The Second Coming of the Microsoft Antitrust Battle?

Impeding innovation. Reducing consumer choice. Extending dominance to other markets.

These are accusations that the Justice Department leveled against a technology giant it accused of running an illegal monopoly. But they aren’t from this week’s antitrust lawsuit against Apple — they’re from the case the department brought against Microsoft in 1998.

The move against Apple is, along with the Justice Department’s 2020 lawsuit against Google over search, perhaps the most ambitious tech antitrust battle since the Clinton administration’s effort to open up Microsoft’s Windows operating system.

And federal prosecutors are explicitly connecting the Apple lawsuit to that earlier fight. “They’re really presenting this case as a successor to that: Microsoft 2.0,” said Gus Hurwitz, a senior fellow at the University of Pennsylvania Carey Law School.

But the comparison isn’t perfect. And it isn’t clear whether the Justice Department will be able to achieve here what it claims to have done by suing Microsoft.

The Justice Department sees a direct connection between the two cases. “Microsoft” appears 26 times in the Apple complaint. And prosecutors say Apple wouldn’t have achieved its current towering success had it not been for the government’s fight against Microsoft:

The iPod did not achieve widespread adoption until Apple developed a cross-platform version of the iPod and iTunes for Microsoft’s Windows operating system, at the time the dominant operating system for personal computers. In the absence of the consent decree in United States v. Microsoft, it would have been more difficult for Apple to achieve this success and ultimately launch the iPhone.

In the 1998 case, the Justice Department argued that Microsoft illicitly sought to protect its Windows software from competition like the Netscape Navigator browser and Apple’s QuickTime multimedia software.

This week, the agency said Apple was doing something similar, unlawfully restricting competition by denying rivals access to key iPhone features like its contactless payment chip. “Each step in Apple’s course of conduct built and reinforced the moat around its smartphone monopoly,” prosecutors wrote in Thursday’s lawsuit.

The Justice Department sees another opportunity. Any hold Microsoft had on the emerging internet economy, the agency says, was broken, allowing companies like Google, Facebook and, yes, Apple, to prosper.

“Today, we stand here, once again, to protect competition and innovation for the next generation of technology,” Jonathan Kanter, the Justice Department’s antitrust chief, said at Thursday’s news conference.

Others say the Microsoft case’s legacy is less clear. Hurwitz told DealBook that the reality was more complicated. Netscape failed in part because a botched upgrade turned off users, while Microsoft missed out on the dawn of internet 2.0 services because of bad strategic decisions.

“In terms of actual industrial changes, I think the case yielded very little,” Hurwitz said.

The comparison of the lawsuits falls short in several ways. For one, the Apple case is more ambitious, said William Kovacic, a law professor at George Washington University and a former chair of the Federal Trade Commission. While both cases accused companies of using exclusivity to hamper rival technologies, the more recent case also demands that Apple ease operability across platforms, like ensuring that text messages from iPhone and Android devices work the same.

Then there is the matter of defining market share. In 1998, over 80 percent of Intel-based personal computers used Windows software. By contrast, the iPhone had about 64 percent of the U.S. smartphone market at the end of last year, according to one estimate. (Globally, it’s closer to 20 percent.) That said, federal prosecutors say Apple controls 70 percent of what they call the “performance” smartphone market, which also includes high-end devices by Samsung and Google.

And technology advances more quickly than it did in 1998. Smartphones could evolve in unexpected directions by the time the Apple case wraps up, potentially limiting the case’s effect on innovation. “Technology is racing ahead like a Formula 1 automobile,” Kovacic said, “and antitrust is riding a bicycle trying to catch up.”

The Microsoft fight does underscore the risks Apple faces. Regardless of what the earlier antitrust lawsuit accomplished, Microsoft was tied up in litigation for years, a costly distraction. Apple — which is already battling tighter regulations around the world — will have to devote some of its considerable resources to defending itself here.

“That might open up opportunities for competitors,” Hurwitz said. But he added, “That’s not necessarily the best way of facilitating competition in the market.” — Michael J. de la Merced and Sarah Kessler

IN CASE YOU MISSED IT

Microsoft poached an artificial intelligence pioneer. The Windows maker hired Mustafa Suleyman, a former Google executive, and most of the staff at Inflection AI, the start-up he co-founded. Suleyman will lead Microsoft’s consumer A.I. business.

The Federal Reserve reiterated expectations to cut rates three times this year. The central bank held interest rates steady at about 5.3 percent, with inflation not yet at the Fed’s 2 percent target. Jay Powell, the Fed chair, said the economy was performing strongly, a sign that a recession may not be needed to bring down inflation.

