| Business Law: Antitirust Essay, Research Paper
Outline
Thesis Statement: Technological advancement will restructure business law in America.
I. Antitrust Law
A. What is it?
B. Antitrust evolution
1. Sherman Act of 1890
2. Clayton Act of 1914
3. Federal Trade Commission Act of 1914
4. Tunney Act of 1974
II. The United States VS Microsoft
A. The case against Microsoft
1. predatory pricing
2. Standard Oil analogy
B. Microsoft?s defense
1. AOL was gunning for Microsoft
2. Do antitrust laws pertain to today?s technology
III. Findings of Fact and Conclusions of Law
A. The Honorable Thomas Penfield Jackson
1. Section Two of the Sherman
2. Section One of the Sherman Act
3. The State Law Claims
IV. Counsel for the Defense
A. Argument
1. Plaintiffs failed to prove an unlawful tying arrangement in violation of Section One of the Sherman Act
2. Plaintiffs failed to prove that Microsoft entered into unlawful exclusive dealing agreements in violation of Section One of the Sherman Act
3. Microsoft had no duty to pre-disclose information
V. In My Opinion
A. Let?s rethink the law
27 June, 2000
Because the field of Business Law is so great, this paper will examine a single aspect of Business Law, that of antitrust action. Specifically, as it is applied to Microsoft, antitrust litigation is raising eyebrows in both the legal and business worlds.
There is a hue and cry that antitrust laws as they exist today have outlived their usefulness when applied to cyber commodities and artificial intelligence. This paper will present those opposing viewpoints and attempt to answer the question: are laws wrought in the industrial age applicable to today?s technology? And if so, is the antitrust challenge to Microsoft the tip of the iceberg in Business Law reformation?
Antitrust Law
Antitrust law attempts to ensure that market competition is protected from an organization or cartel with a monopoly on a given product. Much of antitrust enforcement tries to create a balance between the benefits of coordination and consolidation, such as efficiencies that reduce price or improve quality, and the detriments of market power that can lead to higher prices or reduced innovation.
Corporate trusts grew rapidly in the US from 1880 to 1905, creating the atmosphere for President Theodore Roosevelt to launch his now famous trust busting campaigns. The era of antitrust legislation stems from the Sherman Act of 1890. The antitrust laws were based on the constitutional power of Congress to regulate interstate commerce. It declared illegal every contract, combination, or conspiracy in restraint of interstate and foreign trade. The Sherman Act makes monopolization illegal. The two elements of monopolization are: “(1) the possession of monopoly power in the relevant market and (2) the willful acquisition or maintenance of the power as distinguished from growth or development as a consequence of a superior product, business acumen, or historical accident.” 1 The Sherman Act was designed to eliminate restraints on trade and competition. It is the main source of antitrust law.
While the Sherman Act provided protection against monopolies, Congress determined that it wasn?t quite comprehensive in its? self. It was supplemented in 1914 by the Clayton Antitrust Act, which prohibited exclusive sales contracts, inter-corporate stockholdings, and unfair price-cutting to freeze out competitors. The Clayton Act of
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1914 makes price discrimination illegal, forbids tying arrangements involving only goods and makes anti-competitive mergers and acquisitions illegal. The Sherman and Clayton Antitrust Acts were made to promote competition between companies making similar products.2 To assure the effectiveness of these laws, the Federal Trade Commission Act of 1914 established the body of overseers that govern unfair and unlawful trade practices. The provision surrounding unfair price cutting was strengthened under the terms of the Robinson-Patman Act of 1936. 3
There have been many amendments to these laws over the years. An early federal success came with the Supreme Court decision of 1911 that forced the giant Standard Oil Company to split up into independent entities.4 Antitrust action declined in the 1920s, but was vigorously resumed in the 1930s under President Franklin D. Roosevelt. Antitrust legislation held firm for several decades. The Tunney Act of 1974 established public notice and judicial oversight procedures regarding consent decrees entered into by the government to settle antitrust cases. 5 antitrust enforcement was again de-emphasized in the 1980s under Presidents Reagan and Bush.
The growth of huge conglomerates that control multiple companies has hindered the enforcement of antitrust legislation. With growing unpopularity, antitrust laws have been criticized for hindering the ability of US corporations to compete internationally. There has also been extreme impact on US shores. The Microsoft Antitrust Suit has not only rocked the company, but the entire computer industry, the stock market, and the US justice system as well.
The United States VS Microsoft
Back in 1975, an intense, visionary man who co-owned a small firm in a budding industry imagined a future where people at every desk in all the offices would have a small computer on which they would use his software. That man was Bill Gates; the company was Microsoft. However even Mr. Gates did not foresee a future in which the chief antitrust prosecutor of the United States and his counterparts in the governments of 20 U.S. states would sue him for charging prices that are too low. In recent comments, Mr. Gates has revealed his na?vet? about the antitrust laws. He seems to have assumed that they were pro-consumer, and he saw his company doing things that helped consumers, even the least technical of consumers, log on to the digital age. 6
The Justice Department charged Microsoft with engaging in anti-competitive and exclusionary practices designed to maintain its monopoly in personal computer
operating systems and to extend that monopoly to internet browsing software on May 18, 1998. Twenty state Attorneys General and the District of Columbia filed a similar action. They alleged Microsoft illegally abused its “Windows” monopoly power to curtail and eliminate competition, force computer manufacturers to take its separate Internet “browser” and other applications, and deny consumers who buy personal computers the benefits of a free, open and competitive market.
