without limitation, MS-DOS, Windows
3.11, Windows for Workgroups, Windows NT Workstation, Windows 95 and/or
Windows 98 operating system software compatible with Intel x86/Pentium
architecture. For purposes of this class, "Windows Operating Software
Class" means a person or entity, who at the time of purchase, resided
in or was incorporated in Minnesota who, on or after May 18, 1994, was
an indirect purchaser of Microsoft Windows or MS-DOS operating
software, and who did not purchase its Microsoft Windows or MS-DOS
operating software for the purpose of resale.
4.
The second class, the "Windows Applications Software Class," is
comprised of Minnesota indirect purchasers of Microsoft Windows "Word"
word processing software, and/or "Excel" spreadsheet software, and/or
"Office" office suite software compatible with Microsoft Windows
operating software. For purposes of this class, "Windows Applications
Software Class," means a person or entity, who at the time of purchase,
resided in or was incorporated in Minnesota who, on or after May 18,
1994, was an indirect purchaser of Microsoft Windows "Word" word
processing software, and/or "Excel" spreadsheet software, and/or
"Office" office suite software and who did not purchase its Microsoft
Windows "Word", "Excel" or "Office" for the purpose of resale.
JURISDICTION AND VENUE
5. This Court has jurisdiction pursuant to the Minnesota Antitrust Law,
Minn. Stat. § 325D. 49 et seq. This Court also has jurisdiction
pursuant to Minn. Stat. § 543.19 over defendant because it is
authorized to conduct, and in fact does conduct, substantial business
in the State of Minnesota. Defendant has sufficient minimum contacts
with Minnesota or otherwise intentionally avails itself of the consumer
markets within Minnesota through the promotion, sale, marketing and/or
distribution of its products in Minnesota to render the exercise of
jurisdiction by the Minnesota courts permissible under traditional
notions of fair play and substantial justice.
6. This complaint is not based upon federal law or any federal
question. No claim for relief is made under federal law. The amount in
controversy for each named Class representative and each absent Class
member does not exceed, inclusive of interest, fees and costs, the sum
or value of $75,000.00.
7. Venue is proper in this County, pursuant to Minn. Stat. §
542.09, as the acts upon which this action is based occurred in part in
this County. Plaintiffs and numerous Class members reside in this
County, and purchased Microsoft licensed Intel-compatible personal
computer operating system and applications software and were thereby
injured in this venue. Defendant received substantial compensation and
profits from sales of such products in this County. Thus, Defendant's
liability arose in part in this County.
PARTIES
8. Plaintiff Daniel Gordon ("Gordon") is a resident of Hennepin County,
Minnesota and at the time of purchase, a Minnesota indirect purchaser
of Microsoft operating system and applications software. Gordon is a
member and proposed Class Representative of both proposed classes.
9. Plaintiff Michael Stolee ("Stolee") is a resident of Hennepin
County, Minnesota, and at the time of purchase a Minnesota indirect
purchaser of Microsoft operating system and applications software.
Stolee is a member and proposed Class Representative of both proposed
classes.
10.
Plaintiff Vocal Signs, Inc. ("VSI") is a Minnesota corporation with its
principal place of business in Minnesota, and at the time of purchase a
Minnesota indirect purchaser of Microsoft operating system and
applications software. VSI is a member and proposed Class
Representative of both proposed classes.
11.
Plaintiff Brandon Welter ("Welter") is a resident of Hennepin County,
Minnesota and at the time of purchase a Minnesota indirect purchaser of
Microsoft operating system software.
12.
Plaintiff David Ellingson ("Ellingson") is a resident of Hennepin
County, Minnesota and at the time of purchase a Minnesota indirect
purchaser of Microsoft operating system and applications software.
Ellingson is a member and proposed Class Representative of both
proposed classes.
13.
Plaintiff Kari A. Wallace ("Wallace") is a resident of Virginia and at
the time of purchase a Minnesota indirect purchaser of Microsoft
operating system and applications software. Wallace is a member and
proposed Class Representative of both proposed classes.
14.
Plaintiff Reclaim Center, Inc. ("RCI") is a Minnesota corporation with
its principal place of business in Minnesota and at the time of
purchase a Minnesota indirect purchaser of Microsoft operating system
and applications software. RCI is a member and proposed Class
Representative of both proposed classes.
15.
Defendant Microsoft is a corporation organized and existing under the
laws of the State of Washington, with its principal place of business
located at One Microsoft Way, Redmond, Washington. At all relevant
times Microsoft has sold and licenses and continues to sell and license
Intel-compatible PC operating system and applications software.
Microsoft is the world's largest supplier of computer software for
personal computers, which it supplies largely through sellers of
personal computers and independent distributors. In its fiscal year
1998, Microsoft had revenues of approximately $14.5 billion and net
income of approximately $5 billion. Throughout the Class Period,
Microsoft has marketed its personal computer operating system and
applications software in Minnesota and elsewhere and has licensed this
operating and applications software to sellers of personal computers,
distributors, and resellers in Minnesota and elsewhere.
16.
Various other individuals, partnerships, corporations and associations
not named as defendants in this Complaint, have participated or acted
in concert or in furtherance of the violations alleged herein and have
performed acts and made statements in furtherance thereof. When and if
Plaintiffs learn the identity of such persons, Plaintiffs may seek
leave to amend this Complaint to add said co-conspirators as defendants.
CLASS
ACTION ALLEGATIONS
17.
Plaintiffs bring this action pursuant to Minn. R. Civ. P., Rule 23 on
behalf of themselves and on behalf of the two classes defined below.
The relevant time period for each class is May 18, 1994 to the present
("the Class Period"). The two classes are:
a.
All persons or entities who acquired for their own use, and not for
further selling, leasing or licensing, a license in Minnesota from
Microsoft, an agent of Microsoft, or an entity under Microsoft's
control, for an Intel-compatible PC version of MS-DOS, Windows 95,
upgrades to higher MS-DOS versions, upgrades to or of Windows 95,
Windows 98, upgrades to or of Windows 98, or other software products in
which MS-DOS or Windows has been incorporated in full or part
("Microsoft Operating System Software") at any time during the Class
Period ("Windows Operating Software Class"); and
b.
All persons or entities who acquired for their own use, and not for
further selling, leasing or licensing, a license in Minnesota from
Microsoft, an agent of Microsoft, or an entity under Microsoft's
control, for an Intel-compatible PC version of Microsoft Word or any
upgrade of Microsoft Word, Microsoft Excel or any upgrade of Microsoft
Excel, or Microsoft Office or any upgrade of Microsoft Office
("Microsoft Applications Software"), at any time during the Class
Period ("Windows Applications Software Class").
Both
classes exclude defendant and its co-conspirators; their parents,
subsidiaries, affiliates, officers, directors, and employees. Also
excluded are any federal, state or local governmental entity, and any
judge or judicial officer presiding over this matter, judicial staff,
and the members of their immediate families.
18.
The Class is so numerous that joinder of all members is impracticable.
There are thousands of members of the Class who are geographically
dispersed.
19.
Plaintiffs' claims are typical of the claims of the members of the
Class because Plaintiffs and all Class members were injured by the same
wrongful conduct of the Defendant as alleged herein.
20.
There are questions of law and fact common to the Class which
predominate over any questions affecting only individual Class members.
Such common questions include, but are not limited to:
a.
Whether Microsoft is a monopolist in the markets for Intel-compatible
personal computer operating system and applications software;
b.
Whether Microsoft and its co-conspirators engaged in anti-competitive
conduct in unreasonable restraint of trade;
c.
Whether Microsoft engaged in conduct by which Microsoft unlawfully
acquired, used and/or maintained its monopoly;
d.
Whether the alleged conduct violates the Minnesota Antitrust Law, Minn.
Stat. §§325D.49, et seq.;
e.
Whether Microsoft's unlawful conduct has caused legally cognizable
injury to each Class by increasing, maintaining, or stabilizing the
prices that Plaintiffs and the Class members have paid for Microsoft
software above competitive levels and/or by denying them a free choice
in a competitive market, as well as the benefits of software innovation;
f.
Whether Microsoft unlawfully tied its browser, Microsoft Internet
Explorer, with the Windows software; and
g.
Whether Plaintiffs and the Class members are entitled to damages and
the appropriate measure of such damages.
21.
As the claims of the Plaintiffs are typical of the claims of the Class,
and the Plaintiffs have no interests adverse to or which irreconcilably
conflict with the interests of other members of the Class, Plaintiffs
are adequate class representatives.
22.
Plaintiffs will fairly and adequately protect the interests of the
Class and have retained counsel experienced and competent in the
prosecution of complex class action litigation.
23.
A class action is superior to other available methods for the fair and
efficient adjudication of the controversy and substantial benefits will
derive from proceeding as a class action. Such treatment will permit a
large number of similarly situated persons to prosecute their common
claims in a single forum simultaneously, efficiently, and without the
duplication of effort and expense that numerous individual actions
engender. Class treatment also will permit the adjudication of
relatively small claims by many Class members who could not afford to
individually litigate such claims against large corporate defendants.
There are no difficulties likely to be encountered in the management of
this class action that would preclude its maintenance as a class
action, and no superior alternative exists for the fair and efficient
group-wide adjudication of this controversy.
DEFINITIONS
The
following definitions are provided to explain terms used herein:
24.
"Applications" are software programs that perform specific
user-oriented tasks. For example, Microsoft Word word processing
software, Microsoft Excel spreadsheet software, and Microsoft Office
office suite software are applications. Applications programs are
typically written to run on a particular operating system and cannot
run on other operating systems unless the developer develops additional
code to "port" the program to the other operating system.
25.
"Application Programming Interfaces" or "APIs" are synapses at which
the developer of an application can connect to code in an operating
system or other software program to allow the application program to
use the services of that operating system or program.
26.
