Reference no: EM131622968

United States v. Microsoft Corporation

United States Court of Appeals for the District of Columbia Circuit 253 F.3d 34 (2001)

The authors recommend a close reading of the facts of United States v. Microsoft set out earlier in this chapter. Section 2 of the Sherman Act makes it unlawful for a firm to "monopolize." The offense of monopolization has two elements: (1) the possession of monopoly power in the relevant market and (2) the willful acquisition or maintenance of that power as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident.

The district court found that Microsoft possessed monopoly power in the market for Intel-compatible PC operating systems. Focusing primarily on Microsoft's efforts to suppress Netscape Navigator's threat to its operating systems monopoly, the court also found that Microsoft maintained its power not through competition on the merits but through unlawful means. Microsoft challenged both conclusions on appeal.

Per Curiam (by the Whole Court of Appeals)

13388 U.S. 365 (1967).

We begin by considering whether Microsoft possesses monopoly power and finding that it does, we turn to the question [of] whether it maintained this power through anticompetitive means. Agreeing with the District Court that the company behaved anticompetitively and that these actions contributed to the maintenance of its monopoly power, we affirm the court's finding of liability for monopolization.

Monopoly Power

While merely possessing monopoly power is not itself an antitrust violation, it is a necessary element of a monopolization charge. The Supreme Court has defined monopoly power as the power to control prices or exclude competition. More precisely, a firm is a monopolist if it can profitably raise prices substantially above the competitive level[;] where [there is] evidence that a firm has in fact probably done so, the existence of monopoly power is clear. Because such direct proof is only rarely available, courts more typically examine market structure in search of circumstantial evidence of monopoly power. Under this structural approach monopoly power may be inferred from a firm's possession of a dominant share of a relevant market that is protected by entry barriers.

"Entry barriers" are factors (such as certain regulatory requirements) that prevent new rivals from timely responding to an increase in price above the competitive level.

The District Court considered these structural factors and concluded that Microsoft possesses monopoly power in a relevant market. Defining the market as Intel-compatible PC operating systems, the District Court found that Microsoft has a greater than 95% share. It also found the company's market position protected by a substantial entry barrier.

Microsoft argues that the District Court incorrectly defined the relevant market. It also claims that there is no barrier to entry in that market. Alternatively, Microsoft argues that because the software industry is uniquely dynamic, direct proof, rather than circumstantial evidence, more appropriately indicates whether it possesses monopoly power. Rejecting each argument, we uphold the District Court's finding of monopoly power in its entirety.

Microsoft's pattern of exclusionary conduct could only be rational if the firm knew that it possessed monopoly power. It is to that conduct that we now turn.

Provisions in Microsoft's agreements licensing Windows to [computer makers] reduce usage share of Netscape's browser and, hence, protect Microsoft's operating system monopoly.

Therefore, Microsoft's efforts to gain market share in one market (browsers) served to meet the threat to Microsoft's monopoly in another market (operating systems) by keeping rival browsers from gaining the critical mass of users necessary to attract developer attention away from Windows as the platform for software development.

We conclude that Microsoft's commingling of browser and nonbrowser code has an anticompetitive effect; the commingling deters computer makers from pre-installing rival browsers, thereby reducing the rivals' usage share and, hence, developers' interest in rivals.

By ensuring that the majority of all [ISP] subscribers are offered [Internet Explorer] either as the default browser or as the only browser, Microsoft's deals with the [ISP] clearly have a significant effect in preserving its monopoly.

Microsoft's exclusive deals with the [Internet software vendors] had a substantial effect in further foreclosing rival browsers from the market.
Judgment in favor of the United States (plaintiff) affirming the U.S. District Court decision that Microsoft did possess and maintain monopoly power in the market for Intel-compatible operating systems. An appellate court reversed other holdings of the district court and remanded these matters for further proceedings.

Case Questions

1. What monopolistic acts did Microsoft do/was guilty of?

2. What did the court find was the "relevant market?" Why were other markets deemed not relevant.

3. How did copyright and or patent law claims play a role in this case?

4. What did the various courts hold and/or find? What was the basis for the various appeals and reversals?