“This action will protect innovation by ensuring that anyone who develops a software program will have a fair opportunity to compete in the marketplace,” said Joel I. Klein, assistant attorney general of the Antitrust Division. “The lawsuit we filed today seeks to put an end to Microsoft’s unlawful campaign to eliminate competition, deter innovation, and restrict consumer choice. In essence, what Microsoft has been doing, through a wide variety of illegal business practices, is leveraging its Windows operating system monopoly to force its other software products on consumers. Inventors and investors cannot and will not develop and market innovative software programs if they know that Microsoft can use its Windows monopoly to block the distribution of their programs and to force consumers to buy Microsoft’s competing products.” 7
The reality, however, is that one of antitrust action?s major uses has been to penalize successful competitors. Sometimes the suits are brought by federal enforcers of antitrust laws. More often they are brought by bitter losers in the competitive process. According to Georgetown University’s Steven Salop, a top antitrust official in the Carter administration’s Federal Trade Commission, and New York University’s Lawrence J. White, chief economist in the Justice Department’s Antitrust Division under Ronald Reagan, the second most common kind of private antitrust suit is one brought by rivals.8 Competitors are unlikely to bother suing rivals that keep their output low and prices high. Microsoft is the ultimate competitor, setting the price of its browser, Internet Explorer, at zero. Microsoft’s main competitor in the browser market, Netscape, was upset at such low-price competition and applauded the Clinton administration’s lawsuit.
It appeared as though Microsoft was leveraging its Windows operating system monopoly to create a new browser monopoly. That may not be the case, as appearances deceive. Until about 40 years ago, the standard economic argument was that a monopoly could be extended from Product A to Product B by requiring purchasers of A to buy B. But as antitrust scholar and former federal judge Robert Bork showed in his 1978 book, The Antitrust Paradox, this seldom works, because charging a premium for B reduces the price that can be charged for A.
Mr. Bork explicitly rejected the government’s reasoning. He wrote: “This is not a case about ‘leveraging’ or ‘tie-ins,’ as it is frequently described, even by government lawyers who understand the case.” 9 So what is the lawsuit about? Mr. Bork says Microsoft is engaged in predatory pricing, giving its browser away to knock Netscape out of the market.
However, economists have shown that predatory pricing doesn’t typically make sense, because the losses are often larger to the predator than to the prey and because, once the predator raises prices, anyone who has bought the prey’s assets at fire-sale prices becomes a low-cost competitor. The most famous allegation of predatory pricing was made against John D. Rockefeller and Standard Oil of New Jersey.10 None the less, in a 1958 article in the Journal of Law and Economics, University of Washington economist John S. McGee concluded, after studying the transcript of Standard Oil’s 1911 trial, that there was no evidence that Standard was guilty of such tactics.
In any case, the standard economic argument about extending monopolies is inapplicable to Microsoft’s case. Microsoft doesn’t charge anything for Product B, Internet Explorer. Of course, the company benefits from giving it away. Microsoft wants to make it easy for computer manufacturers to install the browser so that PC buyers will use Windows applications instead of software written for Netscape Navigator and will use goods and services sold over the Internet by Microsoft and its partners. Is this monopolistic? No more so than a shopping mall owner’s providing free parking and then collecting higher rents from retailers that value the increased shopping.
In buying Netscape, was AOL gunning for Microsoft? For months, Microsoft Corp. thought it had a late-breaking piece of evidence that would save the software giant from the government’s antitrust noose: The three-way deal announced late last year among America Online, Netscape Communications, and Sun Microsystems. The alliance proved that Microsoft faced formidable competition, Microsoft lawyers contended. 11
There was great anticipation in the courtroom on June 14 when Microsoft recalled AOL Senior Vice-President David Colburn to the stand as a hostile rebuttal witness. For hours, Microsoft attorney John Warden pressed Colburn to concede that AOL had secret plans all along to take on Microsoft in the Internet browser business. But by the end of the day, the line of questioning
didn’t seem to help Microsoft’s case
appreciably. Even U.S. District Judge Thomas Penfield Jackson told Warden in a bench discussion that he didn’t quite see the value of the new testimony. Jackson
suggested that, since Colburn hadn’t seen some of the key documents that Warden was putting before him, that Microsoft might want to call a witness who was familiar with them. That would be AOL chief executive Steve Case, a prospect that failed to enthrall Microsoft, since Case was already on record saying that he never intended to compete with Microsoft.