A "Browser" is a software application that allows a user to navigate
via the Internet and select, retrieve and view information located on
the World Wide Web.
27.
"Findings of Fact" dated November 5, 1999 by Judge Thomas Penfield
Jackson in United States v Microsoft, filed May 18, 1998. See United
States v. Microsoft Corp., 65 F. Supp. 1 (D.D.C. 1999). These Findings
of Fact are incorporated herein as if here fully set forth.
28.
"Graphical User Interface" or "GUI" is a type of environment that
represents programs, files, and options by means of icons, menus, and
dialog boxes on the screen. The user can select and activate these
options by pointing and clicking with a mouse or, often, with the
keyboard. GUI 's have characteristics of both application and operating
system software.
29.
"Independent Software Vendors" or "ISVs" are firms, including Microsoft
that produce applications and other software. They are "independent" in
as much as they are not part of a vertically integrated hardware and
software company (e.g., IBM for System/390 operating system software).
30.
An "Intel-compatible PC" is one designed to function with Intel's
x86/Pentium families of microprocessors or with compatible
microprocessors manufactured by Intel or other firms. Microsoft's
Windows operating system is an example of an operating system that runs
on x86-compatible PCs. Operating systems designed to run on
x86-compatible PCs will not function on incompatible PCs, such as the
Macintosh, nor will an operating system designed for a
non-x86-compatible PC function on an x86-compatible one.
31.
The "Internet" is a global electronic network that links many millions
of computing devices together, allowing the computers to exchange
information over telephone wires, dedicated data cables, and wireless
links. The Internet links PCs by means of servers, which run operating
systems and applications designed for servicing a network environment.
32.
"Internet Access Providers" or "IAPs" are commercial firms that connect
users, companies and other organizations to the Internet. PCs typically
connect to the Internet through the services of IAPs, which generally
charge subscription fees to their customers in the United States.
33.
"Internet Content Providers" or "ICPs" are persons or companies that
provide content on the Web. The content consists principally of web
pages that may incorporate any combination of text, graphics, audio and
video content, software programs, and other data.
34.
"Internet Service Providers" or "ISPs" are a type of Internet Access
Provider, such as MindSpring, or Netcom that offer Internet access.
35.
"Middleware" is software that "sits" between two or more types of
software and translates information between them. Middleware generally
sits between an application and an operating system. Middleware
software provides APIs for applications and uses the APIs of the
underlying operating system.
36.
An "On-line Service" or "OLS" generally offers access to an online
community of users along various services and an array of proprietary
content and, optionally, Internet access. America Online, Prodigy, and
the Microsoft Network are three examples of an OLS.
37.
An "operating system" is a software program that controls the
allocation and use of computer resources (such as central processing
unit time, main memory space, disk space, and input/output channels).
In a personal computer, the operating system allows the various
components of the PC to communicate and function with each other. It
also acts as a "platform" to support the functions of software
application programs.
38.
"Original Equipment Manufacturers" or "OEMs" are companies whose
business may include the manufacture, assembly, development and sale of
personal computers (e.g., Dell, Gateway, Hewlett Packard and Compaq).
OEMs typically purchase or license from different third-party vendors
and preinstall various hardware and software components for their
systems, including the operating system and applications software.
39.
"Personal computer" ("PC") is a digital information processing device
designed for use by one person at a time. A typical PC consists of
central processor components (e.g. a microprocessor and main memory)
and mass data storage (such as a hard disk). A typical PC system
consists of a PC, certain peripheral input/output devices (including a
video monitor, a keyboard, a mouse, and a printer) and an operating
system.
40.
"Platform" is used in the software industry to describe software that
provides features or services that can be used by software
applications. Applications typically "run on top" of the operating
system and draw upon the services that the operating system's
"platform" provides.
41.
The "World Wide Web" or "Web" is a massive collection of digital
information resources stored on servers throughout the Internet.
42.
A "Web client" is software that, when running on a computer connected
to the Internet, sends information to and receives information from Web
servers throughout the Internet. Web clients and servers transfer data
using a standard known as the Hypertext Transfer Protocol ("HTTP").
43.
A "Web browser" is a type of Web client that enables a user to select,
retrieve, and perceive resources on the Web. In particular, Web
browsers provide a way for a user to view hypertext documents and
follow the hyperlinks that connect them, typically by moving the cursor
over a link and depressing the mouse button. Although certain Web
browsers provided graphical user interfaces as far back as 1993, the
first widely popular graphical browser distributed for profit, called
Navigator, was brought to market by the Netscape Communications
Corporation in December 1994. Microsoft introduced its browser, called
Internet Explorer, in July 1995.
GOVERNMENT ACTION
44.
The United States Department of Justice ("DOJ") complained of and
investigated, among other things, Microsoft's illegal and
anti-competitive practices in the operating system market in United States v. Microsoft,
Civil No. 94-1564 (D.D.C. Petition filed July 15, 1994) ("Microsoft I"). The
anti-competitive practices complained of included, among others,
inducing OEMs to enter into per processor license agreements with
Microsoft, which required the OEM to pay a royalty to Microsoft on
every machine the OEM shipped regardless of whether the machine
contained MS-DOS, another operating system, or no operating system.
Thus, an OEM could only use a competing operating system if it was
willing to pay twice - once to Microsoft and once to Microsoft's
competitor.
45.
The United States District Court for the District of Columbia entered a
final judgment in Microsoft I
on August 21, 1995, which barred several anti-competitive terms in
Microsoft's agreements with OEMs. Prohibited contract provisions
included per processor license provisions, license terms exceeding one
year in length, provisions prohibiting or restricting OEMs from
licensing or distributing non-Microsoft Operating Systems, provisions
conditioning an OEM's license of one Microsoft operating system product
upon the license of another Microsoft product or upon the OEM not
licensing a non-Microsoft product, minimum commitment provisions, and
provisions requiring royalty payments to Microsoft other than on a
per-copy or per-system basis.
46.
In 1997, the United States sought to have Microsoft held in contempt
for violating the 1995 Final Judgment, in large part due to Microsoft's
requirement that OEMs license and distribute Microsoft's Internet
browser as a condition of obtaining a license for Windows 95. Despite
the court's entry of a preliminary injunction on December 11. 1997,
Microsoft on December 15, 1997 publicly announced that any OEM that did
not agree to license and distribute Internet Explorer could not obtain
a license to the current version of Microsoft' s Windows operating
system.
47.
Subsequent proceedings led to a renewed complaint by the United States.
On May 18, 1998, the DOJ, joined by twenty states and the District of
Columbia, filed suit against Microsoft alleging various antitrust
violations ("Microsoft II").
The DOJ and Microsoft vigorously litigated the merits of DOJ's
allegations for eighteen months. On November 5, 1999, Judge Thomas
Penfield Jackson released his Findings of Fact ("Findings of Fact")
based on the extensive evidence presented during the bench trial.
48.
Judge Jackson's Findings of Fact concluded, inter alia, that Microsoft had
held and continues to hold a monopoly in the market for
"Intel-Compatible PC Operating Systems"; that Microsoft has sustained
and perpetuated this monopoly by using anti-competitive and
unreasonably exclusionary conduct to gain advantage; and that Microsoft
has leveraged its advantageous position to restrict competition in
other software markets.
49.
On April 3, 2000, Judge Jackson issued his Conclusions of Law
("Conclusions of Law" which are incorporated herein as if here fully
set forth) in Microsoft II,
87 F. Supp.2d 30 (D.D.C. 2000), in which he stated, inter alia, that "Microsoft
maintained its monopoly power by anti-competitive means and attempted
to monopolize the Web browser market, both in violation of' the
antitrust laws. Microsoft also unreasonably restrained trade "by
unlawfully tying its Web browser to its operating system." Conclusions
of Law, 87 F. Supp. at 35.
50.
In the remedy stage, proposals submitted to the court in Microsoft II by DOJ asked
the court to split Microsoft into two different companies - with one
company retaining the Windows operating system business and the other
taking the rest of Microsoft's business, including software
applications and Internet software.
51.
The DOJ reorganization plan was recommended, in large part, to restrict
Microsoft's wrongful exercise of its combined monopoly power over
operating system and applications software, and to prevent it from
continuing to leverage its monopoly power in the operating system
market to exert control over and raise barriers to entry in the
software applications markets, and thereby to stifle competition and
charge higher prices in the applications markets.
52.
On June 6, 2000, the Microsoft
II court approved the DOJ proposal and directed that Microsoft
be split into two separate companies. However, the court stayed
implementation of such relief pending an appeal by Microsoft.
BACKGROUND
53.
In 1981, Microsoft released the first version of its Microsoft Disk
Operating System, commonly known as "MS-DOS." The system had a
character-based user interface that required the user to type specific
instructions at a command prompt in order to perform tasks such as
launching applications and copying files. When International Business
Machines Corporation ("IBM") selected MS-DOS for pre-installation on
its first generation of PCs, Microsoft's product became the predominant
operating system sold for Intel-compatible PCs.
54.
In 1985, Microsoft began shipping a software package called Windows.
The product included a graphical user interface, which enabled users to
perform tasks by selecting icons and words on the screen using a mouse.
Although originally just a user-interface, or "shell," sitting on top
of MS-DOS, Windows took on more operating-system functionality over
time.
55.
In 1995, Microsoft introduced a software package called Windows 95,
which announced itself as the first operating system for
Intel-compatible PCs that exhibited the same sort of integrated
features as the Mac OS running PCs manufactured by Apple Computer, Inc.
("Apple"). In June 1998, Microsoft released its successor, Windows 98.
56.
Microsoft is the leading supplier of operating systems for PCs. The
company transacts business in all fifty of the United States and in
most countries around the world.
57.
