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   IN THE
UNITED STATES DISTRICT COURT
  FOR
THE DISTRICT OF COLUMBIA
  MEMORANDUM OF THE
UNITED STATES OF AMERICA IN RESPONSE TO THE
COURT'S INQUIRIES CONCERNING "VAPORWARE"
This Memorandum responds to the Court's inquiries concerning
"vaporware." 1
While
"vaporware" is sometimes used as "slang for announced software
that may never materialize," 2
and other times as "a term used sarcastically for promised software
that misses its announced
release date, usually by a considerable length of time," 3 it is susceptible of other
definitions as
well and, apparently, has no single precise meaning. 4 But, under any definition,
the hallmark of
"vaporware" is a "preannouncement," e.g., a statement,
before the product is available for
Page 2
purchase, regarding the features or expected release date of the
product. This Memorandum
discusses the standards under the antitrust laws for evaluating the
legality of such
preannouncements. 5 As we explain below, product preannouncements do not
violate the
antitrust laws unless those preannouncements are knowingly false
and contribute to the
acquisition, maintenance, or exercise of market power.
While we welcome this opportunity to address the Court's
questions regarding the legal
standards applicable to vaporware, we respectfully submit that
whatever the Court's ultimate
view on this subject, that view should not influence its judgment on
the sole issue presented in
this proceeding: whether the entry of the proposed Final Judgment
is within the reaches of the
"public interest."
The Court's public interest determination must focus on whether
the proposed Final
Judgment provides a reasonable and effective means of remedying
the specific antitrust
violations alleged in the Complaint.
6 The Complaint in this case did not allege
any violations
relating to vaporware. 7 With respect to the violations that were alleged in
this case, the proposed
Page 3
Final Judgment will provide complete and effective relief. As
Professor Kenneth J. Arrow 8
concluded in his Declaration, "the proposed settlement
appropriately addresses and remedies the
anticompetitive effects of the practices challenged in the
complaint." 9
Approval of the proposed Consent Decree will not in any
way prevent the government
from suing Microsoft in the future for antitrust violations other than
those alleged in the
Complaint. The government is entirely prepared to bring a case
relating to vaporware if a
violation of the antitrust laws can be established. Although we
concluded at the time we filed the
Complaint that we did not have the facts needed to support
additional antitrust charges, we do
not foreclose any future action if evidence comes to our
attention or if market conditions change
in ways that support such action. To avoid, inter alia, any
possible prejudice to such potential
cases, this memorandum discusses only the legal standards relating
to vaporware, and does not
address the government's evaluation of the evidence in its
possession that may relate to specific
allegations concerning vaporware.
10
Page 4
I.Product Preannouncements and the Antitrust Laws
II. The Elements of
a Section 2 Violation
Product preannouncements generally involve unilateral conduct by
the announcing firm.
Therefore, they are analyzed under Section 2 of the Sherman Act,
15 U.S.C. § 2, the provision of
the antitrust laws that applies to unilateral anticompetitive
behavior. The relevant offenses under
Section 2 are monopolization and attempted monopolization. Each
violation requires proof of
both "exclusionary" conduct and actual or likely market
impact.
"The offense of monopoly under § 2 of the Sherman Act has two
elements: (1) the
possession of monopoly power in the relevant market and (2) the
willful acquisition or
maintenance of that power as distinguished from growth or
development as a consequence of a
superior product, business acumen, or historical accident."
United States v. Grinnell Corp., 384
U.S. 563, 570-71 (1966). The second element of this test
incorporates both a market effect (since
acquisition or maintenance of market power must be shown) and
what is commonly referred to
as the requirement of "exclusionary" conduct. 11
Attempted monopolization requires (1) the "specific intent to
monopolize" and (2)
"dangerous probability" that the defendant's exclusionary conduct
"would monopolize a
particular market." Spectrum Sports, Inc. v. McQuillan,
113 S. Ct. 884, 892 (1993).
Page 5
III. Truthful Product
Preannouncements Have Not Been Found To Be Exclusionary
In general, "`exclusionary' behavior should be taken to mean
conduct other than
competition on the merits, or other than restraints reasonably
`necessary' to competition on the
merits, that reasonably appear capable of making a significant
contribution to creating or
maintaining monopoly power." 3 Phillip Areeda & Donald F.
