November 25, 1998 - Wednesday - Trial not in session - Short Week - Weekly Review
10:48 AM PST - Microsoft asks to be relieved of the obligation to abide by the antitrust laws? Huh?
It is standard practice to ask the court to dismiss a case at the end of the plaintiff's case (i.e. DOJ witnesses have all been called to testify). This motion made before the court is almost always denied. In this case, the DOJ has introduced creditable evidence of not only monopoly power by Microsoft in the consumer OS marketplace but also significant evidence of monopoly profits and illegal acts conducted directly by Microsoft to further the monopoly in the consumer OS market and gain a new monopoly in the browser market. Microsoft will get the chance to offer their own witnesses after their request to have the case dropped is denied. (Besides, I think the judge may want to see if Bill Gates will show up in person as a real witness. I am sure he has a few questions of his own he would like to ask)
In the PR department, Microsoft still claims that the merger between AOL and Netscape and the deal with Sun somehow releases Microsoft of any legal obligation to abide by the antitrust laws. I know of no such legal concept despite the fact that the lawyers for Microsoft are trying to make the connection between a stronger competitor in one industry with their monopoly activity in the consumer OS marketplace. IBM is a formidable competitor in their element too, but that fact does not excuse Microsoft from abiding by the laws in their markets. It just does not work that way. General Motors is a strong company too. But, they are not in the business of selling consumer operating systems anymore than AOL is. It is a different market. It is a different product. It is a different business. The three major networks are powerful too, right? And, you have the cable companies. Again, does not matter. None of those companies are in the consumer OS market and it is that market as defined by the testimony (in part) of Frederick R. Warren-Boulton that concerns the court. Anything that Microsoft says to the contrary is just PR. Microsoft will have its opportunity to define the relevant market when it calls its witnesses. I suppose they will claim that consumers can pick Solaris and HP-UX or AIX if they want to and therefore Microsoft does not have a monopoly. Funny, but almost all consumers will not have the foggiest idea what Microsoft is talking about in that regard. Consumers know that they do not have HP-UX and AIX or even Linux as any real choice (see the bubblegum deal). But, my guess is that Microsoft will offer the "ghost" stories anyway. They always have made the suggestions in cross examining Mr. Warren-Boulton. But, on this point, they do not even need to rely upon the testimony. They know by taking a trip to the local computer store, that those suggestions by Microsoft are bogus and only offered as false testimony.
Monopoly power and monopoly prices:
The testimony from Frederick R. Warren-Boulton this week is critical. He has testified that Microsoft is overcharging for products based upon the very high profit margins sustained by Microsoft. This is critical. Microsoft has claimed (in official financial reports) that no extra fee is being charged for IE. This is an obviously false statement. If Microsoft was not charging extra for IE, then either Microsoft is seriously overcharging for the base OS or their profit margins would be low accounting for the so-called inability on their part to ask for payment for IE. The claim by Microsoft is simply false. You can not earn excess profits by giving away free products. It is just not possible. The financial reports are likely in violation of SEC regulations regarding true and accurate accounting. If in fact Microsoft is charging for IE, and it clearly appears that it is, then the claims in the financial reports to the contrary are false. Besides, why would you even want to tell stockholders that you are giving away products? Stockholders want to know that their company is selling products not giving them away. Maybe they know that the truth is significantly different than the financial reports say. (Shareholders buy Microsoft stock so that they can reap the financial benefits of a monopoly product.) Again the question is raised. "Just how much is Microsoft charging for IE?". We still do not know the truth. And, zero is obviously false. A force sale of a product that helps generate excessive profits is not "free". That claim by Microsoft is only offered to trick and fool (ie deceit) consumers into buying the high priced bundle with IE without objection.
The ability of a monopolist to overcharge for products is an economic fact. (See the article on the "bubblegum deal". If you find yourself buying the bubblegum in that analogy, you are being harmed by a monopolist.) Why? Because consumers would not willingly buy that much bubblegum unless they thought they had no choice.
The ability of a monopolist to overcharge for products is very important. It may seem a bit early to begin discussing possible remedies in this case, but some of the suggestions for remedies relate back directly to this power by a monopolist to overcharge for products.