Colburn had testified earlier for the government that AOL chose Microsoft’s Internet Explorer browser for its online service because Microsoft offered something that Netscape couldn’t, promotional space on the dominant Windows operating system desktop. As part of the deal, AOL was allowed to provide only limited promotion of rival Netscape’s Internet browser. But all the while that Colburn was testifying last October, AOL was in hush-hush negotiations to buy Netscape and its browser business. The deal was announced last November. Warden tried to make the point that AOL intended to dump its near-exclusive promotion and distribution of Microsoft’s browser and substitute its own Netscape product once its contract with Microsoft expired in the year 2000.
On Sept. 20,1999, an E-mail from Case indicated that the company was seriously mulling the possibility of dumping Internet Explorer at some point. Case wondered if buying Netscape and committing to migrate to their browser instead would help Microsoft to pull AOL from Windows 98. “My main point is we shouldn’t assume we need to or want to maintain IE as primary browser,” Case wrote. “Maybe that’s the right answer, but maybe not — we should push down on all possibilities before deciding.” 12
However, government attorney David Boies stood up and cited rules that he said required Warden to read the E-mail’s response. Jackson then ordered Warden to read the response by AOL President Robert Pittman. Pittman’s response alluded to Microsoft’s power in the marketplace which made it infeasible for AOL to make a change any time soon: “I do think MSFT is too strong to throw them out of the tent — they can hurt us if they think they have no other option.” 13 Indeed, Colburn stuck to his story that the “consensus for a long time” within the company was to stay with Microsoft’s browser until the contract expired. And that’s what the company has done.
One internal AOL E-mail did bolster Warden’s argument that AOL intended to take on Microsoft. The Sept. 13 E-mail by AOL’s Scott Pearson laid out the “basic strategic rationale” for the deal: “Extend [AOL's] control over the desktop…for the consumer, small business, and enterprise…. Ultimately make the [AOL] and [Netscape] clients, riding on the browser, the effective [operating system] used by most PCs.” But
Colburn insisted that Pearson wasn’t involved deeply in the details and that he was just “playing traffic cop” to make sure that all the pieces of the deal were analyzed. 14
Warden also submitted an internal AOL document from Nov. 3 that described how the company should portray the AOL-Netscape-Sun deal to Wall Street and the press. According to the document, AOL was well aware that the public would perceive the deal as an attempt by AOL to take on Microsoft in hand-to-hand combat. Unfortunately, the document worked as much against Microsoft as for it, since it notes that the “timing of the acquisition alone could very well end up institutionalizing an Apollo [code-name for AOL] v. Microsoft competition." The document also notes that "our primary purpose in acquiring Odyssey [code-name for Netscape] is not its browser [at least in the short term)]" 15
In November of 1999, House Majority Leader Dick Armey made the following comments regarding reports that the Justice Department anti-trust division will take action against Microsoft:
"The contemplated anti-trust action against Microsoft is the kind of government
micro-management every other nation in the world is rejecting.
"This is not about choosing sides in the high tech industry. Such an arbitrary use of unchecked power could send shock waves throughout the economy, as the unprecedented nature of the government's intervention weighs on the mind of every new investor. All entrepreneurs are threatened when the Justice Department launches an all out assault on creativity and success.
"The President clearly thinks government knows best. But who knows more about competition: a few lawyers in a Washington bureaucracy, many of whom have never held a job in the private sector, or the thriving entrepreneurs in today's high-tech industries, many of whom started out in their own garages and have now created millions of jobs?
"At the same time the Administration contemplates stunting innovation and creativity, they are desperately seeking answers to the year 2000 computer problem, which threatens everything from cutting off Social Security checks to grounding all air travel. How ironic that this Administration is preparing to hamstring the very innovation necessary to avoid the massive potential chaos the nation will face on January 1, 2000.
"Is the President really ready to blow up his 'bridge to the 21st century?'" 16
Just as important, the complaint is really about the past. At issue is the claim that Microsoft requires vendors using Windows 95 to install Microsoft's Internet Explorer. This, according to the claim, is an improper use of Microsoft's market power. Currently, an Internet browser and the underlying operating system may be purchased separately. Technology, however, is moving fast and the browser and the desktop are merging. Windows 98 aims to make them indistinguishable. The era of a stand-alone browser company is over due.
The Department of Justice's antitrust investigation of alleged abuses by Microsoft misapplies outmoded laws and regulations of the analog era on the digital economy. Microsoft is a success because it understands the economic realities wrought by Moore's Law - that the number of components that can be packed on a computer chip doubles every two years while the price stays the same.17 Justice should stay out of this high-tech battle for two reasons: It is not equipped to regulate innovation and dynamic change, and this complaint is really about the past, not the future.
