The Microsoft Antitrust Case is More Important Today than It was During the Trial

BY CCIA Staff
February 26, 2001

Washington, DC- As oral arguments open today in the appeal process, it is important to keep some facts in mind – even if Microsoft would prefer the passing of time and their PR and political contributions to make everyone forget them.

“Traditional” Tactics Sustain Microsoft’s “New” Economy Monopoly

  • Microsoft has argued that it is immune to antitrust laws because it operates in the “new” economy, which should not be bound by traditional laws. Monopolies come and go naturally, it argued. According to Microsoft’s market theory, it will eventually be supplanted by another “beneficent” monopoly that will create a new industry standard, which in turn will be supplanted by yet another. However, its courtroom arguments that the AOL/Netscape merger would “naturally” dissolve its monopoly have obviously not been borne out.

Monopoly Grows as Trial Proceeds

  • Since the trial began, Microsoft’s monopoly has shown no signs of abating. Market research indicates that Microsoft’s monopoly in the operating system; Internet browser and office applications markets have all grown steadily. Microsoft controls more than 90% of the OS market (IDC), more than 87% of the Internet browser market (WebSideStory), and more than 95% of the office applications market (IDC). Every one of these figures is higher than the day the trial began nearly two years ago. A vicious circle ensued; as Microsoft’s monopoly grew it became more powerful. The company became ever more able to use its monopoly to reinforce itself and create other monopolies. As it turned out, the new economy proved to be especially fertile ground for growing lasting monopolies.

Strong Arm Tactics Limit Choice, Innovation and Competition

  • The company bullied its OEM (computer makers) and ISP (Internet service providers) partners to ensure that its products remained uncontested leaders in their respective markets. Computer makers Compaq and Gateway were not allowed to offer their customers alternative operating systems on their computers, nor were some ISPs allowed to offer their customers alternative browsers. Within a few years, one of the most technologically innovative companies ever, Netscape – the company whose IPO heralded the great bull market of the late 1990s – had gone from riches to rags. Microsoft’s threat to the economy had become apparent.

Real Consumer Harm

  • Consumers, who by and large enjoy using their PCs and know no real alternative to Microsoft’s products, are unaware of the harm that Microsoft’s monopoly has done to the software market. But it’s important to remember that after a 78-day trial, a conservative federal judge ruled that Microsoft had behaved like a classic abusive monopolist; Microsoft’s absolute control of the market has enabled it to crush competition, inflate prices, limit innovation, and eliminate choice. Since the trial began, software prices have dropped across the board, while only Microsoft has enjoyed rising prices.

Broadening of Microsoft’s Markets Means Broadening of its Monopoly

  • Consumers are unaware that unless its monopoly is eliminated, Microsoft will build monopolies in other markets in which it has already established a foothold. These markets include cable TV set-top boxes, servers, video game consoles, remote computing and mobile phone software. As telecommunications and technology converge and Microsoft’s markets broaden, its monopoly becomes ever more troubling.

Ruling on Case Sets Antitrust Precedent

  • The current political environment also makes this stage of appeals all the more important to watch. The new administration – the new President, new Attorney General, and nominee for Assistant Attorney General for Antitrust – has yet to make a firm commitment to the case. What they do in this case will likely portend their overall attitude towards antitrust enforcement. If this administration is unwilling to pursue a case that has already been won, then it is highly unlikely that it will scrutinize only potential monopolists. As industries consolidate, globalize and enjoy fewer regulations, antitrust is more important than ever.

Structural Remedy is Only Viable Solution

  • The court ruled that the company should be split in two. The appellate court reviewing the case now has three options.
  • The court may wholly overturn the ruling and allow Microsoft to walk away with its monopoly untouched. Given the overwhelming evidence in the trial court’s findings of fact, this option is not viable.
  • The court may decide to impose conduct remedies. However, this would endow the government with a tremendous amount of regulatory responsibility that would help neither consumers nor businesses. In addition, Microsoft has previously thwarted efforts to reign in their behavior.
  • In accordance with the law, which requires that Microsoft’s monopoly be eliminated, a structural remedy is in the best interests of consumers, competition and the health of the market.

Overwhelming Mountain of Evidence

  • In 1998, the Justice Department, after several failed attempts to stop Microsoft from strengthening its existing monopoly and leveraging it into other markets, brought against the company what would become the largest antitrust suit in American history. After a fair trial in which they were represented by counsel, a Reagan-appointed judge eventually found Microsoft guilty based on a mountain of overwhelming evidence, which included the infamous self-incriminating e-mails between high level executives – including Chairman Bill Gates. Of the more than 240 findings of fact, nearly all of them indicated that the company had broken antitrust laws. Microsoft was deemed so untrustworthy and its monopoly so dangerous, that the judge ordered that the company be split in two. Despite the passing of time and convergence in the technology industry – which Microsoft argued in court would dissolve their monopoly – its positions in the industry have only grown.

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