antitrust: US vs MS

[John Denker <jsd@MONMOUTH.COM>]

At 06:04 AM 6/24/00 -0700, John Barrer asked:
>  how do recent posters feel about the Microsoft case?

*) I read many of the key documents in this case, including the findings of
fact
  http://www.usdoj.gov/atr/cases/f3800/msjudgex.htm
  http://www.microsoft.com/presspass/trial/c-fof/fof.asp
the conclusions of law
  http://www.usdoj.gov/atr/cases/f4400/4469.htm
  http://www.microsoft.com/presspass/trial/col/default.asp
the final judgement
  http://www.microsoft.com/presspass/trial/jun00/06-07finaljudg.asp
the final memorandum and order
  http://usvms.gpo.gov/ms-final.html
and some of the supporting testimony, which can be found under
  http://www.microsoft.com/presspass/trial/transcripts/
  http://www.usdoj.gov/atr/cases/ms_testimony.htm

Additional useful indices can be found at
  http://www.usdoj.gov/atr/cases/ms_index.htm
  http://cyber.law.harvard.edu/msdoj/trial.html

*) I have discussed some of these matters with people I trust who were
participants and have firsthand knowledge of some of the facts.

*) All this leads me to conclude that the judge's findings are extremely
well supported by the facts and the law.

*) In my opinion, most commentators have done a terrible job covering this
case.  Apparently in their efforts to "simplify" the presentation, they
have concentrated on one or two aspects, which are neither the clearest nor
the most important aspects.  The result is a completely unnecessary muddle.

For one thing, the media often tries to portray the issue as the clash of
the titans, Microsoft versus Netscape.  But that really misses the
point.  If MS vs NS were the only case where MS was able to overtake a
competitor, the government would have had a much harder time proving the
antitrust case.

But the judge is quite smart.  He cites five specific campaigns
        MS versus Netscape browser
        MS versus Sun Java
        MS versus IBM Lotus
        MS versus Intel Native Signal Processing
        MS versus Realnetworks / Apple multimedia players
where competing products were attacked by illegal means, and other
incidents (AOL, Compaq, Intuit, ...) where third parties were asked to do
anticompetitive things.

For an Intel insider's view of how MS killed the Native Signal Processing
effort, you can go to
  http://www.microsoft.com/presspass/trial/transcripts/
and download the McGeady testimony (1998 Nov 9, 10, 12) and search for SPOX
or NSP.  The .doc versions are more readable than the .asp (HTML)
versions.  Note that this witness's testimony is missing from the USDOJ site.

The NSP story puts the lie to the MS claim that they "produce great
software" and all they want is the "freedom to innovate".  NSP is a
well-documented case where they crushed some important innovations.  To
this day, the realtime audio and video on your PC is markedly worse than it
would be if MS had allowed Intel to pursue NSP.

At 06:04 AM 6/24/00 -0700, John Barrer pointed out:
> tie-in sales (where you must buy product A in order to
> get product B) were a CLEAR no-no.

Tie-in sales were, and remain, a clear no-no.  The MS suit was brought
under the Sherman Antitrust Act, which was enacted in 1890.  Nothing has
really changed.  The judge ruled that the issue here is not software;  the
issue is marketing practices, and the same old rules still apply.

In my opinion,
 -- The case is not about whether MS is a monopoly.
 -- The case is not about how MS got to be a monopoly.
 -- The case is not about patents or copyrights, which confer
    by law a _perfectly legal_ monopoly over certain things.

The issue is, and always has been, how a monopoly must behave in the
marketplace.  If you have monopoly power in one area, it is illegal to use
that power to extend the monopoly into a new area.

The evidence shows that MS did this, did this repeatedly, did this over
long periods of time, and did it even after they had been sanctioned in
previous cases.  Microsoft offered evidence and arguments to the contrary,
but the judge found this was "not credible".  Some of the MS testimony is
just plain ludicrous.  Bill Gates could easily be indicted for perjury.

 -- The ruling does not take away the MS patents or copyrights.
 -- The ruling does not punish MS "for being successful".
 -- The stated purpose of the breakup mentions nothing about punishment at
all;  it is "to terminate the unlawful conduct, to prevent its repetition
in the future, and to revive competition in the relevant markets.
Microsoft's alternative decree is plainly inadequate in all three respects."

============

The remaining question is whether the breakup decree is adequate.  The
Software and Information Industry Association filed an amicus curiae brief
  http://www.siia.net/sharedcontent/press/2000/amicusbr2.pdf
arguing that MS should be broken into _three_ parts.  The judge praised
this brief, but decided to stick with the two-way split that the government
proposed.

Abstract economic analysis suggests that two monopolies in series is
actually _worse_ than one monopoly.  A single monopolist would be wise to
keep his prices semi-reasonable, because he suffers if the customers go
bankrupt.  But two monopolists can get into nasty disputes over who should
get what share of the profits -- a sort of "price war" in reverse.  (This
scenario must not be confused with a duopoly, which is two providers in
parallel, and is clearly less dangerous than a monopoly.)

Moving from abstractions to the specific MS case, things do not look quite
so bad.  The new operating systems company will have an incentive to
cooperate with other applications vendors (e.g. Corel, which makes a
well-respected "office productivity" suite).  Similarly, the new
applications company will have an incentive to cooperate with other
operating systems (e.g. Linux).

Because of that, and because of the injunctive restrictions on the new
companies' behavior, it is plausible to think that competition might return
to this marketplace.  OTOH the judge found that "Microsoft has proved
untrustworthy in the past."  MS folks have found sneaky ways to circumvent
and violate previous restrictions.  So we may be back in court in a couple
of years with a whole new set of offenses.