Turner, Antitrust Law ¶ 626c, at
79 (1978). It should not include "non-exploitative pricing, higher
output, innovations, improved
product quality, energetic market penetration, successful research
and development, cost-
reducing innovations, and the like [which] are welcomed by the
Sherman Act." Id. ¶ 626b, at 77.
In accord with this standard, courts have refused to find that
product preannouncements
violate the antitrust laws unless they are knowingly false. See,
e.g., MCI Communications v.
American Tel. & Tel. Co., 708 F.2d 1081, 1129 (7th Cir.)
("These cases suggest that AT & T's
early announcement of Hi-Lo must be found to be knowingly false
or misleading before it can
amount to an exclusionary practice."), modified, 1983-2
Trade Cas. (CCH) ¶ 65,520 (7th Cir.),
cert. denied, 464 U.S. 891 (1983);
ILC Peripherals Leasing Corp. v. IBM Corp., 458 F. Supp.
423, 442 (N.D. Cal. 1978) (declining to find antitrust liability on a
product preannouncement
theory because "there was nothing knowingly false about the . . .
announcement"), aff'd sub nom.
Memorex Corp. v. IBM Corp., 636 F.2d
1188 (9th Cir. 1980), cert. denied, 452 U.S. 972 (1981);
see also Ronson Patents Corp. v.
Sparklets Devices, 112 F. Supp. 676, 688 (E.D. Mo. 1953)
(declining to find antitrust liability where company preannounced a
product, but never actually
released that product).
These holdings reflect the general view that information about
products that are not yet
available but will be produced in the future will be helpful to
consumers as they make
Page 6
purchasing decisions. "[R]easonable good faith statements about
research, development, and
forthcoming production serve the social interest in maximizing the
relevant information available
to buyers." Areeda & Turner, supra, ¶ 738i, at 284.
Because of the value of such information,
commentators have endorsed the principles espoused in the
holdings discussed above: "[N]o
liability should attach to statements that truly reflect the
monopolist's expectations about future
quality or availability where that expectation is both actually held
in good faith and objectively
reasonable." Id.
IV. The Requirement
of Market Impact
In discussing misleading advertising under Section 2, courts have
emphasized that the
practice would not violate the antitrust laws absent the requisite
market impact. See Berkey
Photo v. Eastman Kodak Co., 603 F.2d 263, 288 n.41 (2d Cir.
1979), cert. denied, 444 U.S. 1093
(1980) ("[The] Sherman Act is not a panacea for all evils that may
infect business life. Before
we would allow misrepresentation to buyers to be the basis of a
competitor's treble damage
action under § 2, we would at least require the plaintiff to overcome
a presumption that the effect
on competition was de minimis."); National Ass'n of
Pharmaceutical Mfrs. v. Ayerst Labs., 850
F.2d 904, 916 (2d Cir. 1988) ("[B]ecause the likelihood of a
significant impact upon the
opportunities of rivals is so small in most observed instances -- and
because the prevalence of
arguably improper utterance is so great -- the courts would be wise
to regard misrepresentations
as presumptively de minimis for § 2 purposes." (quoting Areeda &
Turner, supra, ¶ 738a, at
279)). We are not aware of any case finding that a false product
preannouncement had the
required market impact.
Page 7
V. Intent To Deny
Sales To A Competitor
The Court also has asked whether an undisclosed intent to defeat a
competitor might
render an otherwise truthful product preannouncement misleading
so as to alter its status under
the antitrust laws. Tr. at 103, 106, 109-11. The case law provides
little support for finding
liability on the basis of intent in the absence of underlying conduct
otherwise deemed
exclusionary. The law has developed to avoid a mistaken
imposition of antitrust liability for
legitimate competition on the merits, because desirable competitive
behavior (including, e.g., the
development of better products and the offering of lower prices)
usually has the purpose and
effect of reducing competitors' sales. "`[I]ntent to harm rivals' is
not a useful standard in
antitrust. . . . Neither is `intent to do more business,' which amounts
to the same thing. Vigorous
competitors intend to harm rivals, to do all the business if they can.
