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The microsoft anti trust case

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The microsoft anti trust case

  1. 1. The Microsoft anti-trust case Presented by: Rahul Soni, NLSIU, Bangalore
  2. 2. Overview of the Micro-soft case         Introduction. Markets with network effects. The Allegations. Microsoft’s Defense. Finding of fact and conclusion of law. Anti-competitive Agreements. Effects on consumers. Conclusion.
  3. 3. Introduction: Microsoft is a large diversified computer software manufacturer and also produces the windows family of operating systems for personal computers and servers.  During the last few years (From 1990), the Federal Trade Commission (FTC) and the Department of Justice (DOJ) of the United States have investigated Microsoft on various antitrust allegations, for possible violation of anti trust laws through its license for computer operating system.  Division of facts: 1990-1993: investigations by FTC. 1994-1995: filing of complaint and consent decree. 1997: contempt action against micro-soft. Early 1998: Appeal field by Microsoft. May18, 1998: Government field its Anti-trust case against Microsoft. 
  4. 4. Contd. ◦ December 1999: Mediation: Judge Richard posnor: appointed. ◦ April 1, 2000: Settlement broke down. ◦ April 3, 2000 : Judge Jackson issued his “ conclusion of law” and found microsoft as monopolization and anti-competitive tying of IE with windows. ◦ June 7, 2000 : remedies issued by Judge Jackson, spiltting microsoft in two companies and imposed severe business conduct restrictions. ◦ Appeal to Supreme Court : On September 26, 2000, the Supreme Court indicated that it will not hear the case before the Court of Appeals. ◦ DOJ argued that review by the Supreme Court was appropriate to expedite the final judgment because of the importance of the case for the national economy. However, it is worth noting that the plaintiffs had a
  5. 5. Markets with network effects  Following are the number of crucial features of markets with network effects that distinguish them from other markets: ◦ “winner-take-most” markets. ◦ Extreme inequality in market. ◦ Natural equilibrium. ◦ Free entry. ◦ Competition. ◦ Application of anti-trust in network industries ◦ Entry and reward. ◦ Consumer favour.
  6. 6. The Allegations.  On May 18, 1998, the United States Department of Justice, and the Attorneys General of 20 States27 and the District of Columbia sued microsoft. The main allegations were: 1. Microsoft illegally monopolized the market for operating systems (“OSs”) for personal computers (“PCs”) under sec. 2 of the Sherman Antitrust Act; 2. Microsoft had anti-competitive contractual arrangements with various vendors of related goods, such as with computer manufacturers (“OEMs”) and Internet Service Providers (“ISPs”), and had taken other actions to preserve and enhance its monopoly; that these contractual arrangements and other actions were illegal under Sec. 2 of the Sherman Antitrust Act; 3. Microsoft illegally attempted to monopolize the market for Internet browsers (but failed to succeed), an act that is illegal under Sec. 2 of the Sherman Antitrust Act; 4. Microsoft bundled anti-competitively its Internet
  7. 7. Microsoft’s Defense      Microsoft’s defense was as follows: First, Microsoft argued that the law was on its side since the Court of Appeals had ruled on June 23, 1998 that Microsoft can legally add new features and functions to Windows. Therefore Microsoft argued that it was legal to add IE’s functionality to Windows, and it had done nothing wrong by integrating IE in Windows. Second, Microsoft argued that it was just competing hard against Netscape, that such competition was welfare-enhancing, and that it did not commit any anticompetitive acts. Third, Microsoft argued that it did not have monopoly power in the operating systems market. Fourth, Microsoft argued that competition in the software sector was intense and that its leadership position could be replaced at any time by a new
  8. 8. Contd… its economics expert witness failed to convincingly articulate this Schumpeterian view in the context of an antitrust defense.  Fifth, Microsoft argued that it is a leader in software innovation and that it has enhanced rather than hobbled the innovation process.  Sixth, Microsoft argued that consumers have benefited from its actions rather than been harmed by them. Microsoft claimed direct consumer benefits from its low pricing of the operating system, the zero pricing of its Internet browser, and from its enhancement and acceleration of the innovation process. Microsoft also argued (rather ineffectively) that consumers benefit from the de facto standardization that its large market share brought to the operating systems market.
  9. 9. The law :    The anti trust law in the areas that apply to Microsoft Case: Section 2 of the Sherman Antitrust Act. Section 1 of the Sherman Antitrust Act.
  10. 10. Finding of fact and conclusion of law  (April 2000) find for the plaintiffs (U.S. Department of Justice and 19 States) inalmost all the allegations against Microsoft. In particular, Judge Penfield Jackson found: 1. The relevant antitrust market is the PC operating systems market for Intel compatible computers. 2. Microsoft has a monopoly in this market “where it enjoys a large and stable market share.” 3. Microsoft’s monopoly is protected by the “applications barrier to entry,” which the judge defines as the availability of an abundance of applications running Windows. 4. Microsoft used its monopoly power in the PC operating systems market toexclude rivals and harm competitors.
  11. 11. Contd.. 5. Microsoft hobbled the innovation process. 6. Microsoft’s actions harmed consumers. 7. Various Microsoft contracts had anti-competitive implications, but Microsoft is not guilty of anticompetitive exclusive dealing contracts hindering the distribution of Netscape Navigator.
  12. 12. Anti-competitive Agreements.  Tying In Agreements Ruling in Jefferson Parish – Four elements involved in per se tying violation: i. ii. iii. iv. The tying and tied goods are two separate products; The defendant has market power in the tying product market; The defendant affords consumers no choice but to purchase the tied product from it; and The tying arrangement forecloses a substantial volume of commerce
  13. 13. Contd… Microsoft had monopoly power in the tying product market;  it threatened to close off a substantial share of the browser segment;  Consumers had no choice of avoiding IE if they opted for Windows The issue in question was whether Windows and IE were two separate products or not Microsoft’s attorneys claimed that Windows and Explorer were “functionally integrated.” In fact, they shared files so that if you uninstalled Explorer, Windows would not function properly. But Princeton computer scientist William Felton who was a prosecution witness showed this problem could be easily corrected 
  14. 14. Analysis under the provisions of the Competition Act, 2002.    Section 3 of the Indian Competition Act, corresponds to Section 1 of Sherman Act. Section 4 Exp. (a) : Dominant position. Section 19 (3) : enumerates certain factors to be considered by the Competition Commission while determing whether an agreement has an appreciable effects under Section 3 of the Act.
  15. 15. Effects on consumers.  In principle, there are three ways that consumers could be hurt by potentially anticompetitive actions :  First, consumers may be hurt because these actions increase prices. Second, consumers may be hurt because these actions may limit their choices in terms of 25 variety and quality. Third, these actions may limit innovative activity, thereby hurting future consumers.  
  16. 16. Conclusion. Regardless of the final outcome, the effects of U.S. v. Microsoft are likely to be felt for a long time. If a breakup actually occurs, it is likely to impose the dark shadow of radical antitrust intervention on the whole computer industry. There are many firms in the computer sector that have a dominant position in their respective markets.  So the competitive law should be applied in efficient way so all these kind of anti-competitive practices can be stopped and the New- Economy will not be far behind. SUGGESTION: There is an other way than remedy by limiting the term of copyright for software and special preferences comes to 5 years, instead of a billion years as a business, because of the pace of change quickly everything moves would still create all incentives to innovate that would spy right system creates and yet 