Antitrust: Apple Could Lose by Winning

by Steve Wildstrom   |   April 12th, 2012

A Cnet analysis by Declan McCullagh and Greg Sandoval of the antitrust suit against Apple and several book publishers concludes that the case against Apple seems particularly weak. But it rather curiously begins by citing the ultimate failure of previous antitrust suits against IBM and Microsoft.

iSooks screen shotI am hardly an antitrust expert and have no real feelings for the ins and outs of this peculiar case (in which Amazon.com is the elephant in the room.) But the IBM and Microsoft cases should serve as cautionary tales because both had profound effects on the companies that had little to do with the legal outcomes.

The IBM case, which involved the bundling of software with mainframe computers, was brought by the Johnson Administration three days before Richard Nixon took office. It dragged on until Ronald Reagan has been in the White House for a year, by which time conditions in the industry were radically different from when the case was filed. In the end, the government made a total botch of the trial and facing almost certain defeat, decided to drop the case (this is greatly oversimplified, but the detailed history isn’t important here.) But the victory was devastating for IBM. Twelve years of  litigation were an enormous distraction in a time of rapid technological and business change. IBM management because cautious and over-lawyered, constantly looking over its shoulder–a condition that persisted for years after the case ended. The antitrust case  was almost certainly a major cause of the serious decline of IBM in the late 1980s and early 90s.

The Microsoft history is similar, though the case only lasted four years. Unlike IBM, Microsoft lost big in the trial phase, but had the proposed remedy–a breakup of the company–rejected on appeal. Before a new judge could come up with an alternative remedy, the year-old George W. Bush administration settled on terms very favorable to Microsoft. Arguably, the settlement itself has had almost no effect on Microsoft. But the  suit had a major impact on the company. As in the IBM case, legal concerns distracted the company’s management at a time of critical change in the industry. There is also some evidence that unhappiness with the legal proceedings hastend Bill Gates’ departure as CEO. Microsoft  escaped from the suit on favorable terms, but the prosecution caused Microsoft lasting damage.

There’s one piece of good news  for Apple in the current case. Both the IBM and Microsoft suits cut to the heart of their business–how IBM sold mainframes and associated software, how Microsoft licensed Windows. Selling books is not central to Apple’s business and the company probably views the case as more of an annoyance than an existential threat. Still, apple might do well to do what it can to make the problem go away as quickly as possible. Spending time wrestling with the government is not the best way to stay on top of an always fluid industry.

 

 

Tags: ,

Steve Wildstrom

Steve Wildstrom is veteran technology reporter, writer, and analyst based in the Washington, D.C. area. He created and wrote BusinessWeek’s Technology & You column for 15 years. Since leaving BusinessWeek in the fall of 2009, he has written his own blog, Wildstrom on Tech and has contributed to corporate blogs, including those of Cisco and AMD and also consults for major technology companies.
  • http://kaizenity.blogspot.com/ FalKirk

    “Both the IBM and Microsoft suits cut to the heart of their business–how IBM sold mainframes and associated software, how Microsoft licensed Windows. Selling books is not central to Apple’s business and the company probably views the case as more of an annoyance than an existential threat.”

    The paragraph, above, vitiates the rest of the article.

    “Still, apple might do well to do what it can to make the problem go away as quickly as possible.”

    It’s always advantageous to make a problem go away but making a problem go away at the cost of creating an even bigger and longer lasting problem is not a solution, it’s an evasion. Apple probably sees little advantage to acceding to the government’s terms since they would destroy iBooks anyway.

    Until the Department of Justice proposes terms that will allow for the publishers, not Amazon, to determine ebook prices, Apple probably feels that it has little to lose and much to gain from their continued resistance to the proposed settlement terms.

    • steve_wildstrom

      I think the danger is that even though the suit is peripheral to Apple;s core interest, the company could get too deeply wrapped up in it.

      My personal guess–though it’s informed by the thinking of some antitrust experts who have commented on the case–is that Apple believes that it was added as a defendant mainly for show and that the government’s case against it (as opposed to the publishers) is so weak that it will be dismissed. Certainly based on the information filed, Justice has evidence that the publishers colluded to raise prices, but no evidence it has revealed to show that Apple was a party to the collusion.

      Still, if DoJ is prepared to offer Apple a cheap way out of the case–a relatively meaningless consent decree–they ought to take it and get on with their program of world domination.

      • http://kaizenity.blogspot.com/ FalKirk

        “if DoJ is prepared to offer Apple a cheap way out of the case–a relatively meaningless consent decree–they ought to take it…”-steve_wildstrom

        Agreed. I actually thought that was what was going to happen. The fact that Apple resisted the settlement tells me that the think the current terms would effectively end their ability to compete in the ebook markets.

        P.S. My earlier comment came out harsher than I had intended. It takes time and thought to be courteous. Being mean is as easy and quick. I’m sorry I didn’t put more time and thought into my earlier response.

  • Pingback: Antitrust & Innovation in the New Economy: The Problem with the Static Equilibrium Mindset