Facebook, Google, Amazon, and Apple are facing increasing government scrutiny over competitive practices. They’ll fight back, but there is precedent to take action.
1998, the U.S. Justice Department and attorneys general from 21 states brought an antitrust monopolization lawsuit against Microsoft. At that time, Microsoft controlled how most consumers and businesses worked on their desktop computers. Its Windows operating system provided the connection between all sorts of software and the central processing units of our PCs, and its Office software was critical for the majority of office workers.
The core of the complaint against Microsoft was that it used practices that deliberately strangled an upstart competitor called Netscape, then in its infancy. Netscape’s new “browser” software allowed desktop PC users to access goods, services, and information through the web. In 1995, Bill Gates saw that Netscape posed a challenge to the Windows operating system and predicted an “internet tidal wave” of competition that threatened to sideline Microsoft’s products. In response, Microsoft launched its Internet Explorer browser, triggering what became known as the browser wars and eventually attracting the lawsuit that ended Microsoft’s abusive practices and nearly resulted in the company’s breakup.
One might have thought that the suit against Microsoft — without which the success of companies like Google might never have been possible — would have been the beginning of an effort to control the tactics and growth of big tech companies. It was not. In 2011, the U.S. Federal Trade Commission (the FTC, our other federal antitrust enforcement agency) opened an investigation of Google. But after two years of work, it decided to bring no charges and instead accepted an informal agreement from Google to change some of its practices.
Meanwhile, Facebook, Google, Apple, Microsoft, and Amazon continued to grow through acquisitions of other companies as well as by expanding their core businesses. By 2017,these five companies had become the largest firms in the United States by stock market value. A decade before, only one technology company had been in the top five: Microsoft.
Spurred by increasing public and governmental concern about the power these tech firms wield, U.S. enforcement agencies have now decided to pick up the slack. The Justice Department will be responsible for Google and Apple, and the FTC for Facebook and Amazon. In addition, a number of state attorneys general are reportedly looking into whether to bring suit, although in a curious twist, Microsoft does not seem to be a target.
I can’t say definitely that there are good antitrust cases to bring against any of the four companies. But what I can offer are some lessons we learned from the earlier Microsoft litigation.
It’s a heavy lift
Taking on Microsoft consumed substantial enforcement resources. Before the Justice Department filed suit, the FTC investigated Microsoft twice, and commissioners eventually deadlocked on whether to sue. Then the Justice Department stepped in, and its investigation proceeded for five years before a suit was brought in 1998 that featured a number of lengthy settlement negotiations. Microsoft vigorously contested the charges at trial and on appeal; that process consumed another three years, which was relatively quick as these things go. The parties subsequently settled, but the remedy proceedings lasted almost another 10 years.
All in all, the Microsoft case lasted 21 years, finally ending in 2011. Now multiply this effort by four. Ultimately we will be able to judge the seriousness of the government’s investigations by the budgetary resources the Justice Department and the FTC are given to deal with these cases.
They can’t do everything
The enforcement agencies will need to focus their efforts. In the Microsoft case, they could have investigated both Windows and Word. Both were monopoly products, and it was hard to see which one was more critical. At one point, both products were part of the case against Microsoft, but there was a limit to what can be litigated in a single case before a single judge. So the case against Word was dropped.
The political pressures that will be brought to bear if the agencies seriously go after any one of these companies — let alone all four of them — will be intense, particularly in today’s hyperpartisan political atmosphere.
Major tech companies often have linked monopoly products — Google Android and Google Maps/Waze, for example — but sprawling cases are hard to manage and understand for both judges and litigators. At some relatively early point, the agencies need to decide what’s most important and what can be jettisoned.
The agencies will need political and industry support
Antitrust litigation against major corporations is not just fought in court. Before the Justice Department filed suit against Microsoft, the department had the support of key political players such as Sen. Orrin Hatch, who held a well-publicized hearing critical of Microsoft. Some of the companies that were victims of Microsoft were willing to come forward and testify; others, like Dell, stayed on Microsoft’s side and made their own efforts to stop enforcers from bringing suit. In the midst of the litigation, Microsoft lobbied Congress to cut the Justice Department’s budget, but the department had enough support to block that effort.
The political pressures that will be brought to bear if the agencies seriously go after any one of these companies — let alone all four of them — will be intense, particularly in today’s hyperpartisan political atmosphere. They will emphasize First Amendment concerns; national security and trade issues may get involved. The agencies now appear to have some political support for taking action against these companies, and they need to embrace that support.
They must play nicely together
The Microsoft litigation required federal and state enforcers to cooperate. It didn’t always go smoothly and finally broke down at the remedy stage. The agencies will need to do better this time, finding ways to coordinate investigations and assign responsibility.
Recently, though, there seems to be a worrying lack of coordination. Ten states just filed a case to block the merger of Sprint and T-Mobile without waiting for the Justice Department to reach an enforcement decision. And the Justice Department has attempted to intervene in a case that the FTC is litigating against Qualcomm, arguing that the FTC wasn’t paying careful enough attention to the remedy it was seeking. Both actions were unprecedented. It’s concerning that the agencies could end up fighting each other rather than focusing on their investigations.
Agencies should worry about the remedy earlier
The hardest problem in the Microsoft case was not the law — though that wasn’t exactly easy — but the remedy. Although the agencies discussed solutions, a full remedy plan was not put together until after the government won the case. It is wise not to fix on a remedy too early in an investigation because enforcers learn from their investigation. In Microsoft’s case, part of the learning was that the company’s practices were more pervasive than originally thought. But the sooner enforcers can figure out what they want to get out of the litigation, the sooner they can structure the litigation to achieve that goal.
Don’t worry about the speed of technological change
Microsoft at the time of the case seemed to develop new products so quickly that it was challenging for the government to keep up. Observers said Microsoft was operating on “Internet Time” while the government was on “Legal Time,” the implication being that this made it impossible to stop what the company was doing. That turned out to be wrong because although versions came and went, the basic products at issue — operating systems and browsers — are still important today, 20 years later.
In fact, what really makes these tech companies problematic is their durability. Facebook hasn’t been vanquished by a new MySpace; Google hasn’t been replaced by DuckDuckGo; parents are still buying diapers on Amazon even though Diapers.com is long gone. Legal processes can cope.
The election is coming
Looming over the Microsoft litigation was the prospect of a change in the national administration in 2001. Microsoft correctly predicted that if it could delay resolution of the litigation until after the election, the incoming George W. Bush administration would be more friendly than the Clinton administration. The new leadership in the Justice Department eventually accepted a settlement with Microsoft that many criticized as inadequate.
A presidential election will also happen during the investigation or litigation of the current cases, although it is hard to predict how that might affect particular cases against particular companies — nor can we predict whether there will actually be a change of administration. But those managing these cases will have to at least consider how presidential elections will affect their own efforts.
It’s better to resist settlements
If there is one big lesson that emerges from Microsoft it is that we, the public, are better off because government agencies resisted strong pressure to settle the case before litigating it to resolution in the trial court and getting an important legal victory in the court of appeals. There is an important benefit from litigation — it brings the defendant’s practices to light and creates legal precedent.
I view this as one of the most important benefits of the suit against Microsoft because the legal principles the court of appeals applied in its decision have been followed in a number of other lower-profile monopolization cases. It will be tempting to settle any of the current group of cases, often for plausible reasons. But if there are competition problems, the government needs to make the point that we are going to do something serious about them.
There is one more key lesson to be learned: None of these companies is exactly like Microsoft. Each presents particular and challenging problems, and Microsoft can’t possibly provide a complete roadmap to the challenges ahead. There really are new things under the sun — and on the internet.
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