txlaw

This is where it gets risky to invest in very large companies. The shareholders have no control over whether or not some junior level exec is using language like "Knife the baby!". The execs should go to prison or be fined meaningfully for breaking the law. The owners of the company usually are the ones punished in these cases -- these execs are merely employees, they can be the ones punished. Who would advocate that Berkshire should be broken up because senior executives are trading on insider (to Berkshire) information? Just punish the exec, set the example, and move on. Execs will (may) behave better if there is personal liability. In the MSFT case, the claims were for corporate antitrust violations, not individual violations by execs. So not exactly the same situation as with Lubrizol. The case wasn't mere abusing at the behest of competitors, which is exactly the type of campaign that MSFT loves to incite now days. There were legitimate reasons for bringing the case, IMO. The break-up remedy was pretty drastic and got reversed. So there you go.

We sat through a lot of compliance training after the fact. People had this impression that Microsoft did absolutely everything in it's power to push all rivals out of business. The govt lawyers then presented only the emails they could find to defend that argument. What they didn't present are examples of us working overtime to help third party software companies fix their bugs, for free! I once debugged a program called Cleansweep in the late 1990s... I didn't have the application source code or symbols, I had to do it in assembly code in the wdeb386.exe debugger (the Windows 95 kernel debugger). When people installed IE5, they reported it crashed all the time. Turns out, cleansweep installs windows hooks that get's their hook dlls into the IE process. I discovered a compiled section of assembly code of theirs where they were taking an address to an allocated block of heap out of a global variable, saving that address on the stack, and then grabbing a synchronization mutex. Then they'd pop the address off the stack and read/write the values from it. So in the meantime, some other thread had freed that block of memory -- you see, by saving it locally on the stack before acquiring the mutex, this operation was completely unsynchronized across threads. So the writing was then often corrupting the values of that memory being used lawfully elsewhere on another thread, or perhaps corrupting heap structures within the allocator itself. So, you'd have random crashes and every user would say that IE5 crashed a lot. So they were very grateful and amazed that I was willing and that I was granted the time from my managers to describe to them exactly what the problem was. We did this kind of thing all the time. That was never presented by the goverment. There was no balance. Of course we looked bad when only the negatives were cherry picked! Justice? You know, I can't disagree that the case appears to have been presented in a way that made MSFT look more evil than it actually was. In litigation, both sides usually paint pictures that are biased towards their prospective sides. Microsoft wasn't exactly forthcoming with their own arguments about what they were doing. I am over-exaggerating when I call MSFT evil. You have to understand that I grew up in the generation that would diss Microsoft all the time for being evil, and the antitrust cases didn't help MSFT from a PR perspective. But just because MSFT did things well and added value to the world doesn't mean that they did not violate the law. An analog for today would be the SEC suit against Goldman. I like to take potshots at Goldman as much as any of us so, calling them the Vampire Squid and such, but I understand that the actual picture is more nuanced. We don't want courts to go all Zerohedge against Goldman when they're actually deciding whether or not Goldman violated the law. But sometimes the disingenuous PR responses on both sides will cause an escalation in rhetoric that makes everyone look bad.

