- [Narrator] In the summer of 2019,
the United States put Silicon
Valley in its crosshairs.
- Only a small number of
the nearly two billion apps
in the app store are made by Apple.
- We have rolled out many
innovations over the course
of the history of our product.
- For every $3 of
advertising spent online,
a business would have to spend
an equivalent of $5 offline
to get equal prominence.
That is a tremendous savings
for the U.S. economy.
- [Narrator] To some,
these hearings recall
another major antitrust
case, a showdown between
the Justice Department and Microsoft.
The year was 1998.
Microsoft controlled more than 90%
of the PC operating systems market.
At the heart of the
case was a new product,
the Internet Explorer web browser.
Prosecutors argued that
Microsoft used its market power
to stifle the growth
of competing browsers.
At the time, many computer networks relied
on software from Microsoft.
This gave the firm lots
of power and influence.
Today, leaders from Facebook,
Amazon, Google, and Apple
are studying big cases like Microsoft
to prepare for their scrutiny.
Here's what they could learn
from watching Microsoft's case.
Lesson number one, how not to
counter an antitrust probe.
Ahead of the trial the
Justice Department deposed
Microsoft's CEO, Bill Gates.
- [Questioner] Mr.
Gates, when did you first
become concerned about
the competitive threat
that Netscape posed to Microsoft?
- Bill Gates' behavior, his
body language, is contemptuous.
- The product that didn't
include Internet Explorer
was called the Windows 95 upgrade.
- [Kovacic] Arrogant.
- IS that the full
breadth of your question?
- And evasive.
The Department of Justice
played pieces of that video
in its opening statement to the judge
on the first day of the case,
and the judge later said,
"Microsoft, you lost me on day one."
- [Narrator] Gates was deposed
well after the government
sounded an alarm over
his company's behavior.
In 1995, Microsoft was
served a court order
for its anti-competitive
activities and software licensing.
Another case opened after
the Department of Justice
argued that Microsoft
violated that court order.
The repeat violations in Gates' behavior
did not play well with the
judge presiding over the case.
After viewing the tape,
Judge Thomas Penfield Jackson
expressed negative opinions
of Gates and Microsoft
to journalists.
In his decision, he called
for Microsoft to be broken up,
but on appeal, a panel
faulted the judge's conduct,
as well as some of his conclusions.
Throughout parts of the ruling,
Microsoft narrowly escaped a breakup.
In the aftermath, the two
sides agreed to settle
with some changes to how the
software maker did business.
According to Kovacic, the
legend of the Gates tape
haunts today's tech reps when they testify
before Congress.
- I think the approach that
especially the tech leaders
have been urged to take is humility.
What their inside and outside
lawyers will tell them,
because this is deadly serious,
and if you don't take this very seriously,
you expose yourself, your
company, everything you've done
to real hazard, and if
you don't believe us,
watch this one.
- [Narrator] Precedent number two,
free doesn't always mean
better for consumers.
At the heart of any
antitrust investigation
lies the standard of consumer harm.
- [Kovacic] Three key elements,
price, quality, innovation,
that improves business
performance over the long term
for the benefit of consumers.
- [Narrator] These three
factors have been interpreted
by the courts for decades.
In the modern era, courts
have spent the most time
grappling with the
price dimension of harm.
In Microsoft, Internet
Explorer was bundled
with Windows 98 at no charge,
which meant that the case
would require a different
kind of analysis.
In the view of the courts, Microsoft
made its browser free, but
still abused its market power
by favoring its products
and shutting out rivals.
- The government's theory
was that those steps taken,
the forestall, the
emergence of an alternative
to the Windows operating
system was improper exclusion,
and for the most part, the district court
and the court of appeals agreed.
- [Narrator] Which means that
companies can harm consumers,
even if the products
they're offering are free.
That's important because
in today's digital economy,
free is in.
You don't pay money to use Google search,
Maps, or Translate, but you
do pay something of value,
access to your personal data.
- Certainly in the
modern tech environment,
an important dimension of
quality is what they do
with your data, and the
treatment of privacy
is a variable of quality that the consumer
is increasingly concerned about.
- [Narrator] Precedent number three,
the U.S. government isn't the only test.
An array of state attorneys general
submitted comments to
the FTC
on big tech antitrust violations.
They recommend that the Department
move its philosophy away
from under-enforcement.
Many from that group
are expected to launch
their own investigations.
Across the pond, the European Union
already has fined Google 8 billion euro.
European regulators also
opened new investigations
into Facebook and Amazon.
In its day, Microsoft also had to defend
against a variety of challengers.
In 1998, 20 state attorneys general
joined the Justice Department
in suing the tech giant,
and in the 2000s, Europe's
Antitrust Commission
launched two investigations
into Microsoft.
Those resulted in 1.6
billion euro in fines
against the company.
- I think one needs to
put it into context.
Microsoft makes profits of
about $1.5 billion per month.
It's not all that large a fine.
Neither competitors nor
consumers of Microsoft
are out after fines.
Fines don't really do them any good.
It's competition that does them good,
but we'd rather have compliance
and competition than fines.
- [Narrator] According to Kovacic,
the European Union has broader criteria
on which to bring an antitrust case.
- The EU's position in dealing
with high tech companies,
leading firms, has been
much stronger than the U.S.
They arguably came out
with a stronger remedy
than the U.S. did in their Microsoft case.
If you ask which jurisdiction
plays the leading role
in setting global standards
and influencing the way
that other countries think
about competition law,
it's unmistakably the European Commission.
- [Narrator] All told, Microsoft's tangle
with antitrust law
stretched from 1995 to 2011.
In Silicon Valley, that's a lifetime.
According to Kovacic, you can expect
the tech companies to argue
that a lot will change
in their sector as the government
attempts to make a case.
- One thing that the
companies will argue is,
let's take account for a
second of how we got here.
Where was Google in 1998?
Where was Facebook?
It didn't exist.
That's years later.
Where was Amazon?
Another nascent enterprise
with an interesting idea.
- [Narrator] In the final
years of Microsoft's case,
the Windows operating
system that Microsoft
fought so hard to protect lost ground
to the pantheon of web-based applications
that we enjoy right now.
Today, the operating system commands only
a 35% market share.
Meanwhile, Internet Explorer
enjoyed a dominant share
of the web browser market through 2012,
but eventually a new
browser, Google Chrome,
overtook Explorer.
How the Justice Department presides
over these investigations just might cause
another shakeup for companies
on charts like this.
(airy music)
