Microsoft Vs. Doj

Microsoft vs. DOJ
Arguments of the DoJ (the white paper)
1. Microsoft and it?s Monopoly Power
MS monopoly power is in personal computer operating systems. A PC operating system as you all know controls the interaction of the different parts of the computer. It creates files, organizes the computer?s memory and creates a platform for applications.

The operating system is indispensible to the computer for this reason. Maybe that changes as technology evolves but right now a computer without an OS is nothing but a box of inert hardware. MS today ships 97% of PC OS that are installed by computer manufacturers.

Case law defines monopoly as beginning at about a 70% share of the market.

But this alone isn?t illegal in respect to superior products, service or mere luck. Nor does market share alone necessarily imply monopoly power. For example a manufacturer might make 100% of knickers on the market. But if there are other pants manufacturers who are able to turn their production into knickers, the one and only knickers producer wouldn?t be able to charge more than a competitive price or exclude rivals from his market.

Speaking of this little example it?s now clear what monopoly power means: it is the power to control prices and exclude competition. MS has and still exercises, both form of monopoly power. It charges above competitive prices and use tactics that eliminate rivals. And not because MS are superior to others and more beneficial to the consumers. No, not at all, MS uses predatory tactics whose sole purpose is to destroy it?s rivals.

MS often has denied that it posesses monopoly power but their arguments are quite feeble.

A MS spokesman stated that the market is highly dynamic and that there are only low barriers to enter the market, especially for fringe firms. But this is untrue for the means of competition.

There might be a lot of new technology but the barriers MS deliberately put up made it impossible for new market entry. The result is that MS can charge higher than competitive prices without a loss of market share.

Another argument of MS is that it?s monopoly power is defeated by ist need to compete against it?s own installed base meaning that MS has eg now to compete against win 95.

But this is another partly untrue argument because most consumers think of a new OS only when they want to buy a new computer and replace their old one. With that consumers expect that the replacement will come with an installed operating system. Therefore competition among operating systems, if it were allowed to exist, would be competition to have computer manufacturers install operating systems on a new machine.

2. MS employs exclusionary tactics to maintain it?s monopoly
MS exclusionary war proceeds along two lines. First it has built it?s browser, the IE, into it?s Win OS and will not allow computer manufacturers to remove it.

Second, MS employs a complex web of restrictive agreements designed to block the entry or growth of rivals.

To say something about the history. The Browser War Netscape produced the first browser, the NN, which made searching the internet practicable for the average computer user. Thus the Navigator posed a serious threat to MS monopoly because NN created the possibility of a system that would bypass the Windows OS. Meaning that a browser with a large number of users can become an alternative platform by combining it with eg. Sun Microsystems programming language Java. Together Netscape and Java could reduce Windows to just one OS among several others.

Microsoft recognizes the danger at once: Netscape/Java is using the browser to create a “virtual OS” and that a competing browser could eventually obsolete Windows. Naturally MS didn?t like the idea and counterattacked. It developed ist own browser the Internet Explorer.

When the IE failed to push the Navigator out of the market MS joined it?s browser to the OS, first with win95 and now in win 98 so that computer manufacturers are forced to take both in one package. MS makes no extra charge for the browser, pricing it at zero, thus selling it below cost. A MS spokesman even stated that if they were forced to offer ist OS and its IE as seperate products, the company would still charge exactly nothing for the browser. This forced Netscape to stop charging for the Navigator and to give it away.

A statement from MS: We?re giving away a pretty good browser as part of the operating system. How long can Netscape survive selling it?!
MS was angry that Netscape dared to step into its OS territory and so MS stepped into Netscapes territory of browsers. The clear intent was not to compete with Netscape on the respective values of the Explorer and the Navigator but to drive Netscape out of the browser market altogehter. Sure thing ppl started to use the IE instead of the Navigator and ist share of the browser market skyrocketed, propelled by the operating system monopoly.

As a defense MS rationalizes ist merging of the IE and Windows with the argument that any producer is entitled to define it?s own product. Should it be required to offer ist browser separetetly or to incorporate the Navigator in Windows, the company claims that it would be like asking the DoJ everytime MS intends to add a new function to the OS for permission.

This preposition is not true. That a monopolist or a virtual monopolist is not free to define ist products in a way that stifle competition, meaning to erase any competition, is clear from Aspen Skiing Co vs. Aspen Highlands Skiing Corp. The defendent Skiing Co owned and operated downhill skiing facilities on three mountains; plaintiff Highlands operated on the fourth mountain. For years the two companies offered a week-long pass, the all Aspen ticket that was usable at any of the four mountains. Skiing Co then initiated various changes that ended the cooperation with Highlands. Skiing Co denied skiers the benefits of a four-mountain pass and diminished substantially skiers? use of Highlands mountain. Highlands share of downhill skiing services in Aspen declined steadily during 76 till 81 from 20,5% to11%.

