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Microsoft Antitrust

Microsoft Antitrust Antitrust laws protect competition, which is said to benefit consumers with more and better products at lower prices. The U.S. Department of Justice (DOJ) and attorneys general from 20 states has filed antitrust lawsuits against Microsoft Corporation (Microsoft), the world's largest supplier of computer software for personal computers (PCs) in the United States.. Microsoft is accused of allegedly violating sections 1 and 2 of The Sherman Antitrust Act of 1890. Section 1 of the Sherman Act outlaws " every contract, combination…, or conspiracy, in restraint of trade." The Supreme Court has since then decided that the Sherman Act prohibits only those contracts or agreements that restrain trade unreasonably. What kinds of agreements are unreasonable is up to the courts. Section 2 of the Sherman Act makes it unlawful for a company to "monopolize, or attempt to monopolize," trade or commerce. As that law has been interpreted, it is not necessarily illegal for a company to have a monopoly or to try to achieve a monopoly position. The law is violated only if the company tries to maintain or acquire a monopoly position through tactics that either unreasonably exclude firms from the market or significantly impair their ability to compete. The DOJ feels that Microsoft has a monopoly in the field of personal computer operating systems (OSs) and that they are engaging in anticompetitive conduct. Microsoft's "Windows" operating systems are used in over 80% of PCs. More than 90% of new PCs are shipped with a version of Windows pre-installed. According to the DOJ," PC manufacturers have no commercially reasonable alternative to Microsoft operating systems for the PCs that they distribute." Other firms do exist in the operating system market for example, IBM, Oracle, Sun Apple, AT&T, Hewlett Packard, Wang, Be, Linux, Dec, Gem, and others. These firms may only have 10-20% of the market share for PC's operating systems but they do have some share of the market. This proves that Microsoft is not the only seller of operating systems as the DOJ claims. The DOJ's complaint states that, "To protect its valuable Windows monopoly against potential competitive threats, and to extend its operating system monopoly into other software markets, Microsoft has engaged in a series of anticompetitive activities. Microsoft's conduct includes agreements tying other Microsoft software products to Microsoft's Windows operating system; exclusionary agreements precluding companies from distributing, promoting, buying, or using products of Microsoft's software competitors or potential competitor; and exclusionary agreements restricting the right of companies to provide services or resources to Microsoft's software competitors or potential competitors." The DOJ claims Microsoft has engaged in predatory (pricing) conduct by giving away its Internet Explorer browser. Predatory pricing is an exclusionary act by which a firm, in order to create or maintain a monopoly power, lowers its prices below the profit maximizing level in order to push rival firms out of the market or prevent them from ever entering the market. In the long run, this results to be a detriment to consumers. Once the competition has left the market, the company can then raise prices to a supracompetitive level and recoup the losses suffered by predatory pricing. This results in higher prices for the consumer. With no alternative product available, the consumer is left with no choice but to pay the high price. Microsoft Internet Explorer's largest competitor is the Netscape Navigator browser. Paul Maritz, Microsoft's group vice president in charge of the Platforms Group, was quoted in the New York Times as telling industry executives (regarding Netscape): " We are going to cut off their air supply. Everything they're selling, we're going to give away for free." Netscape Navigator can now also be downloaded free of charge. Microsoft believed that a browser "war" would be difficult because Netscape (originally) held 80% of marketshare and Internet Explorer, only 20%. They decided to use their Windows OS market power. The DOJ claims Microsoft's conduct includes agreements tying other Microsoft software products to Microsoft's Window's operating System-specifically, the bundling of Microsoft's Internet Explorer Web browser with windows. The illegal conduct of tying occurs when a seller conditions the sale of one product on the purchaser's agreement to buy a second (different) product. Tying is illegal under section 2 of the Sherman Act if the seller has a monopoly in the tying product, the tied product, or is attempting to monopolize the market for the tied product. Many cases are also brought under section 3 of the Clayton Antitrust Act and section 1 of the Sherman Act. The standard for tying is the same. The four main elements required to be proven to make out a case of tying are: (1) there are two distinct separate products, (2) the seller tied the two products together, (3) the seller possesses market power in the tying product, and (4) a substantial amount of commerce is in the tied product