Standard Oil and Microsoft—Intriguing Parallels or Limping Analogies?

AuthorJohn J. Flynn
Published date01 December 2001
Date01 December 2001
DOIhttp://doi.org/10.1177/0003603X0104600401
Subject MatterArticle
The Antitrust BulletinlWinter 2001
Standard Oil and
Microsoft-
intriguing parallels or limping
analogies?
BY JOHN J. FLYNN*
I.
Introduction
645
The computer industry and the law
of
antitrust have been pre-
occupied with the struggle between the federal
and
several state
governments
and
Microsoft
for
most
of
the
past
decade.
Microsoft's use
of
its domination over the personal computer (PC)
*
Utah. Hugh B. Brown Professor
of
Law, College of Law, University of
AUTHOR'S
NOTE: Iappreciate the comments
and
criticisms
of
earlier
drafts
of
this article by Professor Harry First and Professor Darren
Bush.
Neither
is
responsible
for
any
of
the
views
or
conclusions
expressed herein. The views expressed in this article are mine and have
not been solicited, encouraged, supported or paid
for
by any person, cor-
poration, think tank or other entity with any relationship to any litiga-
tion, legislation, ideology or legal or economic issue
of
any kind related
to this topic. I did give some thought to creating a "Foundation" like the
Truth and Justice Foundation or "Institute" like the Institute
for
the Pro-
tection
of
the Competitive Process and the American Way and designat-
ing myselfas President or Fellow thereof A lack offunding overcame the
temptation.
© 2002 by Federal Legal Publications. Inc.
646
The antitrust bulletin
industry by virtue
of
its control
of
the operating system software
for the ubiquitous personal computer has been the focus
of
contin-
uing antitrust controversy. This article began as a response to an
effort to discount the similarities between monopolization charges
against Microsoft brought by the Antitrust Division and several
states
and
those
launched
almost
a
century
before
against
the
Standard Oil Company
of
New Jersey. It evolved into abroader
article as it became apparent that seemingly modern concepts like
"strategic conduct," "raising arival's cost," "predatory pricing,"
and
"network
effects," are really not that new and were tactics
used by Standard Oil to gain mastery over the refining and trans-
portation
of
crude and refined oil in the latter part
of
the 19th cen-
tury. In the
Microsoft
case, allegations that Microsoft engaged in
"strategic conduct" in licensing its dominant Windows operating
system and used the power of the "network effects" conferred by
its
installed
base
on the
vast
majority
of
PCs
to
maintain
its
monopoly
of
the operating system market for PCs evoked echoes
from the similar allegations made against Standard Oil gaining and
maintaining its monopoly over oil refining. While the tactics fol-
lowed by Microsoft and Standard Oil took place in quite different
businesses having characteristics unique to the products they each
produced, the consequences
of
the exclusionary behavior followed
have been
similar-domination
of
the industries they each oper-
ated in and the acquisition
of
power to determine the price, innova-
tion and other efficiencies at all levels
of
those industries and the
rights
of
competitors to succeed or fail on the competitive merits.
Standard Oil was broken into 34 parts pursuant to an antitrust
decree affirmed by the United States Supreme Court in 1911. Its
market share
of
refining declined from 80% in 1910 to a market
share for the divested parts
of
Standard Oil
of
40% in 1940.1One
See William S.
Coman
or & F.M. Scherer, Rewriting History: The
Early Sherman
Act
Monopolization Cases, 2
INT'L
J.
ECON.
&Bus. 263
(1995); William S. Comanor, The Problem
of
Remedy in Monopolization
Cases: The Microsoft Case as an Example, 44
ANTITRUST
BULL.
115, 119
(2001). Professor Comanor points out that in major monopolization cases
lost by the government against U.S. Steel, United States Steel, American
Can and International Harvester the successful defendants in those cases
"invariably failed in the marketplace." [d. at 120.
Standard oil and microsoft: 647
can only speculate what the market for petroleum products might
look like today
if
asingle firm continued to dominate the refining
and the transportation
of
crude and refined petroleum products,
just
as one
can
only speculate what the PC market would look like
10, 20 or 50 years from today
if
asingle firm controls the operat-
ing system, application program interfaces and the Internet com-
munications
link
for
PCs.
Suffice
it to say, it has
long
been
assumed
that
the consequences
of
such astate
of
affairs inex-
orably
lead
to
the
policy
judgment
that
either
a
monopolized
activity be regulated by a competitive process or by affirmative
government regulation. The economic, political and social conse-
quences
of
the alternative
of
leaving uncontrolled monopoly con-
trol over abasic industry or technology in private hands and free
from the discipline
of
acompetitive process are assumed to be too
dire for the good
of
society. The
Microsoft
case- however, raises
the deeper question in the minds of a few
of
whether this policy
judgment
should
any longer be entertained or addressed in the
context
of
an antitrust lawsuit in light of the dynamic and com-
plex
industry
involved-an
additional policy position explored
and rejected by this article.
The
Microsoft
case is significant for several additional rea-
sons: it is a case with substantial implications for the evolution
of
a new and revolutionary technology
of
basic importance to the
economy; it is a case shifting the focus
of
antitrust policy from a
preoccupation with short-term or static allocative efficiency to
one emphasizing the long-run economic significance of innova-
tion efficiency as a value protected by antitrust policy; it is a case
challenging the ability
of
the legal process to deal expeditiously
and effectively with alleged displacements
of
the competitive pro-
cess in the context
of
acomplex and dynamic industry; and, it is a
case raising the significance
of
workable remedies to the effec-
tiveness
of
antitrust
policy.
Each
of
these
implications
of
the
United States v. Microsoft Corp., 84 F.Supp. 2d 9 (D.D.C. 1999)
(hereinafter, Findings of Fact); 87 F. Supp. 2d 30 (D.D.C. 2000) (here-
inafter, Conclusions of Law); aff'd in part and rev'd in part, 253 F.3d 34
(D.C. Cir. 2001).

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