-Caveat Lector-
November 8, 1999
A Predatory Monopoly
By Robert H. Bork, a former federal judge
and a senior fellow at the American Enterprise
Institute. He has represented Netscape Corp. and
currently is a consultant for ProComp, the Project to
Promote Competition and Innovation in the Digital
Age.
The first leg of the Microsoft antitrust marathon is
over, and Microsoft is so far behind as to be barely
visible. Judge Thomas Penfield Jackson has made
voluminous findings of fact vindicating the government's
case. Given the trial record, he could hardly have done
otherwise. He concluded that Microsoft used illegal
business tactics to destroy threats to its monopoly in
personal-computer operating systems. The determination
that as a matter of law this amounts to a Sherman Act
violation, which will come in the next stage, seems a
foregone conclusion, and the case is so strong that any
settlement will probably require Microsoft's capitulation
to any terms the government may demand. The company's
best hope in the relief phase probably lies with the
judge, cold comfort though that may be.
On appeal, Microsoft's lawyers face a formidable task,
since a trial court's findings of fact are not overturned
unless they are clearly erroneous; these seem clearly
correct. Microsoft will undoubtedly rely heavily on the
D.C. Circuit Court of Appeals' prior ruling concerning
the 1994 consent decree between the parties. The
appellate panel in that case reversed the trial judge's
grant of a preliminary injunction prohibiting Microsoft
from incorporating its browser, Internet Explorer, into
its Windows operating system.
Though the decision was based entirely on procedural
grounds, two of the three appellate judges took the
occasion to dilate upon the substantive issue that was not
before them. But these judicial asides are clearly not
binding, and even if they were they would be far from
determinative. The majority opinion said that the court
should not "embark on product design assessment. In
antitrust law . . ., the courts have recognized the limits of
their institutional competence and have on that ground
rejected theories of 'technological tying.' "
That's much too strong, for if the courts declare
themselves incompetent to judge technological issues,
they will create an antitrust immunity for high-tech
predators. Whatever the difficulties involved, and
however carefully such issues should be approached, an
immunity for illegal behavior is hardly a satisfactory
solution. The appeals court majority recognized that
problem, saying, "The factual conclusion [about joining
the operating system and the browser] is, of course,
subject to reexamination on a more complete record,"
and, "Manufacturers can stick products together . . .
without the link serving any purpose but an
anti-competitive one. The concept of integration should
exclude a case where the manufacturer has done nothing
more than to metaphorically 'bolt' two products
together."
Judge Jackson's findings are that Microsoft has done
precisely that, "bolting" products together not for
purposes of efficiency but entirely to destroy
competition. This question of pro-consumer efficiency
versus anticonsumer predation is the pivot on which the
case turns.
I have written in the past that tie-in law is mistaken and
attacks a nonexistent problem to the detriment of
consumers. That is true of the tie-ins I was then
discussing. When two products are complementary, tying
one to the other does no harm and often helps the
consumer. If General Motors had a monopoly on
automobiles and required purchasers to take the cars
with GM's tires, there would be no consumer harm. The
purchaser is buying transportation, and the full monopoly
price for that can be extracted in the price of the car.
If GM tried to charge a second monopoly price for the
tires, it would be demanding two monopoly returns
where only one was available and would make less
money by pricing transportation too high. No rational
profit maximizer would try that, and no one has ever
accused Microsoft of not trying to make as much money
as it could.
The primary charge against Microsoft in this case
involves the tying of a product that is a potential
substitute for the monopoly product, a case I had not
previously discussed. If tires could evolve into
automobiles, an automobile monopolist would have
reason to tie in the tires in order to destroy a rival
tire manufacturer, thus squelching incipient competition
in cars. A Web browser can become an alternative
platform for which applications are written, and then it
would not matter what operating system underlay it.
Netscape's Navigator browser posed just such a threat.
Microsoft, recognizing that it was unlikely to beat that
browser on competitive merit (as a plethora of
incriminating e-mails showed), saw the danger and
responded by requiring those who needed its monopoly
operating system to take its browser as well. Possessing
a monopoly is not illegal, but preserving one artificially
by such tactics is.
If Navigator had been allowed to compete freely and
succeeded, application writers would no longer have an
incentive to write only for Windows, and the
applications barrier to smaller operating systems'
competition with Windows would disappear. It was to
avert that threat that Microsoft tied Explorer to
Windows--not to gain a second monopoly profit (which
would be impossible), but to preserve its existing
monopoly (which is eminently rational).
There is, however, a way in which the operating system
and browser monopolies together can generate
additional monopoly revenues. The browser is essential
to reach Web sites, and a browser monopoly can
commandeer the enormous advertising revenues those
Web sites generate by being the sole means of access.
That is true whether Microsoft owns the sites or merely
drains revenues from them. And if competition
developed in operating systems, it would only hasten
competition in the browser market.
Predation in this case was heavily reinforced by
contracts that prevented Microsoft's customers and
Internet service providers from selling Netscape's
browsers or in some cases from even mentioning to
consumers that the product existed. The Windows
monopoly was also employed to stop potential
competition from the likes of Apple, Intel and IBM.
Microsoft, whose legal position is untenable, is
attempting to recover its losses politically through a
massive lobbying and public relations campaign. It has
deployed boatloads of lobbyists, made heavy donations
to politicians and nonprofit groups that support it,
courted journalists unceasingly and even lobbied
Congress to cut the budget of the Justice Department's
antitrust division. Nothing comparable in intensity,
expense and mendacity has ever been seen with respect
to antitrust litigation. Combining paranoia and
self-righteous belief in its own virtue, Microsoft is using
tactics that would have made the Robber Barons blush.
In the end, there are only three choices: restoration of
competition by antitrust enforcement, comprehensive
regulation of the industry or permitting an unlawful
situation to continue and grow unabated. Antitrust is
surely by far the preferable solution.
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Kadosh, Kadosh, Kadosh, YHVH, TZEVAOT
FROM THE DESK OF: <[EMAIL PROTECTED]>
*Mike Spitzer* <[EMAIL PROTECTED]>
~~~~~~~~ <[EMAIL PROTECTED]>
The Best Way To Destroy Enemies Is To Change Them To Friends
Shalom, A Salaam Aleikum, and to all, A Good Day.
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