Invoking antitrust jurisprudence is particularly ill suited for analyzing Microsoft and the connected computing industry. The laws are hopelessly ill equipped to comprehend the nature of the digital economy. The Sherman and Clayton Acts were crafted to address the static era of massive, long-lasting industrial infrastructure and mass durable-goods markets. The existing law does not address a dynamic economy where markets and market leadership can arise and disappear within 18 months or less. Moore's Law and the Law of the Installed Base (that when technological change occurs, whoever has an installed base of customers is at greater risk than a new entrant is) require a new approach.18
Findings of Fact and Conclusions of Law
The suite against Microsoft that began with allegations of monopoly in 1997 was decided by the Honorable Thomas Penfield Jackson in the United States Supreme Court. Justice Jackson handed down his Memorandum and Order along with the Final Judgement on June 7, 2000. Charging documents stated that Microsoft was in violation of the Sherman Act, Sections 1 and 2, as well as various state laws. Finding in the favor of the plaintiffs, Justice Jackson determined that? ?a proposed form of final judgment ? would mandate both conduct modification and structural reorganization by the defendant when fully implemented.?19 The Memorandum continues to cite the Microsoft claims that the proposed remedies were "draconian" and "unprecedented."
Indeed, Microsoft felt that additional discovery was warranted and that a second trial be held. Owing to a delay of five months by the court in its entry of the Conclusion
of Law, and the enlistment of mediation, however, the Court rejected Microsoft?s stand. Microsoft took the position that it was surprised by the decision and needed ample time to act on the Court?s Order. Since Microsoft?s cases had been before the Court and occupied much of its attention for the past two years, Justice Jackson felt that additional delay was unmerited. Despite Microsoft?s continuing protests that none were committed, Microsoft had been found guilty of antitrust violations, following a full trial. 20
The Court was convinced, for several reasons, that a final - and appealable - judgment should be entered quickly. It also reluctantly came to the conclusion, for those same reasons, that a structural remedy is mandatory. The Court?s position is simply this, ?Microsoft as it is presently organized and led is unwilling to accept the notion that it broke the law or accede to an order amending its conduct.?21
In the Court?s Finding of Fact and Conclusions of Law document, it stated that
Microsoft doesn?t recognize or concede that any of its business practices violated the Sherman Act. Microsoft officials stated publicly that the company has done nothing wrong and that it will be vindicated on appeal. There is a substantial body of public opinion, which holds to a similar view. That assertion is now being put to the test. If this is indeed the case then this should be addressed by an appeal court as soon as possible, in order to confirm the opinion of Microsoft?s innocence and to intervene in any modification and reconstruction activities before they become irreversible.
Justice Jackson also determined that there is credible evidence in the record to suggest that Microsoft, convinced of its innocence, continues to do business as it has in the past. The court demonstrated concern that Microsoft may yet do to other markets what it has already done in the PC operating system and browser markets. Microsoft has given no indication that it will voluntarily alter its business policy in any significant way. The Court cited Microsoft?s intention to appeal ?even the imposition of the modest conduct remedies it has itself proposed as an alternative to the non-structural remedies sought by the plaintiffs? as proof of their Business as usual attitude.
The Court also felt that Microsoft had proved itself untrustworthy in the past. In earlier proceedings where a preliminary injunction was entered, Microsoft's claimed compliance with that injunction while it was on appeal. This proved not to be the case and Microsoft?s explanation for its behavior was deemed ?disingenuous.? Assuming that Microsoft would respond in similar fashion to an injunctive solution in this case, it seemed likely that the earlier enforcement measures were employed the more effective they are likely to be.
The last reason the Court gave for refusing Microsoft?s plea for additional findings and another trial stemmed from its? belief that extending the proceedings on what form remedies should take would be fruitless. It seemed highly unlikely that Microsoft would generate what might be generally regarded as an optimum remedy by postponing the outcome. Along with public regard to Microsoft's culpability, opinion of what constitutes an appropriate fix remains sharply divided. There is little hope that those differing opinions can be reconciled by anything short of an actual successful remedy.
Plaintiffs won the case, and for that reason alone, according to the Court, ?have some entitlement to a remedy of their choice.? The proposed final judgment was represented to the Court as incorporating provisions successfully utilized in the past. It appeared to the Court to address all the principal objectives of relief in such cases, namely:
· to terminate the unlawful conduct,
· to prevent its repetition in the future,
· and to revive competition in the relevant markets.
The final judgment proposed by the plaintiffs may have been more radical than what would have resulted if mediation been successful and terminated in a consent decree. It was ordered by the Court that, ?the motion of defendant Microsoft Corporation for summary rejection of the plaintiffs' proposed structural reorganization is denied; and it is
further ordered, that defendant Microsoft Corporation's ?position? as to future proceedings on the issue of remedy is rejected; and it is further ordered, that plaintiffs' proposed final judgment, as revised in accordance with the proceedings of May 24, 2000 and Microsoft's comments thereon, be entered as a Final Judgment herein.?
