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AMICUS CURIAE,
STATE OF CONNECTICUT

RICHARD BLUMENTHAL
ATTORNEY GENERAL

By:

STEVEN M. RUTSTEIN
Assistant Attorney General
Fed. Bar. #CT09086

RACHEL O. DAVIS
Assistant Attorney General
Fed. Bar. #CT07411

MARK F. KOHLER
Assistant Attorney General
Fed. Bar. #CT02272

110 Sherman Street
Hartford, CT 06105
Tel: (860) 808-5400
Fax: (860) 808-5593

 


Amicus Curiae Brief of State of Connecticut.
Re: Bristol v. Microsoft, Case No. 398-CV-1567 (JCH).

Date: October 5, 1998.
Source: Bristol Technology, Inc.  Reprinted with permission.  The case caption and Certificate of Service have been omitted.   Footnotes have been converted into side notes.  Otherwise, this document has been edited for HTML, but not for content.


AMICUS BRIEF OF THE STATE OF CONNECTICUT
IN SUPPORT OF MOTION FOR PRELIMINARY INJUNCTION
OF PLAINTIFF BRISTOL TECHNOLOGY INC.

The State of Connecticut ("State"), through its attorney, Richard Blumenthal, Attorney General of the State of Connecticut, respectfully submits this brief as amicus curiae and in support of the motion for preliminary injunction of the plantiff, Bristol Technology, Inc. ("Bristol"). Bristol claims that the defendant, Microsoft Corporation ("Microsoft"), has engaged in anitcompetitive conduct in violation of federal and state law. Specifically, Bristol contends that Microsoft has unlawfully denied Bristol access to the source code for Microsoft’s Windows operating systems in an effort to maintain and extend Microsoft’s monopoly control over operating systems. In seeking preliminary injunctive relief, Bristol has identified the appropriate legal standards governing its claims. Moreover, the relief it seeks is entirely consistent with and will substantially and significantly further the public interest.

I.  STATEMENT OF INTEREST OF THE AMICUS

Footnotes

1  Interpretations given by the federal courts to federal antitrust statutes shall guide Connecticut courts in the construction of the Connecticut Antitrust Act, Chapter 624 of the General Statutes of Connecticut. E.g., Westport Taxi Serv., Inc. v. Wesport Transit Dist., 235 Conn 1, 15 (1995); Conn. Gen. Stat. 35-44b. Similarly, in construing the Connecticut Unfair Trade Practices Act ("CUTPA"), Chapter 735a of the General Statutes of Connecticut, Connecticut courts shall be guided by interpretations rendered by the Federal Trade Commission and the federal courts to Section 5(a)(1) of the Federal Trade Commission Act (15 U.S.C. 45(a) (1). Larsen Chesley Realty Co. v. Larsen, 232 Conn. 480, 498, 656 A.2d 1009 (1995); Conn. Gen. Stat. 42-110b(b).
2  Conn. Gen. Stat. 35-32 ("The Attorney General, in the name of the state and on behalf of the people of the state, shall enforce the provisions of [the Connecticut Antitrust Act]." The Act confers sweeping investigatory and enforcement authority upon the Attorney General.)
3  15 U.S.C. 15 (right to sue for proprietary damages to the State); 15 U.S.C. 15c (right to sue for damages as parents patriae on behalf of natural person citizens); Hawaii v. Standard Oil Co., 405 U.S. 251, 57-60 (1972) (authority to seek injunctive relief on behalf of the general economy of the State). In granting such authority, Congress found that "[a] state attorney general is an effective and ideal spokesman for the public in antitrust cases." House Report No. 94-499, 94th Cong. 1st Sess., reprinted in [1976] U.S. Code Cong. & Admin. News 2572, 2575.
4  Indeed, the State, in conjunction with nineteen other states, the District of Columbia and the United States of America, is engaged in litigation, State of New York, et al. V. Microsoft Corp., (No. 98-1233 TPJ) (D.D.C.) and United States v. Microsoft Corp., (No. 98-1232 TPJ) (D.D.C.), aimed at remedying anticompetitive practices engaged in by Microsoft Corporation ("Microsoft") similar to those at issue here.
5  As Senator Orrin Hatch, the current Chairman of the Senate Judiciary Committee, put it:

[T]he practices of a currently dominant firm, such as Microsoft, must be scrutinized … and the appropriate rules of the road must be clarified and enforced… The question that … must be addressed is whether [anticompetitive practices], when engaged in by an entrenched monopolist with respect to paradigm shifting innovations, have the predatory effect of foreclosing innovators from getting a fair market test.