Microsoft licenses copies of its software programs directly to
consumers. The largest part of its MS-DOS and Windows sales, however,
consists of licensing the products to OEMs such as IBM and Compaq
Computer Corporation ("Compaq"). An OEM typically installs a copy of
Windows onto one of its PCs before selling the package to a consumer
under a single price.
MICROSOFT'S MONOPOLY POWER IN THE
RELEVANT MARKETS
The Relevant Product Markets
58. At all material times, Microsoft has had monopoly power in the
following product markets:
a.
The licensing of Intel-compatible personal computer ("PC") 'operating
system software; and
b.
The licensing of Intel-compatible PC applications systems software,
including word processing, spreadsheet, and office suite software.
The
Relevant Geographic Market
59.
At all material times, the relevant geographic market for the class
action claims asserted for the relevant product markets is the state of
Minnesota.
Microsoft's Monopoly Power In The
Relevant Market For Operating Systems
60.
Since the mid-1980s, Microsoft has dominated the operating system
software market. For example, in the United States, its market share at
times has exceeded 95 percent. Beginning in the late-1980s and
continuing through the present, Microsoft engaged in a series of
predatory acts designed to, and which did, eliminate competition and
prevent entry in the operating system market. Software companies
offering superior operating systems and/or lower prices, namely,
Digital Research, Inc. ("DRI") and International Business Machines
("IBM"), were not able to compete with Microsoft because of Microsoft's
unlawful conduct. Microsoft has had no significant competitor in the
operating system market since DRI and IBM were eliminated as meaningful
competitors in 1994. In addition, Microsoft has possessed a dominant
and persistent share of the Minnesota market for Intel-compatible PC
operating system software. During most of the Class Period, Microsoft's
share of this market has been at least 95% (extrapolating from
Microsoft's share of the United States market for Intel-compatible PC
operating system software).
61.
The inability of server operating systems, non-Intel compatible PC
operating systems, information appliances, network computers,
server-based computing and middleware generally to provide a reasonable
substitute for Microsoft's operating systems or to discipline its
monopoly power is set forth in the Findings of Fact at ¶¶
19-32. It would be prohibitively expensive for a new Intel-compatible
operating system to attract enough developers and consumers to become a
viable alternative to a dominant incumbent in less than a few years.
Findings of Fact at ¶ 31.
62.
Throughout the Class Period, Microsoft has had monopoly power in the
relevant market for operating systems. Findings of Fact of ¶ 33.
Microsoft can and has exercised this power by charging a price for its
Intel-compatible PC operating system software that is substantially
above that which could be charged in a competitive market, and it can
and has done so for a significant period of time without losing
business to competitors.
Microsoft's
Monopoly Power In The Relevant Market For Word Processing Applications
63.
Microsoft has possessed a dominant, persistent and increasing share of
the Minnesota market for Intel-compatible PC word processing
applications software through its Microsoft Word product. Currently,
Microsoft's share of this market in the United States is approximately
86%. Microsoft's market share in Minnesota is similar, on information
and belief.
64.
It would be prohibitively expensive for new Intel-compatible word
processing applications software to attract enough consumers to become
a viable alternative to a dominant incumbent in less than a few years.
65.
Throughout the Class Period, Microsoft has had monopoly power in the
relevant market for word processing applications software. Microsoft
can and has exercised this power by charging a price for its
Intel-compatible PC word processing applications software that is
substantially above that which could be charged in a competitive
market, and it can and has done so for a significant period of time
without losing business to competitors.
Microsoft's Monopoly Power In The
Relevant Market For Spreadsheet Applications
66.
Microsoft has possessed a dominant, persistent and increasing share of
the Minnesota market for Intel-compatible PC spreadsheet applications
software through its Microsoft Excel product. Currently, Microsoft's
share of this market in the United States is approximately 87%.
Microsoft's market share in Minnesota is similar, on information and
belief.
67.
It would be prohibitively expensive for new Intel-compatible
spreadsheet applications software to attract enough consumers to become
a viable alternative to a dominant incumbent in less than a few years.
68.
Throughout the Class Period, Microsoft has had monopoly power in the
relevant market for spreadsheet applications software. Microsoft can
and has exercised this power by charging a price for its
Intel-compatible PC spreadsheet applications software that is
substantially above that which could be charged in a competitive
market, and it can and has done so for a significant period of time
without losing business to competitors.
Microsoft's Monopoly Power In The
Relevant Market For Office Suite Applications
69. Microsoft has possessed a dominant, persistent and increasing share
of the Minnesota market for Intel-compatible PC office suite
applications software through its Microsoft Office and Office Suite
products. Currently, Microsoft's share of this market in the United
States is approximately 89%. Microsoft's market share in Minnesota is
similar, on information and belief.
70. It would be prohibitively expensive for new Intel-compatible office
suite applications software to attract enough consumers to become a
viable alternative to a dominant incumbent in less than a few years.
71. Throughout the Class Period, Microsoft has had monopoly power in
the relevant market for office suite applications software. Microsoft
can and has exercised this power by charging a price for its
Intel-compatible PC office suite applications software that is
substantially above that which could be charged in a competitive
market, and it can and has done so for a significant period of time
without losing business to competitors.
SOFTWARE DISTRIBUTION SYSTEM
72.
Microsoft considers its software to be its exclusive intellectual
property. Consequently, as stated by Microsoft, it "does not
technically `sell' the software to anyone." Rather, it " licenses the
software for specified purposes only." Affidavit of Robert Vellone,
dated March 24, 2000, filed in Precision Billing Services, Inc. v.
Microsoft Corp., No. 99-896-GPM (S.D. Ill.), ¶ 6. With regard to
operating system software, Microsoft grants licenses to OEMs that
permit them to pre-install it on PCs sold to end-users, while Microsoft
grants different licenses to end-users that permit them to use the
software on the PCs they purchase. The terms of Microsoft's written
licenses are dictated and drafted solely by Microsoft.
73.
Microsoft distributes its software licenses in the United States and
worldwide through multiple channels. Early on, Microsoft recognized the
OEMs, such as Dell and Compaq, as the single, most important channel
for distribution of operating system and applications software
licenses. Microsoft intentionally used its monopoly power in the
operating system market to capture, dominate, and exclusively control
the OEM distribution channel. As a result, Microsoft's captive OEM
channel functions as Microsoft's distributor for the large majority of
all Microsoft operating system licenses with end-users of PCs. The
remainder of Microsoft 's software licenses are offered to end-users
through retailers, such as CompUSA and Staples, other distributors and
resellers, and Microsoft itself.
74.
Microsoft has used its monopoly in the operating system market to
dictate the terms and conditions under which OEMs are engaged, on
Microsoft's behalf and as Microsoft's agent, to communicate Microsoft's
offers of end-user licenses to purchasers of PCs. OEMs have no choice
but to accede to Microsoft's demands. Because of Microsoft's monopoly,
both the OEMs and Microsoft believe that there does not exist a single,
commercially viable alternative to the pre-installation of Microsoft
operating systems on PCs manufactured and sold by OEMs. Conclusions of
Law, 87 F. Supp. at 37. Because OEMs have no other viable choice,
Microsoft effectively forced OEMs to pre-install Microsoft operating
systems on their PCs and to act as Microsoft 's agents in offering
end-user licenses for acceptance or rejection by customers under terms
strictly and exclusively dictated by Microsoft. As an example of
Microsoft's domination and control of the OEM distribution channel,
Microsoft strictly limits the freedom of OEMs to add to, delete from,
or modify the operating system, its start-up sequence, or the content
and appearance of the Windows desktop.
75.
End-users can acquire Microsoft software licenses from the company by
calling a 1-800 telephone number or accessing Microsoft's Internet Web
site at "shop.microsoft.com."
76.
End-users were the targets and foreseeable victims of Microsoft's
anti-competitive conduct alleged herein and have paid
artificially-inflated prices for Microsoft's software licenses.
Microsoft requires end-users who obtain Microsoft software
pre-installed on a personal computer to enter into an end-user license
agreement with Microsoft. Microsoft dictates the terms of agreements
under which distributors and retailers are engaged, on Microsoft's
behalf and as Microsoft's agent, to communicate Microsoft's offers of
end-user licenses. These agreements provide, among other things, for a
refund to be paid to the end-user of the cost of the operating system
or applications software, as the case may be, if the end-user declines
to enter into Microsoft's required license. The license also provides
significant restrictions on the use of the software by the licensee and
grants Microsoft certain rights and remedies against the licensee for
breach of the license agreement.
77.
Contrary to software industry practice and what had been Microsoft's
practices prior to the Class Period, end-users who purchased new PCs
through the OEM distribution channel during the Class Period were
anti-competitively (a) prevented by Microsoft from effectively
returning the Microsoft operating system for a refund (notwithstanding
the terms of Microsoft's end-user license), (b) prohibited by Microsoft
from installing on their new PCs the Windows 95 or Windows 98 operating
system on their existing PC, and (c) prohibited by Microsoft from
re-selling on a stand-alone basis the Windows 95 or Windows 98
operating system products which they purchased with their new PCs.
THE APPLICATIONS BARRIER TO ENTRY
78.
There is a barrier to entry into the operating system market known as
the "applications barrier to entry," which Microsoft has predatorily
used as a key mechanism for maintaining its operating system monopoly.
Microsoft went to great lengths, as alleged below, to destroy the
competitive position of any software product that threatened to weaken
or eliminate that barrier.
79.
The applications barrier to entry results from the nature of the demand
for PC operating systems. Consumer interest in an operating system
derives primarily from the ability of that system to run software
applications. The fact that a vastly larger number of applications have
been written to run on Microsoft operating systems than on other PC
operating systems has attracted consumers to Microsoft's operating
system; they can be confident that their interests in applications will
be met as long as they use Microsoft's product.
80.