Microsoft?s conviction was based on several Conclusions of Law. Suite was brought by the United States, nineteen individual states, and the District of Columbia for violations of Sherman Antitrust Act. The plaintiffs charged, in essence, that Microsoft waged an unlawful campaign in defense of its monopoly position in the market for operating systems designed to run on Intel-compatible personal computers ("PCs"). Specifically, the plaintiffs contend that Microsoft violated Section Two of the Sherman Act by engaging in a series of exclusionary, anti-competitive, and predatory acts to maintain its monopoly power. They also asserted that Microsoft attempted, albeit unsuccessfully, to monopolize the Web browser market, also a violation of Section Two.
The plaintiffs also contended that Microsoft had taken steps as part of its campaign to protect its monopoly power by tying its browser to its operating system and entering into exclusive dealing arrangements, which violated Section One of the Act.
Upon consideration, the Court concluded that Microsoft had indeed maintained its monopoly power by violation of Sections One and Two of the Sherman. The facts did not support the conclusion, however, that the effect of Microsoft's marketing arrangements with other companies constituted ?unlawful exclusive dealing? under the criteria established by Section One. The Court also determined that the evidence that proved violations of the Sherman Act also met the criteria for causes of action that fell under the laws of each plaintiff state.
Section Two of the Sherman Act declares that it is unlawful for a person or firm to "monopolize . . . any part of the trade or commerce among the several States, or with foreign nations . . . ." It defines anti-competitive as possession of monopoly power in the relevant market and the willful acquisition or maintenance of power. As in the United States v. Grinnell Corp. (1966) , the Court first had to determine the boundaries of the commercial activity that is termed the "relevant market." The evidence presented at trial proved that there are currently no products - and that there are not likely to be any in the near future - that a significant percentage of computer users worldwide could substitute for Intel-compatible PC operating systems without incurring substantial costs. The Court inferred that if a single firm or cartel controlled the licensing of all Intel-compatible PC operating systems worldwide, it could set the price of a license substantially above that normally charged in a competitive market. It could also leave the price there for a significant period of time without losing so many customers as to make the action unprofitable. This inference, in turn, led the Court to find that the licensing of all Intel-compatible PC operating systems worldwide did indeed constitute the relevant market claimed by the plaintiffs.
The plaintiffs, according to Justice Jackson, also proved that Microsoft's dominant market share is protected by the application?s barrier to entry. This barrier ensures that no Intel-compatible PC operating system other than Windows met consumer needs, and that the barrier would operate to the same effect even if Microsoft held its prices substantially above the competitive level for an extended period of time. Together, proof of dominant market share and the existence of a substantial barrier to effective entry created the belief that Microsoft enjoys monopoly power for the Court.
In cases enforcing Section Two of the Sherman Act, once it is proved that the defendant possesses monopoly power in a relevant market, a demonstration that the defendant used anti-competitive methods to achieve or maintain its position has to exist. Prior cases, such as Aspen Skiing Co. VS Aspen Highlands Skiing Corp, have established an analytical approach to determining whether the challenged business practices are anti-competitive in the context of a monopoly maintenance claim. The primary question in regard to Microsoft is whether its? conduct is "exclusionary." It has
to be determined that Microsoft significantly restricted or threatened to restrict the ability of other firms to compete in the relevant market, based on the merits of what they have offer customers. Microsoft business practices were found by the Court to be predatory, meaning that Microsoft made a conscious effort to build or maintain barriers to keep competition at bay.
The Court determined that Microsoft recognized early on that middleware technology, namely, Netscape's Navigator Web browser and SunMicro?s implementation of the Java technology, was a Trojan horse. Microsoft feared that once having infiltrated the applications barrier, middleware would give rival operating systems the ability to enter the market for Intel-compatible PC operating systems unimpeded. Alerted to the threat, Microsoft strove, according to the Finding of Fact, over a period of approximately four years to prevent middleware technologies from fostering the development of enough full-featured, cross-platform applications to erode the applications barrier. In pursuit of this goal, Microsoft sought to convince developers to concentrate on Windows-specific APIs and ignore interfaces exposed by the two incarnations of middleware that posed the greatest threat. The Court found that Microsoft's campaign succeeded in preventing by several years, and perhaps permanently, Navigator and Java from reaching their potential to open the market for Intel-compatible PC operating systems to competition, based on the merits. Because Microsoft achieved this result through exclusionary acts the Court considered Microsoft's conduct to be the maintenance of monopoly power by anti-competitive means.
Section 1 of the Sherman Act prohibits "every contract, combination . . . , or conspiracy, in restraint of trade or commerce . . . ." 15 U.S.C. ? 1. Pursuant to this statute, courts have condemned commercial stratagems that constitute unreasonable restraints on competition.? The unreasonable restraints on competition in the charges against Microsoft amounted to "tying arrangements" and "exclusive dealing" contracts. Tying arrangements are defined as unlawful when sellers exploit their market power over one product to force unwilling buyers into acquiring another. The courts have condemned as unlawful exclusive dealing only those contractual arrangements that substantially shutdown competition in a relevant market by significantly reducing the number of outlets a competitor has to reach prospective consumers of his product.