is affected. Microsoft is accused of unfairly demanding that computer manufacturers also install Internet Explorer, a web browser, as a condition of installing it's Windows operating system. That requirement may or may not be a violation of antitrust laws. The court will have to determine whether there are two separate products being tied or if there is in fact only one product. Internet Explorer may or may not be viewed by the courts as an "integrated" component of Windows. Microsoft claims that the Internet Explorer and the Windows operating systems are effectively one integrated product. The courts decision will be based on their interpretation of the word "integrated," that is, on how much interdependence must exist before Windows and Internet Explorer are deemed to be "integrated." To what extent does Internet Explorer rely on the code built into Windows, and visa versa? Also, can Internet Explorer be "uninstalled" without compromising the operation of Windows? The DOJ claims that tying Internet Explorer and Windows is a misuse of Microsoft's operating system monopoly to artificially exclude browser competition and deprive customers of a free choice between browsers. Customers still have a choice. With a few clicks of the mouse, anyone can download Netscape is they should choose to do so. Does Microsoft have a unique advantage by being able to package its browser with Windows? Of course. It has earned that advantage, because it, and no one else, developed Windows into a leading product. Yes, it is true that because end users want a large number of applications available and most applications today are written to run on Windows, there are some barriers to entry in the market for PC operating systems. It seems unfair to penalize Microsoft for being too successful but if in the long-haul their success results in harm to consumers, then preventative action should be taken now. Provisions of the Clayton Act make it illegal "where the effect…may be to substantially lessen competition or tend to create a monopoly, " for a firm to "tie" the sale of one separate product (which Internet Explorer might be legally judged to be) to the sale of another (Windows). The most important doctrine in prosecuting Microsoft was set forth in United States v. Griffith, which states that a monopolist may not use a monopoly in one field as a leverage to gain a monopoly in another. It is using its OS monopoly power to gain a monopoly in the browser field. If it is determined that Windows and Internet Explorer are two separate and distinct fields then they are breaking the law if however as Microsoft claims they are not then what they with respect to the tying charge have is simply a competitive advantage. Another major charge against Microsoft is that of Exclusionary Agreements. It is illegal to leverage a monopoly position in one product to force companies to agree to distribute another of the monopoly owner's products at the expense of a competitor. Microsoft talked Internet service providers (ISPs) such as America Online (AOL) as part of the Windows operating system. According to the DOJ, "Microsoft's anticompetitive agreements with ISPs have substantially foreclosed competing browsers from this major channel of browser distribution. Over 30 percent of Internet browser users have obtained their browsers from ISPs." This particular charge, in my opinion, lacks validity. Microsoft is not "forcing" anyone to distribute its products. They made a business deal with ISP's such as AOL and CompuServe. AOL made Microsoft's Internet Explorer the default browser - the browser AOL subscribers would use unless they specifically asked for Netscape's Navigator. In return, Microsoft would give AOL a start-up icon on the Windows desktop. This, to me, does not require force. It's just a trade off in advertising. It may have given Microsoft an edge over Netscape in the browser war but it was not illegal. What is illegal in Microsoft's conduct is a meeting, which took place between Microsoft and Netscape in May of 1995. Microsoft allegedly attempted to eliminate competition from Netscape by seeking an express horizontal agreement not to compete. They wanted to divide the browser market, with Microsoft becoming the sole provider of browsers for Windows and Netscape the sole provider for all other operating systems. Netscape refused to participate in Microsoft's illegal scheme. If courts determine that this in fact did take place, then Microsoft's conduct was in deed anticompetitive. Microsoft's exclusionary agreements with Internet Content Providers (ICPs) to provide direct Internet access to select ICPs appearing on the "active desktop" feature of Windows. In return for the ICP's agreement not to pay browser competitors or distribute their browsers for distribution, marketing, or promotion; to not promote any browser produced by Microsoft's primary browser competitors; to not allow any competitors to promote that ICP's "channel" content on or for their browsers; and to design its web sites using Microsoft-specific, proprietary programming extentions so that those sites look better when viewed with Internet explorer than when viewed with a competing