A Happy Leap Year Special

'Microsoft has harmed even those consumers who desire to use Internet Explorer, and no other browser, with Windows 98. To the extent that browsing-specific routines have been commingled with operating system routines to a greater degree than is necessary to provide any consumer benefit, Microsoft has unjustifiably jeopardized the stability and security of the operating system. Specifically, it has increased the likelihood that a browser crash will cause the entire system to crash and made it easier for malicious viruses that penetrate the system via Internet Explorer to infect non-browsing parts of the system.'

'James Allchin tried to show at trial, by way of a videotaped demonstration, that the functionality of Internet Explorer could still be enabled, even after the prototype removal program had been run, by manually adding a new entry to the Windows Registry database. During Felten's rebuttal testimony, one of Microsoft's attorneys directed Felten to perform a second demonstration intended to show that the functionality of Internet Explorer could still be enabled, even after the prototype removal program had been run, by hitting the 'control' and 'N' keys simultaneously after running the Windows Update feature. Neither of these methods of initiating Web browsing was among the twenty-one documented methods known to Felten when he developed his program.'

'The removal of Internet Explorer by the prototype program slightly improves the overall speed of Windows 98.'

'Felten's program is able to reduce the memory allocated to Windows 98 by approximately twenty percent.'

'On May 13, 1996, Compaq signed an addendum to use two or more of Microsoft's hypertext markup language ('HTML') extensions in the home page for each of those products.'

'In February 1997 a Microsoft account representative told his counterpart at Gateway that Gateway's use of Navigator on its own corporate network was a serious issue at Microsoft. If Gateway would replace Navigator with Internet Explorer, Microsoft would compensate Gateway for its investment in Netscape's product.'

'At a meeting with IBM executives in March 1997, Microsoft representatives threatened that, if IBM did not pre-load and promote Internet Explorer 4.0 to the exclusion of Navigator on its PCs, it would suffer 'MDA repercussions.''

'Before 1996, Navigator enjoyed a substantial and growing presence on the desktop of new PCs. Over the next two years, however, Microsoft's actions forced the number of copies of Navigator distributed through the OEM channel down to an exiguous fraction of what it had been. By January 1998, Kempin could report to his superiors at Microsoft that, of the sixty OEM sub-channels (15 major OEMs each offering corporate desktop, consumer/small business, notebook, and workstation PCs), Navigator was being shipped through only four. Furthermore, most of the PCs shipped with Navigator featured the product in a manner much less likely to lead to usage than if its icon appeared on the desktop. By the beginning of January 1999, Navigator was present on the desktop of only a tiny percentage of the PCs that OEMs were shipping.'

'Microsoft achieved this feat by using a complementary set of tactics. First, it forced OEMs to take Internet Explorer with Windows and forbade them to remove or obscure it - restrictions which both ensured the prominent presence of Internet Explorer on users' PC systems and increased the costs attendant to pre-installing and promoting Navigator. Second, Microsoft imposed additional technical restrictions to increase the cost of promoting Navigator even more. Third, Microsoft offered OEMs valuable consideration in exchange for commitments to promote Internet Explorer exclusively. Finally, Microsoft threatened to penalize individual OEMs that insisted on pre-installing and promoting Navigator. Although Microsoft's campaign to capture the OEM channel succeeded, it required a massive and multifarious investment by Microsoft; it also stifled innovation by OEMs that might have made Windows PC systems easier to use and more attractive to consumers. That Microsoft was willing to pay this price demonstrates that its decision-makers believed that maximizing Internet Explorer's usage share at Navigator's expense was worth almost any cost.'

'In late 1995 and early 1996, Navigator seemed well on its way to becoming the standard software for browsing the Web. Within three years, however, Microsoft had successfully denied Navigator that status, and had thereby forestalled a serious potential threat to the applications barrier to entry. Indeed, Microsoft's Kumar Mehta felt comfortable expressing to Brad Chase in February 1998 his 'PERSONAL opinion' that 'the browser battle is close to over.' Mehta continued: 'We set out on this mission 2 years ago to not let netscape dictate standards and control the browser api's [sic]. All evidence today says they don't.''

