In early November, Judge Thomas Penfield Jackson released his findings of fact in the Microsoft antitrust trail. Did he get the facts right? How did he apply the classic tests and definitions of antitrust doctrine to the case? This week, Jonathan Zittrain and George Priest discuss these questions, as well as recent twists in the case.
Some people think there should be no antitrust law at all. They see any government regulation of markets as unwarranted interference that dilutes the powerful free-for-all called capitalism. Others concede that there might be some hypothetical role for a perfect government to help smooth the rough edges of the market–but then point out that no government is perfect, and claim that especially in an Internet environment, it’s probably best to back off: Investigation and litigation take generations of Net time, and by then it’ll be too late to redress the wrong–and unnecessary, since today’s victor will be tomorrow’s has-been.
I am not among these people, and yet I cherish the role the rise of “.com” has played in the burgeoning of the Net. Indeed, perhaps because of this I think it’s that much more critical to ensure that the market stays free. Government can capture or dim the free exchange of goods. But it has no monopoly on such behavior! There are occasions when a smart, innovative private entity can enduringly capture a market, too. And when it does, there are some textbook effects: lack of innovation, profiteering, bullying of potential competitors, even expansion into other markets.
Now, I’d better reveal a possible bias: I really like Microsoft. I found a little mail-gram invitation from Microsoft in my college mailbox about 10 years ago and ended up spending a summer in Redmond in Building 10 as a program manager working on Excel 3.0. To be sure, we were the underdogs. Lotus had an 85 percent share of the market for spreadsheets; talk about monopoly! Our challenge was how to crack it. I can’t take credit for Excel’s current dominance, though I did spec out the “shrink-to-fit” feature in the “Page Setup” dialog. In any event, I didn’t see any lack of innovation among the feverishly working developers; no one sat around waiting for Lotus to be bullied out of first place.
So what’s different today?
Judge Jackson’s findings are a pretty well-marked roadmap. They point the way toward a case of “monopoly maintenance.” Monopoly maintenance comprises a set of behaviors that keep a dominant player No. 1 “unfairly.” These are behaviors that have nothing to do with improving product quality, promoting one’s brand, or convincing people to stick with the tried-and-true. They’re behaviors that only a monopolist can successfully engage in, and that would-be competitors have a hard time overcoming–even if their own product would be better received, all else being equal.
To pick one of the clearest paths on the roadmap as an example: the browser wars. In Part 3 of his opinion, Judge Jackson walks through his reasons for finding that Microsoft has monopoly power. A colloquial way of defining this power: Entities that need what Microsoft sells have a hard time saying no to pretty much any condition Microsoft would place on buying it, despite their own distaste for the conditions.
Now, that power alone isn’t reason enough for the government to intervene; the monopoly isn’t the issue. That’s where the “maintenance” part comes in.
Part 4 of the judge’s findings concludes that there was a threat to Microsoft’s dominance of operating systems: so-called “middleware.” Middleware, exemplified by Java, could potentially allow the same software to run on different platforms, from Mac to Unix to Windows. If another company’s middleware really took off, no one would particularly need Windows anymore–at least not for software compatibility. Now, maybe Java isn’t so great. Maybe it wouldn’t have taken off. Maybe Windows would have remained the operating system of choice even when it wasn’t necessary to run the most popular applications. All possible. But Part 5 of the judge’s opinion says that Microsoft didn’t wait for the middleware threat to materialize. It tried to nip it in the bud.
How? Through the browser wars. Netscape Navigator implemented one form of Java; Internet Explorer used Microsoft own version. Popularity of Navigator would mean popularity of someone else’s middleware and a corresponding threat to Windows. So Microsoft took on Netscape, but not simply to seize a dominant share of the “browser” market–after all, in a market where each browser is given away, what’s the value of dominating it? Rather, Microsoft challenged Netscape to save its own bread-and-butter OS revenues.
Microsoft might still have simply competed by building a better browser. Indeed, plenty of people who worry about Microsoft in antitrust terms happily prefer IE to Navigator. But the findings go beyond that. They show, for example, that Microsoft offered a deal that original equipment manufacturers (“OEMs”) like Compaq had a hard time refusing. From a practical standpoint, Compaq has to ship its Intel computers with Windows on them; few consumers want the computers without the OS already installed. Microsoft didn’t execute a simple fee-for-license arrangement with Compaq to install Windows–there were riders. One, for example, prohibited Compaq from removing MSN or Internet Explorer icons from the Windows desktop, even if Compaq wanted the freedom to contract with, say, AOL to provide comparable products–promoting AOL and Navigator instead.
Even in instances in which the OEM expressed conviction that the computer would be easier to use–a more attractive product–configured without IE, the OEM was required to install top-level links to IE (and, it seems, MSN!). Indeed, says Judge Jackson, pressure (although not outright prohibition) was brought to bear to make it not worth most OEMs’ whiles to try to get Navigator on the desktop in addition to IE.
One may say it doesn’t really matter what arrives on a consumer’s doorstep; if Navigator is really more popular–and still free of charge–the consumer will just download it to supplant the IE that’s already there. But I don’t think so. Downloading and installing takes time, and, within reason, most of us go with what we get, assuming that companies like Compaq will do some of the shopping for us. Were they free to, they might have.
So, from a small example–a restriction on a contract on a product that is said to have implications for an operating system–we can see the cogs turn in a monopoly-maintenance strategy. It may not have the same storytelling power of mustachioed Parker Bros. millionaires kicking back in Free Parking, puffing cigars while Getting Out of Jail Free–but it’s still textbook antitrust. The Microsoft summer intern in me says that Microsoft’s good enough to stay king of the hill without having to fuss with loading the dice of its OEM contracts. The legal scholar in me says that all of us are better off if Microsoft is reminded of that in no uncertain terms.
