Experience has taught us that auto injury cases must be tried with the assumption that all jurors view themselves as experts because they all drive vehicles. The public (and professional) response to United States v. Microsoft Corp. D.D.C. No. 98-1232 (TPK) reflects a similar attitude. Because almost everyone uses Microsoft products, everyone seems to have an opinion on the case, whether or not they know anything about antitrust law in general or the evidence in particular.
One widespread perception is that the Department of Justice simply punished success. The mirror image of this perception applauds DOJ for smashing Microsoft simply because it is so big. Another is that Special Trial Counsel for the United States, David Boies, badly bested Microsoft’s lawyers with a performance that wowed the judge and determined the outcome of the case. The problem with these perceptions (and most others that have been publicly expressed) is that they are not based in any observable way on the evidence actually advanced during the 78-day trial. In the very brief space allotted, let me provide an overview of this monumental case.
1. How Microsoft (Lawfully) Acquired Monopoly Power. Judge Jackson found that Microsoft had come by its monopoly lawfully. The judge found that the market for Windows Operating Systems (O/S) is heavily characterized by “network effects,” a phenomenon by which the attractiveness of a product increases by the number of people using it. In a market subject to network effects, once a company begins to achieve significant market presence, it becomes easier for it to gain more users and harder for actual or potential competitors to gain new users or retain existing ones. This is called “positive feedback.”
2. Microsoft’s (Unlawful) Maintenance of its Lawful Monopoly Power. Both the government and Judge Jackson conceded that Microsoft had come by its monopoly lawfully. Judge Jackson found, however, that it illegally maintained that power beginning in 1995. To understand why, it is necessary to introduce the concept of “middleware.”
Middleware refers to software programs that, like applications, “sit on top of” the O/S and communicate to the O/S through application program interfaces. If a middleware program (such as the Netscape Navigator) were to become an industry standard in an important market, software engineers would then have an incentive to write applications directly for the middleware program. Thus, the emergence of a potential dominant middleware vendor posed a type of Trojan horse that could penetrate the applications barrier to the O/S market – and to Microsoft’s monopoly.
By 1995, the use of the Internet was rapidly expanding. Netscape’s Navigator was emerging as the industry standard for web browsers and had a market share of approximately 70 percent. Microsoft’s Internet Explorer was widely viewed as being technically deficient and had a market share of only five percent. In short, the Netscape Navigator was – and Microsoft executives certainly viewed it as –the sort of Trojan horse that could penetrate the applications barrier to the O/S market. In Bill Gates’ words, if something were not done, the Navigator could “commoditize” the O/S market: if the Navigator became the Web browser standard, thousands of applications would be written directly for it. As Netscape ported the Navigator to all existing or new-entrant operating systems, then Microsoft Windows O/S might become a “commodity” –just one of many competing operating systems.
Microsoft responded in a wide variety of ways, which I do not have the space to detail. Suffice to say that Microsoft undertook to force other personal computer participants, both manufacturers and vendors, to maximize the visibility and utility of the Internet Explorer and minimize the visibility and utility of the Netscape Navigator. Microsoft’s efforts were very effective. Evidence submitted in the remedies phase in April 2000 indicated that the Internet Explorer’s share has risen to 70 percent, while the Navigator’s share had fallen to less than 20 percent. Judge Jackson found that Microsoft (which publicly vowed it would give Internet Explorer away for free “forever”) had no intention of recouping its enormous investment in promoting the Internet Explorer in the market for Web browsers. Rather, the investment was made solely to prevent the “commoditization” of operating systems; that is, solely to maintain Microsoft’s monopoly power in the O/S market. Judge Jackson found such behavior was necessarily “predatory,” designed not to compete on the merits, but to forestall or prevent competition on the merits.
3. Remedies in the Final Judgment. Judge Jackson granted both “conduct” remedies (prohibiting Microsoft taking certain marketing or contractual action) and a “structural” remedy. The structural remedy was to order Microsoft to reorganize its O/S activities into one company and its application and Internet Explorer activities into another. The conduct remedies prevent the two new companies from cooperating with each other in ways that are not equally available to others. Judge Jackson held that conduct remedies alone would neither restrain Microsoft’s anticompetitive conduct nor introduce competition on either the O/S market or the Web browser market.
The case is now on appeal. Judge Jackson’s lengthy findings of fact will be a significant hurdle for Microsoft on appeal. Regardless of the end result, Microsoft’s presence in the global marketplace is enormous, and this decision will have significant impact of all consumers.
