LESSONS FROM MICROSOFT

By PHIL WEISER

For those trial lawyers looking for dos and don'ts, the recent Microsoft case is replete with examples.

First, don't contest the obvious -- in this case, by claiming that you are not a monopolist when you most clearly are. In antitrust terms at least, being a monopolist is perfectly legal; it is the abuse of that monopoly power that can get you in trouble.

Second, when dealing with a weak hand, fold. On this score, Microsoft failed to follow Kenny Rogers' advice about knowing when to hold and when to fold. Instead, Microsoft raised the stakes when it held a weak hand and set itself up for the ultimate defeat: a breakup of the company.

Earlier Judicial Decree

Like the AT&T breakup in the early 1980s, the potential breakup of Microsoft comes after an earlier judicial decree -- which focused on regulating Microsoft's conduct -- failed.

as inadequate because it did not go to the heart of Ma Bell's monopoly power (its control over the local operating companies), the 1994 Microsoft consent decree also appears to have failed to reign in Microsoft's anti-competitive conduct.

In Microsoft's case, it bundled its browser with its operating system and refused to distribute a version of its operating system without its browser, thereby forcing computer manufacturers to waste precious disk space if they wanted to install Netscape's browser. Citing such conduct (among other actions), U.S. District Judge Thomas Penfield Jackson concluded that Microsoft acted illegally to monopolize the browser market and to protect its monopoly in the operating system market.

In his earlier rulings, Jackson concluded that Microsoft went well beyond legitimate business practices by taking steps aimed solely at, in the words of Microsoft's executives, "cutting off Netscape's air supply."

Microsoft resorted to such "predatory" conduct (as antitrust law terms it) to address its concern that Netscape's browser -- along with other technologies -- would be able to "commodotize" the operating system by enabling users to access the Internet without going through Microsoft. By ensuring that Netscape's browser would not become the industry standard (and its market share continues to fall), Microsoft appears well on its way to defeating this threat.

The Feds And The AOL/Time Warner Merger

For those trying to make sense of the trustbusters' methods, it is easy to ask why, as media mergers abound and with the Internet poised to transform the computer industry, are the antitrust cops worried about Microsoft's dominance of the desktop and not, say, the emergence of an AOL/Time Warner giant?

For starters, the merger of AOL and Time Warner does not create a monopoly, though it does bring together two large companies that arguably each enjoy monopoly power in select markets ranging from video distribution -- through Time Warner's cable systems -- to Instant Messaging.

But more fundamentally, antitrust law acts in aid of the market and not instead of it. That is, although antitrust courts can, as in the case of Microsoft, redress proven cases of monopolization, they are not authorized to speculate about possible future competitive harms and act proactively to prevent them. (More precisely, trustbusters are able to challenge mergers -- as opposed to monopolistic conduct -- based on predicted harms, but to block a merger, they must demonstrate that the predicted harm is likely to occur, which is no easy task.)

In the eyes of some, the proposed AOL and Time Warner merger represents the best threat to checking Microsoft's power. After all, if AOL/Time Warner can provide a platform for lots of Internet applications without going through Microsoft -- Instant Messaging, Internet browsing (now that AOL bought Netscape), music and video distribution, among other examples -- then consumers will not be held captive to Microsoft's decisions on what applications can be made available to them.

Preserving Competition

continued dominance (and abuse of its monopoly) may be Microsoft, whose control over the suite of applications contained in Microsoft Office (Word, Excel, Outlook, among others) reinforce its monopoly over operating systems (and vice versa).

By separating its operating system division from its applications division, Judge Jackson hopes that the two divisions can compete against one another, or at least act in creative tension with one another. Such a restructuring of Microsoft to preserve competition follows antitrust's goal of avoiding ongoing regulation (through conduct remedies) and facilitating a market system where no one company can maintain its dominance through predatory tactics that limit who gets to compete.

If AOL/Time Warner ultimately eclipses Microsoft as the dominant force on the Internet and acts in predatory ways to exclude competitors -- say, by abusing its dominant position in Instant Messaging, high speed Internet access (over its cable lines), what have you -- the antitrust cops will once again be on the case.

Until then, the antitrust laws and the Microsoft precedent will stand as a reminder that companies who exercise monopoly power in a "predatory" fashion may face the consequences.

Ultimately, even if the appeals courts overrule Jackson's decision to break up the company, the case will almost certainly stand as an important victory for the Justice Department and should go a long way to reminding companies that the antitrust laws are for real and that certain types of behavior will put them in legal jeopardy.

And thanks to Microsoft's numerous errors along the way, other companies' lawyers may be spared the pain of learning the hard lessons taught to Microsoft about legal strategy without having to experience them first hand.

Phil Weiser is an associate professor of law and telecommunications at the University of Colorado and served as senior counsel in the Justice Department's Antitrust Division from 1996-1998.

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