Two key players of the Microsoft antitrust trial 20 years ago explain why its lessons will be critical to regulating Google, Amazon, and Facebook (MSFT, AMZN, AAPL, FB, GOOGL)

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The Microsoft antitrust trial of the 1990s has important lessons for government regulators as they decide what to do about companies that dominant the tech industry today, two central players in the Microsoft case said.
The Microsoft case shows how important it is to enforce antitrust laws, even if such an action doesn’t lead to a breakup of the targeted company, said Harvard professor Lawrence Lessig and antitrust lawyer Alan Kusinitz.
The situation the tech industry was facing before the trial has parallels to today, they said.
The case also illustrates how important it is for enforcement officials to essentially do field research by talking with affected market participants and to be clear about what violations they need to prosecute, Lessig and Kusinitz said.
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Two veterans of the Microsoft antitrust battle that raged 20 years ago have some advice for government regulators seeking to curb the power of today’s tech giants.

In conversations with Business Insider, Lawrence Lessig, who briefly served as a special master in the Microsoft case, and Alan Kusinitz, who headed up the legal team representing state governments, stressed the importance of policing anticompetitive behavior even if it falls short of a company break-up, the outcome that never materialized in the Microsoft case.

The objective of venture capital and innovators is to get big enough to be eaten. Nobody really believes they can take on Facebook and win — Lawrence Lessig

They also pointed to strategic decisions that, in hindsight, were critical to bolstering the case against Microsoft, as well to some of the miscalculations that would hurt their cause.

The lessons of Microsoft could prove to be invaluable amid a growing debate — from Washington, DC to Silicon Valley — over what to do about Amazon, Alphabet, Apple, and Facebook, and their dominance of certain markets. At least part of the debate has focused on whether the government should attempt to bring antitrust cases against the companies and maybe even try to split them up.

The Microsoft case was "extremely successful in creating the conditions for the Silicon Valley boom in the beginning of this century," said Lessig, who served first as a special master — the judge’s designated fact finder — in the case and later submitted a "friend of the court" brief in it laying out his assessment of the law and facts. "And we ought to learn that lesson."

Regulators are starting to look again at the power of tech giants

To the extent that the Microsoft case is remembered today, it’s often portrayed as having been a waste of time. The judge’s order to breakup the company into two parts was blocked and then overturned on appeal.

Chip Somodevilla/Getty ImagesAfter George Bush replaced Bill Clinton as president, his administration decided to settle the case rather to go back to court to try to reinstate the breakup order. The case ended with what many believed was little more than a wrist slap. And when Microsoft struggled to compete in the new tech markets — search, mobile, social networking, ecommerce — the case seemed to many people to have been all about nothing.

The tech industry’s fast pace of innovation and fierce competition mean that it’s always several steps ahead of whatever the government is trying to regulate, the argument went. The best way to regulate tech, in other words, was simply to let the market do its thing.

But many inside and outside of Silicon Valley and Washington are re-examining that line of thinking today as the next generation of tech giants has come to hold more and more sway not only over their particular markets, but over the public sphere. The companies have amassed not only massive economic power — they are some of the most valuable and profitable companies on the planet — but also tremendous political power.

Read this: Elizabeth Warren pulled a ninja move to turn tech angst into a crackdown with real teeth, and tech is going to suffer even if she’s not president

To a large extent, Facebook, Google-owned YouTube, and Twitter have become the arbiters of free speech. Changes in Facebook’s algorithms can make or break media companies that depend on it for distribution, imperiling the health of a free press. The social networks have been hijacked by miscreants to spread misinformation and propaganda, which has influenced elections and in some cases has led to violence and deaths.

What we’ve seen over the last 20 years is that monopolies have increased — Alan Kusinitz

Small retailers and goods makers can thrive or die depending on how Amazon treats them and whether it decides to target their markets. Developers and content providers alike can find themselves unable to reach their customers due to to an opaque policy decision by one of the big tech companies.

