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DOJ vs. Microsoft: an Ethical Survey

This survey agenda analyzes the ethical implications of the DOJ vs Microsoft antitrust case, exploring the background, findings of fact, and key players involved.

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DOJ vs. Microsoft: an Ethical Survey

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  1. DOJ vs. Microsoft:an Ethical Survey

  2. Agenda • The Players • Antitrust Background • Microsoft vs. DOJ Background • Findings of Fact • Ethical Implications

  3. Agenda • The Players • Antitrust Background • Microsoft vs. DOJ Background • Findings of Fact • Ethical Implications

  4. The Players • Plaintiffs - 20 states, US Federal government • 23 individual states, attorney generals • US Federal Government, DOJ Antitrust Division • Defendant - Microsoft

  5. The Players (cont.) • Other PC operating system vendors (Apple, Sun, RedHat,Caldera, Be, etc.) • Non-PC OS Vendors • Internet platform, or “middleware” providers (AOL/Netscape, Apple, Lotus, RealNetworks, etc.) • Independent Software Vendors (ISV’s) • Internet Access Providers (IAP’s) • Original Equipment Manufacturers (OEM’s) • Internet Content Providers (ICP’s) • Consumers

  6. Agenda • The Players • Antitrust Background • Microsoft vs. DOJ Background • Findings of Fact • Ethical Implications

  7. The Sherman Act • Basis for U.S. Antitrust Law (along with Clayton Antitrust Act of 1914) • Passed in 1890, named for senator and commerce expert John Sherman • Two acts: • I - “outlaws all combinations that restrain trade between states or with foreign nations” • II - “makes illegal all attempts to monopolize any part of trade or commerce in the United States”

  8. The Sherman Act (cont.) • Having a monopoly is not illegal • Using a monopoly to harm consumers (either directly or by harming competitors) is illegal (“exclusionary, anti-competitive conduct”) • Based on ideal that unfettered competition is the basis for fair trade • “If we would not submit to an emperor,we should not submit to an autocrat of trade” - Senator John Sherman (R - Ohio)

  9. Antitrust Cases • Standard Oil (1911) • Broken into 30 competing companies • Aluminum company of America (1945) • Sold plants to Reynolds Aluminum and Kaiser Aluminum • IBM (1969-1982) • Dropped after delays made trial a “relic” • AT&T (1974-1982) • Broken into “baby bells”, beginning to merge

  10. Agenda • The Players • Antitrust Background • Microsoft vs. DOJ Background • Findings of Fact • Ethical Implications

  11. Timeline of Key Events • Microsoft founded • 1981 - MS-DOS - bundled with first IBM PC • 1985 - Windows 1.0 - Graphical Interface that sits on top of DOS • 1994 - Netscape releases Navigator, first commercial web browser • 1995 - Windows 95 - First fully-integrated Windows OS, ships with Internet Explorer

  12. Timeline of Key Events (cont.) • 5/1995 - Bill Gates writes “Net” memo, describes Netscape as “born” on the Web and a competitor to Windows • 5/1995 - Sun announces Java - cross-platform applications, Netscape agrees to ship Java with its Navigator product • 5/95 Microsoft tries to get Netscape to cede the browser market for Win95, Netscape refuses • 6/1995 - Microsoft refuses Netscape access to Win95 Remote Network Access (RNA) API’s

  13. Timeline of Key Events (cont.) • 8/1995 - Microsoft agrees to a “consent decree” that they won’t use their monopoly to harm competition • 10/1997 - DOJ fines Microsoft for violating the decree by demanding IE be bundled by OEM’s in order to receive license to distribute Windows 95 • 1/1998 - Microsoft agrees to allow OEM’s to ship Windows 95 without the IE desktop icon

  14. Timeline of Key Events (cont.) • 5/1998 - DOJ and 20 states file suit against Microsoft - provisions I and II of the Sherman Antitrust Act • 10/1998 - Trial Begins • 1/1999 - Government rests its case • 6/1999 - Defense rests, trial Concludes • 9/1999 - Microsoft releases its “Finding of Fact” document, denies any wrongdoing • 11/1999 - Court releases its “Finding of Fact”, overwhelmingly sides with prosecution