"Antitrust in the Digital Age" Remarks of Sen. Orrin G. Hatch Before the Progress and Freedom Foundation," Washington, D. C., February 5, 1998.
6  For example, in State of New York, et al. V. Primestar Partners, et al., 1993-2 Trade Cas. (CCH) para. 70, 403 (S.D.N.Y. (1993)), forty-five, including Connecticut sued cable monopolists, alleging that they had conspired to surpress competition from direct broadcast satellites, an emerging technology which was then beginning to offer an alternative to the incumbent cable system operators. Recent reports indicate that the States’ efforts to assure direct broadcast technology a fair opportunity to compete with traditional cable may have begun to bear fruit. See Mark Robichaux, Once a Laughingstock, Direct-Broadcast TV Give Cable a Scare, Wall St. J., Nov. 7, 1996, at A1.

Similarly, fourteen States, including Connecticut, successfully barred dominant credit card associations from pursuing a joint venture which the State alleged was designed to eliminate potential competition from a new technology, point of sale debit cards, which presented a competitive threat to the higher-cost credit card systems. State of New York, et al v. Visa USA Inc., et al., 1990-1 Trade Cas. (CCH) para. 69,016 (S.D.N.Y. 1990). Commentators have noted the States’ success in fostering network competition in the point of slae debit card market. See David A. Balto, "End of On-Line Debit Decree Raises Questions," American Banker, May 8, 1997.

Your Amicus appears in this action because of the significant interest of the State in the proper adjudication of the issues raised in this case.1 The Attorney General is the chief law enforcer of the Connecticut Antitrust Act,2 and has broad rights to prosecute antitrust matters under federal law.3 In addition, the State, under the Connecticut Unfair Trade Practices Act ("CUTPA"), Chapter 735a of the General Statutes of Connecticut, is vested with expansive authority to investigate alleged violations of CUTPA and to undertake enforcement proceedings.

The Attorney General is cognizant of the ever growing importance of computer and software technology to the economy of the nation as a whole and of Connecticut generally, and of the central role that computing in particular plays for many consumers and businesses. The Attorney General views as equally vital the key role such technologies are beginning to play in the dissemination of information. As the State’s chief antitrust enforcer and a key consumer advocate, the Attorney General believes that fostering competition in such markets is the single best means to ensure that consumers receive the benefits of fairly priced, high quality, and innovative goods and services, and that such markets continue to serve as robust drivers of economic growth.4

There is widespread concern that the competitive health of such markets may be threatened by the practices of a dominant firm, such as Microsoft, which could prevent competing and potentially competing products from getting a "fair market test."5 The Attorney General shares those concerns. Indeed, recent enforcement actions suggests that probing antitrust scrutiny and carefully calibrated action may in appropriate circumstances be necessary and feasible to forestall monopolists in high technology markets from seeking to defend or extend their dominance by co-opting new technologies which they view as competitive threats.6

Public enforcement, however, simply cannot be the sole method to effectuate the goals of competition and fair play sought by Congress, the Connecticut Legislature and the Attorney General because of the limitations on governmental resources. Accordingly, enforcement of federal and state antitrust laws, as well as CUTPA, by private litigants is viewed as an essential concomitant to public enforcement. This is particularly important, where, as here, the interests of the Attorney General, indeed, the public interest, are so closely aligned with the interests of Bristol in fostering vigorous competition in the high technology marketplace by eliminating the obstacles posed by Microsoft’s anticompetitive conduct.