See the discussion regarding a "horizontal split of Microsoft". A vertical split has often been suggested as a possible remedy. However, splitting Microsoft along product lines does nothing to affect the monopoly power of the "split part" that would end up with Windows. It would still have monopoly power and could still overcharge whenever it ran short of a few bucks or simply wanted to make more money. Eliminating the ability to bundle an application does not prevent overcharging and excess profits. A horizontal split removes the monopoly power altogether. A horizontal split would mean either licensing (or selling outright) the Windows code base to 6-8 major players in the industry. Certainly, Compaq, HP, IBM and Dell would obviously be interested in acquiring it. Even Microsoft could spin off a new company to buy one of the copies. Many other companies such as Symantec, Novell, Corel, SCO and Oracle might even be interested in submitting a bid. The result would be the wide availability of a "Windows" operating system without any one company being the sole provider. Hence, no monopoly power. It could even be licensed similar to how Java is licensed, although that would leave too much raw power in the hands of Microsoft which has proven its unwillingness to abide by the law voluntarily. Splitting the company in this way would permit consumers to continue to benefit from the technology and avoid the harm of monopoly prices and practices.
Is it too soon to consider remedies? Yes. But, we are hearing the testimony now that Microsoft is overcharging consumers for products today. In the end, the court may have to consider just which of the available remedies best protects the consumer's interests. That is what antitrust laws are all about. First you hear the evidence and make findings of fact. Then you apply the law and arrive at remedies that address and solve the problems discovered.
[This web site will publish any submitted articles either by URL link or in full regardless of view point expressed or who the author might be. Articles related to possible remedies are specifically solicited. The only requirement is that the author be correctly identified and any association or connection with parties to the action be disclosed.]
November 24, 1998 - Tuesday
2:00 PM PST - Excess profits but they give away IE? I do not think so.
A big point has been made in this column about the price that Microsoft is charging for IE. It is true that their comments on financial reports claim IE is a free product. If IE is truly free, then Microsoft is seriously overcharging for Windows, their monopoly product. Mr. Warren-Boulton has testified that Microsoft is collecting excess profits because of its monopoly power and due to the lack of any creditable competition.
Just how much is Microsoft charging everyone for IE, anyway? Maybe $140 per copy is correct? (Upgrades are less, of course, maybe only $70?)
1:34 PM PST Another perspective on the AOL-Netscape/Sun deal on the Microsoft Antitrust case. "Case Closed? Not Yet.", Real Audio from Rich Gray, attorney and columnist for the San Jose Mercury News.
Also see my own comments below on this same issue. (10:10 AM Monday)
1:00 PM PST
The testimony from Mr. Warren-Boulton finally returns to an important issue in the case, the "network effect". The network effect explains why it is almost impossible for any company to offer a product to complete with the monopoly product, Windows. The effect is not the fault of Microsoft. However, despite Microsoft's likely claim to not understand it or downplay it, they understand it very well and take advantage of it.
As more and more applications are written for the Windows platform, it becomes less likely that any application will be written for any other platform. This does not mean that Windows is the best OS, it only means it is dominant and can offer a larger market for new applications. The network effect always favors an established OS and seriously hampers any new offering. IBM with all of its marketing power and influence could not over come this effect with OS/2. Eventually, it just gave up trying.
Anyone who suggests the "network effect" does not all but guarantee Microsoft a monopoly for some time to come is given false testimony or has no understanding of the consumer OS marketplace.
Microsoft demonstrates its knowledge of this effect by several acts. 1) it tries very hard to get developers to write exclusively for Windows 2) if other technologies bridge the platform gap, such as Java, they try to prevent that common bridge from working properly or drive that company out of business via illegal means (Netscape) 3) they make their file systems and operating systems incompatible with competing alternatives. (one example of this is offered on this web site. See the discussion about your machine no longer running if you use IE to read this site.) 4) and it subsidizes developers who join in on the "network" deal by forcing all consumers to pre purchase APIs and full applications (IE) just so the expense to other developers will be reduced and a larger potential market guaranteed to them at little or no cost. This last effort is just gouging consumers to subsidize locked in developers. It harms all consumers directly. ISVs are subsidized.
