Judge Jackson
Is Wrong
By Robert A. Levy
New York Law Journal
Sunday, November 7, 1999
"Justice is blind ... an' deef an' dumb an' has a wooden leg," wrote Finley Peter Dunne in Mr. Dooley's Opinions. Nearly a century later, Judge Thomas Penfield Jackson's findings in the Microsoft case provide us with compelling evidence that Mr. Dunne was right. Here are the judge's three key findings: "First," he contends, "Microsoft's share of the market ? is extremely large and stable."
Indeed it is -- if you stack the deck by so narrowly circumscribing the relevant market that it appears as if Microsoft has it all. Judge Jackson defines the market as operating systems for single-user desktop PCs that use an Intel-compatible microchip. Thus, notes economist Alan Reynolds, Apple's 10 percent market share doesn't count because Apple uses a Motorola chip. Nor does Sun Microsystems' share -- Sun's sales were up 30 percent in 1998 -- because Sun, too, isn't Intel-based and its Solaris system is multi-user. As for the Linux craze, it came too late to be included in the market share calculations. Then there are hand-held computer systems -- sales climbed 61 percent in 1998 -- sub-notebooks and set-top TV boxes, each of which uses a non-Intel chip. Finally, 15 percent of PCs are marketed "naked" -- i.e., without an operating system.
Mr. Reynolds estimates that Microsoft's share of all 1999 desktop shipments will be 70 percent. If that constitutes a monopoly, he notes, then the Justice Department better investigate Quicken and America Online, which have long enjoyed market shares exceeding 70 percent.
"Second," asserts Judge Jackson, "Microsoft's dominant market share is protected by a high barrier to entry." That celebrated "applications barrier to entry" is no barrier at all in a world where anyone running a browser will soon have the same capabilities as today's Windows user. With the advent of consumer electronics and Web-based servers, the market for single-user desktop PCs is in its death throes. Even Microsoft seems to think so. That's why it's putting its marbles into Windows 2000, which is primarily a server operating system.
With Web-based servers, instead of buying and selling applications like word processors and spreadsheets, users will be able to rent the same functions from Internet services -- or get them free if they sit through advertising. The only essential user program is a Web browser. As the Wall Street Journal observed: "If users don't need PCs with Microsoft's Windows operating system or Intel chips ? the vaunted market power of the duo called Wintel doesn't seem so unshakable."
"Third," says the judge, "Microsoft's customers lack a commercially viable alternative to Windows." Yet, virtually no new application software using client-specific code is being written. That may go a long way toward explaining AOL's willingness to fork up $10 billion for Netscape, the company that still controls about 42 percent of the browser market. With Netscape's Netcenter portal, its e-commerce software, and its newly updated Communicator 5.0 browser, an AOL-Netscape-Sun Microsystems alliance becomes a redoubtable competitor to Microsoft.
Equally important, many desktop machines that access Web-based servers are "Windows-less" products, and Microsoft's major OEM customers are climbing on the bandwagon. Gateway is building a line with no Microsoft software at all, and may jointly market it with AOL, which is a major Gateway investor. Dell plans to bring out a line of Internet computers, some without Microsoft software. Compaq's chief executive observes that its new generation of products will "redefine Internet access." Another industry executive stated that "the Internet gives people a platform to do most of the things they need to do on a PC without a cumbersome and expensive operating system."
The central point is this: The government's focus in this case has been to safeguard Microsoft's competitors rather than protect consumers -- which is, after all, the purpose of the antitrust laws. To be sure, the Justice Department tried mightily to link one objective to the other. But the government's own witness, M.I.T. professor Franklin Fisher, when asked whether consumers have been harmed by Microsoft, responded, "On balance, I'd think that the answer is no." Contrast that with Judge Jackson's assurance that Microsoft "harmed consumers in ways that are immediate and easily discernible." Even the Washington Post -- no fan of Microsoft -- conceded editorially that "the government's allegations of harm to consumers seem pretty speculative."
It's time to dump this case. Lyndon Johnson hit the nail on the head: "You do not examine legislation in the light of the benefits it will convey if properly administered, but in the light of the wrongs it would do and the harms it would cause if improperly administered."
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Robert A. Levy is a lawyer and Senior Fellow in Constitutional Studies at Washington, D.C.'s Cato Institute
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