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Federal Antitrust Agencies Focus on Software Industry

April 1991

When Ronald Reagan took office in January 1981, the “golden era” of antitrust enforcement came to an abrupt end, and prosecutions by the Antitrust Division of the Justice Department and the Federal Trade Commission were sharply curtailed. Cases that had absorbed millions of federal government dollars were voluntarily dismissed by the government. Law firms that had built their practices, and fortunes, on defending government antitrust suits and tag-along private suits, were forced to restructure. The Justice Department and the FTC limited most of their enforcement to bread and butter cases involving horizontal price fixing — the most heinous of all antitrust offenses — and the 1980’s became known as the era of “anti-antitrust.”

Moreover, the Reagan years saw the promulgation of laws intended to promote the formation of alliances and consortia of competitors under certain circumstances. Such organizations, the government hoped, would represent “pro-competitive” forces aimed at enabling U.S. companies to compete with the Japanese and other emerging foreign commercial powers.

While it is far too early to predict that the 1990’s will see a total return to the aggressive and sometimes questionable antitrust enforcement of the 1970’s, there are indications that the pendulum has begun to swing back toward more assertive and broader-based enforcement. Two current investigations in the high technology industry typify this change in government policy, and indicate that even ostensibly pro-competitive alliances will not escape close examination of their conduct.

OSF. The Open Software Foundation (“OSF”) was founded several ago years with the mission to develop a new standard for UNIX technology that would compete with a new AT&T and Sun Microsystems (a strategic partner of AT&T) version of UNIX. OSF was sponsored (and heavily funded) by many of the largest and most powerful members of the hardware and software industries, including IBM, Hewlett-Packard and DEC. Rather than develop all of the components of its UNIX system itself, OSF’s practice is to acquire some components of its technology through Requests for Technology to software vendors.

An FTC investigation into OSF has been prompted by complaints from software vendors that where a technology has been chosen by OSF, OSF has sought to compel an unreasonably low price at which OSF will purchase the technology, with little if any opportunity for negotiation on the part of the vendors due to OSF’s market power. At least one software vendor has claimed that OSF has threatened that if it refused to do business with OSF on this basis, OSF would select the submission of a competitor who was willing to do so, resulting in OSF sponsorship of a competitive product at a price which the original vendor could not hope to match. Apparently, the FTC is concerned that OSF’s clout, derived from the power and size of its member companies, is being used in this and other ways that may be harmful to competition.

Microsoft: The FTC also is reportedly investigating Microsoft, to determine whether that software giant has monopoly power in the market for microcomputer operating systems, and if so, whether it is misusing that power by making false product announcements and holding back technical information in order to obtain an unfair advantage in application software. The FTC also is said to be interested in joint activities between Microsoft and IBM.

TLB Comment: The OSF and Microsoft investigations would have been difficult to imagine in the 1980’s. These government inquiries suggest a new willingness by the federal agencies to explore anti-competitive activities in the areas of technical consortia and among companies with high market shares in important areas such as operating systems software. In OSF’s case, the clear lesson is that organizations of competitors should be very careful indeed to ensure that they avoid even the appearance of impropriety.

Postscript: In fact, the FTC never initiated an action against OSF. However, a private company did bring an antitrust suit against OSF which was still pending as of the date of the postscript (September 1995).

Microsoft, on the other hand, has been the unwilling recipient of extensive attention from the enforcement agencies, as detailed in later articles.