The market alone won’t solve the tech industry’s problems

The idea that the market will just solve these problems on its own with no government intervention is deeply mistaken, the veterans of the Microsoft case said. While that view has held sway, the problems have gotten worse, not better.

"What we’ve seen over the last 20 years is that monopolies have increased," said Alan Kusinitz, a longtime antitrust lawyer who headed up the legal team representing state governments in the Microsoft case. "It’s always a mistake to do nothing," he continued.

The laissez-faire view is also mistaken about just how important the Microsoft case was to the tech industry, Kusinitz and Lessig said. It wasn’t an accident that competition flourished in the wake of the case, they said.

The case forced Microsoft to change its behavior towards competitors. Prior to the trial, the company was absolutely ruthless, going to lengths to crush any rivals that stood in its way. Microsoft emerged from the case a company that was much less aggressive, partly because of the settlement and partly because it was gun shy after having just been through that battle.

The case "was extraordinarily important in creating an environment where people felt free to innovate without the fear of being destroyed by Microsoft," said Lessig, a professor at Harvard Law School.

Amazon and Google’s actions resemble Microsoft’s

There’s something similar going on in the tech industry today to how things were before the Microsoft trial, Lessig and Kusinitz said. The big tech companies dominate their areas in similar ways that Microsoft ruled the PC operating system market.

zz/Dennis Van Tine/STAR MAX/IPxGoogle’s practice of forcing phone makers to sign contracts that required the manufacturers to install its search and other apps if they wanted to use its version of the Android operating system looks like a page right from Microsoft’s playbook, Kusinitz said. Amazon’s ruthlessness in dealing with its competitors is similar to Microsoft’s as is its alleged practice of abusing its platform.

Amazon has been accused of gleaning sales data from sellers in its marketplace and using that information to undermine those sellers by offering similar products and promoting them on its site in ways its rivals can’t.

"Bezos is a bad actor," said Kusinitz. Such practices, he continued, "have to be dealt with in some way."

The immense power of the big tech firms discourages the emergence of any competition. Startups generally avoid the areas in which the firms are dominant. Or entrepreneurs build their companies with the express idea that they’ll one day be acquired by one of the tech behemoths.

"The objective of venture capital and innovators is to get big enough to be eaten," said Lessig. "Nobody," he continued, "really believes they can take on Facebook and win."

Research is important, as is defining the problem

But government regulators can draw other lessons from the Microsoft case, Lessig and Kusinitz said, particularly in how the state and federal governments pursued it. One is that enforcement officials should essentially do field research, Lessig said. It’s one thing to have economic theories about how markets are supposed to work. It’s another to talk with real market participants about how things are working in practice.

That kind of research was how enforcement officials came to understand how Microsoft’s dominance in the 1990s was distorting the startup ecosystem and tech industry in Silicon Valley, Lessig said. It also led to some crucial trial testimony, he said.

Prosecutors today, similarly, "ought to be really keen to understand exactly how the system works," he said.

It’s also important for regulators to focus any potential enforcement action on clear and supportable antitrust charges and to have a good idea of how those violations could be addressed, Kusinitz said.

The Microsoft case focused on the web browser market and the steps the company took to box out Netscape, the first web browser. The states built a strong case that Microsoft had prohibited PC manufacturers from pre-installing Netscape’s Navigator and rival browsers on the machines they sold, he said. Such exclusionary conduct is clearly anticompetitive, a finding that was upheld on appeal, Kusinitz noted.

By contrast, the federal government focused its case on Microsoft’s efforts to bundle Internet Explorer browser with Windows. That move wasn’t as clearly anticompetitive and the rulings against the company on the counts that related to that conduct were overturned on appeal along with the ruling that Microsoft would be broken up.

The federal government made a mistake in focusing on the bundling issue and not the broader issue of how Microsoft was abusing its dominant platform, Kusinitz said.

"You’ve got to focus in on the problem," Kusinitz said. The federal government’s decision to focus on the browser bundling and not Microsoft’s abuse of its platform "was a huge failure," he said.

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Source: Business Insider – twolverton@businessinsider.com (Troy Wolverton)