'In December 1998, during a meeting convened to analyze the implications of the AOL/Netscape/Sun transactions, Gates declared to the assembled Microsoft executives, 'AOL doesn't have it in their genes to attack us in the platform space.''

'Although the suspicion lingers, the evidence is insufficient to find that Microsoft's ambition is a future in which most or all of the content available on the Web would be accessible only through its own browsing software. The evidence does, however, reveal an intent to ensure that if and when full-featured, server-based applications begin appearing in large numbers on the Web, the number of them relying solely on middleware APIs (such as those exposed by Navigator) will be too few to attenuate the applications barrier to entry.'

'For Microsoft, a key to maintaining and reinforcing the applications barrier to entry has been preserving the difficulty of porting applications from Windows to other platforms, and vice versa.'

'Thus, even if the IAP ensured that all users subscribing to its service through the Internet Connection Wizard received only Internet Explorer with their subscriptions, Microsoft could nevertheless remove the ISP from the Referral Server if copies of Navigator made up more than the specified percentage of the browsing software that the IAP distributed through all sub-channels. In light of that fact, the Windows 95 Referral Server agreements emerge as something very different from typical cross-marketing arrangements.'

'Microsoft offered to reduce EarthLink's per-copy referral fee by ten dollars in exchange for EarthLink's use of at least two ActiveX controls in the design of its home page and the use of Microsoft FrontPage server extensions on its Web hosting servers.'

'When, from time to time, various IAPs in the Windows 95 Referral Server (specifically Netcom, Concentric, and EarthLink) fell below the shipment quotas specified in their agreements with Microsoft, executives at Microsoft reacted by contacting the derelict companies and urging them to meet their obligations. Concentric and Earthlink eventually (by May 1998, if not sooner) reduced their Navigator shipments enough to bring them below the required percentage.'

'For a time after the release of Internet Explorer 4.0, however, no entry for Netcom appeared in the new version of Referral Server. This was at least in part due to Netcom's failure to ensure that Internet Explorer accounted for fifty percent of the browsing software it shipped.'

'A listing in Netscape's referral server did not help Netscape get its software on users' systems, and pursuant to their agreements with Microsoft, the six ISPs in both Microsoft's and Netscape's referral servers were actually placing Navigator on far fewer users' systems than they would have in the absence of their agreements with Microsoft.'

'In contrast to Microsoft's agreements, Netscape's agreements with the RBOCs [Regional Bell Operating Companies] imposed no restrictions on their ability to distribute other browsing software, such as Internet Explorer, whether in response to customer requests or otherwise. Furthermore, Netscape's contracts with the RBOCs required them to set Navigator as the default only so long as AT&T and MCI were both restricted by their agreements with Microsoft from providing Navigator to their customers on par with Internet Explorer. In any event, the RBOCs currently deliver Internet access to less than five percent of the Internet access subscribers in North America.'

'In April 1998, coincident with rising public criticism, the impending appearance of Bill Gates before a Congressional panel on competition in the computer industry, and the imminent filing of these lawsuits, Microsoft unilaterally waived the most restrictive provisions in the Windows 95 Referral Server agreements. Specifically, Microsoft waived the provisions that restricted the IAPs' ability to distribute non-Microsoft Web browsing software. With respect to promotion, the revised agreements merely required the IAPs to promote Internet Explorer at least as prominently as they promoted non-Microsoft browsers. Notably, however, the agreements still required the IAPs to make Internet Explorer their default browser.'

'IAPs no longer value placement in the Windows Referral Server as much as they did in 1996. For one reason, the ICW has apparently not been responsible for as many new IAP subscriptions as either Microsoft or the IAPs anticipated. In fact, from the third quarter of 1996 through the third quarter of 1998, only 2.1% of new users of the Internet became IAP subscribers through the Windows Referral Server. Partially on account of this realization, Microsoft began in the spring of 1998 to surrender significant control over the Internet sign-up process to OEMs.'

'In the year-and-a-half that they were in full force, however, the restrictive terms in the Referral Server agreements induced the major IAPs to customize their client software for Internet Explorer, gear their promotional and marketing activities to Microsoft's technologies, and convert substantial portions of their installed bases from Navigator to Internet Explorer.'

