In May 1998, the U.S. Department of Justice and the Attorney General of 20 U.S. states sued Microsoft inc., the giant of IT industry, for illegally thwarting competition in order to protect and extend its software monopoly. The core question is that whether Microsoft can sell its industry leading operation system software combined with its “killer application” software IE (Internet Explorer). The combination of these two caused Microsoft’s victory in the Internet browser software’s market share over the rival companies like Netscape because at that time a third-party web browser software was slow to be downloaded over a modem or had to be purchased in a store. Furthermore, Microsoft’s APIs are considered to favor IE over third party web browsers and the company was intended to form restrictive licensing agreements with OEM computer manufacturers too.
The settlement of the 4 years’ complicated case, which once caused a potential solution to break Microsoft into two separate units to avoid the further monopoly in software industry, came out to be the share of Microsoft’s APIs and the full access to its systems, records and source codes for 5 years.
And this year in 2007, just before the release of the industry revolutionary product, iPhone, the Apple Computer Inc. was sued in U.S. over the iTunes-iPod link by an ordinary iTunes Music Store customer named Maleine Tucker who also seeks class-action status. The suit, which is quite similar to the Microsoft IE bundle case, alleges that Apple violated the antitrust law by refusing to allow the songs bought on iTunes Music Store to be played on third party mp3 players besides the iPod which is made by Apple itself. A similar suit was also filed in France by a consumer group in early 2005 and it is still ongoing.
Unsurprisingly, this is not the first time for Apple to be placed in front of the antitrust cases, because unlike Microsoft, Apple who has a history of pairing hardware and software to make sure they are producing the best product for their customers seems more likely to be monopoly in some quite restricted domains. But, I don’t think this iTunes-iPod antitrust case will leave any related troubles to Apple.
Why? Why the antitrust case only hit Microsoft but not Apple?
First of all, although both Microsoft and Apple have some kind of monopoly in their own particular domains, but monopoly doesn’t mean business trusts. Antitrust law prohibits anti-competitive behavior and unfair business practice. A business with a monopoly over certain products or services may be in violation of antitrust law, but only if it has abused its dominant position or market power. Microsoft took advantage of Windows’ predominant position in the operation system market to promote the expansion of its web browser, which in fact unfairly restricted the competition of web browser software market. The end-users of Windows merely chose a third-party web browser other than IE only because IE is free in the bundle and the installation of a third-party web browser may cause incompatibility due to the APIs offered by Microsoft. That’s the most important reason why Microsoft is considered to be offending the antitrust law.
But on the other side, Apple’s iTunes is one of the music jukebox software in the market and is chosen by its customers because of its outstanding user interface and music management performance. If you don’t like it, choose another jukebox software. And so is the iPod mp3 player. There’s no abuse of its dominant position or market power to conduct anti-competitive behavior.
Secondly, the activities generally prohibited by the antitrust law are: bid rigging, predatory price, price fixing, tying, vendor lock-in, geographic allocation, walker process fraud etc. In the U.S. v Microsoft case, the obtaining cost of IE is nearly free because it was already contained in the Windows, but the obtaining cost of a third-party web browser, Netscape for example, costs much more (both time and money). That caused a predatory price, a barrier to the potential competitors’ entry into the market, and a tying: you cannot buy a Windows without IE.
But for Apple, these prohibited antitrust behaviors don’t exist. Itunes is free, but all the other music player software on the market is free too: no predatory price. You can use iTunes without iPod or with any other mp3 players: no tying, and only Apple designates the price of iPod: no price fixing.
Maybe the only thing that remains doubts is that the music you buy from iTunes Music Store can only be played on your iPod but not on the other mp3 players because of its unique DRM solution (which is proved to the most successful and profitable solution). Just like the plaintiff complained in the antitrust suit: customers are “forced” to buy an iPod to hear the music he bought from the iTunes Music Store. Using Sherman Act successfully means first proving that Apple is first a monopoly, then that it abused that dominant position in a way that suppressed competition to the detriment of consumers. Well, on the first hand, that really is a monopoly on the Apple side, but quite restricted. Even the convicted monopolist, Microsoft argued that Apple’s monopoly is too restrictive to influence the competition in the digital music market. And on the other hand, even Apple’s monopoly exists; the iTunes Music Store doesn’t enclose the other distribution channel of music. On the contrary, it pushes the competition between the online music market and offline music market like: traditional CDs. One interesting example is that the fully protected, low quality music files can encourage customers to buy more CDs. And the final doubtful point can be answered that iPod can not only play DRM protected music, it can also play any mp3 files that ripped from your owned CD. So iPod is not a iTMS music only device. No coercive monopoly.
But one more thing , whether the antitrust proceedings against Apple finally succeeds or not, does the antitrust law really protect the competition of the market? The increasing government intervention and regulation in a relatively innovative industry like IT industry nowadays really helped to encourage regular competition and technology innovation? A great deal of possible antitrust cases filed to sue the most innovative company can bring us a more free market or only a focus-distracted company that will cause an ease of renovation of technologies so that the rival companies can be protected to live for a more long life? Microsoft was sued almost 10 years ago, and in these 10 years, we saw much less innovations from Microsoft than from the other OS companies. This is the result of the real competition of the market or just because Microsoft is weakened to be that? Most of us are still using Windows and cleaning spams and virus everyday. Why the competition protected by the antitrust law doesn’t bring the customer a better product and user experience? Is that the real free market we want and encouraged by the antitrust law?
The final reason, I think, why the antitrust cases hit Microsoft but not Apple may be that Apple today is still not that competent and overwhelming in the music market than Microsoft in the OS market in 1998.