Consumer Harm Remains Sticky Issue In Microsoft Case

U.S. District Court Judge Thomas Penfield Jackson's findings of fact in the government's antitrust case against Microsoft Corp. released last week skillfully touched all three bases necessary to argue that a violation of antitrust law has occurred -- espe

U.S. District Court Judge Thomas Penfield Jacksons findings of fact in the governments antitrust case against Microsoft Corp. released last week skillfully touched all three bases necessary to argue that a violation of antitrust law has occurred -- especially the most crucial: that Microsoft caused harm to consumers.

Specifically, the decision, which cannot be appealed, details how Microsoft is a monopoly, how the company has abused its monopoly power and how abuse of that power has caused harm to consumers.

All three are essential for proving an antitrust violation. That a company is deemed by the courts to be a monopoly is, by itself, not a crime. Nor is abuse of that monopoly power a crime. It becomes a crime only when it can be determined that abuse of that power has caused harm to consumers. Or, in this case, "inferred that harm has been caused.

The state of South Carolina, one of the original 20 states to file a joint antitrust suit against Microsoft in May of 1998, backed out of the case in December of last year because it felt the trial was "not about consumers. Rather, the state felt it had become a case about "Internet competitors, according to a statement issued by South Carolina Attorney General Charles Condon.

Underscoring the point, the statement acknowledges that "the governments witnesses are either Microsofts competitors or paid government experts. Consumers have not taken a leading role in this action.

Inference of harm

But thats not an accurate portrayal of antitrust litigation language, according to observers.

"First of all, consumer, under antitrust law, does not need to mean the same thing as end user, said Wayne Klein, Utah Assistant Attorney General and head of the offices antitrust division. "If a company abuses monopoly power, it may hurt more than just the end users. It may hurt distributors, the middlemen, which in turn pass it down the chain. The question becomes: Has the market been harmed?

Others said that, in antitrust litigation, inference of abuse is just as strong as actual harmed consumers.

"The plaintiffs dont have to show the harm has occurred, said Herbert Hovenkamp, a professor at the University of Iowa College of Law, who has consulted for the government in its case against Microsoft. As an example, Hovenkamp offered the scenario of a person being arrested for drunk driving but who has caused damage to no one.

"You havent hit anything or killed anyone, he said. ``But we think drunk driving does cause harm. And we permit the government to go after it without the actual showing of harm.

Hovenkamp stressed that in cases such as these, however, evidence to support that kind of inference is needed. "Judge Jackson does that in the findings of fact, he said.

Hovenkamp pointed to Jacksons noting of Microsofts questionable pricing actions for Windows 98 and its moves to quash Netscape Communications Corp.s progress.

Jacksons evidence for inference of harm is clear. In the matter of pricing, he cites a Microsoft study from November 1997 in which it is stated that the company "could have charged $49 for an upgrade to Windows 98 --there is no reason to believe that the $49 price would have been unprofitable -- but the study identifies $89 as the revenue-maximizing price. Microsoft thus opted for the higher price.

Indeed, antitrust law is written with such an emphasis on inference of harm because, in many cases, consumers dont know they have been affected.

"When two milk providers conspire to charge higher prices to school boards, and then consumers, the consumers have no idea theres this conspiracy, said Richard Blumenthal, Connecticuts Attorney General. "So commonly there would not be people off the street knowledgeable of it that could testify. The damage was that consumers would not have known.

The bottom-line, says Utahs Klein, is that "consumer harm is needed, but in some cases the consumer harm is proven by establishing the violation.