'Bill Gates and AOL's Chairman, Steve Case, subsequently spoke several times on the telephone. In those conversations, Gates urged that AOL representatives meet with Microsoft technical personnel in order to get a better sense of the quality and features of Internet Explorer 3.0. For his part, Case told Gates that he wanted Microsoft to include AOL's client software with Windows such that AOL received the same desktop promotion that MSN enjoyed. Gates insisted that such favorable treatment of AOL within Windows was out of the question.'

'Case ultimately agreed to visit Microsoft's Redmond campus in January 1996. In preparation for that meeting, Microsoft purchased PC systems from five different OEMs (Compaq, Hewlett-Packard, IBM, Packard Bell, and NEC) at retail outlet stores. When they turned these systems on, employees at Microsoft discovered that the OEMs were already shipping AOL's software pre-installed on their PCs and giving the AOL service more prominent placement than MSN on the Windows desktop. From the fact that AOL was already enjoying broad distribution and promotion on the Windows desktop through agreements with OEMs, several senior Microsoft executives, in particular Paul Maritz and Brad Chase, concluded that Microsoft would not be giving up all that much if it traded placement on the Windows desktop for AOL's commitment to promote and distribute Internet Explorer. At least initially, Gates took a different lesson from the experiment with the five PC systems. He seems to have felt that Microsoft should react not by 'opening up the Windows box,' but rather by clamping down on the ability of OEMs to configure the Windows desktop. Indeed, the discovery that OEMs were promoting AOL on the Windows desktop was one of the things that led him to complain to Joachim Kempin on January 6, 1996 about OEMs that were bundling non-Microsoft Internet services and software and displaying it on their PCs 'in a FAR more prominent way than MSN or our Internet browser.''

'Four days before Case was due to arrive at Microsoft's campus, Gates sent an E-mail outlining Microsoft's goals in negotiating a deal with AOL to the responsible Microsoft executives. He wrote:

'What we want from AOL is that for a period of time - say 2 years - the browser that they give out to their customers and the one they mention and put on their pages and the one they exploit is ours and not Netscape[']s. We need for them to make our browser available as the browser to existing and new customers. We have to be sure that we don't allow them to promote Netscape as well. We want all the hits that come off of AOL to register on servers as our browser so people can start seeing us as having measurable browser share.''

''AOL and AOL Affiliates will, with respect to Third Party Browsers, exclusively promote, market and distribute, and have promoted, marketed and distributed, Internet Explorer on or for use by subscribers to the AOL Flagship Service.' Specifically, AOL agreed to ensure that in successive six-month periods, neither the number of copies of non-Microsoft Web browsing software it shipped (through any sub-channel, including GNN), nor the number of new subscribers accessing AOL (including GNN) with non-Microsoft Web browsing software, would exceed fifteen percent of the total number of copies of proprietary access software that AOL distributed through any channel (i.e., through the Windows desktop or otherwise). AOL retained the right to distribute non-Microsoft Web browsing software to subscribers who affirmatively requested it, as long as doing so did not did not raise the relevant shipment quotients above fifteen percent.'

'The agreement prohibited AOL from expressing or implying to subscribers or prospective subscribers that they could use Navigator with AOL. Nor did it allow AOL to include, on its default page or anywhere else, instructions telling subscribers how to reach the Navigator download site. In any event, as the Court has found above, downloading large programs over the Internet involves considerable time, and frequently some frustration, for the average user with average hardware and an analog connection. The prospects were slim that many AOL users (who tend to be novice users with average equipment) would expend the effort to download Navigator when they already had browsing software that worked well with the AOL service.'

'Microsoft closely monitored AOL's compliance with the restrictive provisions in the March 1996 agreement. Microsoft employees periodically inspected AOL's service for any sign of promotions for Netscape. The scrutiny was close enough to prompt an AOL executive to write Microsoft's Chase: 'We are not selling NS advertising around its browser or otherwise - let's move on. . . . [I]t is not time to be paranoid . . . .''