browser. Antitrust laws protect competition, which is said to benefit consumers with more and better products at lower prices. The U.S. Department of Justice (DOJ) and attorneys general from 20 states has filed antitrust lawsuits against Microsoft Corporation (Microsoft), the world's largest supplier of computer software for personal computers (PCs) in the United States.. Microsoft is accused of allegedly violating sections 1 and 2 of The Sherman Antitrust Act of 1890. Section 1 of the Sherman Act outlaws " every contract, combination…, or conspiracy, in restraint of trade." The Supreme Court has since then decided that the Sherman Act prohibits only those contracts or agreements that restrain trade unreasonably. What kinds of agreements are unreasonable is up to the courts. Section 2 of the Sherman Act makes it unlawful for a company to "monopolize, or attempt to monopolize," trade or commerce. As that law has been interpreted, it is not necessarily illegal for a company to have a monopoly or to try to achieve a monopoly position. The law is violated only if the company tries to maintain or acquire a monopoly position through tactics that either unreasonably exclude firms from the market or significantly impair their ability to compete. The DOJ feels that Microsoft has a monopoly in the field of personal computer operating systems (OSs) and that they are engaging in anticompetitive conduct. Microsoft's "Windows" operating systems are used in over 80% of PCs. More than 90% of new PCs are shipped with a version of Windows pre-installed. According to the DOJ," PC manufacturers have no commercially reasonable alternative to Microsoft operating systems for the PCs that they distribute." Other firms do exist in the operating system market for example, IBM, Oracle, Sun Apple, AT&T, Hewlett Packard, Wang, Be, Linux, Dec, Gem, and others. These firms may only have 10-20% of the market share for PC's operating systems but they do have some share of the market. This proves that Microsoft is not the only seller of operating systems as the DOJ claims. The DOJ's complaint states that, "To protect its valuable Windows monopoly against potential competitive threats, and to extend its operating system monopoly into other software markets, Microsoft has engaged in a series of anticompetitive activities. Microsoft's conduct includes agreements tying other Microsoft software products to Microsoft's Windows operating system; exclusionary agreements precluding companies from distributing, promoting, buying, or using products of Microsoft's software competitors or potential competitor; and exclusionary agreements restricting the right of companies to provide services or resources to Microsoft's software competitors or potential competitors." The DOJ claims Microsoft has engaged in predatory (pricing) conduct by giving away its Internet Explorer browser. Predatory pricing is an exclusionary act by which a firm, in order to create or maintain a monopoly power, lowers its prices below the profit maximizing level in order to push rival firms out of the market or prevent them from ever entering the market. In the long run, this results to be a detriment to consumers. Once the competition has left the market, the company can then raise prices to a supracompetitive level and recoup the losses suffered by predatory pricing. This results in higher prices for the consumer. With no alternative product available, the consumer is left with no choice but to pay the high price. Microsoft Internet Explorer's largest competitor is the Netscape Navigator browser. Paul Maritz, Microsoft's group vice president in charge of the Platforms Group, was quoted in the New York Times as telling industry executives (regarding Netscape): " We are going to cut off their air supply. Everything they're selling, we're going to give away for free." Netscape Navigator can now also be downloaded free of charge. Microsoft believed that a browser "war" would be difficult because Netscape (originally) held 80% of marketshare and Internet Explorer, only 20%. They decided to use their Windows OS market power. The DOJ claims Microsoft's conduct includes agreements tying other Microsoft software products to Microsoft's Window's operating System-specifically, the bundling of Microsoft's Internet Explorer Web browser with windows. The illegal conduct of tying occurs when a seller conditions the sale of one product on the purchaser's agreement to buy a second (different) product. Tying is illegal under section 2 of the Sherman Act if the seller has a monopoly in the tying product, the tied product, or is attempting to monopolize the market for the tied product. Many cases are also brought under section 3 of the Clayton Antitrust Act and section 1 of the Sherman Act. The standard for tying is the same. The four main elements required to be proven to make out a case of tying are: (1) there are two distinct separate products, (2) the seller tied the two products together, (3) the seller possesses market power in the tying product, and (4) a substantial amount of commerce is in the tied product is affected. Microsoft is accused of unfairly demanding that computer manufacturers