To penalize this intent is to
penalize competition." Ball Memorial Hosp., Inc. v. Mutual
Hosp. Ins., 784 F.2d 1325, 1338-39
(7th Cir. 1986). 12 Indeed, as the Supreme Court has noted, "[e]ven an act of
pure malice by one
business competitor against another does not, without more, state a
claim under the federal
antitrust laws; those laws do not create a federal law of unfair
competition or `purport to afford
remedies for all torts committed by or against persons engaged in
interstate commerce.'" Brooke
Group Ltd. v. Brown & Williamson Tobacco Corp., 113 S.
Ct. 2578, 2589 (1993) (quoting Hunt
v. Crumboch, 325 U.S. 821, 826 (1945)).
Page 8
VI.Concerns Relating To Vaporware Do Not Justify Rejection
of the Proposed Final
Judgment
The Department, after thorough investigation, filed the
Complaint herein alleging
violations of law based on Microsoft's licensing practices. It did
not at that time find a legal
basis upon which to include other claims, including vaporware,
based on evidence then available
to it, including documents presented to the Court in this
proceeding. The government, as
prosecutor, has the discretion to determine whether it believes a
cognizable claim has been made
out on the facts known to it. Its exercise of that discretion is not
subject to this Court's review in
a Tunney Act proceeding. See In re International
Bus. Machines Corp., 687 F.2d 59l (2d Cir.
1982). This Court's role under the Tunney Act is to determine
whether the proposed Final
Judgment adequately remedies the "violations set forth in the
complaint." 15 U.S.C. § 16(e)(2).
In light of that limitation, it would be legal error to reject the
proposed Final Judgment because
of concerns about vaporware, which has not been alleged as a
violation in this case. 13
But it is equally important to note
that a rejection of the proposed settlement, or the
imposition of any conditions on its approval that are not accepted
by both parties, would sacrifice
the immediate and certain benefits to competition that the proposed
Final Judgment will provide.
As the Department's economic expert, Nobel Laureate Kenneth J.
Arrow, has observed:
The Department of Justice's complaint against Microsoft and the
resulting
settlement eliminated unnecessary and artificial obstacles erected
by
Microsoft to disadvantage future competition. . . . [T]he
complaint and
proposed remedies addressed competitive issues that are critical
to the
success of new competition in this market. The most effective
and
economic point of entry for sales of IBM-compatible PC
operating
systems is the OEM distribution channel. New operating system
software
products should have unimpeded access to this channel.
Page 9
Arrow Dec'l at 4-5.
The Court has conducted a searching inquiry, and will continue to
have supervisory
power under the Final Judgment, including the ability to sanction
and remedy any violation of
the Decree with contempt or other punishment it finds appropriate.
The Department of Justice
remains ready, willing and able to investigate all allegations of
past, current or future conduct by
Microsoft or any other company which may violate the antitrust
laws, and to bring suit when
sufficient evidence has been found to justify filing a complaint.
In the matter now before the Court, the government found such a
violation, and obtained
a proposed consent decree which offers immediate and needed
relief to the market. Whatever
else the Department may or may not be able to find and allege in
the future, this proposed Final
Judgment clearly is adequate to remedy the alleged violations, and
should be entered.
Page 10
All of the requirements of the Tunney Act have been satisfied.
The Declaration of Nobel
Laureate Kenneth J. Arrow and the government's other filings in
support of the proposed Consent
Decree establish an ample basis for concluding that the proposed
Final Judgment is in the
reaches of the public interest. See United States v.
Western Elec. Co., 993 F.2d 1572, 1582
(D.C. Cir.), cert. denied, 114 S. Ct. 487 (1993). We
therefore urge the Court to find that the
proposed settlement is in the public interest, and to enter the
proposed Final Judgment forthwith.
 Respectfully submitted,
_____________________________
Anne
K. Bingaman
Assistant Attorney General
Steven C. Sunshine
Deputy Assistant Attorney General
Donald J. Russell
David Seidman
Lawrence M. Frankel
Mark
S. Popofsky
Attorneys
U.S.