'AOL made it relatively difficult for new subscribers to obtain a version of Navigator that would work with its client software, and it pressured existing subscribers who used Navigator to abandon it in favor of client software that included Internet Explorer.'

'On October 28, 1996, Microsoft and AOL entered into an additional agreement called the Promotional Services Agreement, whereby AOL agreed to promote its new proprietary access software that included Internet Explorer to existing AOL subscribers, and Microsoft agreed to pay AOL for such promotion based on results. Specifically, Microsoft agreed to pay AOL $500,000, plus twenty-five cents (up to one million dollars) for each subscriber who upgraded from older versions of AOL's proprietary access software to the version that included Internet Explorer, plus $600,000 if AOL succeeded in upgrading 5.25 million subscribers by April 1997. In addition, AOL's Referral Server agreement with Microsoft provided that AOL would receive a two-dollar credit on referral fees for each new subscriber who used Internet Explorer. So while the March 12, 1996 agreement ensured that nearly all new AOL subscribers would use Internet Explorer, the Promotional Services and Referral Server agreements enlisted AOL in the effort to convert the OLS's millions of existing subscribers to Internet Explorer. In fulfillment of these agreements, AOL began to prompt its subscribers to download the latest version of its client access software, complete with Internet Explorer, every time they logged off the service.'

'By January 1998, Cameron Myhrvold was able to report to Gates and the rest of Microsoft's executive committee that ninety-two percent of AOL's subscribers (who by then numbered over ten million) were using client access software that included Internet Explorer.'

'The average AOL user, being perhaps less technically sophisticated than the average IAP subscriber...'

'So when Microsoft executives learned that ninety-two percent of AOL subscribers were using client software that included Internet Explorer, they could rest assured that virtually the same percentage of AOL's subscribers were using Internet Explorer whenever they connected to the Internet with AOL.'

'If AOL were to halt its distribution and promotion of Internet Explorer, the effect on Internet Explorer's usage share would be significant, for AOL's subscribers currently account for over one third of Internet Explorer's installed base.'

'The AOL coup, which Microsoft accomplished only at tremendous expense to itself and considerable deprivation of consumers' freedom of choice, thus contributed to extinguishing the threat that Navigator posed to the applications barrier to entry.'

'Many more copies of Internet Explorer have been distributed, and many more IAPs have standardized on Internet Explorer, than would have been the case if Microsoft had not invested great sums, and sacrificed potential sources of revenue, with the sole purpose of protecting the applications barrier to entry.'

'The restrictive terms in the agreements have prevented IAPs from meeting consumer demand for copies of non-Microsoft browsing software pre-configured for those services. The IAPs subject to the most severe restrictions comprise fourteen of the top fifteen access providers in North America and account for a large majority of all Internet access subscriptions in this part of the world.'

'Not surprisingly, the inducements that Microsoft gave out and the restrictions it conditioned them upon have resulted in a substantial increase in Internet Explorer's usage share. A study Microsoft conducted shows that at the end of 1997, Internet Explorer enjoyed a ninety- four percent weighted average share of shipments of browsing software by ISPs that had agreed to make Internet Explorer their default browser. By contrast, the study shows that Internet Explorer had only a fourteen percent weighted average share of shipments of browsing software by ISPs that had not agreed to make Internet Explorer their default browser. The same study shows that Microsoft's weighted average share of browser usage by subscribers to ISPs that had made Internet Explorer their default browser was over sixty percent at the end of 1997, whereas its weighted average share of browser usage by subscribers to ISPs that did not make Internet Explorer their default browser was less than twenty percent. The hit data show that, from January 1997 to August 1998, Internet Explorer's usage share among subscribers to IAPs that were uninhibited by restrictions rose ten points, from about twenty to about thirty percent. Over the same period, Internet Explorer's usage share among all IAP subscribers, including those subject to restrictions, rose twenty-seven points, from twenty-two to forty-nine percent. Finally, Internet's Explorer's usage share among subscribers to two IAPs subject to the most severe restrictions, AOL and CompuServe, rose sixty-five points, from twenty-two to eighty-seven percent. The differences in the degree of Internet Explorer's success in the three categories reveal the exclusionary effect of Microsoft's interdiction of Navigator in the IAP channel.'