We sat through a lot of compliance training after the fact. People had this impression that Microsoft did absolutely everything in it's power to push all rivals out of business. The govt lawyers then presented only the emails they could find to defend that argument. What they didn't present are examples of us working overtime to help third party software companies fix their bugs, for free! I once debugged a program called Cleansweep in the late 1990s... I didn't have the application source code or symbols, I had to do it in assembly code in the wdeb386.exe debugger (the Windows 95 kernel debugger). When people installed IE5, they reported it crashed all the time. Turns out, cleansweep installs windows hooks that get's their hook dlls into the IE process. I discovered a compiled section of assembly code of theirs where they were taking an address to an allocated block of heap out of a global variable, saving that address on the stack, and then grabbing a synchronization mutex. Then they'd pop the address off the stack and read/write the values from it. So in the meantime, some other thread had freed that block of memory -- you see, by saving it locally on the stack before acquiring the mutex, this operation was completely unsynchronized across threads. So the writing was then often corrupting the values of that memory being used lawfully elsewhere on another thread, or perhaps corrupting heap structures within the allocator itself. So, you'd have random crashes and every user would say that IE5 crashed a lot. So they were very grateful and amazed that I was willing and that I was granted the time from my managers to describe to them exactly what the problem was. We did this kind of thing all the time. That was never presented by the goverment. There was no balance. Of course we looked bad when only the negatives were cherry picked! Justice? You know, I can't disagree that the case appears to have been presented in a way that made MSFT look more evil than it actually was. In litigation, both sides usually paint pictures that are biased towards their prospective sides. Microsoft wasn't exactly forthcoming with their own arguments about what they were doing. I am over-exaggerating when I call MSFT evil. You have to understand that I grew up in the generation that would diss Microsoft all the time for being evil, and the antitrust cases didn't help MSFT from a PR perspective. But just because MSFT did things well and added value to the world doesn't mean that they did not violate the law.

Apple is not in the same dominant position that MSFT was in back in the day. Like I said before, if Apple were to obtain a dominant position in the market, you can bet that they would be facing both PR issues and legal issues. I doubt that will ever happen because Apple has strong competitors in Microsoft and Google. Derivative products? Really?

So why do you think Java on the client was something so important? Did you hear that from Sun's legal department, or was it Google's? It was also not the first virtual machine, just Sun's first one. Try from the Jackson decision and Microsoft's own internal papers that came out during discovery, all of which are publicly available documents. Jackson is an individual. He was overruled by the way for being openly biased. And it wasn't the first case where bias was suspected, so guess why he was selected for the trial? Oh, maybe that wasn't the reason why. He was also physically sleeping through some of the testimony, and he didn't understand the technology (which is why you couldn't really provide technical facts to argue a point). Did MSFT's legal department tell you to use that argument? I was working with the IE product team. It's the technical arguments that were ignored (that I understood) that led me to believe he was ill suited for the case. Here's something you might remember. Rob Glaser went to the Senate floor to argue that Internet Explorer's installation package removed RealPlayer as the default media player for specific file types. What Glaser didn't tell them is that RealPlayer failed to register as the default player for those file types. So in setup, IESetup would check if there were already a default player (looking at a registry key) and there was none listed, so it would claim the registry key for itself. It was clearly documented in MSDN how to register as the default media player for a given file type. You know, it's part of that "hidden API" that is right here for free for all to find? http://msdn.microsoft.com These are the kind of accusations that work great on Senators and lawyers, but engineers laugh at the outrageousness of the allegations. And good luck explaining how the registry works to a technical layman like perhaps a federal judge. Yes, but the excerpt I pasted above states that the Court of Appeals did not find that "either middleware product necessarily would have developed in a way that eroded Microsoft's Windows monopoly, absent Microsoft's unlawful conduct." The Court of Appeals agreed with you, I think, in that regard. You're arguing that the technical arguments for Penfield's decision were false or very unlikely, which may be true, but the ultimate ruling, after Jackson was reversed, was still that "Microsoft unlawfully suppressed nascent competition from middleware." I'm the last person who's going to argue with you that lawyers and Senators wouldn't necessarily be able to understand the technical arguments. By the same token, engineers don't necessarily understand what sort of actions are or are not illegal under the federal antitrust laws.

Yeah, now you can. But not back in the day. Plus, you have to pay to install Windows on a MacBook, don't you?