Liability for tying under Section One consists of: (1) two separate "products" are involved; (2) the defendant gives its customers no choice but to take the tied product in order to obtain the tying product; (3) the arrangement affects a substantial volume of interstate commerce; and (4) the defendant has "market power" in the tying product market. All four elements are required to determine a violation.
The plaintiffs alleged that Microsoft's combination of Windows and Internet Explorer by contractual and technological means constituted unlawful tying to the extent that Microsoft's customers and consumers were forced to take Internet Explorer in order to get Windows. Microsoft?s position was that the tied and tying products were in reality only a single product. The Court agreed with the plaintiffs, and found that Microsoft is liable for illegal tying under Section One.
Plaintiffs also called Microsoft?s contractual agreements with various OLSs, ICPs, ISVs, Compaq and Apple into question. They were alleged as exclusive dealing arrangements because each of these agreements with Microsoft required the other party to promote and distribute Internet Explorer and to exclude Navigator. In exchange, Microsoft offered promotional patronage, substantial financial subsidies, technical support, and other ?valuable consideration?. Violation occurs when the practice is ?to place so much of a market's available distribution outlets in the hands of a single firm as to make it difficult for other firms to continue to compete effectively, or even to exist, in the relevant market.? Precedent set in Standard Oil Co. VS United States defined distribution outlets in the hands of a single firm holding 40% or more of distribution outlets in the relevant market. Because the case law suggested that, unless the evidence demonstrated that Microsoft's agreements excluded Netscape altogether from access to roughly 40% of the browser market, exclusive dealing had not taken place. The Court found no violation to this aspect of Section One.
The findings of the Supreme Court asserted the claims of the plaintiff states.
The same facts that established liability under Sections One and Two of the Sherman Act mandated a finding of liability under provisions in each state?s own laws.
Microsoft contended that a plaintiff cannot succeed in an antitrust claim under the laws of California, Louisiana, Maryland, New York, Ohio, or Wisconsin without proving a variable that is not required under the Sherman Act, namely, intrastate impact. Assuming that each of those states has limited the application of its antitrust laws to activity that has a significant, adverse effect on competition in the state or is counter to state interests, than the facts presented at trail showed Microsoft to be culpable. The Court found that certain companies had been adversely affected by Microsoft's anti-competitive campaign, a list that includes IBM, Hewlett-Packard, Intel, Netscape, Sun, and many others. These companies transact business in, and employ citizens of each of the plaintiff states. Those facts compelled the Court to find against Microsoft.
Counsel for the Defense
Despite their surprise of conviction, Microsoft?s attorneys were promptly able to tender a thirty-five page ?Offer of Proof,? summarizing in detail the testimony that
sixteen witnesses would give to explain why the plaintiff?s proposed remedy, as it stands, is a bad idea. Within a week, seven more witnesses were added to the list. In light of this, two states dissented from the imposition of structural remedies but fully supported the rest of the correcting proposal. In Microsoft?s view, this called into question the ?collaborative character? of the process used in determining the final judgement.
Microsoft?s legal strategy refuted the plaintiff?s position on seventy separate points of law. First and foremost, the defense felt that the plaintiffs failed to prove an unlawful tying arrangement that violated Section 1 of the Sherman Act. They sought to prove this point by illustrating that:
· Windows 98 is a single, integrated product
· no OEM was forced to purchase a second distinct product
· the alleged tie does not prevent a substantial amount of sales of the tied product
The defense also asserted that the plaintiffs failed to prove that Microsoft entered into unlawful exclusive dealing agreements in Violation of Section 1 of the Sherman Act, i.e., that the plaintiffs failed to establish the Requisite Degree of Foreclosure. Since the Court had already determined what the applicable standard was in finding for an exclusive dealings claim and found in Microsoft?s favor, the industry giant had hoped to use this chink in the plaintiffs? armor.
Because the challenged agreements did not prohibit Netscape?s access to users of web browsing software, Microsoft?s defense team argued that allegations of anti-trust were unfounded. Defense for Microsoft also addressed the point of licensing agreements, stating that they did not have the required anti-competitive effect to meet the criteria established in the Sherman Act. In fact, Microsoft?s actions were no more than an effort to protect their copyrighted works, and that activity did not restrict the opportunities of Microsoft?s competitors.
The thrust of Microsoft?s arguments centered on the perceived failings in the plaintiff?s offerings of proof. Council for the defense argued that the plaintiffs failed to:
· Prove that Microsoft unlawfully attempted to monopolize the market for web browsing software in violation of Section 2 of the Sherman Act
· Prove that Microsoft acted with a Specific Intent to obtain monopoly power
· Prove That There Is a Dangerous Probability That Microsoft Will Achieve Monopoly Power in the Alleged Market for Web Browsing Software
· Prove that Microsoft unlawfully maintained a monopoly in "Intel-Compatible PC Operating Systems" in Violation of Section 2 of the Sherman Act.