The Biden administration issued one of its toughest climate rules yet. New Environmental Protection Agency regulations will require most cars sold in the United States to be electric or hybrid by 2032. The rules will gradually limit allowed tailpipe emissions, but will give carmakers more time to adapt than previously planned.

Donald Trump’s social media company merged with a shell company. Shareholders of Digital World Acquisition Corporation voted to give the parent company of Truth Social its stock market listing. The transaction will add $3 billion to Trump’s wealth, potentially providing a new cash source to pay his mounting legal bills.

Reddit is the first social media company to go public since Snap in 2017. It is also the first to do so in the meme stock era, making its own users one of the biggest risks to its share price. Leading up to the initial public offering on Thursday, some wondered if Reddit users on forums like WallStreetBets, which helped power the rise of meme stocks, would try to manipulate the company’s share price as they did for GameStop, AMC Entertainment and BlackBerry. But Ivan Cosovic, the managing director of the data company Breakout Point, told DealBook that chatter in the community had been “a mix of short-term excitement driven by FOMO and long-term skepticism based on fundamentals.”

Mentions of RDDT, Reddit’s stock ticker symbol, on WallStreetBets peaked after its shares started trading Thursday afternoon, rising to be on a par with mentions of the chipmaker Nvidia, a favorite stock of retail investors. But they amounted to just 5 percent of the daily mentions of GameStop in January 2021, when the forum helped drive the retailer’s stock up more than 1,700 percent. And they petered out shortly after Reddit’s shares listed.

Opinions on the forum largely varied between two extremes. “This is a death sandwich, which exists purely as VC exit liquidity,” read one popular post. Another said users bashing Reddit’s stock in the forum “all use it for 12 hours a day and would be helpless without it.”

How China views the new U.S. crackdown on TikTok

Dan Wang is a leading observer of contemporary China. As a tech analyst at Gavekal Dragonomics, a research firm, and through his well-read newsletter, Wang has charted the country’s rise as a fast-growing high-tech economy and, more recently, its slowdown and rising tensions with the United States.

Wang is now a visiting scholar at Yale Law School’s Paul Tsai China Center and writing a book about the relationship between China and the U.S. The interview has been edited and condensed.

How does China see the latest TikTok fight?

Chinese state media and the government have made it clear that this is very unwelcome. China feels that ByteDance is a very, very successful company that is being bullied in America because it is Chinese. The Chinese people are affronted by the U.S. government declaring it a national security threat. And Beijing has passed laws that recommendation algorithms are subject to Chinese export controls, so the sense is that the government will not allow a sale to go through.

Is the Chinese government using the case as a propaganda tool?

State media is keeping its powder dry because there are still several steps before ByteDance might have to sell TikTok in the U.S. These include Senate passage, the White House’s signature, as well as the legal challenges that ByteDance is sure to bring. Before this looks imminent, state media is not rallying citizens to object too much.

What does it look like when state media mobilizes the public?

In 2022, Congress passed the Uyghur Forced Labor Prevention Act, and a lot of Western companies made anodyne statements. Chinese state media seized on one company, H&M, which made a fairly typical statement that it did not source from Xinjiang or tolerate forced labor in its supply chains. China’s Communist Youth League reposted a statement on social media saying that you cannot both make money in China as well as criticize China. That incited a consumer boycott. H&M products disappeared from pretty much all e-commerce sites, and H&M stores disappeared from online maps. The company was essentially erased from the Chinese internet, and it was really difficult to buy its products or find its physical stores.

How could China retaliate toward U.S. companies?

The more important question is: Does Beijing decide that this act is worthy of retaliation? I spent all four years of President Trump’s trade war living in China, and Beijing was highly forbearing toward U.S. companies.

First, Beijing realizes that big U.S. companies are major employers in China, like Apple, through Foxconn, as well as Tesla. Second, Beijing realizes that American businesses are its last best friends left in Washington, and it would prefer that American companies continue to lobby Congress to maintain ties. It would also prefer that Elon Musk doesn’t spend all day tweeting about how terrible China is.

Is China playing a long game?

Beijing might well treat this as a pretty substantial propaganda victory if the U.S. government forces a sale or actually bans TikTok. It would play into Beijing’s hands to say that the U.S. has been talking about free speech for a long time but this illustrates that the U.S. is a hypocrite.

How is the fact that Steven Mnuchin, the former Treasury secretary, is working on a bid to buy TikTok perceived?

If it is successful, it would be viewed as in bad taste — not just in China but pretty much everywhere — that an official who ordered a sale then ends up actually owning it. For Beijing, it would be the cherry on the cake in terms of its propaganda.

Read a longer version of this interview here.

Thanks for reading! We’ll see you Monday.

We’d like your feedback. Please email thoughts and suggestions to [email protected].