II.  THE PLAINTIFF HAS CORRECTLY IDENTIFIED THE LEGAL STANDARDS GOVERNING ITS CLAIMS

The State concurs with the plaintiff’s discussion of the applicable principles of law governing its claims, and assuming that the plaintiff sufficiently establishes its factual allegations, it should be entitled to the relief it seeks. Rather than repeat each element of the plaintiff’s legal analysis, however, the State takes this opportunity to focus on several key questions at issue in this matter.

A.  Bristol Has Sustained Antitrust Injury And Has Proper Antitrust Standing.

Microsoft asserts that Bristol has not demonstrated either antitrust injury or antitrust standing. The legal arguments on which Microsoft relies are flawed. In typical fashion, Microsoft derisively dismisses Bristol as "simply too insignificant to have any tangible impact on the competition between Windows NT and UNIX." Microsoft Mem. in Opp., at 22 n.1l. Although Bristol may very well be the proverbial David to Microsoft’s Goliath, the Supreme Court has long established that monopolistic conduct "is not to be tolerated merely because the victim is just one merchant whose business is so small that his destruction makes little difference to the economy." Klor’s, Inc. v. Broadway-Hale Stores, Inc., 359 U.S. 207, 213 (1959).

Microsoft also asserts that Bristol is analogous to a distributor whose relationship with a manufacturer has been terminated and thus has no cognizable antitrust injury. See Microsoft Mem. in Opp., at 22-23. The analogy is hardly apt. Unlike the terminated distributor, Bristol has demonstrated not merely injury to itself, but injury to competition. Bristol does not just deliver a Microsoft product down the chain of commerce; its Wind/U product has the potential for promoting competition between Windows NT and UNIX operating systems. Microsoft’s anticompetitive conduct, while obviously inflicting harm to Bristol, more importantly serves to stifle competition in these key technology markets.

7  This is not to imply that Bristol is not in fact a competitor with Microsoft. The State agrees with Bristol’s position that it is a competitor. The point here is simply that competitor status, contrary to Microsoft’s contention, is not required for antitrust standing.

Microsoft further argues that Bristol lacks standing to pursue its federal and state antitrust claims because Bristol is not a competitor of Microsoft. See Microsoft Mem. in Opp., at 23-25. This contention is based on a distorted view of the law. There is no hard-and-fast requirement that an antitrust plaintiff be a competitor.7 See Blue Shield of Virginia v. McCready, 457 U.S. 465, 484 (1982); Crimpers Promotions, Inc. v. Home Box Office, Inc., 724 F.2d 290, 296 n.6 (2d Cir. 1983), cert. denied, 467 U.S. 1252 (1984). To assess a plaintiff’s relationship to the defendant is but one. See Associated General Contractors of Cal., Inc. v. California State Council of Carpenters, 459 U.S. 519, 537-44 (1983). Of particular significance to the standing analysis is the nature and directness of the alleged injury. Id. at 540; Crimpers, 724 F.2d at 294.

The Second Circuit’s decision in Crimpers is instructive. Although Microsoft accuses Bristol of misreading Crimpers, it is Microsoft that has distorted the import of that case. In Crimpers, a trade show organizer seeking to facilitate contacts between local cable television stations and cable programming producers alleged that Home Box Office, Inc. and Showtime Entertainment Corporation, two cable television networks that dominated the business of obtaining and offering such programming, conspired to cause the trade show’s failure. Although the trade show organizer was not a competitor of the defendants, the court nevertheless held hat the plaintiff had standing. The injury to the plaintiff, the court emphasized, was a direct one; indeed, it was the "precisely intended consequence of defendants’ boycott." Crimpers, 724 F.2d at 294.

The same can be said of Bristol’s claim against Microsoft. Just as the trade show organizer in Crimpers sought to make competition possible with the middlemen defendants by enabling producers and cable operators to deal directly and the middlemen defendants "allegedly made it suffer for trying to do so," id., Bristol has sought to make Windows applications available to users of non-Windows operating systems, and Microsoft has attempted to injure Bristol to squash this competitive threat. Viewed properly, Bristol’s injury is "inextricably intertwined" with the injury to competition Microsoft has sought to cause. McCready, 457 U.S. at 484. Bristol plainly has standing under the antitrust laws.

