The Court of Appeals' decision reverses the most harmful parts of the earlier District Court ruling while opening the door for product integration and innovation.
By affirming the right of software developers to add new features to products without fear of antitrust liability, the decision assures that consumers continue to benefit from a competitive, innovative marketplace.
The Court of Appeals also reversed the district court's order to break up Microsoft, citing the "drastically altered" scope of Microsoft's liability.
The court's decision condemns only exclusionary conduct, not integration. On monopoly maintenance, the court reversed the most threatening of the District Court's conclusions, namely that integrating a browser into the operating system is tantamount to violating the Sherman Act.
The court recognized that such integration may provide important benefits to people, which plaintiffs never seriously attempted to rebut. The court limited its finding of liability to restrictive conduct Microsoft allegedly engaged in, such as prohibiting original equipment manufacturers (OEMs) from removing the Internet Explorer browser from the Windows desktop, and exclusive agreements Microsoft had with Internet access providers.
As the court itself observed, this conduct
occurred almost six years ago, nearly "an eternity in the computer
industry." That conduct, therefore, should provide no basis for a
breakup of Microsoft.
On attempted monopolization, the court held that the
Government had failed to properly define a market for browsers or to
show that there are any barriers to entry into that market. It
therefore reversed the lower court's findings on attempted monopolization.
On tying, the District Court held that the integration of new features into software platforms could not automatically be classified as an unlawful tying, and that such integration should instead be evaluated
under the rule of reason. This is a critical victory for the software
industry because, as the court recognized, "wooden application of per se rules may cast a cloud over platform innovation."
Significantly, the court ordered that on remand plaintiffs cannot argue any theory of harm that depends on a precise definition of browsers or barriers to entry into that alleged market.
With that preclusion, it is hard to see how the government could make out a tying case, and we would hope that it will abandon that claim.
On remedies, the court held that the District Court had denied Microsoft its day in court by refusing to conduct an evidentiary hearing on the remedies. The court also recognized that past cases of breakup orders involved entities created by mergers and acquisitions, and that breakup of a unitary company like Microsoft should not be undertaken lightly.
More important, the court suggested that, given "the drastically altered scope" of the finding of liability, a structural remedy is unlikely to be appropriate.