'As was the case with the IAPs, neither the sacrifice that Microsoft made to enlist the aid of the top ICPs nor the restrictions it placed on them can be explained except as components of a campaign to protect the applications barrier to entry against Navigator.'

'The first obligation that the ICPs undertook was to distribute Internet Explorer and no 'Other Browser' in connection with any custom Web browsing software or CD-ROM content that they might offer.'

'Finally, the agreements required the ICPs, in designing their Web sites, to employ certain Microsoft technologies such as Dynamic HTML and ActiveX. Some of the agreements actually required the ICPs to create 'differentiated content' that was either available only to Internet Explorer users or would be more attractive when viewed with Internet Explorer than with any 'Other Browser.''

'Microsoft demanded that Disney remove its distinctive branding from its link on Navigator's user interface and threatened to remove Disney from the Channel Bar if it did not accede.'

'The terms of Microsoft's agreements with ICPs cannot be explained in customary economic parlance absent Microsoft's obsession with obliterating the threat that Navigator posed to the applications barrier to entry.'

'In dozens of 'First Wave' agreements signed between the fall of 1997 and the spring of 1998, Microsoft has promised to give preferential support, in the form of early Windows 98 and Windows NT betas, other technical information, and the right to use certain Microsoft seals of approval, to important ISVs that agree to certain conditions. One of these conditions is that the ISVs use Internet Explorer as the default browsing software for any software they develop with a hypertext-based user interface. Another condition is that the ISVs use Microsoft's 'HTML Help,' which is accessible only with Internet Explorer, to implement their applications' help systems.'

'By the summer of 1996, Apple was already shipping Internet Explorer with the Mac OS, but it was pre-installing Navigator as the default browsing software.'

'One point of leverage that Microsoft held over Apple was the fact that ninety percent of Mac OS users running a suite of office productivity applications had adopted Microsoft's Mac Office. In 1997, Apple's business was in steep decline, and many doubted that the company would survive much longer. Observing Apple's poor performance in the marketplace and its dismal prospects for the future, many ISVs questioned the wisdom of continuing to spend time and money developing applications for the Mac OS. Had Microsoft announced in the midst of this atmosphere that it was ceasing to develop new versions of Mac Office, a great number of ISVs, customers, developers, and investors would have interpreted the announcement as Apple's death notice.'

'Recognizing the importance of Mac Office to Apple's survival, Microsoft threatened to cancel the product unless Apple compromised on a number of outstanding issues between the companies. One of these issues was the extent to which Apple distributed and promoted Internet Explorer, as opposed to Navigator, with the Mac OS.'

'Gates then reported that he had already called Apple's CEO (who at the time was Gil Amelio) to ask 'how we should announce the cancellation of Mac Office . . . .''

'Within a month of Gates' call to Amelio, Steve Jobs was once again Apple's CEO, and the two companies had settled all outstanding issues between them in three agreements, all of which were signed on August 7, 1997.'

'In fulfillment of this requirement, Apple did not include Navigator in the default installation of the Mac OS 8.5 upgrade product.'

'Apple may not position icons for non-Microsoft browsing software on the desktop of new Macintosh PC systems or Mac OS upgrades.'

''Apple will not be proactive or initiate actions to encourage users to swap out Internet Explorer for Macintosh.''

'The agreement even states that Apple will 'encourage its employees to use Microsoft Internet Explorer for Macintosh for all Apple-sponsored events and will not promote another browser to its employees.''

'Pursuant to this provision, Apple's management has instructed the firm's employees to not use Navigator in demonstrations at trade shows and other public events.'

'The agreement requires Apple to display the Internet Explorer logo on 'all Apple-controlled web pages where any browser logo is displayed.''

''I think that the spirit is that Apple should be using it everywhere and if they don't do it, then we can use Office as a club.''

'For at least a year after the Technology Agreement went into effect, Waldman and other Microsoft employees continued to use the threat of reduced commitment to Mac Office in holding Apple to its commitments to support Internet Explorer.'