Software development is characterized by substantial economies of
scale. The fixed costs of producing software, including applications,
is very high. By contrast, marginal costs are very low. Moreover, much
of the cost of developing software is "sunk" - once expended, such
resources cannot be used for another purpose. The result of economies
of scale and sunk costs is that developers write their applications
only to those operating systems that have a large enough installed base
to generate sufficient sales to justify the developers' development
costs.
81.
An application that is written for one PC operating system will operate
on another PC operating system only if it is converted to run on that
system. Converting applications is both time-consuming and expensive,
especially since it involves using the same programmers who developed
the program originally and who otherwise would be working on the next
version of the application. Therefore, applications developers tend to
write first to the operating system software with the most users.
Developers might then convert their applications to other operating
systems software, but only to the extent that the added sales justify
the cost of conversion, including opportunity costs. In order to
recover that cost, ISVs that do go to the effort of converting
frequently set the price of converted applications considerably higher
than that of the original version.
82.
The applications barrier to entry also results from the positive
network effect associated with computer software. That is, software's
attractiveness increases with the number of people using it. Thus, the
multitude of people using MS-DOS or Windows makes the products more
attractive to consumers. In turn, the size of the Windows and MS-DOS
installed base impels ISVs to write applications first and foremost to
run on those operating systems, thereby ensuring a large body of
applications. The large body of applications thus has reinforced demand
for MS-DOS and Windows, augmenting Microsoft's dominant position and
perpetuating ISVs incentives to write applications principally for
MS-DOS and Windows. This self-reinforcing cycle is often referred to as
a "positive feedback loop."
83.
The small or non-existent market share of an aspiring competitor makes
it prohibitively expensive for the aspirant to develop its PC operating
system into an acceptable substitute for MS-DOS or Windows. To provide
a viable substitute for MS-DOS or Windows, another PC operating system
would need a large and varied base of compatible applications that was
comparable to Microsoft's installed base in size and variety. Even if
the contender attracted several thousand compatible applications, it
would still look like a gamble from the consumer's perspective next to
MS-DOS and Windows, which support over 70,000 applications. The amount
it would cost an operating system software vendor to make that many
applications available is prohibitively large.
84.
In deciding whether to develop an application for new operating system
software, an ISV's first consideration is the number of users it
expects the operating system software to attract. Out of this focus
arises a collective-action problem: each ISV realizes that the new
operating system software could attract a significant number of users
if enough ISVs developed applications for it; but few ISVs are willing
to sink resources into development for the system until it becomes
established. Since everyone is waiting for everyone else to bear the
risk of early adoption, the new operating system has difficulty
attracting enough applications to generate a positive feedback loop.
The vendor of a new operating system cannot effectively solve this
problem by paying the necessary number of ISVs to write for its
operating system, because the cost of doing so would dwarf the expected
return.
85.
While the applications barrier to entry has been formidable, it is not
necessarily insurmountable or permanent. Middleware products appeared
in the market in the late 1980s and in the 1990s that threatened to
eliminate the barrier. Microsoft, however, was vigilant and
successfully undertook anti-competitive acts and practices to forestall
and eliminate middleware threats and retain the full force of the
applications barrier.
MICROSOFT'S
ANTI-COMPETITIVE ACTIVITIES IN THE OPERATING SYSTEM MARKET
Overview
86.
Through predatory conduct, Microsoft successfully fended off two types
of challenges to its operating system monopoly. One type came from two
competing operating systems, Digital Research's DR-DOS and IBM's OS/2.
Both were positioned to compete vigorously against MS-DOS. Through a
series of predatory acts from 1988 through 1994, however, Microsoft
essentially eliminated both DR-DOS and OS/2 from the market.
87.
The next type of challenge to Microsoft's monopoly was by several
middleware products, which from 1988 to 1998, threatened to weaken or
circumvent the applications barrier to entry that insulated Microsoft
from competition. Microsoft responded to this threat with additional
exclusionary conduct designed to keep the applications barrier and
Microsoft's monopoly intact.
88.
In 1981, Microsoft became a significant supplier of PC operating system
software when it contracted with IBM to design and develop operating
system software for the IBM personal computer. By the mid-1980s,
Microsoft's operating system, called MS-DOS, had become entrenched as
the standard for Intel-compatible personal computers.
89.
By 1987, several OEMs, whose computers were sold with operating systems
pre-installed, approached DRI, a Microsoft competitor, about developing
a better operating system than MS-DOS. In 1988, DRI released its
operating system software under the name DR-DOS. Given the relative
lack of complexity of MS-DOS at that time, DRI was readily able to
clone that software, i.e., DR-DOS could support the same applications
software as MS-DOS supported. In addition, DR-DOS included features
that MS-DOS lacked. DR-DOS received numerous industry awards and was
sold at a lower price than MS-DOS.
90.
Unable or unwilling to legitimately compete with DR-DOS by attempting
to offer a better or lower-priced product, Microsoft instead embarked
on a series of unlawful predatory acts designed to drive DRI from the
market. These predatory acts focused largely on the OEM channel, which
distributed the vast majority of operating system software by
pre-installing it on computers. By controlling this critical
distribution channel to the exclusion of DR-DOS, Microsoft made DRI's
competitive position untenable, and by 1994 DRI was forced to exit the
market.
91.
Indeed, Microsoft realized by the mid-1980s that MS-DOS was becoming
obsolete and began working with IBM to develop the next generation
operating system. The first version of Microsoft and IBM's joint
efforts was released in 1987 under the name OS/2. By 1990, Microsoft's
Windows software, which contained some of the graphical user interface
("GUI") elements that Microsoft had developed for OS/2, was gaining
popularity, and Microsoft decided to focus its efforts on Windows to
the exclusion of OS/2. IBM took over exclusive development of OS/2. The
GUI model that IBM developed for OS/2 is still the model for all GUI's
today. In fact, the second generation of OS/2 won over many Window 3.x
users because of its superior performance.
92.
Again, unable or unwilling to compete on the merits, Microsoft resorted
to a course of anti-competitive conduct directed at OS/2. By the end of
1994 Microsoft's predatory conduct had the desired effect of
eliminating OS/2 as a significant competitor. Many of Microsoft's
anti-competitive acts were the same as or similar to those targeted at
DR-DOS.
93.
By the end of 1994, with Microsoft's two competitors essentially out of
the market, any challenge to Microsoft's monopoly could only come from
a new entrant. But any potential competitor faced the applications
barrier to entry. By 1994, moreover, a new competitor could not
circumvent the barrier by cloning Windows, as that software had become
much too complex to be cloned.
94.
Since at least the late 1980s, part of Microsoft's strategy has been to
protect its operating system monopoly by unlawfully maintaining the
applications barrier. The threat to the applications barrier has come
from middleware, which exposes APIs (or their equivalent) that can
substitute for or enhance some of the functionality of the operating
system; applications written to middleware APIs, therefore, can run on
any of several operating systems. Thus, middleware has the capacity to
weaken or eliminate the applications barrier to entry by, as Bill Gates
stated, "commoditizing" the operating system. When middleware has
threatened to undermine or eliminate the barrier, Microsoft's response
has been swift and predatory.
95.
An early threat came from Mirrors, Micrographx 5 software developer
tool that allowed applications designed to run on MS-DOS to also run on
OS/2. Microsoft's exclusionary conduct, however, drove Mirrors from the
market.
96.
Borland International, Inc.'s developer tools, which were the market
leader in the early 1990s, like Mirrors, allowed software developers to
easily convert applications from one operating system to another. As
with Mirrors, Microsoft engaged in anti-competitive conduct that
essentially eliminated Borland's product from the market.
97.
The Micrographx and Borland threats were followed in the mid-1990s by a
string of middleware products that threatened to diminish the
applications barrier to entry: (1) a software product called Notes,
distributed first by Lotus and then by IBM, (2) Netscape's Navigator,
an Internet browser, (3) Java technologies, a programming language and
related software developed by Sun Microsystems, (4) Intel's Native
Signal Processing software, and (5) Apple's and RealNetwork's
multimedia playback technologies.
98.
Microsoft understood that each of these products facilitated the
development of applications programs that would be indifferent to the
identity of the underlying operating system. Microsoft responded
predatorily to each such product.
Exclusion of DR-DOS
99.
In 1981, Microsoft contracted with IBM to design and develop the
operating system software for the IBM PC. Microsoft acquired rights
from another company for a product called "QDOS," which borrowed
heavily from an operating system developed by DRI called CP/M.
Microsoft changed the name to MS-DOS and licensed it to IBM and others.
100.
By the mid-1980s, MS-DOS had become entrenched as the standard in the
Intel-compatible PC operating systems market. The price of MS-DOS in
the OEM channel escalated from $2-$5 per copy in the 1981-1982 period
to $25-$28 per copy by 1988.
101.
Because of Microsoft's apparent decision not to innovate or extend the
capabilities of MS-DOS, a number of OEMs approached DRI to develop an
improved version of DOS. In addition, a number of OEMs who simply could
not get Microsoft to deal with them expressed an interest in DRI as an
alternative DOS software supplier. Accordingly, in 1987, DRI began
planning a new version of DOS, to be called DR-DOS.
102.
The results of DRI's efforts was a product designated as DR-DOS 3.31,
introduced in 1988, followed by an enhanced DR-DOS 5.0 in 1990 and
DR-DOS 6.0 in 1991. These DOS versions were significantly superior to
then-existing versions of MS-DOS in many areas, receiving numerous
industry awards and enthusiastic reviews. DR-DOS was offered at prices
below the inflated price levels of MS-DOS products.
103.
