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The recent Microsoft appellate decision is fascinating not only with respect to the specific legal rulings made in the case. The decision is also quite thought-provoking in its consideration of how antitrust laws apply to dynamic technological markets. MICROSOFT CASE BACKGROUND AND RULINGS The United States and various States filed separate antitrust complaints against Microsoft. After three years of legal proceedings, U.S. District Court Judge Thomas Penfield Jackson found that Microsoft had maintained a monopoly in the market for Intel-compatible PC operating systems and had attempted to achieve a monopoly in the Internet browser market in violation of the antitrust laws, specifically Section 2 of the Sherman Act. He also found that Microsoft had illegally “tied” Windows and Internet Explorer IE, two purportedly separate products, in violation of Section 1 of the Sherman Act. Judge Jackson further found that Microsoft liable under analogous state antitrust laws. In an attempt to cure the antitrust violations, Judge Jackson issued a final judgment that required Microsoft to submit a proposed plan of divestiture, which would split the company into an operating systems business and an applications business. Microsoft appealed, and the U.S. Court of Appeals for the D.C. Circuit recently issued its appellate decision. The Court of Appeals found that some, but not all, of Microsoft’s liability appellate challenges had merit, and it thus affirmed in part and reversed in part the trial judgment that Microsoft had violated the antitrust laws by employing anticompetitive means to maintain a monopoly in the operating systems market. The court specifically reversed the determination that Microsoft had illegally attempted to monopolize the Internet browser market. The court also remanded back to the trial court for further consideration whether Microsoft had unlawfully tied its browser to its operating system. The D.C. Circuit also found merit in Microsoft’s challenge to the remedial divestiture order because a number of Jackson’s liability determinations are not supportable, and also because Judge Jackson did not hold an evidentiary hearing to deal with factual disputes relating to the remedy. Lastly, the court vacated the remedies judgment, because Judge Jackson engaged in impermissible contacts by holding secret interviews with the media and by making offensive comments about Microsoft officials outside of the courtroom, causing “an appearance of partiality.” The court found that although there was “no evidence of actual bias, we hold that the actions of the trial judge seriously tainted the proceedings … and called into question the integrity of the judicial process.” The court ordered that a different trial judge consider appropriate remedies. This is quite a turn of events, and ultimately could lead to a global settlement. Beyond that, below the surface of the decision by the Court of Appeals lies an insightful discourse about the currency of U.S. antitrust laws as applied to dynamic technological markets. ANTITRUST LAW IN THE TECHNOLOGICAL AGE The D.C. Circuit begins its discourse by noting that just over six years had passed since Microsoft allegedly engaged in anticompetitive conduct, but “six years seems like an eternity in the computer industry.” Indeed, by the time liability can be assessed by a court, “firms, products, and the marketplace are likely to have changed dramatically.” And this “threatens enormous practical difficulties for courts considering” appropriate judicial relief. For example, remedies designed to impact conduct may be unavailing because “innovation to a large degree has already rendered the anticompetitive conduct obsolete.” Moreover, broader structural remedies may not suffice because it would be very difficult for a court to go about “restoring competition to a dramatically changed, and constantly changing, marketplace.” While expressing these concerns, the D.C. Circuit backs off from condemning the antitrust laws as absolutely obsolete in this context. In fact, the court tries to provide some reassurance by stating that “even in forward-looking cases where remedies appear limited, the Government will continue to have an interest in defining the contours of the antitrust laws so that law-abiding firms will have a clear sense of what is permissible and what is not.” Yet, how the government will define these contours is not altogether “clear.” The court then touches on the “theoretical” debate about whether “old economy” monopolization doctrines apply to companies competing in dynamic technological markets “characterized by network effects.” In such markets, one product dominates because the utility derived from the consumer increases with the number of people using the product. As an example, each telephone customer benefits from other customers using a network that allows them to call each other. Yet, dominance in these markets can be quite temporary, “because innovation may alter the field altogether.” The court notes that no consensus has been achieved among commentators as to whether current antitrust laws should be amended “to account for competition in technologically dynamic markets characterized by network effects.” Because Microsoft did not claim that its alleged anticompetitive conduct should be treated differently because of a technologically dynamic market, the court was not called on to squarely decide this issue. Still, we appear to have seen the horizon, and it will not be surprising for legal arguments to be made that the antitrust laws must be changed to deal with technologically dynamic markets. Eric J. Sinrod is a partner in the San Francisco office of Duane Morris, where he focuses on technology and litigation matters. His Web site is sinrodlaw.com and his firm’s site is Duane Morris.He may be reached by e-mail at [email protected]

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