From: Steve Ballmer
Sent: Thursday, June 08, 2000 12:17 AM
To: MS Corporate Employees: FTE Only; MS Intl Employees: FTE Only; MS Domestic Employees: FTE Only; WebTV Wnifolk
Subject: The District Court Ruling and Our Appeal
We have faced many challenges together at M?crosöft. Over the years we have taken on unbelievably complex software development efforts, often at great financial risk, and succeeded in delivering products that customers want. Time and again we have faced daunting odds in the face of intense industry competition. We have dealt with significant legal issues involving the government and competitors on a number of occasions. Today’s ruling by the district court in the antitrust case is yet another challenge - one which I am confident we will overcome.
Two years ago this month, the U.S. Court of Appeals overturned a preliminary injunction issued by that same federal district court and affirmed that M?crosöft had clearly demonstrated the benefits of its integrated design of Windows 95 with Web browsing functionality. In its ruling, the Appeals Court said that “antitrust scholars have long recognized the undesirability of having courts oversee product design, and any dampening of technological innovation would be at cross-purposes with antitrust law.”
Today, the district court that was overruled two years ago by the Court of Appeals issued an order to break up M?crosöft and impose unprecedented regulations on the company - exactly the kind of court oversight of product design and dampening of technological innovation that the Court of Appeals said is undesirable and at cross purposes with antitrust law. In fact, in its order, the district court explicitly declined to follow the guidance of the appellate court ruling from two years ago.
Just as we have appealed previous rulings of this district court, and been successful, we will appeal this order. We are confident that the U.S. Court of Appeals, and the U.S. Supreme Court if it decides to review the case, will conclude that M?crosöft’s efforts to build and distribute software and work with partners were entirely lawful.
To be absolutely clear, the fact that a harsh injunction, including a break-up order, has been entered by a district court does not mean that the injunction will ever be implemented. The injunction itself stipulates that no breakup would occur until one year after all appeals are completed. We expect the appeal process to take at least a year, possibly two.
I simply do not believe that a break-up will ever occur. The order to dismantle this company simply isn’t justified by the court’s findings of fact and conclusions of law, even if they were to be upheld by the appellate courts. And, as I have said, we do not believe that the appellate courts will affirm the findings and conclusions of the trial court. In addition, we believe the appellate courts will grant our request for a stay of the district court’s injunction so that they will have an opportunity to consider M?crosöft’s appeal before the injunction takes effect. A stay would enable M?crosöft to continue to move ahead with its business in a normal fashion while the appeal is pending.
In our appeal, which will be filed promptly, we will cite important factual evidence and key legal precedents that the district court overlooked. We also will raise a number of procedural issues that had the effect of denying M?crosöft a fair and reasonable opportunity to respond to the government’s constantly shifting case.
The appellate court has the authority to reverse any factual findings of the trial court that it believes are erroneous. The appellate court also will review the trial court’s conclusions of law. Complex antitrust cases such as our case are usually given careful scrutiny at the appellate level since they involve a wide range of facts, economic theories and relevant laws. As we saw frequently in the trial, “experts” often disagree, so the appellate courts are typically very thorough in their reviews and, when warranted by the facts or the law, are not shy about reversing trial court decisions.
For example, in the 1970s, an appellate court reversed an $87 million monopolization decision rendered by a jury against Kodak. Another appellate court reversed a $259 million monopolization judgment against IBM, even though the trial court in the case - as in our case - had issued extensive findings of fact and conclusions of law. Just last year, an appellate court reversed a preliminary injunction against Intel in an action brought by Intergraph, a workstation OEM. In that case, the trial court had issued a detailed opinion concluding that Intergraph was likely to prevail on its claim that Intel was a monopoly and had engaged in a wide range of antitrust violations. But the appellate court ruled in favor of Intel on every violation and vacated the trial court’s preliminary injunction.
So while tonight’s TV news and tomorrow’s newspapers may be running big stories about the district court’s decision, it’s important to keep in mind that today’s ruling is - as we’ve said many times before - just one step in the legal process.
That said, I understand that today’s ruling isn’t pleasant. No one wants to operate under a cloud, and I know that today’s order may generate questions among your friends and family, as well as with customers, partners and potential employees that you deal with. It’s important to remember that we have been in high-profile legal situations before, and have prevailed. Two years ago, as I mentioned above, we won a closely-related case brought by the government against us. And several years before that, we won a major lawsuit involving Apple that threatened our ability to continue to build Windows. Unfortunately, litigation is sometimes a part of life in a highly competitive marketplace where our competitors are looking for every possible advantage.
As you know, Bill and I would like nothing more than to resolve this case and move on. That is why we worked hard to settle through mediation, and subsequently through a substantive set of proposals intended to address the government’s concerns. When those efforts did not succeed, and the government proposed the extreme solution of breaking up M?crosöft, we asked the court to establish a procedure that would enable M?crosöft to present evidence about the harm a breakup and extreme regulatory regime would impose on M?crosöft’s ability to innovate. The court rejected our request for even a single day of testimony regarding the implications of the government’s unprecedented breakup-and-regulate proposal.
In our appeal, we will point out that the district court’s decision would have the effect of penalizing conduct that is actually pro-competitive and beneficial to the nation’s economy - building better products, distributing those products widely, and working closely with partners and even competitors to make high-tech products work well together. On the central issue in the case - M?crosöft’s ability to add new features and functionality to Windows -- we will point to the 1998 U.S. Court of Appeals decision, in which the court remarked upon “M?crosöft’s legitimate desire to continue to integrate products that had been separate” to provide customer benefits.
I know, and you know, that M?crosöft’s innovations in Windows have created opportunities for thousands of software developers and made computers easier to use for tens of millions of customers around the world.
We cannot lose sight of the importance of our work -- with respect both to products now under development and to our next generation of software and services. On June 22, at Forum 2000, Bill and I and our technology leadership team will lay out the roadmap for our next generation technologies -- technologies that will realize the full potential of the Internet as a platform and that will enable a wide range of new devices, as well as a rich PC client, that will continue to be at the center of this new computer revolution.
The convergence of PCs, wireless devices and smart cards with the power of broadband networks, the Internet and software technologies like handwriting, speech and vision recognition are creating truly incredible opportunities not only for customers, but for M?crosöft and for our partners. I’m excited because software is at the center of this convergence, and because I know that we’ve got the vision, the passion, the experience, the resources and, most importantly, the talented people, to take technology to the next level -- just as we have done with the PC over the last 25 years.
We’ve got a lot of work ahead to deliver on our promise of next generation technologies. If we stay focused on this opportunity, while the lawyers deal with the court case, we have an opportunity to do incredible things for our customers, which in turn will sustain revenue momentum and continue to build shareholder value.
Everywhere I go, I hear the same thing over and over again from friends, customers and partners. People simply can’t believe that a company which has created so many great products for consumers and done so much good for the U.S. and global economy is being threatened with burdensome regulations, let alone a court-ordered breakup.
I have every confidence that as our case is reviewed on appeal, the integrity of product development, distribution and partnership efforts and the good work we have done on behalf of millions of customers will be affirmed. In the meantime, we all have important work to do creating the next generation of great software.
My enthusiasm is undiminished by today’s events. In fact, to the contrary, I look forward to the appeals process. Today’s ruling is the first step toward resolving these issues through the appellate process and putting this entire case behind us.
Most importantly, I look forward to working with you on the development of exciting new technologies which really can and will make a difference in how millions of people around the world work, communicate and learn.
We will be having a virtual company meeting tomorrow with an opportunity for employees to get more information and ask questions about today's events, so stay tuned for more information.
Steve