Part 11- Regulation of Business, Chapter 49: Antitrust The Sherman Act, Note 8

Key Concepts and Legal Analysis Under the Sherman Act 1. Microsoft’s Actions on Java Microsoft's efforts regarding Java technologies were central to the case. Key findings include:     Java Runtime Manipulation: Microsoft developed its Java Virtual Machine (JVM) to be incompatible with Sun Microsystems' version, misleading developers into creating applications that worked only on Windows. Developer Deception: Tools provided by Microsoft led developers to believe they were creating cross-platform applications when they were Windows-dependent. Contracts with ISVs: Microsoft entered exclusive agreements with Independent Software Vendors (ISVs) to promote its JVM, foreclosing opportunities for Sun’s Java. Pressure on Intel: Microsoft coerced Intel to halt its development of a highperformance JVM that could threaten Microsoft’s dominance. These actions were deemed exclusionary, as they stifled middleware competition and protected Microsoft’s operating system monopoly without providing procompetitive justifications. 2. Monopolization vs. Attempted Monopolization Under § 2 of the Sherman Act, monopolization requires proof of: 1. Monopoly Power in a relevant market. 2. Exclusionary or Anticompetitive Conduct to acquire, enhance, or maintain that power. For attempted monopolization, the plaintiff must show: 1. Specific Intent to achieve monopoly power. 2. Conduct with a dangerous probability of success in a defined relevant market. 3. Methods that are anticompetitive rather than legitimate competition. In the Microsoft case:  The court affirmed monopolization of the market for Intel-compatible PC operating systems but reversed the finding of attempted monopolization in the web browser market. This was due to the absence of a clear market definition for browsers and insufficient proof of Microsoft’s likelihood of dominating that market. 3. Predatory Pricing Predatory pricing involves selling below cost to eliminate competitors, with the intent to recoup losses by raising prices once competition is reduced. The Supreme Court has expressed skepticism about these claims, noting:   Predatory schemes are rarely rational because they require long-term monopoly power to recoup losses. Courts require clear evidence of below-cost pricing and a plausible plan for recoupment. 4. Remedies for Antitrust Violations   Divestiture Proposal: The district court proposed splitting Microsoft into separate companies to address its violations. However, the appellate court: o Reversed this remedy, citing procedural errors and excessive severity. o Ordered reconsideration of remedies by a different judge due to perceived bias in the original proceedings. Settlement Agreement: Microsoft later agreed to allow desktop customization, standardize licensing, and share technical information with competitors. Critics argued the settlement was lenient, benefiting Microsoft more than consumers, but the Justice Department deemed it a successful resolution. 5. Conspiracy to Monopolize Section 2 also prohibits conspiracies to monopolize. Such cases often overlap with § 1 claims of restraint of trade and require proof of: 1. 2. 3. 4. Existence of a conspiracy. Intent to monopolize. Overt acts to achieve that goal. (In some jurisdictions) A defined relevant market. 6. Ethics and Market Competition Antitrust laws aim to protect competition as a process, not individual competitors. Ethical dilemmas arise in cases like predatory pricing or market entry barriers where:   Competitors may be forced out of business despite competition not being harmed long-term. Antitrust law generally does not compensate such competitors unless broader market harm is demonstrated. Hypothetical Problem Analysis Case 1: ARCO’s Pricing Strategy  ARCO’s discounts and elimination of credit card costs to compete with lowcost competitors do not automatically constitute illegal vertical price-fixing unless the prices were fixed in a way that restrains competition. If ARCO’s actions simply reflect legitimate competitive strategies, antitrust injury may not be established. Case 2: Co-Op and Tri-State Non-Solicitation Agreement  The alleged agreement not to solicit each other’s customers is a per se violation of § 1 of the Sherman Act, as it restrains trade without needing extensive rule-of-reason analysis. Case 3: Discon’s Group Boycott Allegation  If Materiel’s actions were part of a scheme to exclude Discon and defraud consumers, this could constitute a group boycott, a per se violation. However, proving causation and intent to exclude would be critical. Case 4: Maricopa Foundation Fee Agreement  The Ninth Circuit erred if it overlooked the per se illegality of horizontal price-fixing, which is generally unlawful regardless of its procompetitive intentions or benefits to consumers. Case 5: MFI’s Commission Disputes  Policies by Wauwatosa Realty and Coldwell Banker to limit commissions for buyer’s brokers could raise antitrust concerns if they are shown to suppress competition unfairly. However, MFI must demonstrate that these policies harmed overall market competition, not just its business.