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Overview Of Section 2 Of The Sherman Act And Its Application To

5540 words - 23 pages

OVERVIEW OF SECTION 2 OF THE SHERMAN ACT AND ITS APPLICATION TO MICROSOFT A great deal of the public discussion concerning Microsoft seems to assume that, because Microsoft has been highly profitable and has engaged in various practices that have placed a number of rivals under intense competitive pressure, the company is fair game for whatever "remedies" the Department of Justice might choose to impose. In fact, however, the Department's power to impose remedies on Microsoft is dependent on its ability to establish in court that Microsoft has violated section 2 of the Sherman Act. Specifically, the Department must prove not only that Microsoft has monopoly power but also that Microsoft has ...view middle of the document...

Or stated differently, the antitrust laws protect "competition, not competitors." Brown Shoe Co. v. United States, 370 U.S. 294, 320 (1962).Antitrust law as a general matter does not attempt to regulate the unilateral activities of a person or firm. In addition, the law does not condemn commercial success achieved through competition on the merits, even when it results in the competitive triumph of a single firm. Rather, the law - section 2 of the Sherman Act specifically - only condemns "monopolization" (or attempts to "monopolize"). 15 U.S.C. § 2. As interpreted by the courts, "monopolization" has two elements: (A) the possession of monopoly power in a relevant market and (B) the "willful" acquisition or maintenance of that power "as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident." United States v. Grinnell Corp., 384 U.S. 563, 570-71 (1966).A. Monopoly Power (1) The Law - A necessary, though not sufficient, prerequisite for a violation of section 2 of the Sherman Act is a showing that the defendant has "monopoly power." The Supreme Court has defined such power as "the power to control market prices or exclude competition." United States v. E.I. du Pont de Nemours & Co., 351 U.S. 377, 391 (1956). While a very large market share may raise an inference of monopoly power, "[w]hen there are better ways to estimate market power, the court should use them." Ball Memorial Hosp. v. Mutual Hosp. Ins., 784 F.2d 1325, 1336 (7th Cir. 1986). For example, a large market share is only indicative of monopoly power if it is durable and persistent. If there are low barriers to entry or to expansion by fringe firms or if the market is highly dynamic, then a firm's current market position is likely to be fragile and any hope of exercising market power will be futile. See, e.g., Los Angeles Land Co. v. Brunswick Corp., 6 F.3d 1422 (9th Cir. 1993) (holding that the defendant did not possess monopoly power despite the fact that it had a 100 percent share of the relevant market).(2) Application to Microsoft - Microsoft's critics claim that, because Microsoft's operating systems are installed on a large percentage of the PCs being shipped today, Microsoft has monopoly power. That claim, however, is extremely misleading for several reasons.First, a "market" limited to operating systems installed by computer manufacturers on Intel-compatible PCs is unduly circumscribed. Not only can a computer manufacturer choose among various PC operating systems, including IBM's OS/2, Solaris x86 from Sun Microsystems, UnixWare from Santa Cruz Operation, and Linux (the "open" operating system based on Unix), but consumers and businesses can choose systems other than a PC, such as an Apple Macintosh, a so-called Net Computer ("NC"), or even bigger systems such as mini-computers. In addition, any market definition that ignores the fact that Microsoft must compete against its own installed base fails to take...

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