What Facebook, Google and Others Can Learn From Microsoft’s Antitrust Case

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– [Narrator] In the summer of 2019,

the United States put Silicon
Valley in its crosshairs.

– Only a small number of
the nearly two billion apps

in the app store are made by Apple.

– We have rolled out many
innovations over the course

of the history of our product.

– For every $3 of
advertising spent online,

a business would have to spend
an equivalent of $5 offline

to get equal prominence.

That is a tremendous savings
for the U.S. economy.

– [Narrator] To some,
these hearings recall

another major antitrust
case, a showdown between

the Justice Department and Microsoft.

The year was 1998.

Microsoft controlled more than 90%

of the PC operating systems market.

At the heart of the
case was a new product,

the Internet Explorer web browser.

Prosecutors argued that
Microsoft used its market power

to stifle the growth
of competing browsers.

At the time, many computer networks relied

on software from Microsoft.

This gave the firm lots
of power and influence.

Today, leaders from Facebook,
Amazon, Google, and Apple

are studying big cases like Microsoft

to prepare for their scrutiny.

Here’s what they could learn
from watching Microsoft’s case.

Lesson number one, how not to
counter an antitrust probe.

Ahead of the trial the
Justice Department deposed

Microsoft’s CEO, Bill Gates.

– [Questioner] Mr.
Gates, when did you first

become concerned about
the competitive threat

that Netscape posed to Microsoft?

– Bill Gates’ behavior, his
body language, is contemptuous.

– The product that didn’t
include Internet Explorer

was called the Windows 95 upgrade.

– [Kovacic] Arrogant.

– IS that the full
breadth of your question?

– And evasive.

The Department of Justice
played pieces of that video

in its opening statement to the judge

on the first day of the case,
and the judge later said,

“Microsoft, you lost me on day one.”

– [Narrator] Gates was deposed
well after the government

sounded an alarm over
his company’s behavior.

In 1995, Microsoft was
served a court order

for its anti-competitive
activities and software licensing.

Another case opened after
the Department of Justice

argued that Microsoft
violated that court order.

The repeat violations in Gates’ behavior

did not play well with the
judge presiding over the case.

After viewing the tape,
Judge Thomas Penfield Jackson

expressed negative opinions
of Gates and Microsoft

to journalists.

In his decision, he called
for Microsoft to be broken up,

but on appeal, a panel
faulted the judge’s conduct,

as well as some of his conclusions.

Throughout parts of the ruling,

Microsoft narrowly escaped a breakup.

In the aftermath, the two
sides agreed to settle

with some changes to how the
software maker did business.

According to Kovacic, the
legend of the Gates tape

haunts today’s tech reps when they testify

before Congress.

– I think the approach that
especially the tech leaders

have been urged to take is humility.

What their inside and outside
lawyers will tell them,

because this is deadly serious,

and if you don’t take this very seriously,

you expose yourself, your
company, everything you’ve done

to real hazard, and if
you don’t believe us,

watch this one.

– [Narrator] Precedent number two,

free doesn’t always mean
better for consumers.

At the heart of any
antitrust investigation

lies the standard of consumer harm.

– [Kovacic] Three key elements,
price, quality, innovation,

that improves business
performance over the long term

for the benefit of consumers.

– [Narrator] These three
factors have been interpreted

by the courts for decades.

In the modern era, courts
have spent the most time

grappling with the
price dimension of harm.

In Microsoft, Internet
Explorer was bundled

with Windows 98 at no charge,
which meant that the case

would require a different
kind of analysis.

In the view of the courts, Microsoft

made its browser free, but
still abused its market power

by favoring its products
and shutting out rivals.

– The government’s theory
was that those steps taken,

the forestall, the
emergence of an alternative

to the Windows operating
system was improper exclusion,

and for the most part, the district court

and the court of appeals agreed.

– [Narrator] Which means that
companies can harm consumers,

even if the products
they’re offering are free.

That’s important because
in today’s digital economy,

free is in.

You don’t pay money to use Google search,

Maps, or Translate, but you
do pay something of value,

access to your personal data.

– Certainly in the
modern tech environment,

an important dimension of
quality is what they do

with your data, and the
treatment of privacy

is a variable of quality that the consumer

is increasingly concerned about.

– [Narrator] Precedent number three,

the U.S. government isn’t the only test.

An array of state attorneys general

submitted comments to
the FTC

on big tech antitrust violations.

They recommend that the Department

move its philosophy away
from under-enforcement.

Many from that group
are expected to launch

their own investigations.

Across the pond, the European Union

already has fined Google 8 billion euro.

European regulators also
opened new investigations

into Facebook and Amazon.

In its day, Microsoft also had to defend

against a variety of challengers.

In 1998, 20 state attorneys general

joined the Justice Department
in suing the tech giant,

and in the 2000s, Europe’s
Antitrust Commission

launched two investigations
into Microsoft.

Those resulted in 1.6
billion euro in fines

against the company.

– I think one needs to
put it into context.

Microsoft makes profits of
about $1.5 billion per month.

It’s not all that large a fine.

Neither competitors nor
consumers of Microsoft

are out after fines.

Fines don’t really do them any good.

It’s competition that does them good,

but we’d rather have compliance
and competition than fines.

– [Narrator] According to Kovacic,

the European Union has broader criteria

on which to bring an antitrust case.

– The EU’s position in dealing
with high tech companies,

leading firms, has been
much stronger than the U.S.

They arguably came out
with a stronger remedy

than the U.S. did in their Microsoft case.

If you ask which jurisdiction
plays the leading role

in setting global standards
and influencing the way

that other countries think
about competition law,

it’s unmistakably the European Commission.

– [Narrator] All told, Microsoft’s tangle

with antitrust law
stretched from 1995 to 2011.

In Silicon Valley, that’s a lifetime.

According to Kovacic, you can expect

the tech companies to argue
that a lot will change

in their sector as the government
attempts to make a case.

– One thing that the
companies will argue is,

let’s take account for a
second of how we got here.

Where was Google in 1998?

Where was Facebook?

It didn’t exist.

That’s years later.

Where was Amazon?

Another nascent enterprise
with an interesting idea.

– [Narrator] In the final
years of Microsoft’s case,

the Windows operating
system that Microsoft

fought so hard to protect lost ground

to the pantheon of web-based applications

that we enjoy right now.

Today, the operating system commands only

a 35% market share.

Meanwhile, Internet Explorer
enjoyed a dominant share

of the web browser market through 2012,

but eventually a new
browser, Google Chrome,

overtook Explorer.

How the Justice Department presides

over these investigations just might cause

another shakeup for companies
on charts like this.

(airy music)

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