'Apple increased its distribution and promotion of Internet Explorer not because of a conviction that the quality of Microsoft's product was superior to Navigator's, or that consumer demand for it was greater, but rather because of the in terrorem effect of the prospect of the loss of Mac Office. To be blunt, Microsoft threatened to refuse to sell a profitable product to Apple, a product in whose development Microsoft had invested substantial resources, and which was virtually ready for shipment.'

'The predominant reason Microsoft was prepared to make this sacrifice, and the sole reason that it required Apple to make Internet Explorer its default browser and restricted Apple's freedom to feature and promote non- Microsoft browsing software, was to protect the applications barrier to entry.'

'By guaranteeing that Internet Explorer is the default browsing software on the Mac OS, by relegating Navigator to less favorable placement, by requiring Navigator's exclusion from the default installation for the Mac OS 8.5 upgrade, and by otherwise limiting Apple's promotion of Navigator, Microsoft has ensured that most users of the Mac OS will use Internet Explorer and not Navigator. Although the number of Mac OS users is very small compared to the Windows installed base, the Mac OS is nevertheless the most important consumer-oriented operating system product next to Windows. Navigator needed high usage share among Mac OS users if it was ever to enable the development of a substantial body of cross-platform software not dependent on Windows. By extracting from Apple terms that significantly diminished the usage of Navigator on the Mac OS, Microsoft severely sabotaged Navigator's potential to weaken the applications barrier to entry.'

'The cumulative effect of the stratagems described above was to ensure that the easiest and most intuitive paths that users could take to the Web would lead to Internet Explorer, the gate controlled by Microsoft. Microsoft did not actually prevent users from obtaining and using Navigator (although it tried to do as much in June 1995), but Microsoft did make it significantly less convenient for them to do so. Once Internet Explorer was seen as providing roughly the same browsing experience as Navigator, relatively few PC users showed any inclination to expend the effort required to obtain and install Navigator. Netscape could still carpet bomb the population with CD-ROMs and make Navigator available for downloading. In reality, however, few new users (i.e., ones not merely upgrading from an old version of Navigator to a new one) had any incentive to install - much less download and install - software to replicate a function for which OEMs and IAPs were already placing perfectly adequate browsing software at their disposal. The fact that Netscape was forced to distribute tens of millions of copies of Navigator through high-cost carpet-bombing in order to obtain a relatively small number of new users only discloses the extent of Microsoft's success in excluding Navigator from the channels that lead most effectively to browser usage.'

'As Microsoft's top executives predicted, however, Internet Explorer's quality and features have never surpassed Navigator's to such a degree as to compel a significant part of Navigator's installed base to switch to Internet Explorer.'

'...and another internal [Microsoft] review three months later reported, 'IE4 is fundamentally not compelling.''

'This indicates that superior quality was not responsible for the dramatic rise Internet Explorer's usage share.'

'It did not, however, prevent OEMs from meeting demand for Navigator, which remained higher than demand for Internet Explorer well into 1998.'

'Had Microsoft not offered distribution licenses for Internet Explorer - and other things of great value - to other firms at no charge; had it not prevented OEMs from removing the prominent means of accessing Internet Explorer and limited their ability to feature Navigator; and had Microsoft not taken all the other measures it used to maximize Internet Explorer's usage share at Navigator's expense, its browsing software would not have weaned such a large amount of usage share from Navigator, much less overtaken Navigator in three years.'

'In late 1995 and early 1996, Navigator seemed well on its way to becoming the standard software for browsing the Web. Within three years, however, Microsoft had successfully denied Navigator that status, and had thereby forestalled a serious potential threat to the applications barrier to entry.

'As discussed above, the APIs that Navigator exposes could only attract enough developer attention to threaten the applications barrier to entry if Navigator became - or appeared destined to become - the standard software used to browse the Web. Navigator's installed base may continue to grow, but Internet Explorer's installed base is now larger and growing faster. Consequently, the APIs that Navigator exposes will not attract enough developer attention to spawn a body of cross-platform, network-centric applications large enough to dismantle the applications barrier to entry.'