· Prove predatory pricing practices
· Establish the requisite causal connection between the allegedly anti-competitive acts and the maintenance of the alleged monopoly
Further, the defense argued that Microsoft didn?t have "Monopoly Power" in a properly defined product market. Those markets deemed relevant were not restricted to Intel-Compatible PC operating systems. The plaintiffs? claim that Microsoft had the power to control prices ort otherwise exclude the competition was refuted. Microsoft had no duty to pre-disclose information about Windows 95 to Netscape before the product was released. So where does this leave the concept of ?Free Enterprise??
In My Opinion
From the perspective of a shareholder, Judge Thomas Penfield Jackson's Finding of Fact in US vs. Microsoft is an unjust assault on achievement and ability. The judge's finding declares Microsoft to be a dangerous monopoly that has used its power unfairly to run competitors out of the market. The logic of this finding is the declaration that extraordinary success in business is dangerous and must be stopped. It is a notice to all the creators and achievers in this country that condemnation and punishment will be the reward for striving to succeed.
The current ruling does not say whether Microsoft broke the law, nor does it say what the company's punishment will be. But it does declare Microsoft to be a danger to the "public good." All that Microsoft has done is to produce and improve its product and
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offer it for sale on the free market, where customers are free to take it or leave it. The idea that this constitutes a dangerous form of coercion is false on its face. But even worse then the idea that Microsoft's action on the free market is dangerous, is the idea that action taken by Judge Jackson's court is beneficial.
It seems that the real threat to consumers, and to the extraordinary growth of the computer industry, isn?t Microsoft?s business practices, but the remedies being sought
against Microsoft. What I find particularly confusing is the statement in Justice Jackson?s Memorandum and Order of June 12th, that ?The Court is convinced for
several reasons that a final ? and appealable ? judgement should be entered quickly.? This statement sends a dual message, that Microsoft is guilty but then again? Judge Jackson's finding of fact should be recognized as punitive and as a vehicle for making Microsoft a target for destructive government actions ranging from court-administered regulation to the forcible dismantling of the company.
So does the Sherman Act, designed for the industrial age, pertain to the techno age? I feel that its application to Microsoft is inappropriate. The factors that made antitrust issues pertinent in the past are fast fading from today?s society. As Robert Bork illustrated in his book, The Antitrust Paradox, leveraging and tie-ins are a non-issue. This is so because of product integration. When purchasing a refrigerator that dispenses ice and water, the icemaker and other mechanism are considered part of the refrigerator. It?s conceivable that a Hotpoint refrigerator may have a more desirable dispenser then a Kenmore refrigerator but the dispensers, while having a separate function, are integrated into the whole product.
The argument that the Microsoft antitrust case is not about 'leveraging' or tie-ins as much as predatory pricing, i.e., that Microsoft is giving its browser away to knock Netscape out of the market doesn?t hold much water either. Economists have shown that predatory pricing doesn't typically make sense, that the losses are often larger to the predator than to the prey. This comes about because once the predator raises prices, anyone who has bought the prey's assets at fire-sale prices becomes a low-cost competitor. With this consideration, it would seem highly unlikely that anyone capable of taking a small start up to a worth of $360 billion dollars would have enough business savvy to recognize the folly of such a practice.
For the sake of good old fashion capitalism I hope there?s a good chance that the appellate court tosses out the breakup remedy. Better still, although less likely but not impossible, would be to see the whole thing overturned. Microsoft intends to challenge the findings of Justice Jackson as ?clearly erroneous.? That may very well be, however,
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the question of relevancy seems the bigger issue. Are the charges valid in today?s business arena? I think not.
What about other laws regulating issues such as ?intellectual property?? Is that which is considered intellectual property today what the originators of such laws envisioned? Surely many of the measures used to determine those types of violations no longer hold true due to technological innovations. Laws were formulated to meet
specific needs but many of those needs no longer exist. Organ transplant, VCRs, and PCs are a few of the products and processes that were inconceivable a century ago when many laws were crafted. It?s my opinion that justice will not be served without a major overhaul of the law and the procedures used to determine violations. The law, in all areas, needs to be reexamined and retooled to fit the world as it is, not as it was.
Notes
Bibliography
1 John E. Adamson, Basic Law and the Legal Environment of Business, ( Toronto: Irwin Publishing) 1990, 67
2 Adamson, 1990, 224
3 Adamson, 1990, 227
4 John R. Allison, Business Law: Text and Case Studies, 5th Edition, (Cameden: Dryden Press) 1991 309-313
6 Steven Levy, ?Was AOL Gunning for Microsoft?? News Week, May 15, 2000
7 Martin Merrimen, ?The Case Against Microsoft? Wall Street Journal, archives, interactive.wsj.com, Copyright ? 2000, Dow Jones Company, Inc.
8 Bill Gates, ?Who Decides What Innovations Go Into Your PC??, April 8, 1998, microsoft.com.corpinfo/11-10BillGOpEd.
9 Bork, Robert, ?Microsoft?s Ambition and Antitrust Policy? Wall Street Journal, May 22, 1999, (New York: Dow Jones Company, Inc.)