also install Internet Explorer, a web browser, as a condition of installing it's Windows operating system. That requirement may or may not be a violation of antitrust laws. The court will have to determine whether there are two separate products being tied or if there is in fact only one product. Internet Explorer may or may not be viewed by the courts as an "integrated" component of Windows. Microsoft claims that the Internet Explorer and the Windows operating systems are effectively one integrated product. The courts decision will be based on their interpretation of the word "integrated," that is, on how much interdependence must exist before Windows and Internet Explorer are deemed to be "integrated." To what extent does Internet Explorer rely on the code built into Windows, and visa versa? Also, can Internet Explorer be "uninstalled" without compromising the operation of Windows? The DOJ claims that tying Internet Explorer and Windows is a misuse of Microsoft's operating system monopoly to artificially exclude browser competition and deprive customers of a free choice between browsers. Customers still have a choice. With a few clicks of the mouse, anyone can download Netscape is they should choose to do so. Does Microsoft have a unique advantage by being able to package its browser with Windows? Of course. It has earned that advantage, because it, and no one else, developed Windows into a leading product. Yes, it is true that because end users want a large number of applications available and most applications today are written to run on Windows, there are some barriers to entry in the market for PC operating systems. It seems unfair to penalize Microsoft for being too successful but if in the long-haul their success results in harm to consumers, then preventative action should be taken now. Provisions of the Clayton Act make it illegal "where the effect…may be to substantially lessen competition or tend to create a monopoly, " for a firm to "tie" the sale of one separate product (which Internet Explorer might be legally judged to be) to the sale of another (Windows). The most important doctrine in prosecuting Microsoft was set forth in United States v. Griffith, which states that a monopolist may not use a monopoly in one field as a leverage to gain a monopoly in another. It is using its OS monopoly power to gain a monopoly in the browser field. If it is determined that Windows and Internet Explorer are two separate and distinct fields then they are breaking the law if however as Microsoft claims they are not then what they with respect to the tying charge have is simply a competitive advantage. Another major charge against Microsoft is that of Exclusionary Agreements. It is illegal to leverage a monopoly position in one product to force companies to agree to distribute another of the monopoly owner's products at the expense of a competitor. Microsoft talked Internet service providers (ISPs) such as America Online (AOL) as part of the Windows operating system. According to the DOJ, "Microsoft's anticompetitive agreements with ISPs have substantially foreclosed competing browsers from this major channel of browser distribution. Over 30 percent of Internet browser users have obtained their browsers from ISPs." This particular charge, in my opinion, lacks validity. Microsoft is not "forcing" anyone to distribute its products. They made a business deal with ISP's such as AOL and CompuServe. AOL made Microsoft's Internet Explorer the default browser - the browser AOL subscribers would use unless they specifically asked for Netscape's Navigator. In return, Microsoft would give AOL a start-up icon on the Windows desktop. This, to me, does not require force. It's just a trade off in advertising. It may have given Microsoft an edge over Netscape in the browser war but it was not illegal. What is illegal in Microsoft's conduct is a meeting, which took place between Microsoft and Netscape in May of 1995. Microsoft allegedly attempted to eliminate competition from Netscape by seeking an express horizontal agreement not to compete. They wanted to divide the browser market, with Microsoft becoming the sole provider of browsers for Windows and Netscape the sole provider for all other operating systems. Netscape refused to participate in Microsoft's illegal scheme. If courts determine that this in fact did take place, then Microsoft's conduct was in deed anticompetitive. Microsoft's exclusionary agreements with Internet Content Providers (ICPs) to provide direct Internet access to select ICPs appearing on the "active desktop" feature of Windows. In return for the ICP's agreement not to pay browser competitors or distribute their browsers for distribution, marketing, or promotion; to not promote any browser produced by Microsoft's primary browser competitors; to not allow any competitors to promote that ICP's "channel" content on or for their browsers; and to design its web sites using Microsoft-specific, proprietary programming extentions so that those sites look better when viewed with Internet explorer than when viewed with a competing browser. Bibliography:

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