CivicActions

The 5-year consent decree issued in the Microsoft antitrust case is about to expire. Microsoft says it has learned its lessons, won't misuse its market power again, and argues that the competitive environment has fundamentally changed with new threats from Google and other disruptors.

Many people even believe Microsoft when it says these things. So was this a successful remedy?

You may recall, Microsoft was found guilty of monopoly practices relating to its dominant OS, and its efforts to strangle Netscape, Java and other "middleware" threats to that OS dominance. Microsoft also used unfair business tactics to stifle other emerging threats in adjacent markets -- notably, digital media and servers.

Instead of splitting MS in two, the original remedy, the Bush administration agreed to lesser punishment. Microsoft was ordered to open up some of its code to licensing, allow OEMs to install non-MS software, report on what it was doing, and to abstain from already-illegal practices -- exclusive dealing, retaliation and so forth.

In the words of one leading antitrust expert, Herbert Hovenkamp, this "may prove to be one of the great debacles in the history of public antitrust enforcement, snatching defeat from the jaws of vistory." The true measure of the success of an antitrust remedy is not whether the monopolist thereafter leads a chorus of Kumbaya, but whether the remedy denies the monopolist the ability to retain the benefits of its illegal conduct, and prevents its repetition.

By all objective market measures, the Consent Decree has failed. Microsoft has maintained its monopoly in the market for Intel-compatible OS, and nothing but Microsoft's own sense of righteousness (and more acutely, the vigilence of plaintiffs' lawyers) prevents a repeat performance. The numbers:

Microsoft's share of the Intel-compatible OS market -- the heart of its monopoly -- was 93% in 1991, and 92% in 2006. (We'll see if Apple can make inroads here.)

Microsoft's share of the browser market did slip, from 95% in early 2002 to 80% in June 2007 (thanks largely to Firefox, and to a lesser extent, Safari for Windows), but this also remains at a comfortable monopoly level.

Microsoft's share of the relevant server OS market increased from 44% in 2000 to 73% in 2006.

Bottom line: There is lots of talk these days about Google being the new Microsoft. But don't count out the old monopolist quite yet.

This blog is drawn from a court filing drafted by Kathleen Foote, a smart and dedicated antitrust attorney with the state Attorney General, on behalf of a group of plaintiff states led by California (PDF).