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Summary of Rick Rule's |
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Microsoft and Section 2 of the Sherman Act |
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| The essence of a free market is not perfect competition, but freedom of competition. True competition includes market strategies, such as conditions of sale, designed to expand market share. If Microsoft can integrate products into an operating system, and offer them cheap, Microsoft and consumers benefit. |
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| Microsoft agreed, in a 1994 consent decree with the Department of Justice (DOJ), to stop selling per processor licensing for its MS-DOS operating system. Microsoft had sold MS-DOS to original equipment manufacturers (OEMs) at a 60% discount if they agreed to pay Microsoft for every computer they sold, as opposed to paying them for every computer they sold with MS-DOS preinstalled. If an OEM decided to preinstall an OS other than MS-DOS, he would be paying twice the royalties, and consumers would pay Microsoft regardless of what OS they bought. 1 |
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| In the consent decree, Microsoft reserved the right to integrate new products into their OSs, and Microsoft?s present troubles with the Internet Explorer stem from that reserved right to integrate their products. |
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| The so-called Browser War is the latest attempt of Microsoft?s competitors to have the DOJ do what they have not been able to in the past. If they cannot innovate and improve their products, they would have the DOJ innovate and improve the laws. Microsoft is not in violation of the consent decree and should be allowed to give any products away for free! Netscape was given away for free for nearly two years, yet no one at Microsoft screamed "Unfair!" |
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| Microsoft?s competitors claim that Microsoft is a monopoly, in violation of Section 2 of the Sherman Antitrust Act of 1890, which: |
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| Makes it a crime to monopolize any part of interstate commerce. Any company that controls the market through any means other than superior quality and service, such as anticompetitive conduct and suppressing competition, could be considered a monopoly. |
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| The burden of proof lies with the DOJ. "Specifically, the Department must prove not only that Microsoft has monopoly power but also that Microsoft has acquired or maintained that power through ?exclusionary? or ?predatory? acts. In light of those legal requirements, there simply is no solid basis for a section 2 suit against Microsoft." 2 The Sherman Act was enacted to protect consumers and innovation, not competitors at the expense of the consumer, and antitrust laws exist to protect "competition, not competitors."3 Antitrust laws do not regulate the activities of a person or corporation, nor condemns commercial success achieved through competition. |
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| A necessary prerequisite for a violation of Section 2 of the Sherman Act is a showing that the defendant has "monopoly power." The Supreme Court has defined such power as "the power to control market prices or exclude competition." 4 Because of Microsoft?s very large market share, there are suppositions of monopoly power; however, market share is not a reliable indicator. "[W]hen there are better ways to estimate market power, the court should use them." 5 In Los Angeles Land Co. v. Brunswick Corp. 6 F.3d 1422 (9th Cir. 1993), it was held that the defendant did not possess monopoly power despite the fact that it Had a 100 percent share of the relevant market. An OEM can choose among various PC OSs, including IBM?s OS/2, Solaris x86 from Sun Microsystems, UnixWare from Santa Cruz Operation, and Linux [a free-for-distribution and modification OS, based on Unix], and consumers and businesses can also choose systems other than a PC, such as an Apple Macintosh, Net Computer ("NC"), or even bigger systems such as mini-computers. |
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| Microsoft competes against it own installed base of applications as well! Computer software does not wear out, and consumers can switch OSs freely. Because any kid with a computer can create an application, and the rapid change in technology in the computer market, there are always new opportunities for start-up firms, or established corporations, to introduce new operating systems or enhance existing ones. |
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| Microsoft?s competitors advocate that Microsoft also be broken into smaller companies. If the DOJ were to succeed in breaking Microsoft into pieces, as it did AT&T and attempted to do to IBM, it would lead to an unsettling period for software developers and PC makers. This period could lead to customer uneasiness, as when Microsoft bought into Apple, about the future support of their hardware and software. This would be a critical time for Microsoft and for the technological market they dominate. If the DOJ were to succeed in breaking up Microsoft, their competitors would receive an unfair advantage, achieved not in the marketplace, but through government intervention. The break up of Microsoft should not depend on the DOJ?s interpretation of Section 2 of the Sherman Act. It is assured that Bill Gates, who owns 22.3% of Microsoft, will fight any attempt to break up his company. He began the company with an OS he designed for IBM, and he has ridden the wave of innovation not just by creating new applications, but by creating user friendly environments (OSs) for consumers to use his competitors? applications as well. 6 Microsoft has steadily driven the cost to own and operate computers down, and the information highway is easily traveled by all classes. Affordability is no longer a factor for the average consumer. Competitors such as IBM and Sun Microsystems are investing hundreds of millions of dollars to develop and market new technologies that they hope will replace Windows. If those new or improved operating systems are perceived to be a better OS, then maybe Microsoft?s competitors will have a chance to replace the existing market leader. |
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| Microsoft has only succeeded by constantly bringing new technologies to consumers more efficiently, more attractively, and at lower prices. Microsoft?s competitors cannot reap a benefit from pushing the DOJ toward the slippery slope of deregulation. If they succeed in breaking up Microsoft now, they will eventually exclaim, as did Buckingham, when the same fate befalls them: |
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| O, let me think on Hastings [Microsoft], and be gone |
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| To Brecknock [overseas] while my fearful head is on! 7 |
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Check, Dan. "The Case Against Microsoft". http://ourworld.compuserve.com/homepages/spazz/mspaper.htm
Rule, Charles F. (Rick). "OVERVIEW OF SECTION 2 OF THE SHERMAN ACT AND ITS APPLICATION TO MICROSOFT". http://www.microsoft.com/corpinfo/doj/rickrulewp.htm
Brown Shoe Co. v. United States, 370 U.S. 294, 320 (1962)
United States v. E.I. du Pont de Nemours & Co., 351 U.S. 37, 391 (1956)
Ball Memorial Hosp. V. Mutual Hosp. Ins., 784 F.2d 1325, 1336 (7th Cir. 1986)
Much the same way that Standard Oil sank few wells, but through the refinement processes, controlled most of the oil.
Shakespeare?s "Richard III" [IV.ii.120,121] Buckingham, remembering that Lord Hastings also helped Richard achieve the throne, and was promptly beheaded. |
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