10 Allison, 1991, 367
11 Robert A Levy, ?Microsoft Under Attack? Wall Street Journal, archives, interactive.wsj.com, Copyright ? 2000, Dow Jones Company, Inc.
12 Rachel Burnstein, ?Microsoft and the Browser Wars? News Week, June 21, 1999
13 Burnstein, ibid.
14 Robert A Levy, ?Microsoft Under Attack? Wall Street Journal, archives, interactive.wsj.com, Copyright ? 2000, Dow Jones Company, Inc.
15 James Packard Love, ?E-Mail Black Mail?? Wall Street Journal, archives, interactive.wsj.com, Copyright ? 2000, Dow Jones Company, Inc.
16 Daniel Singer, ?Divided Lines: Microsoft?s Allies and Enemies?, Newsweek, December 6, 1999
17 Gates, ibid.
Seal Straugh
Notes (Cont.)
18 Gates, ibid.
19 Thomas Penfield Jackson, Memorandum and Order, dcd.uscourts.gov/microsoft-all.html
20 Thomas Penfield Jackson, Memorandum and Order, dcd.uscourts.gov/microsoft-all.html
21 Thomas Penfield Jackson, Final Judgment, dcd.uscourts.gov/microsoft-all.html
Thomas Penfield Jackson, Memorandum and Order, dcd.uscourts.gov/microsoft-all.html
Thomas Penfield Jackson, Memorandum and Order, dcd.uscourts.gov/microsoft-all.html
Thomas Penfield Jackson, Final Judgment, dcd.uscourts.gov/microsoft-all.html
Thomas Penfield Jackson, Conclusions of Law, dcd.uscourts.gov/microsoft-all.html
Thomas Penfield Jackson, Conclusions of Law, dcd.uscourts.gov/microsoft-all.html
Sherman Antitrust Act, usgov.congress/public/
Adamson, 1990, 232
Martin Merrimen, ?The Case Against Microsoft? Wall Street Journal, archives, interactive.wsj.com, Copyright ? 2000, Dow Jones Company, Inc.
Adamson, 1990, 88-92
Thomas Penfield Jackson, Conclusions of Law, dcd.uscourts.gov/microsoft-all.html
Sherman Antitrust Act, usgov.congress/public/
Sherman Antitrust Act, usgov.congress/public/
Thomas Penfield Jackson, Conclusions of Law, dcd.uscourts.gov/microsoft-all.html
Sherman Antitrust Act, usgov.congress/public/
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Notes (Cont.)
Allison, 1991, 368
Thomas Penfield Jackson, Conclusions of Law, dcd.uscourts.gov/microsoft-all.html
Thomas Penfield Jackson, Conclusions of Law, dcd.uscourts.gov/microsoft-all.html
Steven Ballmer, Microsoft Responds, dcd.uscourts.gov/microsoft-all.html
Thomas Penfield Jackson, Memorandum and Order, dcd.uscourts.gov/microsoft-all.html
Bibliography
Books
Adamson, John E., Basic Law and the Legal Environment of Business, (Toronto: Irwin Publishing) 1990
Allison, John R., Business Law: Text and Case Studies, 5th Edition, (Cameden: Dryden Press) 1991
Periodicals
Bork, Robert, ?Microsoft?s Ambition and Antitrust Policy?, Wall Street Journal, May 22, 1999
Burnstein, Rachel, ?Browser Wars?, Newsweek, August 9, 1999
Levy, Steven, ?Was AOL Gunning for Microsoft?? Newsweek, May 15, 2000
Singer, Daniel, ?Divided Lines: Microsoft?s Allies and Enemies?, Newsweek, December 6, 1999
Electronic Resources
Steven Ballmer, Microsoft Responds, dcd.uscourts.gov/microsoft-all.html
Gates, Bill, ?Who Decides What Innovations Go Into Your PC??, April 8, 1998, microsoft.com.corpinfo/11-10BillGOpEd.
Jackson, Thomas Penfield, Conclusions of Law, dcd.uscourts.gov/microsoft-all.html
Jackson, Thomas Penfield, Findings of Fact, dcd.uscourts.gov/microsoft-all.html
Jackson, Thomas Penfield, Memorandum and Order, dcd.uscourts.gov/microsoft-all.html
Love, James Packard, ?E-Mail Black Mail?? Wall Street Journal, interactive.wsj.com, Copyright ? 2000, Dow Jones Company, Inc.
Seal Straugh
Bibliography (cont.)
Electronic Resources
Levy, Robert A., ?Microsoft Under Attack?, Wall Street Journal, interactive.wsj.com, Copyright ? 2000, Dow Jones Company, Inc.
Merrimen, Martin, ?The Case Against Microsoft? Wall Street Journal, interactive.wsj.com, Copyright ? 2000, Dow Jones Company, Inc.
Sherman Antitrust Act, usgov.congress/public/
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