B. The Essential Facilities Doctrine Is A Viable Part Of The Antitrust Laws.

8  Microsoft apparently attempted to convince another court that the doctrine should be disregarded. In David L. Aldridge Co. v. Microsoft Corp., 995 F.Supp. 728, 751 (S.D. Tex 1998) the Court wrote "[o]ften criticized, [citing solely 3A Areeda & Hovenkamp] the essential facilities doctrine nevertheless remains a viable part of the federal antitrust laws."

Microsoft heaps scorn on Bristol’s essential facilities arguments and on the essential facility doctrine itself. Microsoft sets forth quotations from Areeda & Hovenkamp, opining their "belief"8 that the essential facility doctrine "should be abandoned," citing 3A Areeda & Hovenkamp, par. 771c at 176. Courts have not followed this "belief." In International Audiotext Network, Inc. v. AT&T Co., 62 F.3d 69, 72 (2d Cir. 1995), the plaintiff, IAN, premised its claims on the allegation that AT&T abused its dominant position in the market for international telephone calls. Yet, because IAN was not seeking access to any facility, the court properly denied IAN’s essential facility claim. Importantly, however, there was no hint or expression from the court that the essential facility doctrine itself should be abandoned.

Illinois Bell Telephone Co. v. Haines & Co., 905 F.2d 1081 (7th Cir. 1990), likewise offers no support for Areeda’s "belief," but rather recognizes the essential facility doctrine in appropriate circumstances. In City of Malden, Missouri v. Union Electric Co., 887 F.2d 157 (8th Cir. 1989), the third case authority cited by Microsoft, the court found no "bottleneck" existed because Malden had reasonable alternatives to purchasing electricity from Union. No wholesale discrediting of the doctrine here, either.

In short, the essential facility doctrine remains viable in antitrust law. See Aspen Skiing Co. v. Aspen Highlands Skiing, 472 U.S. 585 (1985); Delaware & Hudson Ry Co. v. Consolidated Rail Corp., 902 F.2d 174 (2d Cir. 1990); Fishman v. Wirtz, 807 F.2d 520, 539 (7th Cir. 1986); MCI Communications Corporation v. AT&T; 708 F.2d 1081 (7th Cir. 1983), cert. denied, 104 S.Ct 234.

C. Bristol’s Connecticut Unfair Trade Practices Act ("CUTPA") Claim Does Not Fail In The Absence Of A Contractual Relationship.

9  Microsoft’s reliance upon Shawmut Bank Conn. N.A. v. L & R Realty, Nos. 523134, 522814, 1995 WL 384661 at 32-33 (Conn. Super. June 20, 1995), rev’d on other grounds, 699 A.2d 297 (1997), rev’d on other grounds, 715 A.2d 748 (1998), is unavailing. In Shawmut a borrower’s lender liability CUTPA claim - - predicated upon an unproven agreement to subordinate a mortgage - - was rejected upon the Court’s finding that the lender had a contractual right to foreclose its mortgage. Based upon the facts the Court observed that "[o]nly if Shawmut did not have the contractual right to [initiate foreclose and related proceedings] would it become necessary to consider whether Shawmut’s actions…. [violated CUTPA]." Importantly, the gravamen of the action in Shawmut was based upon the parties’ contractual rights (and lack thereof), unlike the instant situation where contractual rights do not form the basis of the litigation.