Microsoft responded to the DR-DOS threat with a number of
anti-competitive practices, including:
a.
constructing a wall of per processor licenses beginning in 1988 when
DR-DOS was released. Microsoft OEM status reports had repeated
references to these practices, such as: "Opus agreement has finally
been signed by Redmond. Another DRI prospect bites the dust with a per
processor DOS agreement," or "DRI visited Hyundai executives and
pricing issue was raised again. The new license is a per processor
deal, which allowed us to completely kick out DRI." One OEM, U.S. Micro
Express, stated with respect to a per processor license that "We were
not given the option of licensing MS-DOS on any other basis"
b.
entering into long term "take or pay" minimum commitment licenses. Even
though the life cycle of a DOS release was somewhat less than two
years, Microsoft pushed for agreements of two or three years in
duration. This was a key part of the "Strategy Against DRI" presented
in June 1991 to the Microsoft OEM sales force;
c.
requiring prepaid balances from OEMs, tying them to Microsoft through
the threat that they would forfeit any prepaid amount not used during a
contract period unless a new license was signed;
d.
implementing a "DOS clone check" in 1989 on foreign versions of
Windows, as evidenced by this message from the Microsoft Korean
subsidiary:
Bill
Gates ordered to all application business units to include checking
routines of operating environments and if it is Microsoft DOS, nothing
will happen. But if it is non MS-DOS (such as DR-DOS), application will
display messages saying that "This application has been developed and
tested for MICROSOFT MS-DOS. Since you use different environment, this
application may not work correctly...."
A
similar DR-DOS detection and warning was implemented in Microsoft's
QuickPascal, with a message that warned that use of the product with
another operating system "may void valuable warranty protection by
Microsoft ...."
e.
making false, misleading and premature announcements such as the one in
June 1990, within a week of DRI's announcement of DR-DOS 5.0, that
Microsoft intended to release by September 1990 MS-DOS 5.0, that would
have all the technical advantages of DR-DOS 5.0. MS-DOS 5.0 in fact was
not released until June 1991, over one year after Microsoft'
announcement, without the promised features. Microsoft made similar
preemptive vaporware announcements of MS-DOS 6.0, MS-DOS 7.0 (which
never came to market as a stand-alone product) and Windows 95, in
direct response to DR-DOS 6.0 and Novell DOS 7.0. (Novell acquired DRI
in 1991.) Microsoft knew these announcements were false and misleading
when made;
f.
engaging in merger discussions with Novell immediately after Novell's
acquisition of DRI, and insisting as a part of the proposed merger that
Novell divest DRI, with the ulterior purpose of causing Novell to slow
down its integration of DR- DOS. When Microsoft's merger discussions
broke down in 1992, DR-DOS was wounded as a competitor;
g.
announcing in the Fall of 1991 that DR-DOS would not be compatible with
the next release of Windows, scheduled for release in April 1992. To
reinforce the impression of incompatibility, Microsoft released test or
so-called "beta" versions of Windows containing code that generated
misleading error messages when Windows ran on top of DR-DOS;
h.
creating deliberate incompatibilities between Windows and DR-DOS, so
that Windows would not run properly on DR-DOS;
i.
unleashing a "FUD" campaign to create "fear, uncertainty and doubt" in
the OEM and retail channel regarding the use of DR-DOS. In May 1991,
Sergio Pineda of Microsoft circulated to all OEM account managers the
following regarding the theme of the campaign:
Any
degree of incompatibility is enough to create fear, uncertainty &
doubt among end users when it comes time to buy new systems - this
suggests that PC OEMs will take on a big risk if they ship DR-DOS with
their systems.
We
recommend that we "informally" plant the bug of FUD in their ears.br>
j.
reporting supposed flaws in DR-DOS to the media as crippling "bugs,"
while not mentioning to the media that MS-DOS releases had such severe
bugs that Microsoft was required immediately to release "patches" to
cure them. A July 1991 memo from a Microsoft executive states: "We are
engaged in a FUD campaign to let the press know about some of the bugs.
We'll provide info a few bugs at a time to stretch it out";
k.
putting Novell on a "beta blacklist," i.e., refusing to provide a
Windows 3.1 beta to Novell' s DR-DOS development team, thereby
hampering Novell's ability to offer a Windows 3.1-compatible release of
DR-DOS;
l.
inserting secret, encrypted code into the final Windows 3.1 (beta)
version that triggered a false error message whenever a computer was
running DR-DOS with Windows. This AARD Code had the intended effect of
creating concern among OEMs about DR-DOS. The code was removed from the
final (nonbeta) version of Windows 3.1;
m.
informing certain OEMs that they could not obtain Windows or be given
access to essential information, including product support and service,
if they did not purchase and ship MS-DOS to the exclusion of DR-DOS;
n.
retaliating against industry participants who supported DR-DOS. For
example, when Z-Nix Inc. bundled DR-DOS 6.0 and Microsoft Windows 3.1,
proclaiming no incompatibilities, Microsoft's Brad Silverberg wrote:
"look what znix is doing! cut those f*****s off." Within three weeks,
Microsoft demanded an audit of Z-Nix's entire business and then
commenced a copyright and trademark infringement action. Z-Nix was
forced to file for bankruptcy in or around 1995;
o.
establishing a pricing structure for Windows that made it prohibitively
expensive to buy that product without also buying MS-DOS. Microsoft
often instructed its OEM account managers to inform their OEMs that the
price for Windows alone would be higher than the price of Windows and
MS-DOS combined.
104.
In September 1994, as a result of Microsoft's anti-competitive conduct,
Novell announced that it would cease the marketing and development of
DR-DOS. After this announcement, the price of Windows increased.
Microsoft had succeeded in eliminating the one competitor that, because
its DOS program had the same original source as Microsoft, was not
affected by the applications barrier to entry.
Virtual Elimination
of OS/2
105.
In the mid-1980s, Microsoft and IBM decided to collaborate on a new
operating system that would replace MS-DOS. The product, which was
later sold under the name OS/2, was intended to be a state-of-the-art,
GUI-based operating system. However, as Microsoft's Windows software
became more successful and as Microsoft's monopoly position became more
entrenched by Microsoft obtaining per-processor licenses and engaging
in other exclusionary tactics, the company lost interest in
collaborating with IBM. In 1991, IBM and Microsoft terminated their
joint development agreement, leaving IBM to continue developing OS/2
alone.
106.
After Microsoft's relationship with IBM ended, Microsoft launched a
predatory campaign to drive OS/2 from the market. It pursued a course
of conduct very similar to the one it used to exclude DR-DOS from the
market. Thus, Microsoft relied on restrictive OEM licenses that
effectively cut off IBM from the critical OEM channel; it made false
and misleading vaporware announcements and pre-announcements; it
refused to write its applications to run on OS/2; it engaged in FUD
campaigns and product disparagement in an effort to devalue OS/2 in the
minds of applications developers, OEMs and consumers; and it created
deliberate incompatibilities between Windows and OS/2.
107.
In addition, as alleged below, Microsoft engaged in exclusionary
conduct to drive from the market, developer tools that enabled
applications originally written to run on Microsoft's operating system
to be ported to OS/2.
Microsoft's Anti-competitive Maintenance of The Applications Barriers
to Entry
108.
By 1994, Microsoft had destroyed its two competitors in the operating
system market. By 1994, moreover, Microsoft was secure that it would
not encounter new competition from another clone operating system like
DR-DOS. By then, Windows was simply too complex to be cloned. Only a
non-clone, therefore, could potentially enter the operating system
market. However, the applications barrier to entry made entry by a
non-clone prohibitively expensive.
109.
Microsoft's unlawful conduct alleged herein, in addition to the
exclusionary conduct intended to drive DR-DOS and OS/2 from the market,
also consisted of predatory responses to the introduction or growing
popularity of software products that threatened to weaken or eliminate
the applications barrier to entry. A succession of such products
appeared in the market between 1988 and 1998 and were met with a rapid,
strong and predatory response by Microsoft. Microsoft engaged in
continuing violations of the Minnesota Antitrust Law by means of such
exclusionary, predatory conduct and other conduct which it specifically
intended to create market conditions in which end-users were forced to
purchase Microsoft products and were deprived of competitive
substitutes therefor.
Microsoft's Predatory Response To
Micrographx's Mirrors
110.
In the late 1980s, Micrographx offered a developer tool called Mirrors
that allowed Windows applications readily to be ported to OS/2 and vice
versa. Mirrors, therefore, had the capacity to substantially weaken the
applications barrier to entry. Microsoft engaged in anti-competitive
acts to eliminate the Mirrors threat.
111.
Microsoft induced Micrographx to share its confidential intellectual
property on the representation that Microsoft was interested in
licensing Mirrors for its applications programmers, and Microsoft
signed a non-disclosure agreement. However, Microsoft then stopped
pursuing such a license and eventually developed developer tools
similar to Mirrors that it incorporated into its operating system,
essentially eliminating demand for Mirrors as a stand-alone product.
112.
Promptly after Microsoft declined to license Mirrors, Micrographx
sought to license the product to IBM. To avoid the prospect that IBM
would obtain the Mirrors technology and be able to port Windows
applications to run on OS/2, Microsoft took predatory actions designed
to, and which did, prevent that result.
Microsoft's Predatory Response To
Borland's C++
113.
In the early 1990s Borland's C++ was the most popular programming
language among PC applications developers. Borland's C++ had an Object
Windows Library ("OWL") that enabled programmers to write applications
that were platform independent, i.e., the applications could be written
to OWL's, not the operating system's, APIs. Eventually, Borland
innovated OWL to the point where it could be used to write applications
that could be ported to Windows, OS/2, Macintosh, and Unix with
virtually no conversion effort.
114.
Seeing the threat that OWL posed to the applications barrier to entry,
Microsoft embarked on a campaign to cripple Borland's C++. Microsoft
prematurely announced the release of new versions of its competing
developer tools and made false "vaporware" claims, to deprive Borland
of the advantages of being the first mover and having the superior
product.
115.