Department of Justice
Antitrust Division
Judiciary Center Building
555
Fourth Street, N.W.
Washington, D.C. 20001
(202)
514-5621
January 27, 1995
.
FOOTNOTES
1 Transcript of
Motions Hearing, Jan. 20, 1995 [hereinafter "Tr."] at 145.
2 Donald D.
Spencer, Computer Dictionary (1992).
3 Microsoft
Press Computer Dictionary 359 (1991).
4 For other
definitions, see Alan Freedman, The Computer Glossary 725 (1989) ("Vaporware is
software that does not exist. It usually refers to products that are advertised, but that are not
ready for delivery to customers."); Robin Williams & Steve Cummings, Jargon: An Informal
Dictionary of Computer Terms 576 (1993) ("Vaporware is a product that the vendor keeps
promising is about to arrive any moment (real soon now) -- but it goes so long past its
shipment date that no one believes it will ever really ship. Sometimes it never does. System
7 was vaporware for a while, since it took two years longer to appear than we were told.
Apple's Newton was vaporware for a long while.").
5 We do not
address specific allegations that Microsoft has used such preannouncements, or has offered
"vaporware." The government has not expressed any view regarding the validity of those
allegations.
6 See
Memorandum of the United States of America In Support of Motion To Enter Final Judgment
and In Opposition To The Positions of I.D.E. Corporation and Amici, [hereinafter "Memorandum
in Support of Motion To Enter Final Judgment"] at 7-10.
7 The
government's decision not to allege particular violations is not subject to review under the
Tunney Act. See Memorandum in Support of Motion To Enter Final Judgment at 10-13. That
decision, like the decision to dismiss an action filed under the antitrust laws, is committed to the
discretion of the Department of Justice. See In re International Bus. Machs. Corp.,
687 F.2d 591, 600-03 (2d Cir. 1982) (issuing writ of mandamus to prevent review of stipulated
dismissal of an antitrust case).
8 The Court of
Appeals recently reviewed an analysis by Professor Arrow in a Tunney Act proceeding, and
concluded that it was "enough . . . to establish an ample factual foundation for the judgment call
made by the Department of Justice and to make its conclusion reasonable. Insofar as the district
court may be considered to have found the contrary, the finding was clearly erroneous." United
States v. Western Elec. Co., 993 F.2d 1572, 1582 (D.C. Cir.), cert. denied, 114 S. Ct.
487 (1993).
9 Declaration of
Kenneth J. Arrow, attached to Memorandum in Support of Motion To Enter Final Judgment
[hereinafter "Arrow Dec'l"] at 13.
10 Such
discussion would also be inconsistent with the respective roles assigned to prosecutors and the
courts. See Memorandum In Support of Motion To Enter Final Judgment at 10-13.
11 Common
examples of exclusionary conduct include hoarding excess capacity, see, e.g., United States
v. Aluminum Co. of Am., Inc., 148 F.2d 416 (2d Cir. 1945) (L. Hand, J.); United States v.
United Shoe Mach. Corp., 110 F. Supp. 295 (D. Mass 1953), aff'd per
curiam 347 U.S. 521 (1954); predatory pricing, see, e.g., Brooke Group Ltd. v. Brown
& Williamson Tobacco Corp., 113 S. Ct. 2578, 2587 (1993); and certain refusals to deal
without legitimate business reason, see, e.g., Aspen Skiing Co. v. Aspen Highlands Skiing
Corp., 472 U.S. 585 (1985); Otter Tail Power Co. v. United States, 410 U.S. 366
(1973).
12
Accord Arthur S. Langenderfer, Inc. v. S.E. Johnson Co., 917 F.2d 1413, 1422 (6th
Cir. 1990), cert. denied, 112 S. Ct. 274 (1991); Morgan v. Ponder, 892 F.2d 1355,
1359 (8th Cir. 1989); Barry Wright Corp. v. ITT Grinnell Corp., 724 F.2d 227, 232 (1st Cir.
1983) (Breyer, J.).
13 See
Memorandum in Support of Motion To Enter Final Judgment at 4-16.
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