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Antitrust Law

The 1990s

Once again proving that antitrust law never remains static, the late 1980s and early 1990s brought more changes in enforcement, economic analysis, and court doctrine. At the state level in the late 1980s, governments attacked mergers and restraints. The U.S. Supreme Court gave these efforts support in California v. American Stores Co., 495 U.S. 271, 110 S. Ct. 1853, 109L. Ed. 2d 240 (1990), upholding the ability of state governments to break up illegal mergers. Another trend came again from academia, where, for years, critics of the CHICAGO SCHOOL had been re-evaluating its highly influential efficiency model. They concluded that a proper analysis of efficiency goals showed that efficiency demanded tighter antitrust controls, not stubborn non-intervention.

An important 1992 U.S. Supreme Court case seemed to support this view. Eastman Kodak Co.v. Image Technical Services, 504 U.S. 451, 112 S. Ct. 2072, 119 L. Ed. 2d 265 (hereinafter Kodak), concerned tying arrangements (i.e., contracts between buyer and seller that restrict competition) in the sale and service of photocopiers. Kodak sold replacement parts only to buyers who agreed to have Kodak exclusively service the machines, and the restriction prompted a lawsuit from 18 independent service organizations (ISOs). The company defended itself by arguing that even if it did monopolize the market, it lacked the necessary market power for a Sherman Act violation. The Court rejected the idea that this was enough to create a legal rule that equipment competition precluded any finding of monopoly power in the parts and services industry. In declaring Kodak's arrangement to be illegal, Justice HARRY A. BLACKMUN warned about the dangers of relying on economic theory as a substitute for "actual market realities"—in this case, the harm done to ISOs who were shut out of the service market.

After the Reagan years, antitrust attitudes sharpened in Washington, D.C. The administration of President GEORGE H. W. BUSH adopted a slightly more activist approach, which was reflected in joint guidelines on mergers, issued in 1992 by the FTC and DOJ. In following the trend away from strict Chicago School efficiency standards, the guidelines looked more closely at competitive effects and tightened requirements. But understaffed government attorneys generally lost court cases. President BILL CLINTON took this activism further. Anne K. Bingaman, his appointee to head DOJ's Antitrust Division, beefed up the division's staff with 61 new attorneys, declaring her organization to be the competition agency. The Antitrust Division filed 33 civil suits in 1994, roughly three times the annual number that had been brought under Reagan and Bush. It won some victories without going to court, in one instance compelling AT&T to keep a subsidiary private, but it lost a major lawsuit in which it had claimed that General Electric had conspired with the South African firm of DeBeers to fix industrial diamond prices.

Under President Clinton, the most important antitrust actions involved federal probes of the computer microprocessor giant Intel Corporation and the computer software giant Microsoft Corporation. In 1999, the FTC settled a year-old lawsuit against Intel by entering a CONSENT DECREE under which Intel agreed to cease retaliating against customers during INTELLECTUAL PROPERTY disputes over microprocessor technology. In its 1998 lawsuit, the FTC claimed that Intel had illegally cut off shipments of its microprocessor chips and withheld technical information regarding microprocessors, to coerce its competitors (Intergraph Corp., the former Digital Equipment Corp., and Compaq Computer Corp., which acquired Digital in 1998) to give up their microprocessor technology. Intel did not dispute most of the facts underlying the allegations, but it insisted that it had acted legally.

However, the Microsoft probe, in its potential for far-reaching action, was the biggest antitrust case since those involving AT&T and

During a December 1998 news conference in Washington, D.C., Bill Gates, founder of Microsoft, answers questions, via closed-circuit television, about the antitrust lawsuit filed against the company.

IBM. Competitors complained that Microsoft had been using illegal arrangements with buyers to ensure that its Windows operating system would be installed in nearly 80 percent of the world's computers. In-depth investigations by the FTC and DOJ followed. In July 1994, under threat of a federal lawsuit, Microsoft entered a consent decree that was designed to increase competitors' access to the market. The following year, Microsoft launched its popular Windows 95 operating system with an upgraded version of its Internet Explorer Web browser, two products that the software maker said were integrally related.