Furthermore, Microsoft refused to renew the license for its software
developer kit ("SDK") to Borland unless Borland 's C++ also carried and
supported MFC, which was Microsoft's counterpart to OWL. Borland
literally could not sell C++ without SDK; on the other hand, if it
shipped MFC in addition to OWL, developers would choose MFC as it would
be the only library available as part of both the Borland and Microsoft
developer tools. Borland had no choice but to choose the latter option.
Microsoft 's developer tools soon became dominant and its MFC, which
carried the Windows APIs, perpetuated the applications barrier to entry.
Microsoft's Predatory Response To
Intel's Native Signal Processing
116.
Microsoft's quashing of Intel's Native Signal Processing ("NSP") is yet
another example of Microsoft's relentless campaign to eliminate all
threats to its operating system monopoly.
117.
In 1995, Intel had developed NSP software, which promised to "endow
Intel microprocessors with substantially enhanced video and graphics
performance." Findings of Fact at ¶ 95. But because NSP had the
potential to serve as a platform on which applications could be
developed, Microsoft forced Intel into ceasing NSP development, flatly
precluding that innovation from reaching consumers. Findings of Fact at
¶¶ 94-103. The Court found that "as late as the end of
1998... Microsoft still had not implemented key capabilities that Intel
had been poised to offer consumers in 1995." Findings of Fact at ¶
101. Even after quashing the threat of Intel's NSP software, Bill Gates
told Intel at a meeting in August 1995 that Intel could not count on
Microsoft to support Intel's next generation of microprocessors if
Intel was developing platform-level software that competed with
Windows.
Microsoft's
Predatory Response To Netscape's Navigator
118.
Microsoft II focused
on actions taken by Microsoft to maintain its
monopoly power after it had eliminated threats from DR-DOS and OS/2. In
particular, the case focused on Microsoft's misconduct directed at
Netscape's Web browser, Netscape Navigator.
119.
Netscape Navigator possessed middleware attributes that gave it the
potential to diminish Microsoft's applications barrier to entry. First,
it was a complement to, not a substitute for, Windows, and therefore
could gain widespread use. Second, it could serve as a platform for
other software, particularly network-centric applications that work in
association with Web pages. Third, Navigator had been ported to more
than fifteen different operating systems. If a developer wrote an
application that relied on the APIs exposed by Navigator, that
application would, without any porting of its own, run on many
different operating systems.
120.
Navigator began to enjoy tremendous public acceptance shortly after its
release in December, 1994. Microsoft soon thereafter recognized the
damage Navigator could cause its operating system monopoly. In a May
1995 memo, Bill Gates, the chairman and CEO of Microsoft, described
Netscape as a "new competitor 'born' on the Internet." He warned that
Netscape was "pursuing a multi-platform strategy where they move the
key API into the client to commoditize the underlying operating
system." That is, browsers threatened to reduce or eliminate the key
barrier to entry that protected Microsoft's monopoly share of the
operating software market.
121.
Microsoft launched a campaign to eliminate the Netscape threat. This
campaign involved many anti-competitive acts, including:
a.
attempting to convince Netscape, before Microsoft launched its own
browser in July 1995, to enter into an agreement dividing the market.
Microsoft requested that Netscape not compete in operating system
software or the production of browsers for Windows 95 in return for
Microsoft's agreement not to compete in browser applications or the
production of browsers for platforms other than Windows 95. Because of
their pernicious effect on competition, such market division agreements
are per se illegal under the Minnesota Antitrust Law. Netscape rejected
the Microsoft proposal;
b.
withholding crucial technical information. At a meeting in June 1995,
Netscape representatives requested technical information from
Microsoft. A Microsoft representative indicated that Netscape's
response to Microsoft's offer of a "special relationship" would
determine whether Netscape received this information immediately or in
three months. Subsequently, despite Netscape's repeated requests for
this information, Microsoft withheld it until late October, more than
three months later. The delay forced Netscape to postpone the release
of its Windows 95 browser, causing it to miss most of the holiday
selling season;
c.
withholding a scripting tool that Netscape needed to make its browser
compatible with certain ISPs. In mid-August 1995, a Microsoft
representative informed Netscape that Microsoft was linking the grant
of a license for the scripting tool to the resolution of all open
issues. Netscape never received the license and, as a result, was
unable for a time to do business with certain ISPs;
d.
conditioning the placement of an Internet Service Provider on the
"Internet Connection Wizard" screens or in the Online Services folder
in Windows 95 on the ISP's agreement to deny most or all of its
subscribers a choice of Internet browser. Approximately one-third of
Internet browser users obtain their browsers from their service
provider, so Microsoft's exclusionary agreements with these firms had a
substantial foreclosure effect on Netscape Navigator and other browsers;
e.
entering into exclusionary agreements with Internet Content Providers
such as Disney, Hollywood Online, and CBS Sportsline, which provide
news, entertainment, and other information from sites on the Web. In
order to achieve priority placement on the Windows desktop screen after
installation of Internet Explorer, Microsoft required ICPs to agree:
(i) not to compensate manufacturers of "other browsers" (defined as
either of the two top non-Microsoft browsers) by distributing its
browser or by payments to the other browser for distributing,
marketing, or promoting the ICP content; (ii) not to promote any other
browser; (iii) not to allow any other browser to promote the ICP
channel content; and (iv) to design the ICP Web sites using
Microsoft-specific programming extensions so that the sites looked
better with Internet Explorer than with a competing browser;
f.
imposing license restrictions that prevented OEMs from altering the
Windows 95 boot-up sequence. These restrictions increased Microsoft's
ability to require preferential treatment for Internet Explorer from
ISPs and ICPs in return for access to the Windows desktop. These
restrictions also limited an OEM's ability to substitute or feature a
non-Microsoft browser or other application;
g.
Microsoft bundled Internet Explorer with Windows 95 in licensing
agreements with OEMs, in order to foreclose choice by OEMs;
h.
Microsoft tied, both contractually and technically, Internet Explorer
to Windows 98 (in violation of the Minnesota Antitrust Law). There is a
demand for browsers that is separate and apart from the demand from
operating system software. Findings of Fact at ¶ 154. Microsoft
itself recognized this by offering Internet Explorer separate and apart
from Windows. Even users of Windows 95 could "de-install" Internet
Explorer. However, Microsoft also recognized that it could not compete
on the merits with Netscape. As Microsoft's Christian Wilfeuer wrote in
February, 1997, Microsoft had concluded that it would "be very hard to
increase browser share on the merits of [Internet Explorer] alone. It
will be more important to leverage the [operating system] asset to make
people use [Internet Explorer] instead of Navigator." To leverage its
operating system, Microsoft tied the implementation of Windows 98 with
Internet Explorer, so that it could not be simply "de-installed."
Moreover, even if Netscape Navigator is chosen as a default browser,
Windows 98 is written to override the user's choice in certain
circumstances. As Brad Chase of Microsoft wrote to his superiors near
the end of 1995, "We will bind the shell to the Internet Explorer, so
that running any other browser is a jolting experience."
122.
The result of Microsoft's campaign against Netscape Navigator was a
dramatic reversal in market share. Netscape Navigator's share fell from
above 80 percent in January 1996 to 55 percent in November 1997, and
Internet Explorer's share rose from five percent to 36 percent over the
same period. Internet Explorer's share by the latter part of 1998 was
approximately 50 percent and has been steadily rising as Windows 95
users have converted to Windows 98.
Microsoft's
Predatory Response To Sun Microsystem's Java Technologies
123.
Sun Microsystems, Inc. announced in May 1995 that it had developed the
Java programming language. The inventors of Java intended the
technology to enable applications written in the Java language to run
on a variety of platforms with minimal porting. This was a significant
development because the easier it is for developers to port their
applications to different operating systems, the more applications will
be written for operating systems other than Windows.
124.
Microsoft executives almost immediately became deeply worried about the
potential of Sun's Java technologies to diminish the applications
barrier to entry protecting their operating system monopoly. In May
1995 Netscape agreed to include a copy of Sun' s Java runtime
environment with every copy of Navigator, and Navigator quickly became
the principal vehicle by which Sun placed copies of Java on the PC
systems of Windows users.
125.
In 1996, senior executives at Microsoft became aware that the number of
developers writing network-centric applications in the Java programming
language had become significant and that Java was likely to increase in
popularity among developers. Microsoft therefore became interested in
maximizing the difficulty with which applications written in Java could
be ported from Windows to other platforms and vice versa. Microsoft
engaged in various anti-competitive acts to accomplish this purpose,
including:
a.
Microsoft discouraged developers from using Java. In 1997, Sun added a
class library called Remote Method Invocation ("RMI"), which allowed
Java applications written upon it to communicate with each other in
certain useful ways. Microsoft's license agreement with Sun required
Microsoft to offer RMI. However, because this would allow Java
developers to make applications more portable, Microsoft took action to
prevent access to RMI. Microsoft buried the RMI link in an obscure
location and neglected to include an entry for it in the site's index.
Referring to Java developers who might access Microsoft's site looking
for RMI, a Microsoft employee wrote to his approving manager "They'll
have to stumble across it to know it's there. . . . I'd say it's pretty
buried.";
b.
Microsoft licensed and then corrupted Java, by creating
Microsoft-specific Java development tools and a Windows-compatible Java
runtime environment that made porting more difficult than with the Sun
version of Java. Microsoft continued to refuse to implement Sun's RMI
method until November 1998, when a court ordered it to do so;
c.
Microsoft. discouraged business allies, such as Intel, from cooperating
with Sun, threatening that cooperation would jeopardize the business
relationship between Microsoft and the ally; and
d.
In agreements signed with ISVs in
1997 and 1998, Microsoft conditioned early Windows 98 and Windows NT
betas, other technical information, and the right to use certain
Microsoft seals of approval, on the agreement of those ISVs to use
Microsoft's version of the Windows Java as the "default." Microsoft
entered into an agreement with at least one ISV that explicitly
required it to redistribute Microsoft's Java to the exclusion of any
other.