If you still do not understand the power of the "network effect" go to your local computer store. Just try to find an application that does not require Microsoft windows to be useful. You can find Apple products. But, you will not find any applications for OS/2, BeOS, Hp-UX, Linux, Solaris, etc., despite what Microsoft might suggest by their PR releases. These other operating systems are either in other markets altogether or have been reduced to niche markets by the network effect. Yes, you can buy other operating systems. But, you just will not find a choice of applications because of the network effect.
Mr. Warren-Boulton is correct when he testifies that it is almost impossible for any company to offer a competitor to Windows. IBM tried, spent millions and failed to overcome the network effect despite common industry knowledge that OS/2 was a superior product. It still is superior. But, few if any applications are available for the consumer to use it if they wanted to.
This is why it is so important that Microsoft be denied all of the illegal
means to maintain its monopoly. All other possible competitors have a severe
disadvantage even if Microsoft were an "angel" or totally passive.
And, Microsoft is not passive at all. They do not need to be passive,
but they do need to abide by the laws. To date, they only abide by
the laws as forced to do so by court order and only then if they can not
wiggle out. The experience with Java and the browser prove that.
They will not even honor their own voluntary agreements (i.e. the consent
decree).
10:00 AM PST
Monday may have given Microsoft some hope, but the testimony on the browser market is just not relevant. Why is it not relevant?
Because Microsoft is not charged with having a monopoly position in the browser market. So the impact that the AOL-Netscape merger might have on the browser market is just not relevant. Might it make it more difficult for Microsoft to obtain a monopoly in that market too? I suppose it will. But, that is no defense for Microsoft using its monopoly power in the consumer OS market in an attempt to dominate the browser market as well. Might the AOL-Netscape deal point out that consumers might want to have a true choice of browsers? It does point that out. Does the AOL-Netscape deal highlight the claim in court by AOL that it chose IE not based upon technical merit but the offering of a key position on a monopoly desktop? It does point that out.
What the AOL-Netscape merger absolutely does not point out is the lack of any need for antitrust laws. If anything it supports the argument that antitrust laws are in fact needed. If the AOL-Netscape merger just creates another behemoth (and some argue that it does), then it two must be careful not to violate these same laws.
Microsoft is being charged with using its power in the consumer OS market illegally. It is no surprise that Microsoft would use its cross examination time to stay away from those issues and make up some hypothetical questions about some other market.
If AOL rises in power to a monopoly position then it too will be subject
to the antitrust laws. But, that possibility in no way supports Microsoft
in its defense. Microsoft is liable for what it does. And,
nothing that someone else does or does not do offers Microsoft a defense
for its own acts.
November 23, 1998 - Monday
12:18 PM PST - More false information spun by Microsoft - When is false information deceitful or illegal?
Microsoft is now claiming that Microsoft might only have a 60% share of the browser market by year 2001 or so. It then goes on to say that is not a monopoly. Perhaps the attorneys for Microsoft should check the written pleadings filed with the court. The monopoly Microsoft has now that is subject of the law suit is the consumer OS product not IE. But, I guess the Microsoft attorneys with their press talk was hoping to fool some people. 60% is generally not enough to constitute a monopoly. But, Microsoft is charged with having a 90%+ monopoly in the consumer OS market not the browser market as their attorneys falsely wanted to suggest.
Microsoft is truly deceitful in their press releases. Their attorneys (each of them) know for a fact that Microsoft is not being charged with a monopoly in the browser market. They are being charged with having a monopoly on the consumer OS market and illegally using that monopoly to secure yet another one. Their deceit offered in the press statements is in itself an effort to accomplish that and may in fact be introduced as further evidence of illegal acts to accomplish what Microsoft is being charged with. That is, illegal acts to secure a monopoly in another market.
Are statements made to the press by Microsoft lawyers evidence? They could be. Were those statements accurate or where they intended to deceive consumers? Well. Microsoft is not being charged with a monopoly in the browser market. And, any suggestion by Microsoft that their browser market share is relevant to the charges in the case is truly deceitful. As for the way it was presented to the press, it is not even relevant. It was only offered for its false implications. If Microsoft only wanted to suggest they have not yet succeeded, that too is not relevant. It is not necessary to succeed in achieving a second monopoly. You only need to get caught using current monopoly power in an effort to achieve it.