At best, Microsoft’s chimerical assertion that Bristol cannot succeed under CUTPA unless Bristol establishes that Microsoft acted in contravention of Bristol Technology Inc. s contractual rights, Microsoft Mem. in Opp., at 39, borders on the absurd. Microsoft’s purported defense need not long detain this Court as it is axiomatic that a CUPTA claim - - be it pursued as an unfair trade practice, deceptive trade practice or unfair method of competition - - may arise in the absence of a contractual relationship. See, e.g., Waterbury Petroleum Products, Inc. v. Canaan Oil & Fuel Co., 193 Conn. 208, 228-29, 477 A.2d 988 (1984) (Public Acts 1979, No. 79-210, 1 eliminated privity requirement between plaintiff and defendant in private actions under CUTPA).9

Indeed, the weakness of Microsoft’s contention is readily exposed in light of Bristol’s CUTPA claim is grounded upon, among other things, Microsoft’s refusal to renew claim. If a contractual relationship were to be required, hen such a monopolization claim, which, in turn, gives rise to a CUTPA claim, would be unavailable unless the parties had a contractual relationship. Yet, such an arrangement is not required in order to allege this sort of monopolization. Eastman Kodak v. Image Technical Services, 504 U.S. 451, 481 (1992). Thus, Bristol has properly alleged a cause of action under CUTPA, without relying upon any abrogation of Bristol’s contractual rights, by having alleged a violation by Microsoft of traditional antitrust law, and by alleging that Microsoft’s method of competition is offensive to public policy. See E.I. duPont de Nemours & Co. v. FTC, 729 F.2 128, 136-37 (2d Cir. 1984) (unfair trade practice claim may be alleged, among other means, via allegation of traditional antitrust violations as well as through "conduct which, although not a violation of the letter of the antitrust laws, is close to a violation or is contrary to their sprit [citations omitted]."

III. THE RELIEF SOUGHT BY THE PLAINTIFF IS IN THE PUBLIC INTEREST.

Bristol seeks a preliminary injunction requiring Microsoft to make available to it source code for Windows operating systems. This interim relief is fully in the public interest and in particular will serve to promote competition in this critical industry. The enforcement of the antitrust laws and prohibitions against unfair trade practices is a serious and paramount interest of public law and policy.

Antitrust laws in general, and the Sherman Act in particular, are the Magna Carta of free enterprise. They are as important to the preservation of economic freedom and our free-enterprise system as the Bill of Rights is to the protection of our fundamental personal freedoms. And the freedom guaranteed each and every business, no matter how small, is the freedom to compete - - to assert with vigor, imagination, devotion, and ingenuity whatever economic muscle it can muster.

United States v. Topco Assocs., Inc., 405 U.S. 596 , 610 (1972). See Larsen Chelsey Realty Co., 232 Conn. at 497-98, 656 A.2d 1009; Hernandez v. Monterey Village Assocs. Ltd. Ptshp., 17 Conn. App. 421, 425, 553 A..2d 617 (1989). In no other industry is this more important than in the computer software and operating systems markets in which the spur of competitive market forces to innovation is essential.

Moreover, the public interest will be served by granting interim relief pending the final resolution of the merits of the plaintiff’s claims. As Bristol contends, an award of money damages will hardly be an adequate remedy if Microsoft is permitted to destroy Bristol’s ongoing business in violation of antitrust laws. More importantly, from the perspective of the public interest, preliminary relief is necessary to protect competition. This is an industry that is highly dynamic and fast moving. Because of its dynamic nature, even short-term dislocations can have dramatic long-term effects. The loss of Bristol and its products would constitute a serious irreparable injury to the consuming public and to the competitive health of the industry.

Finally, Microsoft attempts to suggest that, because the Department of Justice ("DOJ") and the State Attorneys General that have brought antitrust actions against it have not also raised the claims that Bristol is pursuing, the public interest must therefore not be implicated. See Microsoft Mem. in Opp., at 46 n.25. This is pure sophistry. Microsoft is correct in one thing: the State Attorneys General will not "leave any stone unturned" to confront and end Microsoft’s anticompetitive practices. It is, however, for that very reason that the State submits this brief as amicus. Quite plainly, the public interest is implicated, and in the careful balancing that this Court must perform in ordering preliminary injunction, the public interest weighs decidedly in favor of granting the relief Bristol seeks..

IV.  CONCLUSION

For the foregoing reasons, the State respectfully submits that the Court should grant the plaintiff’s motion for preliminary injunction.


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