FOOL ON THE HILL
An Investment Opinion
Of Course Microsoft is a Monopoly Bill Barker (TMF Max)
November 11, 1999
The big topic around these parts this week has been the Court's Findings of Fact handed down by Judge Thomas Penfield Jackson last Friday evening in United States of America v. Microsoft Corporation. The decision has received plenty of coverage, analysis, and opinion all around Fooldom, particularly on the message boards and portfolio reports. I thought I'd toss in my perspective, which perhaps runs a little counter to some of the other things published here recently.
My perspective on the case is, as is everyone's, largely colored by my own experiences, and carries its own individual biases. For most of those who have commented on our message boards, the perspective is that of an investor in Microsoft, and it is clear that this group, too, is characterized by certain biases. Others will view this case through the prism of being a consumer of Microsoft's wares. Particularly enlightening (to me anyway) are the comments of software developers and others who deal with Microsoft as a business. Each of these perspectives will, of course, be colored by independent biases about what the case is about, and where the truth lies.
All those perspectives are relevant to getting a grip on feelings about the case, but they don't necessarily have a whole lot to do with the law of the case. And ultimately, of course, this is a legal matter. Having practiced a little law in my pre-Foolish days, I've simply been looking at the legal side of all this. Having a legal background, fortunately, is a perspective that most message board posters and portfolio report writers are blissfully free from sharing.
My experiences within the law (which included stints in both the public and private sector, but no specific antitrust work) are that our legal system tends much more often than not to produce very good results when both sides have the time and money to put their best cases before the court. Those prerequisites, of course, have been present in abundance in this case. Given that experience, the extraordinarily lengthy and detailed opinion of Judge Jackson carries a heckuva lot of weight in my eyes. Absent detailed knowledge to the contrary rather than emotional flights of fancy, the Findings of Fact should be taken by any interested investor to be a highly relevant summary of the state of the competitive landscape -- the single most likely source of material to find "the Truth."
Those who have the fortitude to read the Findings of Fact will be rewarded with a better understanding of what the relevant market here is (Intel-compatible PC operating systems, as opposed to all operating systems), and why the court has defined the relevant market in those terms. That's one of the issues that I see readers tripping over a lot -- the existence of Apple's operating system. But Apple's having an operating system which exists outside of the relevant market is of no moment to the legal issues here, which will become clear if you read the opinion. Though you'll find argument to the contrary, given my experiences, I feel that the possibility that Microsoft is ever going to be adjudged as not having monopoly power, as defined by the law and in the relevant market, is extraordinarily low.
Accepting the state of the law on antitrust doesn't sit well with everyone. That's fine -- questioning the state of the law is an intrinsically American trait and right, and it might raise some interesting philosophical points. It doesn't, however, really have anything to do with the question I'd be interested in as an investor, which is, "What is going to happen to Microsoft in this case, under the existing state of the law?" That is, the current antitrust laws are going to be applied by the judge, whether you are (or he is) in favor of them or not. It just isn't this judge's role to substitute his feelings about what the law could be or might be even if there were near universal popular opinion that he should act otherwise.
There is, if you read the opinion of the judge, little doubt that Microsoft flaunted the conventions that apply under the law to a rather remarkable degree. Knowing that the central figure of Rule Breakers, Rule Makers is King Henry V, and that Microsoft has been designated a Rule Maker by the local portfolio of like name, I couldn't help but think of Shakespeare's passage in which King Henry assesses the relevance of certain rules to his station in life.
"[N]ice customs curtsy to great kings.... [Y]ou and I cannot be confined within the weak list of a country's fashion: we are the makers of manners... and the liberty that follows our places stops the mouth of all find-faults..."
William Shakespeare, Henry V, (V, ii)
And, you know, I see people invoking this type of thinking to the Microsoft situation. The "great king" here is not so much Microsoft itself, as the technology sector writ large. The argument propounded in some corners is that antitrust law is no longer applicable to the great technology companies today, who are the current makers of manners, or at the very least the makers of the economy. The thinking goes that because the technological battleground shifts so quickly, antitrust law is too slow and plodding to apply. "Wait a year, and things will change" goes the argument. Even if Microsoft is a monopoly (or exerts monopoly power in a certain limited sphere), that isn't so much of a problem because the market has self-correcting mechanisms that ensure that no evildoing monopoly may exist for long enough to truly wreak any lasting harm on any of us. Technology is simply our society's king before which the pleasant customs of the past (antitrust law) must curtsy.
Well, I think that's pretty unlikely, and not a little bit undercut by the facts found by the court. As the court notes, "Microsoft possesses a dominant, persistent, and increasing share of the world-wide market for Intel-compatible PC operating systems. Every year for the last decade, Microsoft's share of the market for Intel-compatible PC operating systems has stood above ninety percent. For the last couple of years the figure has been at least ninety-five percent, and the analysts project that the share will climb even higher over the next few years."
So does Microsoft have monopoly power? Sure. "Of course," I would be tempted to say if the issue weren't slightly more complicated than that, and if such a conclusion weren't basically unhelpful. I would recommend that anyone who has sincere interest in the matter confront the District Court's Findings of Fact and think through the matter for him or herself. I think you'll find it a decent read.