From 1995 through to about 2008, I made my living from technology journalism (we called it “computer journalism” then, because technology really was computer). That means my career almost exactly spans the period of the biggest technology antitrust trials of the lot: United States vs Microsoft, and Microsoft vs European Commission. Most of the original reporting I did was about the EC case (after all, that's my side of the pond) but I did enough reporting and spoke to enough sources to have a decent idea of the nuances of both cases.
Depending on how you look at it, US vs Microsoft (which I'll call “the DOJ case”) was either the last hurrah for a DOJ which had become very reluctant to intervene in anything connected with antitrust that wasn't either a cartel or big merger, or the first case where network effects were regarded as an important question in competition law. But either way, it was one of the landmark cases in technology competition law, as notable as the breakup of 'Ma Bell' or the 1956 IBM consent decree.
So, based on my specific expertise, I can tell you: Be prepared, over the coming months, for some lousy punditry.
Tech commentators (and their audiences) are going to have to learn some history
An entire generation of tech commentators and CEOs have grown up not understanding the history of antitrust in tech, or the impact it had in shaping the industry. And they really don’t understand that without regulatory action in the 1950s to 1980s, their businesses would not exist.
One simple example: why did IBM not buy DOS outright, a move which would have killed the PC compatible before birth and made IBM dominate for longer? Bill Gates would love everyone to think it’s because he was smart and IBM was not. In fact, it’s because IBM was wary of yet another antitrust suit. As Bill Lowe put it, “IBM didn’t want to be seen as dominating the market too thoroughly.”
Similarly, IBM could have bought Microsoft — Gates even offered them 10% of the business, and they could easily have afforded more. In the environment of the past 20 years, where big companies are allowed to buy almost anyone, they would have. Back then, antitrust concerns made it a non-starter.
And now antitrust law is being applied again in the way it has been for most of its existence, commentators and tech execs are finding it really difficult to cope with the change. There’s an irony that Tim Cook appears to be affected deeply. After all, Cook started his career at IBM, and moved on to Compaq - a company that wouldn’t have existed without antitrust law. You would think he would get it.
If you would like to know more about the impact of antitrust on IBM behaviour, I’d recommend reading this paper by Tim Wu. In his conclusions, he looks at what antitrust regulators should learn from the case, and I found this paragraph quite relevant to what’s currently happening:
A similar logic suggests prioritizing Sherman 2 cases where the problem isn’t just competition in the primary market, but where competition in adjacent markets looks to be compromised or threatened. The long cycles of industrial history suggest that what are at one point seen as adjacent or side industries can sometimes emerge to become of primary importance, as in the example of software and hardware. Hence, the manner of how something is sold can make a big difference. In particular, “bundling” or “tying” one product to another can stunt the development of an underlying industry. Even a tie that seems like “one product” at the time the case is litigated, as, for example, software and hardware were in the 1960s, or physical telephones and telephone lines, might contribute to such stunting. If successful, an antitrust prosecution that breaks the tie and opens a long-dominated market to competition may serve to have very significant long-term effects
Expect lots of talk about how previous antitrust action (in particular Microsoft) didn't achieve anything
Views I have heard in the past few years from some widely known pundits:
- Microsoft/DOJ did nothing to change the browser landscape
- Microsoft/DOJ didn't make any difference to Microsoft's ability to “win” in mobile
- Microsoft/DOJ didn't matter because the web
To borrow a phrase from Ben Thompson, these opinions are, to use a technical term favoured by analysts, bullshit. All of them have in common a failure to understand the chilling effects that being under investigation, or under a consent decree, have on corporate actions –– at every level.
In organisations that are under antitrust pressure, ideas that might get put forward are held back, because people would rather not spend the time having them checked through legal and compliance teams. Acquisitions which a company might make don't happen, because it would rather not appear rapacious or that it's stifling nascent competition. And contractual clauses with partners can't be as aggressive in locking them out of doing business in a way which doesn't favour you. That, of course, was one of Microsoft's favourite tricks of the 1990s: the “per processor” licence for Windows, for example, meant that computer makers paid them for a licence on every computer, whether Windows was installed or not.
