cases of monopoly abuse

8/8/2019 Cases of Monopoly Abuse

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Business Economics Report: Monopoly

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2. Case of Intel Corp.The European Union fined Intel Corp. a record $1.44 billion over sales tactics it

said the world's biggest computer chip maker used to block smaller rival AMD.

Intel, based in Santa Clara, California, had about 80 percent of the world's

personal computer microprocessor market and faced just one real rival,

Advanced Micro Devices Inc.

The European Commission says Intel broke EU competition law by exploiting its

dominant position with a deliberate strategy to keep AMD out of the market.

It says the company gave rebates to computer manufacturers Acer, Dell, HP,

Lenovo and NEC for buying all or almost all their x86 computer processing units,

or CPUs, from Intel and paid them to stop or delay the launch of computers based

on AMD chips.

Regulators said Intel also paid Germany's biggest electronics retailer, Media

Saturn Holding which owns the MediaMarket superstores from 2002 to

2007 to only stock Intel-based computers.This meant that workers at AMD's

biggest European plant in Dresden, Germany, could not buy AMD-based personal

computers at their city's main PC store.

"Intel has harmed millions of European consumers by deliberately acting to keep

competitors out of the market for computer chips for many years," said EU


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Competition Commissioner NeelieKroes. "Such a serious and sustained violation

of the EU's antitrust rules cannot be tolerated."

EU regulators said they calculated Intel's fine on the value of its European chip

sales over the five years and three months that it broke the law. Europeans buy

some 30 percent of the euro22 billion ($30 billion) in computer chips sold every

year.

They could have gone even higher as EU antitrust rules allow them to levy a fine

of up to 10 percent of a company's annual global turnover for each year of bad

behavior. Intel's worldwide turnover was euro27.9 billion ($38.8 billion) in 2007.

The European Commission also ordered Intel "to cease the illegal practices

immediately to the extent that they are still ongoing" and warned that it would

check that the company was complying.

The manufacturer rebates started in 2002, the EU said, with most ending in 2005,

apart from a 2007 deal for one unidentified company to only source notebook

computer chips from Intel.

Regulators said rebates that give discounts for large orders are illegal when a

monopoly company makes them conditional on buying less of a rival's products or

not buying them at all.


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Manufacturers depend on Intel to supply most of the chips they need and faced

higher costs if they lost most or all of a rebate by choosing AMD chips for even a

small order.

Hewlett-Packard buys a fifth of Intel chips with Dell taking 18 percent, according

to market research from Hoovers.

The discounts were so steep that only a rival that sold chips for less than they cost

to make would have any chance of grabbing customers, the EU executive said.

It said AMD offered 1 million free chips to one manufacturer which could not

accept because that would lose it a rebate on many millions of other chips. It only

took 160,000 free chips in the end, regulators said.

Intel's payments to manufacturers ordered the company to delay the European

launch of AMD's first business desktop by six months. They were also paid to only

sell the AMD line to small and medium companies and to only offer them directly

to customers instead of to retailers.

Other manufacturers were paid to postpone the launch of AMD-based notebooks

by several months, from September 2003 to January 2004 and from September

2006 to the end of 2006 missing the key Christmas market.

The European Commission said Intel tried to conceal the conditions attached to

these payments and details only emerged from e-mails that regulators seized in

surprise raids on the companies.


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But the EU charges also cover a time when AMD managed to take market share

from Intel by launching higher performance microprocessors for servers in 2003,

previously an Intel stronghold.

Intel fought back successfully by rolling out Core chips. More recently, it has

grabbed more market share with Atom chips for netbooks.

EU regulators are not the only ones chasing Intel South Korea fined the

company $21 million last year.

And the U.S. may be stepping up action. The Federal Trade Commission upgraded

a probe into Intel last year and as the Obama administration is set to take a

more aggressive approach against monopoly abuse by reversing a strict

interpretation of antitrust law that saw regulators shun such cases.


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3. Case of Microsoft

(i)Merging of internet explorer with Windows 95

This is one of the most debated cases wherein Microsoft was alleged to have

violated the competition policy in 1995 by combining the internet explorer with

its pack of Windows 95 operating system. The case was filed by the department of

justice and Netscape communications.

As a result of this combination, the web browser of Netscape Communications

suffered badly as the users already had a browser and spending for another one

was not preferred by many of them. Due to this, the sales of Netscape

Communication went down drastically. Moreover the sales and market share

attained by Microsoft was very high due to the widespread acceptance of

windows 95 as the one of the best options for operating systems at the time and

Netscape had to depend on operating systems of other manufacturers (mostly

Microsoft and apple) for using its web browser.

The software giant Microsoft had issued a broadside against US government

charges that it abused a monopoly position.

In a 48-page document it tries to counter a Justice Department application to

impose $1 million per day in fines to punish Microsoft for alleged violations of a

1995 agreement meant to foster competition.


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In that undertaking, Microsoft agreed not to tie the purchase of one product to

another but retained the right to develop new, integrated products. Microsoft

now contends that that is a false distinction.

