When is a monopoly not OK?

By Marc E. Brown
photograph by Scott Gilbert

The recent antitrust lawsuits against Microsoft and Intel remind me of the question my antitrust professor used to ask: "Is it illegal just to be big?"
The answer is still "no." Yet, it is often difficult to distinguish between lawful competition and activity that violates the antitrust laws. That difference can be important. Up to a $10 million fine and three years in jail can be imposed. A competitor can also sue for treble damages and attorney fees.

Surprisingly, even a small company can violate the antitrust laws. Any agreement between two companies that "unreasonably restrains competition" is illegal. Although a vague test, there are several types of agreements that should be avoided. These include agreements to: set prices; divide territories or customers among competitors; not buy from a supplier or sell to a customer; purchase from only one supplier or sell to only one customer; and terminate a distributorship.

Microsoft is alleged to have entered into impermissible agreements with OEMs, Internet service providers (ISPs) and online services. Allegedly, these agreements prohibited these customers from using competitive browsers, or at least made it difficult for them to do so. No illegal agreement is alleged in the Intel suit.

The unilateral action of a single company with a large market share can also violate the antitrust laws. "Development [of a monopoly] as a consequence of a superior product, business acumen or historic accident" is lawful. The "willful acquisition or maintenance" of monopoly power is not.

One of the classic unilateral-action taboos is "predatory pricing"--selling at a low price to put a competitor out of business. Another risky area is "monopoly leveraging"--using monopoly power in one market to obtain it in another. One example, called "tying," is refusing to sell a component over which there is a monopoly, unless another is purchased with it. Microsoft allegedly refused to sell Windows 95/98 to OEMs unless they also purchased and installed Microsoft's browser, Internet Explorer. Likewise, Intel is alleged to have misused its monopoly power in microprocessors by refusing to provide certain customers with technical information, unless the customers licensed Intel under related patents.

Before unilateral action can constitute a violation, the company must have "monopoly power" in a "relevant market," or at least a "dangerous probability" of obtaining that power. Courts examine whether the company has the power to control prices or exclude competition. Microsoft is alleged to possess monopoly power in PC operating systems and to have a dangerous probability of obtaining monopoly power in Internet browsers. Intel is alleged to have monopoly power in general-purpose microprocessors or a dangerous probability of obtaining this power.

Mergers and acquisitions can also run afoul of the antitrust laws when they "substantially lessen competition" or "tend to create a monopoly." Selling different customers the same product at different prices can also constitute a violation, unless justified by a recognized exception.

Harm to competition is a key factor in almost every antitrust allegation. When instituting a policy that is likely to cause harm, seek legal counsel first.

Marc Brown is an EE and a partner in the Los Angeles office of Oppenheimer Wolff & Donnelly and head of its Electronics and Computers Practice Group. Marc can be reached at mbrown@owlaw.com.