Over the next two years, the federal government received fresh complaints that Microsoft was again resorting to anti-competitive practices. DOJ responded by suing Microsoft in the U.S District Court for the District of Columbia, alleging that the software maker had violated the 1994 consent decree by forcing computer makers to install its Internet Explorer Web browser as a pre-condition to the computer makers having the right to sell their PCs with the Windows 95 operating system included. Two months later U.S. District Judge Thomas Penfield Jackson issued a preliminary injunction forcing Microsoft to stop, at least temporarily, requiring manufacturers who sell the Windows operating system to install Microsoft's Internet Explorer, an arrangement that he called an illegal tying agreement. United States. v. Microsoft Corp., 980 F.Supp. 537 (D.D.C. 1997). Fueled in part by Jackson's ruling, DOJ joined 20 state attorneys general in May 1998 to bring suit against Microsoft, charging that the software maker's illegal bundling of Internet Explorer with Windows 95 violated federal antitrust laws and state unfair-competition statutes. The following month, a three-judge panel for the U.S Court of Appeals for the District of Columbia overturned the preliminary INJUNCTION that Judge Jackson had issued to enforce the consent decree, thus making way for the parties to resolve their dispute in the joint suit brought by DOJ and the state attorneys general. United States v. Microsoft Corp., 147 F.3d 935 (D.C. Cir. 1998).

On October 19, 1998, trial began in the antitrust suit against Microsoft. Less than a month later, Judge Jackson had issued a preliminary finding that Microsoft was exercising illegal monopoly power in the operating-system market, and that the software maker had been using that power to promote its web browser and to stifle competition through illegal bundling of the two products. United States v. Microsoft Corp., 84 F.Supp.2d 9 (D.D.C. 1999). Jackson issued his final decision in April of 2000. The judge not only reiterated his preliminary findings, but also concluded that the same facts that demonstrated that Microsoft had unlawfully leveraged its operating-system monopoly to push rival web browsers out of the market in violation of federal law also established Microsoft's liability under analogous state antitrust provisions. United States v. Microsoft Corp., 97 F.Supp.2d 59 (D.D.C.2000).

Later that month, the court proceeded to the remedy phase of the trial. DOJ and 18 state attorneys general (two attorneys general had since dropped out of the suit) asked the judge to break the company into two parts: one company to develop and market the Windows operating system, and the other to develop Microsoft's software, including its web browser. On June 7, 2000, Judge Jackson granted the requested remedy, and Microsoft appealed. The court of appeals reversed, finding that Jackson had erroneously applied a per se analyses in making his findings instead of the appropriate "rule of reason" standard. United States v. Microsoft Corp., 253 F.3d 34 (D.C. Cir., 2001). The appellate court then remanded the matter for further proceedings, but ordered Judge Jackson removed from the case after he made extra-judicial comments to the press in violation of ethical canons forbidding judges from commenting on the merits of a pending case. Upon remand, Judge Colleen Kollar-Kotelly was selected to replace Jackson.

In September 2001, DOJ announced that it would no longer seek a breakup of Microsoft, and agreed to commence negotiations to settle the lawsuit. Those negotiations bore fruit in October 2001, when DOJ and nine states announced that they had reached a tentative settlement with Microsoft. Ultimately approved by Judge Kollar-Kotelly on November 1, 2002, the settlement prevents Microsoft from participating in exclusive deals that could hurt competitors; requires Microsoft to offer uniform contract terms to PC makers; and obliges the software giant to release some technical information so that software developers can write programs for Windows that work as well as Microsoft's own products do. The settlement agreement also compels Microsoft to give manufacturers and customers a way to remove certain Microsoft icons from the Windows desktop. In the court's order approving the settlement, the judge expressly reserved the right to reopen the case herself if she ever suspects Microsoft of violating the settlement's terms. United States v. Microsoft, 231 F.Supp.2d 144 (D.D.C., Nov 01,2002). To demonstrate its GOOD FAITH, Microsoft immediately unveiled several business and product changes to comply with the settlement, including Windows functionality that gives users the ability to hide Microsoft programs like its Web browser and only see competing products.

After the court approved the settlement, seven of the nine remaining non-settling states agreed to drop their lawsuits when Microsoft offered to pay them $25 million in attorney's fees. Two states, Massachusetts and West Virginia, are continuing to fight, asking the court to impose tougher sanctions. They want Microsoft to put Internet Explorer into the public domain, to translate its Office productivity suite to other operating systems, and to let computer makers remove some Windows features.

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