So why do you think Java on the client was something so important? Did you hear that from Sun's legal department, or was it Google's? It was also not the first virtual machine, just Sun's first one. Try from the Jackson decision and Microsoft's own internal papers that came out during discovery, all of which are publicly available documents. Jackson is an individual. He was overruled by the way for being openly biased. And it wasn't the first case where bias was suspected, so guess why he was selected for the trial? Oh, maybe that wasn't the reason why. He was also physically sleeping through some of the testimony, and he didn't understand the technology (which is why you couldn't really provide technical facts to argue a point). Did MSFT's legal department tell you to use that argument? -------- From the review of the Final Judgments by the US and the states, who admittedly would have a different take than MSFT: To assess the effectiveness of the Final Judgments, the litigation context and the decrees' goals necessarily should be considered. This is especially true in light of the Court of Appeals' decision narrowing the liability findings against Microsoft and overturning the District Court's original remedy. First, Plaintiffs alleged and proved that Microsoft maintained its monopoly position in the Intel-compatible PC operating system market by unlawful exclusionary conduct. The Court of Appeals affirmed that Sherman Act § 2 violation. There was no determination that Microsoft acquired its Windows monopoly by illegal means, however. See United States v. Microsoft Corp., 253 F.3d 34, 56 (D.C. Cir. 2001). Second, although the Court of Appeals upheld the Sherman Act § 2 liability finding that Microsoft unlawfully suppressed nascent competition from middleware -- specifically, Netscape's Navigator browser and Sun's Java technologies -- the Court of Appeals did not find that either middleware product necessarily would have developed in a way that eroded Microsoft's Windows monopoly, absent Microsoft's unlawful conduct. As discussed above, the theory of the case was that if middleware were allowed to develop without artificial hindrance, independent software developers could create competing middleware platforms that could be ported to non-Windows operating systems. Developers could then write software that runs on one of the cross-platform middleware products, thereby allowing their applications to run on any operating system supported by the middleware. In turn, OEMs would be more likely to offer not only non-Microsoft middleware products, but also PCs running competing operating systems. Correspondingly, if non-Windows products proved more desirable to users, Microsoft's Windows monopoly could, indeed, be eroded under a regime of marketplace competition. Users then would have improved opportunities to select a client operating system based on the merits of competing systems. The Court of Appeals therefore ruled that Microsoft denied Netscape and Sun this opportunity to compete on the merits, and, in so doing, to assist in breaking down the applications barrier to entry that protects the Windows monopoly.(3) Accordingly, besides assuring cessation of Microsoft's unlawful activity and preventing its recurrence, the over-arching objective of the Final Judgments are to create conditions in the market that afford non-Microsoft middleware opportunities to compete comparable to those that Microsoft denied to Netscape and Sun.(4) The litigation, however, did not afford a basis for extinguishing Microsoft's Windows monopoly position or for reducing it by a particular amount. As the United States explained in its Response to Comments -- in a passage that the Court of Appeals specifically quoted and endorsed in upholding the remedy in Massachusetts v. Microsoft, 373 F.3d 1199, 1243 (D.C. Cir. 2004): [T]he key to the proper remedy in this case is to end Microsoft's restrictions on potentially threatening middleware, prevent it from hampering similar nascent threats in the future, and restore the competitive conditions created by similar middleware threats. In this context, the fruit of Microsoft's unlawful conduct was Microsoft's elimination of the ability of potentially threatening middleware to undermine the applications barrier to entry without interference from Microsoft. The RPFJ addresses and remedies precisely this issue. Response to Comments ¶ 17 (Feb. 27, 2002). Similarly, the New York Group explained in its memorandum supporting entry of the Final Judgments: A middleware product is not in itself a competitor to Microsoft's Windows operating system products. Rather, it is the catalyst for a multi-step process that may, by lowering the applications barrier to entry, bring about conditions under which other PC operating system products can compete with Windows on their competitive merits. Microsoft's unlawful conduct therefore consisted of destroying competitive threats while they were still in their infancy. No certain prediction could or can be made whether such threats would in fact mature into actual competition in the PC operating system market. Memorandum of Law of the Settling States in Support of the Proposed Final Judgment, at 6 (Feb. 27, 2002). Thus, as the United States, New York Group, Court of Appeals, and this Court have all emphasized, the goal of the Final Judgments is to protect the nascent threats to Microsoft's monopoly that may come from middleware products against anticompetitive interference by Microsoft.