Though the Supreme Court says that even a firm with monopoly power has no general duty to engage in a joint marketing program with a competitor it is predatory behaviour to exclude rivals on some basis other than efficiency. The Court therefore said that Skiing Co had monopolized the market for downhill skiing in Aspen. To sum it up, Aspen Skiing is a direct holding that a monopolist is not free to define ist product for the purpose and with the effect of excluding a rival.

The other argument of MS concerning the permission of the DoJ to add new functions to ist OS can easily be erased. MS missed the point here because the only changes that may not be made are those that both impair the opportunities of rivals and lack a legimate efficiency justification.

3. MS Agreement in Restraint of Trade
MS being never content it now devised a Web of restrictive agreements to serve the same purpose and to foreclose other channels of distribution to Netscape. The aim, as usual, was to elimate Netscape as a potential rival to the Win OS.

First MS licenses for Win98 prohibit computer manufacturers from modifying the screen first seen when users turn on their PC. Meaning that when users turn on their PC all the see is the windows platform with all their applications. This uniformity prevents computer manufacturers from offering customers a choice of first screens. It would also be possible without this enforced restricment that customers could choose a Netscape platform because the Netscape Navigator can also serve as such a platform. Just thinking ahead- if computer manufacturers had such a choice and users had the choice and a significant number of users prefered such a Netscape platform then software developers would write programs for it and the competition would flourish. But MS first screen restriction makes that impossible.

Also MS counts on the fact that the IE once integrated in the OS users wouldn?t stand the horror of downloading an additional browser like Netscape. Like the downloading process takes it time, especially with a slow modem and often there is a high rate of failures in downloading.

Secondly MS has entered into exclusionary contracts with the largest and most importent Internet Access Providers and online services. These include such companies as America Online, CompuServe, Prodigy and MCI.

These exclusionary contracts restrict consumers?s access to non-MS browsers and they even restrict the Internet Access Providers? ability to tell consumers that non-MS browsers exist even in the sense of that users aren?t able to download the Navigator.

Otherwise the Internet Access Providers could easily promote and distribute browsers such as the Navigator.

Thirdly MS has also extracted exclusionary contracts from Internet Content Providers. I really have no idea why Content Providers agreed to this but many of the agreements require that Content Providers design Web sites that cannot be viewed as well with the Navigator as with the IE. MS also requires that Content Providers adopt MS technologies that are not accessible by other browsers, meaning that lots of sites are less attractive wehn viewed with any other browser but the IE.

These are all predatory tactics, they have no business justification other than the efficacy of coercion.

We have already analyzed the barriers imposed by MS exclusionary agreements. These, as has been noted, are virtually insurmountable. This pattern of exclusionary contracts could be analyzed one by one and each would be seen not only as an agreement in restraint of trade violative of ‘1 of the Sherman Act but also, viewed collectively, as a powerful means of monopolizing. As a network of restrictions on others ability to obtain, sell and use the Navigator, these agreements are devastating to competition — as they are intended to be. By using ist monopoly power to coerce agreements, MS has denied Netscape the primary channels for the distribution of Navigator and has, for good measure, prevented or made far more difficult consumer awareness of the Navigator alternative to the IE and the ability to download the Nav from the Internet. MS is attempting to crush the competition of netscapes browser and Sun?s Java and hence to preclude the likelihood of an alternative technology for OS and for using the Internet.

MS of course belittle such restrictive agreements as being easy for consumers and competitors to evade.

But then again, one ask oneself….if netscape isn?t a threat to MS…..why does MS impose them???????
SHERMAN ACT (1890)
Covers
– goods
– services
Section 1 requires
– action by TWO or more =* the illegal act is the joining together in
– Restraint of Trade
=* RESTRAINT OF TRADE restricts or prevents business competition
Gov’t must prove agreement MAY lead to a RESTRAINT OF TRADE
Focuses on agreements that are restrictive
Section 2 requires
– action by ONE =* a person or a combination of persons
– misuse of monopoly
=* Monopoly is where one has exclusive control over a good or service
Two doctrines adopted by Supreme Ct. Apply to Restraint of Trade cases
-rule of reason =* Restraint of Trade that may led to monopolization is illegal, only if it is an unreasonable restraint
Defense: it is a reasonable restraint of trade
-per se acts
vertical restraints =* restrains trade by using trade practices involving firms at different levels of the production/ distribution processes (such as exclusive dealing contracts)
CLAYTON ACT (1914)
Aimed at business practices that merely reduces competition or could lead to monopoly power concerning goods
Four sections =*two sections are amendments two are original Clayton Act
Section 3 (original)
– prohibits exclusive dealing agreements
– prohibits tying arrangements if effect is to lessen competition substantially or tend to create a monopoly
Enforcement
-Department of Justice
– Antitrust Devision
Most cases settled by consent decree =* injunctions, confiscation or dissolution
Business