Microsoft continues to argue that since it has not been completely successful in driving competitors out of business, that somehow it has a right to continue trying even if that effort violates the law. This is a horrible suggestion to make before a judge. It is equivalent to a person being charged with trying to kill someone wanting the freedom to attempt the act again and again until successful. "See, your honor, I missed. The guy is still walking around. I should be allowed continued position of my pistol.".
11:52 AM PST - Microsoft again tries to excuse itself on the basis of what others do
It could even be suggested as it was in court by Frederick R. Warren-Boulton that the merger of AOL-Netscape was caused by the suppressive and illegal acts of Microsoft. It is clearly not an excuse for Microsoft to commit more violations of law. Although, knowing the culture at Microsoft, increased violations of law may be their response.
Having strong and powerful competitors in the browser market does not excuse antitrust violations in the consumer OS market. Microsoft is still looking for an excuse for its acts rather than accepting legal responsibility for them (or showing that what they do is not illegal). Maybe when they know as does everyone else that they hold monopoly in the consumer OS market and are forcing consumers to buy unwanted products, they have to come up with some excuse even if not a legal one. They can claim not to have a monopoly, but no one believes that. And, they can claim that everyone wants to buy IE regardless of their needs, but no one believes that either.
In the minds of Microsoft, the only question is whether hiring enough lawyers can force consumers to buy IE (or at least prevent the antitrust laws from being applied to their acts).
10:10 AM PST - Microsoft claims the possible AOL-Netscape deal is an antitrust defense?
Attorneys from Microsoft claim that the possible deal between AOL and Netscape is some kind of a legal defense for antitrust violations? It is not. And the attorneys from Microsoft know for a fact that it is not.
Certainly the ability of two or more companies in the industry may give them some defensive strength against the harm currently intended by Microsoft. But, having strong companies in the field of play in no way affects antitrust violations.
Will the AOL-Netscape combination offer an operating system to the consumer market such that Microsoft no longer holds a monopoly? Maybe in the future, perhaps. But, in the present certainly not.
Will the AOL-Netscape combination somehow prove that all consumers indeed want to be forced to buy IE from Microsoft just because they buy a new computer or upgrade their OS? No. In fact, it is less likely now. More and more consumers will continue to prefer the alternative browser and this only makes the harm caused by the monopolistic practices of Microsoft to be even greater.
So. Just how is the possible merger supposed to help Microsoft? It does not. It only means that the illegal acts of Microsoft may be less effective than they would have been otherwise. And, Microsoft lawyers know for a fact, that is not a legal defense at all.
It is not the defense of weak competitors that provides the heart of antitrust laws at all. It is the prevention of harm to consumers. Microsoft lawyers know this. Nothing in the AOL-Netscape deal lessens the direct financial harm being caused by Microsoft to consumers. If anything, it highlights it.
Does a stronger competitor eliminate the need for abiding by antitrust laws? Absolutely not. IBM is bigger and stronger than Microsoft. But, their size or strength is not even relevant to the antitrust violations of Microsoft.
And, unfortunately for Bill Gates, paranoia is not a defense either. Either you violate the law or you do not violate the law.
Does the possible AOL-Netscape deal suggest a lessor need for antitrust laws? Perhaps it does. But, that is a debate for Congress not the court assigned to the antitrust litigation pending against Microsoft. Microsoft is held accountable for abiding by the laws as they exist. If they want to lobby for the laws to be changed, I suppose they can do so. But, no company has the right to just ignore the laws they do not like and in their public defense of such violations argue that the laws are unjust or unwarranted. They may be unwarranted just as much stronger laws applicable to the computer software industry might be called for. Either way, this is not the current debate. The current debate is whether Microsoft has violated the laws in effect at the time Microsoft took its actions.
Maybe Microsoft's lawyers should apply for a job in their PR department. Very little of what they are saying is relevant to antitrust law.
Daily Wrap and Flow - Week Five
Daily Wrap and Flow - Week Four
Daily Wrap and Flow - Week Three
Daily Wrap and Flow - Week Two
Daily Wrap and Flow - Week One