You're misunderstanding the nature of monopolies. Just because a monopoly was eroded over time doesn't mean there wasn't one that was kept in place longer than it should have been due to monopolistic practices. By your definition, AT&T was never a monopoly because they eventually got displaced by the Internet. No, that's not by my definition. Apple's computer is a viable alternative to Microsoft's. I should know, I'm using one. It is not a new "disruptive" technology -- it's just another laptop with their own code in it. And I don't have a choice between Comcast and some other cable company. I just have Comcast. I can walk into any Best Buy and purchase something other than a Windows PC. I can even have Office pre-loaded on the Mac. If you were a businessman in the early 90s, did you really have a choice other than Windows? Of course not! That's what the network effect was all about! The QWERTY problem in full effect. Businessmen get to control what software does and does not get installed on the corporate desktop. They can deploy Netscape automatically to every desktop with automation software from Microsoft! Ever heard of SMS? MOM? How about InTune? The DOJ case was about consumer choice, and in the late 1990s you could buy a Mac with Office and you could browse the web and that's all consumers do anyhow. Yeah, right. Anybody who has worked in an office has experienced having to use shitty software because it is compatible with Microsoft technologies, which everyone else is using. The DOJ case was about monopolization, and MSFT's position in both the consumer space and business space was inseparable for determining whether it had a dominant position.

So why do you think Java on the client was something so important? Did you hear that from Sun's legal department, or was it Google's? It was also not the first virtual machine, just Sun's first one. Try from the Jackson decision and Microsoft's own internal papers that came out during discovery, all of which are publicly available documents.

You're misunderstanding the nature of monopolies. Just because a monopoly was eroded over time doesn't mean there wasn't one that was kept in place longer than it should have been due to monopolistic practices. By your definition, AT&T was never a monopoly because they eventually got displaced by the Internet. No, that's not by my definition. Apple's computer is a viable alternative to Microsoft's. I should know, I'm using one. It is not a new "disruptive" technology -- it's just another laptop with their own code in it. And I don't have a choice between Comcast and some other cable company. I just have Comcast. I can walk into any Best Buy and purchase something other than a Windows PC. I can even have Office pre-loaded on the Mac. If you were a businessman in the early 90s, did you really have a choice other than Windows? Of course not! That's what the network effect was all about! The QWERTY problem in full effect.

Key phrase, "for long." In the interim, though, progress is stifled and monopoly profits are extracted. Tell AT&T that they were never monopoly because the Internet would eventually come along to erode their business model. They would laugh in your face. LVLT is great because they are trying to be the low-cost, highest quality pipeline for the transmission of bits. They're not trying to extract monopoly profits.

You're misunderstanding the nature of monopolies. Just because a monopoly was eroded over time doesn't mean there wasn't one that was kept in place longer than it should have been due to monopolistic practices. By your definition, AT&T was never a monopoly because they eventually got displaced by the Internet. You can deny how the network effect helped MSFT become a monopoly all you want, but you're not gonna convince me that there was never any monopoly. And do you know how much money MSFT spends for advertising and lobbying instead of innovating? Do you know how much time MSFT has spent in court bringing IP suits against competitors? Google and others have had to spend an inordinate amount of time developing and protecting IP so that they can continue to create open standards without having folks like MSFT trying to cram in standards where they will get a patent royalty. Gimme a break on the whole "all they can do is sue" argument. I won't argue there. No way I can answer that one. It was well before my time, and plus I'm not a developer.

I see you edited your post. The difference is that Google is making things better for consumers, which is benefiting Google. Microsoft had no qualms about sabotaging the potential of various technologies to the detriment of consumers and to the benefit of themselves. Google's interest is aligned with consumers, except one might argue on the privacy front, which is what Microsoft does argue. Chrome OS is built off of Chromium, which is open source, so you could develop a competing thin-client OS or browser if you wanted to. And maybe there will be a Firefoxbook.

