Gorsuch’s Good, Wrong Opinion on Microsoft Antitrust Case

Competition Law360
February 1, 2017

By James Robertson Martin
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Judge Neil Gorsuch got it wrong. I’m sure of it. His opinion affirmed the trial court’s dismissal of an unlawful monopolization case brought by our client, the former owners of WordPerfect (anyone remember WordPerfect?), against Microsoft Corporation. The dismissal was entered after a Salt Lake City jury hung 11-1 in favor of liability. But it was an extraordinarily well-written opinion — powerful and analytic. It was 2013 and it was clear to me even then that Neil Gorsuch was going to end up on someone’s shortlist for the U.S. Supreme Court.

Judge Gorsuch wrote the opinion in Novell v. Microsoft, 731 F.3d 1064 (10th Cir. 2013). The case grew out of the U.S. Department of Justice’s successful litigation against Microsoft for exclusionary conduct in the development of Windows 95. It’s hard to believe now, but back then there was essentially one operating system for personal computers and Microsoft owned it. WordPerfect (which was acquired by Novell) filed the case in 2004 in Salt Lake City. It was transferred to a multidistrict litigation in Baltimore for consolidated pretrial proceedings, dismissed by the trial court for failure to state a claim, reinstated by the Fourth Circuit, and then transferred back to Salt Lake City for trial in 2011 after Microsoft’s summary judgment motion and petition for certiorari had been denied. Justice Gorsuch recounted this chronology much more vividly in the opening paragraph of his opinion:

A straggler of a case, this one drags us back twenty years. To a time before the dot-com boom busted and boomed again, a time when Microsoft was busy amassing a virtual empire—if sometimes in violation of the antitrust laws. Long since found liable for a rich diversity of antitrust misdeeds in the 1990s, this case calls on us to decide whether Microsoft back then committed still another, as-yet undetected antitrust violation—this time at Novell’s expense.

The case reached the Tenth Circuit after an eight-week trial in Salt Lake City. The developers of WordPerfect testified that Microsoft had pulled the technological equivalent of a bait-and-switch to send WordPerfect down a dead-end path to integrate WordPerfect into the “new” Windows 95. WordPerfect’s biggest rival at the time was Microsoft’s own Word, part of the Microsoft Office suite.

In the months leading up to the release of Windows 95, Microsoft agreed to share (“publish” in the lexicon of computer designers) its “code” with WordPerfect and other applications to help them be prepared to offer Windows 95-compatible applications when Microsoft released the operating system. The view at the time was that the more applications that could run on Windows 95, the more consumers would like it.

But the WordPerfect developers might have been a little too clever. They sought to take advantage of a certain piece of the code in innovative ways that Microsoft Word was not prepared to match at the time. The WordPerfect developers, in fact, were thinking of a world where applications and documents could live in a “cloud” which would ubiquitize operating systems. And Microsoft found out. Microsoft promptly withdrew its support of WordPerfect for reasons that were the focus of the trial.

In an email dated just after Microsoft pulled its support, Bill Gates wrote: “I have decided that we should not publish [the code]. We should wait until we have a way to do a high level of integration [which] will be harder for the likes of Notes, WordPerfect to achieve, and which will give [Microsoft] Office a real advantage.” Gates testified at trial that he made that decision not to harm WordPerfect, but because he believed the code was unstable. WordPerfect developers testified that when Microsoft pulled the code, they were left in a dark tunnel at the end of a very long pier with no clear path to integration. By the time they found their way back, Windows 95 had been released with more fanfare than any other operating system (the Rolling Stones were paid umpteen millions to play “Start Me Up” at the release party) and Microsoft Word was already installed on virtually everyone’s computer. The jig was up.

WordPerfect argued at trial that Microsoft violated Section 2 of the Sherman Act by artificially preserving its monopoly in the operating systems market through conduct that had no pro-competitive justification. Most of the jury agreed. One did not. After the district court granted Microsoft’s post-trial judgment notwithstanding the verdict motion, WordPerfect appealed to the Tenth Circuit. Several jurors wept when the foreman announced that they could not reach a unanimous decision.

WordPerfect brought in litigation heavyweight and noted Microsoft-slayer David Boies of Boies Schiller Flexner LLP for the appeal. All to no avail. Judge Gorsuch was not impressed by the refusal-to-deal theory: “Put simply if perhaps a little too simply, today a monopolist is much more likely to be held liable for failing to leave its rivals alone than for failing to come to their aid.” He used that observation as a launching pad for a discussion of the policies underlying the antitrust laws.

If the law were to make a habit of forcing monopolists to help competitors by keeping prices high, sharing their property, or declining to expand their own operations, courts would paradoxically risk encouraging collusion between rivals and dampened price competition—themselves paradigmatic antitrust wrongs, injuries to consumers and the competitive process alike. Forcing firms to help one another would also risk reducing the incentive both sides have to innovate, invest, and expand—again results inconsistent with the goals of antitrust.

Justice Gorsuch then focused on the underappreciated incentives that the law provides to encourage firms to strive for monopoly power.

The monopolist might be deterred from investing, innovating, or expanding (or even entering a market in the first place) with the knowledge anything it creates it could be forced to share; the smaller company might be deterred, too, knowing it could just demand the right to piggyback on its larger rival.

All true. But what about the allegation that Microsoft preserved its market power through skullduggery rather than competition on the merits? Was it not possible that a jury could believe that Microsoft abused its monopoly power? Justice Gorsuch said no.

The problem, he concluded, was that WordPerfect offered “no evidence from which a reasonable jury could infer that Microsoft’s discontinuation of this arrangement suggested a willingness to sacrifice short-term profits, let alone in a manner that was irrational but for its tendency to harm competition.” In fact, he wrote, all the evidence suggested that Microsoft’s decision came about as a result of a desire to maximize the company’s immediate and overall profits (by promoting Microsoft Word) and antitrust law seeks to “protect, not penalize, such prosaic profit-maximizing (and presumptively pro-competitive) conduct by independently operating firms, even dominant firms.”

And, Judge Gorsuch decided, even if Microsoft had intentionally duped WordPerfect into traveling down a path to nowhere, WordPerfect still would not have had a viable antitrust claim. WordPerfect would not have been able to show that it would have had a product ready to release on time if Microsoft had declined to share its code in the first place, as everyone agreed Microsoft had a right to do. In Judge Gorsuch’s eloquently stated view, “the antitrust laws don’t turn private parties into bounty hunters entitled to a windfall anytime they can ferret out anti-competitive conduct lurking somewhere in the marketplace.” Instead, “to prevail, a private party must establish some link between the defendant’s alleged anti-competitive conduct, on the one hand, and its injuries and the consumer’s, on the other.” In this case, “that essential element is missing: the conduct [WordPerfect] complains about (deception) is divorced from the conduct that allegedly caused harm to it and to consumers (the refusal to deal).”

As lawyers, we tend to believe that we are right. As advocates, we tend to believe we are absolutely right. I still think Judge Gorsuch got it wrong. But I cannot say that he did not know the law or the policies, or perform a painstaking analysis of the case. For opponents of Judge Gorsuch’s nomination, that may be the biggest problem. As University of Colorado law professor Melissa Hart told a reporter: “He will have a strong influence on the court because he’s a very persuasive writer,” she said. “That's a little scary, but it’s not disqualifying.”

James Robertson Martin is a partner in the Washington, D.C., office of Zelle LLP.

DISCLOSURE: James R. Martin represented Novell in the Novell v. Microsoft litigation discussed in this article.

The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.