'Not only did Microsoft prevent Navigator from undermining the applications barrier to entry, it inflicted considerable harm on Netscape's business in the process. By ensuring that the firms comprising the channels that lead most efficiently to browser usage distributed and promoted Internet Explorer to the virtual exclusion of Navigator, Microsoft relegated Netscape to more costly and less effective methods of distributing and promoting its browsing software. After Microsoft started licensing Internet Explorer at no charge, not only to OEMs and consumers, but also to IAPs, ISVs, ICPs, and even Apple, Netscape was forced to follow suit. Despite the fact that it did not charge for Internet Explorer, Microsoft could still defray the massive costs it was undertaking to maximize usage share with the vast profits earned licensing Windows. Because Netscape did not have that luxury, it could ill afford the dramatic drop in revenues from Navigator, much less to pay for the inefficient modes of distribution to which Microsoft had consigned it. The financial constraints also deterred Netscape from undertaking technical innovations that it might otherwise have implemented in Navigator. Microsoft was not altogether surprised, then, when it learned in November 1998 that Netscape had surrendered itself to acquisition by another company.'

'Bill Gates himself, who is not one to underestimate threats to Microsoft's business, apparently concluded after reviewing the November 1998 transactions that AOL would not seek to develop a platform that would compete with Microsoft's network-centric interfaces. In December 1998, during a meeting convened to analyze the implications of the AOL / Netscape / Sun transactions, Gates declared to the assembled Microsoft executives, 'AOL doesn't have it in their genes to attack us in the platform space.''

'Although the suspicion lingers, the evidence is insufficient to find that Microsoft's ambition is a future in which most or all of the content available on the Web would be accessible only through its own browsing software. The evidence does, however, reveal an intent to ensure that if and when full-featured, server-based applications begin appearing in large numbers on the Web, the number of them relying solely on middleware APIs (such as those exposed by Navigator) will be too few to attenuate the applications barrier to entry.'

'So, as matters stand at present, while Microsoft has succeeded in forestalling the development of enough full-featured, cross-platform, network-centric applications to render the applications barrier penetrable, it is not likely to drive non-Microsoft PC Web browsing software from the marketplace altogether.'

'To the detriment of consumers, however, Microsoft has done much more than develop innovative browsing software of commendable quality and offer it bundled with Windows at no additional charge. As has been shown, Microsoft also engaged in a concerted series of actions designed to protect the applications barrier to entry, and hence its monopoly power, from a variety of middleware threats, including Netscape's Web browser and Sun's implementation of Java. Many of these actions have harmed consumers in ways that are immediate and easily discernible. They have also caused less direct, but nevertheless serious and far-reaching, consumer harm by distorting competition.'

'Many of the tactics that Microsoft has employed have also harmed consumers indirectly by unjustifiably distorting competition. The actions that Microsoft took against Navigator hobbled a form of innovation that had shown the potential to depress the applications barrier to entry sufficiently to enable other firms to compete effectively against Microsoft in the market for Intel-compatible PC operating systems. That competition would have conduced to consumer choice and nurtured innovation.'

'This campaign, together with actions that Microsoft took with the sole purpose of making it difficult for developers to write Java applications with technologies that would allow them to be ported between Windows and other platforms, impeded another form of innovation that bore the potential to diminish the applications barrier to entry. There is insufficient evidence to find that, absent Microsoft's actions, Navigator and Java already would have ignited genuine competition in the market for Intel-compatible PC operating systems. It is clear, however, that Microsoft has retarded, and perhaps altogether extinguished, the process by which these two middleware technologies could have facilitated the introduction of competition into an important market.'

'Most harmful of all is the message that Microsoft's actions have conveyed to every enterprise with the potential to innovate in the computer industry. Through its conduct toward Netscape, IBM, Compaq, Intel, and others, Microsoft has demonstrated that it will use its prodigious market power and immense profits to harm any firm that insists on pursuing initiatives that could intensify competition against one of Microsoft's core products. Microsoft's past success in hurting such companies and stifling innovation deters investment in technologies and businesses that exhibit the potential to threaten Microsoft. The ultimate result is that some innovations that would truly benefit consumers never occur for the sole reason that they do not coincide with Microsoft's self-interest.'