Yeah, but MSFT had a monopoly position, and it abused it. Hey, if you're an OEM and you want to sell to consumers and especially to businesses, who virtually all require Windows due to the network effect, you better not market Netscape on the desktop. Because otherwise, we're taking your license away and you're toast. Oh, and if you're Netscape, you better use our proprietary APIs or we're going to dominate you by making sure that all businesses have to rely on IE because we know that once business start developing websites for IE, it will be more difficult for future businesses to ignore IE and all the other MSFT standards that are tied to IE. Oh, and if you're Sun Microsystems, watch out because we're going to insert a Trojan into the market so that the write once, run anywhere promise of Java is destroyed. Would Google do that? Hell no! Uhh, Windows did have a monopoly, and they tried everything in their power to protect it. Competition eventually rose, but not before MSFT raked in billions and billions of dollars of monopoly profits.

The IE team bent over backwards to allow third parties like Yahoo and Google to provide things like search toolbars directly into the IE user interface. That wasn't hurting to Google was it? Look, finally they stopped their whining and just made their own shell on top of LINUX -- Chrome. Despite the monopoly right? Everybody wants something for free, glad they were forced to earn it in the end, just as Apple has been doing. Nothing was stopping them from making a better mousetrap. Just like nothing is stopping them today. And Netscape... please. I used NCSA Mosaic before Netscape was even a company. In fact, Andreeson was behind MOSAIC at NCSA. Then he started Netscape and decided what was free before should now be sold at a price. Microsoft merely made it free again. Netscape was always competing against a free product, not just IE. Now, IE's share has declined rapidly because Firefox has been better. Had Netscape been that much better than IE4 and IE5, they might have made it, but surely only for a given time until open source projects would have killed it and Chrome would have come along. Bending over backwards? Please! That's nothing different than the way they tried to influence Netscape to use MSFT-developed Internet-related APIs in order to prevent the "commoditization" of their lucrative OS business. Embrace, extend, and extinguish. Evil. Only Google is picking up the torch and going forward with developing both regular client-side and thin-client platforms that will cause margin compression to MSFT. Much to Steve Ballmer's horror, who likes to whine about how Google is developing two platforms. Shocking!

Yeah, but was it kosher to force OEMs to prominently display IE instead of Netscape on the desktop or otherwise face the prospect of having their license to sell a necessary part of the PC revoked? Microsoft would argue that they were merely enforcing their contracts with the OEMS and that they were shipping an OS that needed to have access to the web built into it. But we're not talking about a regular company here. We're talking about a company that was the dominant monopoly in the platform business. Antitrust law requires that monopolies are treated differently than non-dominant companies. You can attack the media as being stupid or for looking for a villain. But take a look at the the actual findings of fact by Judge Jackson before you decide that the media made a big deal out of nothing. Apple made their WebKit engine open source and is supporting the development of HTML 5. Quite a different outlook than MSFT. However, if Apple ever had dominant market share in the OS business similar to what MSFT had (which will never happen), it might be a problem tying iTunes or Safari to its various OSes, especially iOS. ------ By the way, I should probably disclose that I worked at Google pre-IPO (and left pre-IPO -- I was young and my outlook on life was a bit different back then), and that I have interviewed for various in-house counsel positions there (have been rejected each time, unfortunately). So you should know that I'm biased towards Google.

I would agree with that assessment. The businesses they were trying to protect were some of the best businesses the world has ever seen. That blinded them to the way things were being disrupted by the ubiquitous connectivity that is only now starting to come to fruition. They also used their power to control things in a way that hurt consumers in the short run, so I'm glad they have paid for it by being late to the game. Actually, I have to revise my statement, which was wrong. Microsoft wasn't blinded to the disruption that ubiquitous connectivity would cause. Bill Gates knew very well how the Internet would change things. And that's why Microsoft took actions to try to kill the web as an alternative platform that would severely reduce the value of the Wintel monopoly. It wasn't just about bundling IE with Windows. They actually told large Windows resellers like Compaq that they would terminate their reseller agreements if they put Netscape icons on the desktop instead of IE. And like I said on another thread, MSFT actually tried to kill Java by creating a shitty implementation of it because they saw it as a threat to the Windows platform. MSFT also always tries to fight against any collaborative standardization that would reduce the value of their proprietary standards which help keep their products sticky due to the network effect. You guys who are dogging on Janet Reno are letting your bias towards owning MSFT determine your view on the matter. Whether MSFT was guilty of "monopolization" is debatable, but they certainly weren't doing anything that was consumer friendly. Microsoft was like the Comcast of today. Fighting tooth and nail to protect their business to the detriment of society. They also sucked on execution even though they did foresee how things would turn out. WebTV is a good example, although they also had to go up against the last mile guys in that battle. Just read Bill Gates' 1995 memo to the troops to see how forward thinking he was.

