THE MICROSOFT MONOPOLY
November 5, 1999
U.S. District Court Judge Thomas Penfield Jackson declared late Friday that Microsoft wields monopoly power over the personal computer operating systems.
MARGARET WARNER: For more than a year, U.S. District Court Judge Thomas Penfield Jackson has presided over the Justice Department's antitrust case against Microsoft. This evening Judge Jackson declared Microsoft holds a monopoly over the operating systems that run personal computers. Assistant Attorney General Joel Klein, head of the Antitrust Division, said he was pleased with the court's ruling. At Microsoft headquarters in Washington, CEO Bill Gates expressed disappointment.
JOEL KLEIN, Assistant Attorney General: We're enormously pleased by the court's decision today. The judge found what the Department charged and what we introduced mountains of evidence to demonstrate at trial, which is that Microsoft is a monopolist and engaged in massive anti-competitive practices that harmed innovation and limited consumer choice. This is truly an important victory for America's consumers and for the American economy. It shows once again that in America, no person, and no company is above the law.
BILL GATES: At the heart of this case, though, there is a very key principle, and that is whether a company is allowed to innovate in its products on behalf of consumers. It's a principle that's not only important to us, but to all companies. And it's really at the center of why the America technology business is so strong in creating so many jobs.
Assessing the finding of fact
MARGARET WARNER: Bill Kovacic, an antitrust professor at the George Washington University Law School, was among the first to get a copy of the findings, which just came out about thirty-five/forty minutes ago. He joins us from a Washington studio.
And with me here is Professor Jonathan Baker of the Washington College of Law at American University. Mr. Kovacic, first of all, explain briefly, what is a finding of fact?
BILL KOVACIC: A finding of fact provides the judge's synthesis of the competing narratives that the two parties have provided about the significance of developments in the market and the significance of Microsoft's behavior as well as a clear determination of exactly what acts Microsoft engaged in and what it did. It provides the foundation for the judge's later decision about whether or not Microsoft actually violated the law.
MARGARET WARNER: Okay. Is this, as Joel Klein of the Justice Department said, an important victory for the government's case?
BILL KOVACIC: This is an important step towards victory. In these findings are foreshadowed, I believe, a number of legal conclusions that will be quite favorable to the government. The judge did not go quite so far as to say I believe Microsoft violated the law. But he crept up on that point very closely. And I think it permits a confident judgment that the government is likely to win on most of its legal claims when the judge issues his conclusions of law sometime early in the year 2000.
MARGARET WARNER: And it's true, is it not, that simply a finding that Microsoft enjoys a monopoly doesn't necessarily mean it acted illegally. Is that correct, I mean just as a matter of law?
BILL KOVACIC: Antitrust law doesn't condemn the status of monopoly principally because it is conceivable that a firm could achieve greatness and retain it simply by virtue of superior performance. It's monopoly power plus conduct, some ingredient of improper exclusionary behavior that meets the offense and the violation that the government has alleged.
MARGARET WARNER: And I know you haven't had time to read 200 pages, but what do you see there, one on the monopoly point, but secondly on the conduct point, on how Microsoft behaved?
BILL KOVACIC: For the most part the judge embraced the government's narrative of events. It found on the monopoly power issue that Microsoft, in fact, has monopoly power in an area consisting of software operating systems for personal computers. The judge also suggested that that monopoly position perhaps would be durable; that is not easily eroded by new developments at the edge of the market. With respect to conduct, the government's view of events to a large extent, is reflected in these findings; that is, the judge is looking at discreet elements of conduct as well as Microsoft's overall strategy, in many respects, embrace the government's view of the world.
Setting the stage for "a very broad remedy"?
MARGARET WARNER: All right, John Baker, we're sitting here with just the early wire stories and first few pages of the decision but what would you add to what Bill Kovacic said?
