laptop computer beside black ceramic cup on white table
Photo by bongkarn thanyakij on Pexels.com

 

At the roaring apogee of the 1990’s era tech industry, Microsoft was king. Naturally, astronomical success will be with skepticism. The presumption being that such gains must result from dishonest conduct. The merits of such assumptions at times can be questionable considering the broad and preemptive nature of most antitrust legislation. Notably, the Clayton Act (1914).

 

The extreme amount of flexibility in the interpretation of per se antitrust violations can be problematic. We encounter the potential issue of judicial bias influencing the outcome of the case. When the ruling does not even operate as a form of consumer protection. The commonly purported function of antitrust legislation. Making the potential for top performers in the industry being targeted more probable (McKenzie & SHUGHART II,1998, P.31) [1]. To some extent, the Rule of Reason helps counterbalance any anti-market bias resonating from the misapplication of judicial digression. Some economists and jurists believe that back in the 1990’s Microsoft was being unfairly targeted for antitrust complaints due to their success. Institutional and public bias may have been potentially been reflected in the United States V. Microsoft (1998).

 

In my podcast, I discussed how the 1998 suit included complaints the tech giant engaging  in tying agreements. That isn’t the whole story. The case was built upon multiple complaints. I would be remiss to represent this case as being built solely on a tying agreement complaint. Per the Department of Justice’s Website:

 

III. Prohibited Conduct

  1. Microsoft shall not retaliate against an OEM by altering Microsoft’s commercial relations with that OEM, or by withholding newly introduced forms of non-monetary Consideration (including but not limited to new versions of existing forms of non-monetary Consideration) from that OEM, because it is known to Microsoft that the OEM is or is contemplating:
  1. developing, distributing, promoting, using, selling, or licensing any software that competes with Microsoft Platform Software or any product or service that distributes or promotes any Non-Microsoft Middleware;

  2. shipping a Personal Computer that (a) includes both a Windows Operating System Product and a non-Microsoft Operating System, or (b) will boot with more than one Operating System; or

  3. exercising any of the options or alternatives provided for under this Final Judgment. [2]

 

There may be some credence to the claims of a tying agreement. However, it would be more less reasonable to blindly accept the claims of Microsoft’s licensing practices. Which is why it is important to acknowledge the potential for bias in judicial proceedings. Back in the late 1990’s the media lambasted Microsoft for its business practices. Microsoft was already crowned a monopoly with quips oozing antimarket sentiment. Microsoft back then was often paralleled to Philip Morris (McKenzie & SHUGHART II,1998, P.4) [3]. Such an equation is not only hyperbolic but puts into question if popular perception influenced the outcome of the case.  Licensing agreements deployed to secure proprietary applications and coding seems like a reasonable measure. This is merely speculation on my end.

The bigger question is how a licensing agreement can constitute an antitrust violation?  Per Shenefield and Stelzer in most instances licensing agreement are perceived as being competitive market behavior.

 

“ Licensing arrangements, like other agreements involving intellectual property are routinely pro-competitive because they increase the rate of diffusion of new technology.” (Shenefield  & Stelzer, 1998, P. 89) [4].”

 

The water becomes a little murkier when we get into the royalties attached to licensing arrangements. When royalty rate is based off a factor other than use of the patent trouble can arise. Microsoft mandated a licensing fee for each computer even if  their software wasn’t installed (Shenefield  & Stelzer, 1998, P. 91) [5]. On its face, it does seem like a blatant barrier to entry. However, is it possible that Microsoft is attempting to protect their product?

 

The attempt to cite Microsoft’s licensing practices can be seen as more than just a misuse of licensing fees.  It could be argued that that the DOJ perceived the Microsoft operating system as an essential facility (McKenzie & SHUGHART II,1998, P.27) [6]. Essentially facility doctrine entails that firm provides access to facility at a “reasonable price” [7]. Through Microsoft requiring licensing fees for developers creating software compatible with the Windows operating system. Due to the fact developers would require the operating systems code to make their application fully compatible, this could be seen as protecting a trade secret  (McKenzie & SHUGHART II,1998, P.28) [8]. Allowing access to their own proprietary code makes it very easy to replicate Microsoft’s operating system. Depleting the value of the product that Microsoft put a significant amount of money and man hours into developing.  It may be fair to charge a fee to access such information to account for the resources spent to create their operating system. While such gate keeping measures may seem like a barrier to entry, in most instances it is the prerogative of the firm. The possibility that if Microsoft didn’t possess a large market share would they have even been prosecuted for their licensing practices? Especially, when they were only engaging in sensible recourse to protect their bottom line.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.