_Business Law: Antitirust _
By: danni
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 2Plaintiffs 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 Seal
Straugh 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 naïveté 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 Seal Straugh 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, Seal Straugh 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/ Seal Straugh 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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