(2 of 3)
No one-except Microsoft executives-disputes the fact that Microsoft is, in fact, a monopoly-at least in IBM-compatible computer-operating systems. Some 8 out of 10 desktop computers run the Microsoft software. Nor is there any question that Gates is a tough competitor, using every opportunity to leverage his hold on PC operating systems and extend his company's dominion. The company has been known to offer deals to smaller companies and then threaten to put them out of business if they don't accept the terms. But are such practices illegal? It depends. The Justice Department was convinced that Microsoft had violated antitrust laws when, for example, it required computer makers to pay a royalty for each machine sold that could run Microsoft's software, whether or not it actually contained that software. But the settlement was silent on a broad range of complaints-including the central issue of whether the company that controls operating systems can fairly compete in the market for computer applications.
It was that discrepancy-between the breadth of Microsoft's control and the narrowness of the settlement-that bothered Judge Sporkin. But when he pressed for an explanation about how the deal was struck and for more information on how to assess its effectiveness, he ran into a stone wall-both from Microsoft and from Bingaman. So he went on his own fact-finding mission, leaning heavily on a 49-page white paper submitted last month by three anonymous high-tech firms.
Although clearly biased and in some parts inaccurate, the white paper did supply details of how Microsoft allegedly used its profits from operating-systems sales to finance expansion into applications; how it cut prices to drive competing products out of the market; how it gave its own programmers advance information about the new operating-system features so they would have a head start over their rivals; how it made arbitrary changes in system specifications so that when new versions were released the products of its competitors would suddenly stop working.
Sporkin was particularly struck by what he called smoking-gun evidence that Microsoft had announced nonexistent software ("vaporware") to discourage customers from buying competing products that were already on the shelf. It's a game played by every high-tech company in Silicon Valley, but when the market leader does it, it can have the effect of shutting off the competition. IBM got sued for doing that in 1968, when it still dominated the computer market, and it was forced into a $100 million settlement.
But much has changed in the years since, and legal scholars say Sporkin's thinking on antitrust matters seems not to have digested much of the jurisprudence of the 1970s, when IBM, Kodak and Xerox successfully fought off antitrust suits by smaller firms. "It was the same issues," says William Kovacic, a professor of antitrust law at the Washington College of Law at American University. "They were preannouncing, manipulating design decisions, using aggressive pricing to drive competitors off the road. And with very few exceptions, they beat those plaintiffs into the ground."