I would agree with that assessment. The businesses they were trying to protect were some of the best businesses the world has ever seen. That blinded them to the way things were being disrupted by the ubiquitous connectivity that is only now starting to come to fruition. They also used their power to control things in a way that hurt consumers in the short run, so I'm glad they have paid for it by being late to the game.

Yeah, but if you buy that Bill Gates is a really smart guy, like I do, it's likely that the present value of the profits protected from evaporation by the Skype acquisition is much greater than the $8.5 billion paid out. I mean, the Windows and Business Divisions at MSFT generate profits in one year that is not that far off from the market cap of Fairfax.

Ballmer may be a monkey man, but to say that he needs to be fired because the stock price is low is ludicrous. Is that really what Einhorn said? Now, if he's arguing that Ballmer has driven out forward thinking people like Ray Ozzie, okay, that may be fair (but not necessarily accurate) criticism. But to fire him solely to create a catalyst?

Sears did, up until last year that is. The timing of the liquidation of SHLD assets as a last resort wasn't much of a concern for me right up until their operating results went to shit. Up until FY 2011, SHLD was able to generate about a $1billion in FCF and had almost no path to insolvency due to a very modest debt load. In the past year FCF went to crap and they've added a little debt, so the whole operation looks a little less appealing right now. I'm still an owner, but I've reduced the size of my position and I'm less enthusiastic about it generally. /derail Yeah, I got out of SHLD around $75 last year because I was worried that results would deteriorate even further and because it was nowhere near the same bargain as when I bought it in the low $60s. I don't have much confidence in Eddie Lampert's ability to get an operations team in there that will turn around the operations. He doesn't seem to have the right personality for that. And I really dislike how he's cashing out selling shareholders without giving them enough disclosure about what he's up to. Sometimes I wonder whether Lampert is more Biglari-esque than Buffett-esque.

If this discussion were about anyone other than Bruce, we would all be saying: What an absurd idea that a cash poor company with assets that are dead money would become a dynamic investment vehicle. I think the answer lies in considering SHLD, HHC, and JOE as Whitman-style net-nets rather than as Graham net-nets. Sears happens to actually generate free cash from the retail operations, though. Perhaps Whitman-style net-net is the not the right analogy because I think Whitman looks for real estate which he determines can be monetized immediately in a way that results in net-net. This could be the next iteration of net-net investing. A run-off net-net. Or perhaps I'm stretching . . .

This is as good a theory as any. It makes no sense what's going on in the market right now.

If this discussion were about anyone other than Bruce, we would all be saying: What an absurd idea that a cash poor company with assets that are dead money would become a dynamic investment vehicle. I think the answer lies in considering SHLD, HHC, and JOE as Whitman-style net-nets rather than as Graham net-nets. Sears happens to actually generate free cash from the retail operations, though.

It's very interesting to think about Ackman and Berkowitz potentially using these publicly traded real estate companies as "mini-Berkshires." Essentially, these companies are intended to monetize their hard assets (real property) over time in the most optimal way possible until depletion. However, instead of distributing all the cash that is generated over time to shareholders, Ackman and Berkowitz seem to be indicating that they will deploy the cash generated into other investments. In other words, both those guys think that they have bought into Martin Whitman-style net-nets that will serve as investment vehicles. You know, David Herro's video talked about how the Florida economy would eventually come back. JOE is in many ways a bet on Florida over the long run.