The Microsoft Case
Posted: 22 Apr 2005
With the recent rejection of the last holdout state's objections to the federal settlement in Microsoft IV, the last shoe appears to have dropped in this mammoth litigation. After all the dust had settled, Microsoft had essentially written its own remedy, albeit under considerable pressure. This piece reviews the lessons, both legal and strategic, that can be learned from the case.
The piece begins with a discussion of the two main antitrust claims against Microsoft: (1) monopolization by extending its operating-system monopoly, and (2) tying its Internet browser to its monopoly O/S platform. The piece explores why the D.C. Circuit affirmed liability on the first and reversed a finding of liability on the second, as well as on a related attempt claim. It then provides a detailed critique of the D.C. Circuit's analysis and the government's handling of the case.
The piece criticizes the D.C. Circuit's reversal of liability for attempting to monopolize and for tying on two grounds. First, it finds little precedent in law, and little reason in economics, for the court's ipse dixit that attempt and tying claims invariably require proof of barriers to entry in the defined market - far less structural barriers of the kind the court apparently had in mind. Second, the piece finds the court guilty of something approaching willful blindness in failing to notice that virtually all the conduct the court itself discussed under the heading of monopolization of the O/S market in fact created substantial barriers to entry into the browser market. Finally, the piece reviews the court's extraordinary dictum to the effect that the computer software industry is somehow different for antitrust purposes and finds it inconsistent with voluminous Supreme Court precedent and economically irrational.
The piece then examines the government's litigation strategy of putting virtually all its eggs in one basket: the theory that Microsoft extended its O/S monopoly by removing the threat to that monopoly posed by browsers as middleware. It shows how reliance on that convoluted theory virtually precluded any substantial remedy by making it impossible to demonstrate a causal relationship between remedy and wrong. Finally, the piece discusses the government's failure to prove a relevant market for the tying claim, thereby not only abandoning a claim in which causation should have been easier to prove, but also inviting a disastrous holding that encourages monopolists of dominant software platforms to gobble up add-ons, too. The piece concludes with a suggestion for litigation strategy keeping the remedy in mind and a nod to the European Union for picking up the ball dropped by U.S. antitrust authorities.
Keywords: Microsoft, antitrust, monopoly, monopolization, attempt to monopolize, tying, operating system, browser, Internet, computer software, licensing, software platform, remedy, divestiture, source code disclosure, two-firm market
JEL Classification: K21, L12, L41, L42, O31, O32, O33, O34, O38
Suggested Citation: Suggested Citation