126.
Microsoft's anti-competitive attacks upon Java, coupled with its
limitation of a primary distribution vehicle, Netscape Navigator,
effectively eliminated the threat to the applications barrier.
MICROSOFT'S
ANTI-COMPETITIVE ACTIVITIES IN THE APPLICATIONS SOFTWARE MARKETS
Overview
127.
As alleged above, Microsoft engaged in a prolonged series of
exclusionary acts to preserve its operating system monopoly. At the
same time, Microsoft abused and leveraged that monopoly power to gain
unfair advantages in various applications software markets, including
the markets for word processing, spreadsheets and office suites.
Microsoft refused to give competing applications software developers
fair access to its operating system - an essential facility without
which a computer will not operate.
128.
In addition, Microsoft displaced the dominant spreadsheet program
(Lotus 1-2-3) by engaging in a calculated effort beginning in 1989 to
convince Lotus Development Corporation to write its next spreadsheet
version to run on OS/2 without disclosing that Microsoft had already
decided to abandon OS/2 in favor of MS-DOS and Windows.
129.
Furthermore, Microsoft's anti-competitive efforts beginning in 1995 to
take market share from Navigator were designed to protect Microsoft's
monopoly in the office suites and word processing markets (in addition
to protecting Microsoft's operating system monopoly). Microsoft
understood that the growth in e-mail's popularity as a means of
communication within and between businesses and other organizations
greatly diminished such organizations' interest in word processing
programs such as Word and (by extension) office suites such as Office.
Microsoft's unlawful attack on Navigator's market share thus not only
unlawfully maintained Microsoft's monopoly in the operating system
market, but in the word processing and office suites markets as well.
Microsoft's Operating System As An
Essential Facility
130.
By virtue of its unlawful acts, Microsoft developed and maintained
control of facilities essential to competition in the market for
Intel-compatible PC applications software, including word processing,
spreadsheet, and office suite software.
131.
Such essential facilities include, among other things, the
specifications for MS-DOS and Windows.
132.
By unreasonably refusing, limiting and manipulating its actual and
potential competitors' access to the specifications while
preferentially or freely granting itself such access, and through its
other unlawful acts alleged herein, Microsoft unreasonably and unfairly
advantaged itself in the relevant applications software market alleged
herein, acquired and/or maintained monopolies in the market, and
unlawfully inflated the prices it charged for the relevant applications
software.
133.
Implicitly recognizing both that its operating system code was an
essential facility and that it had the ability to abuse its control
over that code, Microsoft claimed (falsely) until 1991 that it had
created a "Chinese wall" that prevented its own applications software
developers from having access to its operating system source codes or
the employees working on those codes.
134.
Microsoft's essential facilities are the accepted, worldwide standards
for operating systems for Intel-compatible personal computers, and
without them, the Classes herein would be deprived of the benefits of
meaningful competition in the applications software market where timely
access to Microsoft's operating system code is imperative.
135.
ISVs could not practically or economically have duplicated these
essential facilities in light of the lengthy development time, required
sunk costs, the applications barriers to entry, and other impediments.
136.
Microsoft could have easily provided timely access to its operating
system specifications to competing software vendors and others in the
normal course of business, but chose instead to preclude, limit or
delay such access in order to acquire and/or maintain monopoly power in
the relevant applications software market.
137.
Microsoft has exploited unlawfully its control over these essential
facilities to maintain and/or perpetuate its monopolies in the relevant
applications software market.
138.
Microsoft, through its control over these essential facilities and
through monopolies in the relevant market, has denied Plaintiffs and
Class members the fundamental right to product choice, and has forced
Plaintiffs and the Class members to pay supra-competitive prices for
the relevant applications software products.
Abusing and Leveraging Monopoly Power
From The Operating Systems Market
139.
Microsoft has pursued a strategy of using its power in the market for
Intel-compatible PC operating systems as leverage, through
anti-competitive acts and marketing and technical links, to acquire
and/or maintain monopoly power in the applications software market. The
anti-competitive acts used by Microsoft to acquire and/or maintain its
monopoly power in the operating system market also have allowed
Microsoft to target and monopolize the applications software market for
Intel-compatible PC word processing, spreadsheet and office suite
software.
140.
Microsoft has obtained power in the applications market by, among other
things, giving its own applications software developers early and
complete access to the revised code developed in successive versions of
its operating system. To compete with Microsoft's applications
software, non-Microsoft developers must have timely access to
Microsoft's operating system APIs, as well as to other operating system
information.
141.
To maintain its dominance over, and supra-competitive prices in, the
applications software market, Microsoft, among other things:
a.
failed to timely disclose the APIs for MS-DOS and Windows to software
developers who needed such information to create applications software
compatible with Microsoft's operating system;
b.
opposed alternative standards called "OpenDoc" that were open standards
for developing new applications. Such open standards would have freed
developers from Microsoft's attempts to dictate the way applications
software was developed. Microsoft punished competitors who supported
the open standards. Among other things, such persons would receive
"special" versions of the beta software that lacked key information
necessary for development of software products running on Windows;
c.
created a new standard OLE (object linking and embedding) for data
transfer, which Microsoft subsequently revised pursuant to requests
from its Excel developers without timely releasing those revisions to
competing developers. As a result, Excel had the opportunity for input
and early knowledge of the resulting modifications that were
unavailable to Microsoft's competitors. These competitors, particularly
Lotus 1-2-3, suffered delays of many months as they were forced to
rewrite their own applications to make them perform under the OLE
revisions.
d.
forced software developers to sign non-disclosure agreements that
barred them from receiving information on Windows 95 if they did not
support Microsoft's OLE;
e.
impeded competing ISV's development efforts by providing them with
incomplete operating system code, forcing them to accept restrictive
licenses, and barring them from attending supposedly open software
development conferences at Microsoft;
f.
impeded competing ISV's development efforts by denying promised
promotional and marketing support, forcing distributors and dealers to
exclude ISV's from their promotions, and denying ISV's promised access
to Windows' user mailing lists;
g.
intentionally made its operating system incompatible with or difficult
to operate with competitors' applications software;
h.
threatened OEMs that they would receive a license for Windows only if
they agreed not to offer competitors non-Microsoft applications
software;
i.
threatened OEMs that Microsoft would increase the price for its
operating systems if the OEMs distributed non-Microsoft applications
software;
j.
threatened to withhold from OEMs market development funds if the OEMs
distributed non-Microsoft applications software;
k.
threatened OEMs that Microsoft would withhold technical support to the
OEMs for Microsoft's operating systems, including Windows, if the OEMs
offered competitors non-Microsoft applications software; and
l. raised
the price of Windows to non-tier one OEMs in consideration for tier one
OEMs agreement to offer only Microsoft applications software.
142.
In his Findings of Fact, Judge Jackson gave specific examples of
Microsoft's anti-competitive behavior in regard to its applications
software, including its attempts to preclude IBM's installation of its
own Lotus SmartSuite bundle of office productivity software on the PCs
manufactured by IBM. Findings of Fact at ¶¶ 115-132.
Specifically, Judge Jackson found that "[w]hen IBM refused to abate the
promotion of those of its own products that competed with Windows and
Office, Microsoft punished the IBM PC Company with higher prices, a
late license for Windows 95, and the withholding of technical and
marketing support." Findings of Fact at ¶ 116, 118-131.
Microsoft's Predatory Acts
Specifically Targeted At The Spreadsheets Market
143.
In the early 1990s, Lotus 1-2-3 had the dominant share of the
Intel-compatible PC spreadsheet software market. In 1994, Microsoft
engaged in a calculated effort to persuade Lotus to write its next
version of Lotus 1-2-3 to run on OS/2 rather than MS-DOS. At the very
time that Microsoft was engaged in those efforts, it had decided for
itself to abandon any further development efforts for OS/2 and to focus
instead on further developing Windows. Microsoft withheld this critical
decision from Lotus.
144.
Microsoft's deception was successful: Lotus wrote its next spreadsheet
version for OS/2, thereby misdirecting huge sums of money in virtually
worthless development efforts. Microsoft timely released its next
spreadsheet version to run on Windows and took substantial market share
from Lotus.
Microsoft's
Predatory Acts Specifically Targeted At The Word Processing And
Office Suites Markets
145.
Netscape's browser, as alleged, threatened to weaken the applications
barrier to entry that protected Microsoft's monopoly in the operating
system market. Microsoft also recognized that Navigator posed a
dangerous threat to its applications software monopoly, particularly in
the office suites and word processing markets. As one Microsoft
executive wrote:
Netscape is using their position with
the browser as a foothold onto the desktop to push e-mail and
collaboration as the new killer applications. Any Office Suite in the
near future will have mail as its core component. As e-mail use becomes
pervasive in organizations, it will replace Word (and by extension
Office) as the most critical end user app in organizations ....
Netscape is working hard to offer a compelling application development
platform, which if successful, will greatly diminish corporation's
interests in our Office products . . . . The threat of continued low
mail client share in organizations and with consumers is that our
competitors gain control of the desktop, where they can switch existing
Office users to their solutions, sell upgrades, and drive server share
with a cohesive client-server solution . . . . In summary, we must keep
our focus on browser share. This is central to the success of Windows
and central to the success of Office. By focusing on IE today, we not
only secure the desktop and secure future Windows sales, but also gain
a user base that we can upgrade to Outlook then Office.
146.
Microsoft's predatory acts directed at Navigator, therefore, were
designed not just to protect Microsoft's operating system monopoly, but
also its monopolies in the word processing and offices suites markets.
ANTITRUST
INJURY
147.
Microsoft's exclusionary and restrictive practices described herein
have caused significant harm to Plaintiffs and the Class members.
Plaintiffs and the Class members have suffered tangible economic loss
that is reasonably capable of ascertainment.