Microsoft tried to tie Internet Explorer to Windows. It was stopped from doing so by the government, and that made it a lot easier for Chrome to gain traction. As Gates said (and Thompson denies!) the “distraction” of antitrust meant that Microsoft wasn't as focused on mobile as it should have been. The “old” Microsoft would also have used specific means to stop the iPhone being as attractive, such as preventing it from connecting to Exchange servers (something that was introduced in iOS 2, in 2008).
Antitrust action works, in part, not just because of the explicit conditions of a consent decree, but because companies limit themselves. They are afraid of getting back into court, because they know that next time a break-up might be on the agenda.
Expect to see a lot of bad commentary because people don't understand “monopoly power” or market definitions
I have already seen a lot of “the iPhone is not a monopoly!” comments, from people who have been in the business for long enough to know better. Let's put that one to bed straight away: “monopoly power” does not require a literal monopoly share of a market. Here's how the FTC defines it:
Courts do not require a literal monopoly before applying rules for single firm conduct; that term is used as shorthand for a firm with significant and durable market power — that is, the long-term ability to raise price or exclude competitors. That is how that term is used here: a “monopolist” is a firm with significant and durable market power. Courts look at the firm's market share, but typically do not find monopoly power if the firm (or a group of firms acting in concert) has less than 50 percent of the sales of a particular product or service within a certain geographic area. Some courts have required much higher percentages. In addition, that leading position must be sustainable over time: if competitive forces or the entry of new firms could discipline the conduct of the leading firm, courts are unlikely to find that the firm has lasting market power.
This is why the DOJ filing talks about “monopoly power” and how Apple “also enjoys substantial and durable market share”:
Apple has monopoly power in the smartphone and performance smartphone markets because it has the power to control prices or exclude competition in each of them. Apple also enjoys substantial and durable market shares in these markets.
Note the “also”. The DOJ case does not rely on a specific high number for Apple market share: it relies on showing that Apple has significant market power.
But one of the key elements in any antitrust case is the definition of the markets you're referring to -- because defining the market helps understand the degree to which a company has monopoly power. The DOJ filing talks about two markets, hence the title of section E: “Apple has monopoly power in the smartphone and performance smartphone markets”
The DOJ claims that Apple itself says it has a 70% market share in the second one:
In the U.S. market for performance smartphones, where Apple views itself as competing, Apple estimates its market share exceeds 70 percent
I can't locate a source for Apple saying this, but I have no doubt at all that the DOJ can back up both the number, the market definition, and that Apple has said -- publicly or internally -- that it is the market it competes in. Market definitions are so important to antitrust cases that the DOJ just would not have included that statement without evidence to back it up.
(And no, Apple, you can't play it like the market share that's relevant is the global number. You're not going to appear in the Global Court of Justice, it's a United States one – and they tend to only care about what's going on in the US.)
Don't believe anyone who says the DOJ complaint is badly written, unless they are an actual legal expert
Exhibit one, Benedict Evans:
“It still amazes me how sloppy this DoJ filing is. It's Apple's fault that LG and HTC could not compete with Xiaomi, Oppo and Samsung? Google Android phones are outsold by Samsung Android phones… because of iMessage? WTF? Ther's [sic] stuff like this on every page. How did this get out of a drafting session? Everyone at the DoJ should be professionally embarrassed.”
Exhibit two, Rebecca Haw Allensworth, antitrust professor and associate dean for research at Vanderbilt Law School:
“They told a very coherent story about how Apple is making its product, the iPhone and the products on it – the apps — less useful for consumers in the name of maintaining their dominance… This is just a more plausible story about consumers, [making it] as a legal matter, a stronger lawsuit.”
Well, I just don't know who to believe here – what do you think?