JONATHAN BAKER: Well, I would add a quote from the judge's opinion that really puts a very-- shows a great deal of concern that the judge had with what Microsoft has done. "Microsoft has demonstrated that it will use its prodigious market power and immense profits to hurt any firm that insists on pursuing initiatives that could intensify competition against one of Microsoft's core products." That sounds like the preliminary to a conclusion that the judge has reached of a pattern of anti-competitive conduct and could set the stage for a very broad remedy in a later stage of the proceeding.
MARGARET WARNER: Just from reading that quote or from what we've seen, does this also seem to get to -- the issue that has captured a lot of the public attention had to do with what Microsoft did against Netscape, a rival company that owns -- that has an Internet browser that we all use to browse the World Wide Web and that Microsoft was using its operating system power to favor its own browser, Internet Explorer -- from what you read there, does it go to that issue?
JONATHAN BAKER: It appears as though -- the quote that we just read appears to be supporting what eventually would be a conclusion that Microsoft acted anti-competitively to maintain its power in operating systems by excluding Netscape. The problem here is that the government argued that Microsoft tried to protect its Windows operating system monopoly, which the judge seems to have found it has, by conduct that kept the development of an end run around it; that Netscape's browser combined with Sun's Java language could create a way for people to run their applications program, word processing and spread sheets and the like, on other operating systems where formerly they had to run it just on the Windows PC's and if Netscape could and Sun could develop and succeed with their products, that would make the Windows operating system unnecessary, Microsoft would lose its monopoly power in the operating system. What the judge seems to have concluded here is that Microsoft engaged in a pattern of conduct that kept Netscape from having access to customers and that the result of that was to protect the Windows operating system from new competition.
Microsoft's case
MARGARET WARNER: Okay. Now, did Microsoft, staying with you, Jon Baker for a minute, because I understand we're having some audio problems with Bill Kovacic -- can you hear me yet, Mr. Kovacic?
BILL KOVACIC: Quite well. Thanks.
MARGARET WARNER: Terrific. Then let me go back to you for a minute. Did Microsoft present an alternative version of facts or did they simply deny the government's case?
BILL KOVACIC: Microsoft did deny some key elements of the government's case, but its particular strategy was to emphasize pro-competitive justifications for its behavior. That is, in responding to Netscape, for example, Microsoft was saying, do you really want us to stand back and be a passive observer and allow a competitor to enter and compete with a free hand -- don't you expect us to strike back? What is impressive about the judge's findings of fact are a number of points that reinforces Jon's comment. In looking at Microsoft's asserted justifications for behavior - such as bundling the Internet Explorer browser into the Windows operating system -- the judge explicitly finds that there were no pro-competitive justifications for that conduct and there were detrimental effects. So, even though Microsoft offered justification evidence and justification arguments, it's striking to see the extent to which this document basically embraces the government's view that the sole decisive purpose of Microsoft's strategy was simply to deny access to the market to Netscape as a way of enhancing its own monopoly power.
The next moves
MARGARET WARNER: All right. So, Jon Baker, what happens next?
JONATHAN BAKER: Shortly after, in the near future, the judge will ask for briefs on conclusions of law that might follow from these findings of fact. And the parties will have to submit the briefs to him. Along around the beginning of next year, we ought to expect to see the judge reaching the conclusions of law. And it's abundantly clear that the conclusions will be adverse to Microsoft from what we know so far. Then the judge will probably hold a hearing on what he ought to do to remedy the problem. Should he try and break up Microsoft? Should he merely tell Microsoft not to do it again? And, after that, we might have an appeal.
MARGARET WARNER: Mr. Kovacic, very quickly, what do you think are the chances of an out-of-court settlement? Joel Klein mentioned that prospect tonight.
BILL KOVACIC: It wouldn't surprise me at all if the parties do talk. My impression is that because this document is so relatively one-sided, that it is relatively likely that the government parties will feel emboldened by the document, that the document will likely lead them to ask for a broader array of concessions and more decisive forms of remedies, remedies that I suspect Microsoft will find unpalatable.
MARGARET WARNER: All right, Mr. Kovacic, I have to cut you off there. But thank you both very much.
Copyright ¸ 1999 MacNeil-Lehrer Productions.
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