  15. Agenda • The Players • Antitrust Background • Microsoft vs. DOJ Background • Findings of Fact • Ethical Implications

  16. Why Findings of Fact? • Useful representative of the court’s inclination to rul, • Concise (compared to actual trial records) • Avoids bias beyond that inspired by direct evidence (as opposed to articles the press, by industry analysts, etc)

  17. Findings of Fact - Goals • Microsoft is a monopoly • Microsoft used their monopoly status to compete unfairly • This unfair competition directly and indirectly harmed consumers

  18. Microsoft is a Monopoly • Market defined as “Intel-compatible PC operating systems” • 3 arguments • Market share is high (>90% for every year in the last decade, >95% last couple years) • High barriers to entry (specifically “applications barrier”) • No viable alternatives

  19. Unfair Competition • Tried to coerce Netscape and other “middleware” vendors to split markets according to Windows/non-Windows criteria • Predatory pricing of browser software • Required OEM’s/ISP’s to embrace IE and reject Navigator to obtain favorable licensing agreements • Artificially ”bolted” IE to Windows 98

  20. Unfair Competition (cont.) • Microsoft used its operating system monopoly to unfairly compete in the “browser wars” • “If you agree that Windows is a huge asset, then it follows quickly that we are not investing sufficiently in finding ways to tie IE and Windows together.” - James Allchin, Microsoft executive, • Predatory pricing • Exclusive licensing agreements • Tie-in with Windows 95/98

  21. Unfair Competition (cont.) • Examples outside context of Microsoft-Netscape relationship • Raises licensing cost of Win95 for IBM when IBM refuses to abandon its OS/2 Warp product (1995) • Threatens to cancel crucial Microsoft Office 98 for Mac if Apple doesn’t make IE the default browser for the MacOS (1997) • Court rules Microsoft illegally distributed incompatible versions of Java to undermine cross-platform capabilities (1998)

  22. Unfair Competition (cont.) • These tactics result in the rapid demise of Netscape’s market lead: Date Navigator Internet Explorer • 1/1996 >80% <20% • 11/1997 55% 36% • 4/1998 <55% 45% • 12/1998 <40% 60%

  23. Customers Harmed? • Benefits: • Free/reduced-cost software • More familiarity with Internet through prominent placement in Windows

  24. Customers Harmed? • Direct Harm: • Ignored customer preference (70%) that browser not be incorporated into operating system • Exclusionary licensing made it harder for users who preferred Netscape’s browser • 3rd parties were unable to customize interface for particular needs • Supra competitive pricing - price of Windows jumped >200% from 1990-2000 while hardware component prices decreased

  25. Customers Harmed? • Indirect Harm: • “Applications barrier” discourages innovation and competition on other OS platforms • Deters investment in markets Microsoft may choose to move in to • Withholding API’s penalizes consumers by delaying software releases and encouraging incompatible versions

  26. The Court’s Conclusion • “The ultimate result is that some innovations that would truly benefit consumers never occur for the sole reason that they do not coincide with Microsoft's self-interest.” - Judge Thomas Penfield Jackson

  27. Court’s Findings of Fact - goals • Microsoft is a monopoly • Microsoft used their monopoly status to compete unfairly • This unfair competition directly and indirectly harmed consumers

  28. Agenda • The Players • Antitrust Background • Microsoft vs. DOJ Background • Findings of Fact • Ethical Implications

  29. Is “Legal” Equal to “Ethical”? • Ideally, laws are the reflection of a subset of a society’s common ethical standards

  30. Are Monopolies Unethical? • “When the Commission succeeds in doing both its jobs, it protects consumer sovereignty -- the freedom to choose goods and services in an open marketplace at a price and quality that fit the consumer’s needs -- and fosters opportunity for businesses by ensuring a level playing field among competitors.” - Federal Trade Commission

  31. Is Microsoft Unethical? • Trivial conclusion: by breaking the law and harming consumers illegal monopolies are unethical • Mitigating circumstances would have to overcome this ethical negative • Arguments from Microsoft’s Findings of Fact: • Government’s own economist conceded consumers had not been “harmed to date” • How can software rated “better” lead to consumer harm? • Microsoft has driven the technological revolution that has led to nationwide prosperity

  32. Conclusion • By acting as an illegal monopoly (operating under assumptions from the court’s Findings of Fact) Microsoft has violated certain ethical principles: • Violating the law • Harming consumers • If other circumstances surrounding the monopoly outweigh these factors, however, Microsoft could still be viewed as ethically free from blame

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