"There is no reason why a 'separate product' cannot also be part of an 'integrated

product,'" the company argued.

It accused the Justice Department of taking sides in the so-called browser war.

Microsoft is seeking to topple Netscape Communications from its dominance of

the Web browser market.

Last month, the government released documents showing that Microsoft

threatened to cut off its vital Windows 95 operating system software to any PC

manufacturer highlighting Netscape's Navigator on its desktop instead of

Microsoft's Internet Explorer.

But Microsoft argued in its brief that it is protecting the integrity of Windows 95,

because removing Internet Explorer could impair other parts of the operating

system.

"We have no tangible assets"

In the documents issued by the government to bolster its case against Microsoft,

some PC manufacturers said they had been threatened that they would not be

able to bundle Windows 95 with their products if they tried to install it without

Internet Explorer.


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Microsoft also tried to bind the manufacturers with secrecy clauses. Nothing

sinister in that, says Microsoft's lawyer William Neukom.

"Our crown jewels are our intellectual property," he said. "They're not tangibleassets. We don't own some oil reserves or some railroad, it's just the smart ideas

and fanciful expression that people create at Microsoft that gives us any value."

He also argues that everyone - government included - had known before

Windows 95 was launched that Internet Explorer would be an integral part.

"The government was fully aware of Microsoft's plans," MrNeukom said. Nothing

prevented manufacturers or consumers from installing additional brands of

Internet browsers.

"They're absolutely free to do it and they do do it."

Microsoft also denies it holds a monopoly.

"Windows 95 is unquestionably popular with consumers, but that does not

establish that Microsoft wields monopoly power," it said.

The company is asking District Judge Thomas Penfield Jackson to dismiss the

entire action immediately

(ii) Case of Windows media player

RealNetworks Inc. has filed a lawsuit against Microsoft Corp., alleging that the

Redmond, Washington, software giant has illegally used its power as a monopoly

to control the digital media market.


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The lawsuit, filed in federal court in San Jose, California, claims that Microsoft has

forced PC manufacturers to include Microsoft's media player while at the same

time placing restrictions on how competing players may be installed,

RealNetworks said in a statement released on Thursday.

"We're accusing Microsoft of engaging in a broad range of predatory practices to

protect their operating system monopoly and to try to create a new monopoly in

the digital media space," said David Stewart, deputy general counsel for

RealNetworks, in an interview.

The lawsuit seeks to recover damages lost because of "Microsoft's illegal

conduct," according to a quote in the statement attributed to Rob Glaser,

RealNetworks' chairman and chief executive officer.

These damages could exceed US$1 billion, the statement said.

"We're trying to stop Microsoft's conduct in the digital media space and we're

seeking good compensation for the harm Microsoft has caused us," Stewart said.

The settlement Microsoft reached in November 2001 in the antitrust case brought

against it by the U.S. Department of Justice (DOJ) and several U.S. states is flawed,

Stewart said. The settlement orders Microsoft not to retaliate against PC makers

who offer competing software products, such as RealNetworks' media player,

with the PCs they sell.

"We cooperated extensively with the DOJ in the antitrust case, but it has become

clear that government action wasn't enough," Stewart said. "The settlement is full

of loopholes and Microsoft is using them all. Microsoft is still restricting how PC


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makers install media players on PCs and forcing PC makers to install Windows

Media Player."

Furthermore, Microsoft is preventing consumers from removing Windows Media

Player, Stewart said. "The settlement the DOJ entered into just isn't stopping

Microsoft's predatory conduct, and we're also alleging a broader course of

predatory conduct," Stewart said.

RealNetworks has a case, said Richard Doherty, director of research at

Envisioneering Group Corp., in Seaford, New York. He believes other providers of

media players, such as Apple Computer Inc., will join in the lawsuit.

4. Apple andAT&T caseA federal judge had approved an antitrust lawsuit against Apple and AT&T for the

iPhones exclusive phone service. Judge James Ware of U.S. District Court for the

Northern District of California stated in court on July 8th that the case will move

forward as a class action lawsuit, involving anyone who has bought an iPhonesince its release in June 2007.

The initial complaint filed in 2007 alleges that Apple and AT&T engaged in

monopolistic practices by discouraging users from leaving the service network by

refusing to unlock their iPhones after the expiration of their two-year service

contracts. Additionally, litigants charge that Apple took control over what third-party apps could or could not be installed, though this accusation has been

dismissed.


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The key issue is the condition of Apples partnership with AT&T. Though never

publicly reported, court documents have proven that Apple was to have an

exclusive five-year contract with AT&T. This would contradict the two-year

contract consumers enter upon purchase of their iPhone.

The lawsuit claims these efforts have hurt competition and drove up prices for

customers.

Apple and AT&T have not made comments about their partnership. Apple denies

the accusations that its practices hurt competition.

Steve Jobs and Apple have been obstinately tight-lipped about the exclusive AT&T

coverage and how long it will continue. Now, it looks like their answer will have to

be given in court.

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