148.
Microsoft denied Plaintiffs and Class members fundamental product
choice in the operating system and applications software markets for
word processing, spreadsheet, and office suite, which formed the
predicate for Microsoft's unlawful monopoly profiteering. Microsoft
increased, maintained or stabilized the price Plaintiffs and the Class
members paid for licenses for Microsoft's operating system and
applications software above competitive levels, virtually without
regard to the price of licenses for competing software.
149.
The Court in Microsoft II
found in one example that Microsoft priced
Windows updates 80% above a competitive price - $89 rather than $49.
Findings of Fact at ¶ 63. In addition, Microsoft then raised the
price of its superseded operating system, Windows 95, to match the
price of its current operating system, Windows 98, despite the fact
that Window 95's outmoded technology was virtually worthless. This was
a clear effectuation of Microsoft's ability to extract monopoly profits.
150.
Microsoft's supra-competitive prices are not the result of superior
products or competition on the merits. Instead, Microsoft has been
able, at Plaintiffs' and the Class members' financial expense,
artificially to inflate its profits by engaging in a series of
exclusionary acts and restrictive practices with the purpose and effect
of restraining and preventing competition and unlawfully acquiring
and/or maintaining its monopoly in the relevant markets described above.
151.
Plaintiffs and the Class members, as consumers in the markets for
operating system and applications software, were within that area of
the economy endangered by the breakdown of competitive conditions
caused by Microsoft's unlawful conduct. Plaintiffs and the Class
members were foreseeable and necessary victims of Microsoft's
monopolization, and their injury was inextricably intertwined with
Microsoft's exclusionary and illegal conduct.
152.
The heart of Microsoft's scheme was to offer a Hobson's choice to
licensees or potential licensees of operating system and applications
software. Plaintiffs and the Class members were compelled to choose
between acquiring a Microsoft operating system or applications software
license at supra-competitive cost and degradated value; or acquiring no
product or one of those few products that had been effectively
marginalized by Microsoft so as not to afford the basic performance
sought in these markets by consumers. The injury suffered by Plaintiffs
and the Class members was inextricably intertwined with the injury
Microsoft sought to inflict on the operating system and applications
software markets. Therefore, the injury to Plaintiffs and the Class
members flows from that which makes Microsoft's acts unlawful.
153.
Plaintiffs and the Class members who purchased a license to use certain
versions of Windows have in addition been harmed by the unlawful
contractual and technological tie of the Internet Explorer. Those who
use no browser, or use a competing browser, are harmed by the
performance degradation caused by the technological tie: the loss of
speed and memory caused by the unwanted browser operating code.
Findings of Fact at ¶ 173. Even those who use Internet Explorer
are harmed by the technological tie, which results in increased
operating system instability (increasing the likelihood that a browser
crash will cause a crash of the entire operating system), and increased
susceptibility to damage from malicious viruses. Findings at Fact at
¶ 174.
154.
The antitrust violations of Microsoft do not arise from a single
isolated transaction, nor even a series of transactions. Microsoft's
antitrust violations, as described herein, constitute a repeated,
continuous course of numerous transactions that fundamentally shaped
the markets for operating system and applications software such that,
for all reasonable purposes, it may fairly be said that Microsoft's
unlawful conduct became embedded in these markets.
155.
Over the many years of its continuous unlawful conduct, Microsoft has
maintained a captive OEM channel that functions as Microsoft's
distributor for the large majority of all Microsoft operating system
and applications licenses to end-users of PCs, with the remainder of
Microsoft's licenses reaching end-users through large established
retailers, distributors and resellers, and Microsoft itself. These OEMs
and other distributors of Microsoft's operating system and applications
software products do not, when acting in that capacity, suffer the
supra-competitive cost and degradation of product that is absorbed by
Plaintiffs and the Class members.
156.
Given the ongoing nature of the unlawful conduct of Microsoft and the
embedded nature of that conduct in the distribution system for
Intel-compatible personal computer operating system and applications
software, the absence of a class action remedy for Plaintiff and the
Class members would likely lead to the absence of any monetary sanction
against Microsoft under the laws of the state of Minnesota. In light of
the relationship between OEMs and Microsoft as alleged and the
admission that OEMs have elected not to sue Microsoft, there is absent
any risk of duplicative recovery. In any event, to the narrow extent
such duplication may exist, apportionment can reasonably be
accomplished.
TOLLING OF APPLICABLE STATUTES OF
LIMITATION
157.
Any applicable statutes of limitation have been equitably tolled by
Microsoft's affirmative acts of fraudulent concealment, suppression,
and denial of the true facts regarding the existence of the
monopolistic and anti-competitive practices at issue herein. Such acts
of fraudulent concealment included intentionally covering up and
refusing to publicly disclose critical internal memoranda, product
development plans and other reports of anti-competitive practices.
Through such acts of fraudulent concealment, Microsoft was able to
actively conceal from the public for years the truth about Microsoft's
anti-competitive practices, thereby tolling the running of any
applicable statutes of limitation. Moreover, Microsoft still refuses to
this day to take full responsibility for its actions, vigorously
denying all liability or even the existence of monopolistic conduct.
FIRST
CAUSE OF ACTION
(Violation of Minnesota Antitrust Law -
Illegal Combination In Restraint Of Trade)
158.
Plaintiffs reallege and incorporate herein by reference the preceding
paragraphs of this Complaint.
159.
At some point in time before the commencement of the Class Period (the
exact date being presently unknown to Plaintiffs) and continuing to
date, Microsoft and its co-conspirators entered into an illegal
contract, combination or conspiracy in unreasonable restraint of trade
in the relevant markets at issue herein, in violation of the Minnesota
Antitrust Law, Minn. Stat. § 325D.49, et seq.
160.
As a result of this violation, Plaintiffs and members of the Windows
Operating Software Class and the Windows Applications Software Class
have been injured in their business and property, in an amount which
will be established at the trial of this action.
SECOND
CAUSE OF ACTION
(Violation
of Minnesota Antitrust Law - Illegal Monopolization)
161.
Plaintiffs reallege and incorporate herein by reference the preceding
paragraphs of this Complaint.
162.
At some point in time before the commencement of the Class Period (the
exact date being presently unknown to Plaintiffs), Microsoft possessed
and continuing to this date possesses monopoly power in the market for
Intel-compatible PC operating system and applications software. Through
the anticompetitive conduct described herein, Microsoft has willfully
acquired and/or maintained its monopoly power in the relevant markets.
Microsoft has acted with an intent to illegally acquire and/or maintain
its monopoly power, and the anticompetitive conduct described herein
either conducted unilaterally or with its co-conspirators, has enabled
it to so monopolize the relevant markets or attempt or conspire to do
so in violation of the Minnesota Antitrust Law, Minn. Stat. §
325D.49 et seq.
163.
As a result of this violation, Plaintiffs and members of the Windows
Operating Software Class and the Windows Applications Software Class
have been injured in their business and property, in an amount which
will be established at the trial of this action.
PRAYER
FOR RELIEF
WHEREFORE,
Plaintiffs, individually and on behalf of each Class, pray for judgment
and relief against Microsoft as follows:
(1)
An order of this court certifying this action to proceed as a class
action and Plaintiffs as the proper class representatives;
(2)
Actual and treble damages;
(3)
Reasonable costs of suit and attorneys' fees;
(4)
Pre- and post judgment interest; and
(5)
Such other and further relief as this Court may deem necessary, proper
and/or appropriate.
JURY
DEMAND
Plaintiffs
demand a trial by jury on all causes of action so triable.
Dated:
October 22, 2002
ZELLE, HOFMANN, VOELBEL, MASON &
GETTE LLP
Richard
M. Hagstrom (Atty. No. 39445)
Michael E. Jacobs (Atty. No. 0309552)
Meghan L. Knowles (Atty. No. 0303926)
[address, phone]
Samuel
D. Heins (Atty. No. 43576)
Daniel E. Gustafson (Atty. No. 202241)
Vincent J. Esades (Atty. No. 249361)
HEINS MILLS & OLSON, P.L.C.
[address, phone]
David
E. Krause
James
B. Hovland
KRAUSE
& ROLLINS Attorneys at Law
[address, phone]
OF
COUNSEL:
Craig
C. Corbitt
ZELLE,
HOFMANN, VOELBEL, MASON & GETTE LLP
[address, phone]
Alice
McInerney
Daniel
Hume
KIRBY
MCINERNEY & SQUIRE, LLP
[address, phone]
Leonard
B. Simon
Robert
Gralewski
MILBERG
WEISS BERSHAD HYNES & LERACH LLP
[address, phone]
____________________________________
ACKNOWLEDGMENT
The
allegations in this complaint are well grounded in fact and are
warranted by existing law or a good faith argument for its extension,
modification, or reversal. Plaintiffs brings this complaint in good
faith and not for any improper purposes. Plaintiffs acknowledge that
costs, disbursements, and reasonable attorney and witness fees may be
awarded to defendant pursuant to Minn. Stat. § 549.21, subd. 2 and
Minn. Stat. § 549.211.
___________signature____________
______________________________________
AFFIDAVIT
OF SERVICE
STATE
OF MINNESOTA
COUNTY OF HENNEPIN
|
)
ss.
)
|
Sheila Stender, being first duly sworn, deposes and says that she is a
secretary in the law office of Zelle, Hofmann, Voelbel, Mason &
Gette LLP, [address]; that on the 22nd day of October, 2002 she caused
to be served by U.S. mail the Second Amended Class Action Complaint and
Jury Trial Demand on:
Robert
L. DeMay
Leonard,
Street and Deinard
[address]
David
Tulchin
Sullivan & Cromwell
[address]
___________signature of Sheila
Stender________
Subscribed and sworn to before me this
22nd day of October, 2002.
___________signature_________
Notary
Public
[notary stamp]
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