- [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)