The gang of 19 and DOJ's motto: To enforce the law and to support innovation.
The scorecard in the Microsoft case, according to Attorney General Janet Reno, is simple: Microsoft lost and America's consumers won.
After a federal judge ruled on Monday that Microsoft was a monopolistic predator that had repeatedly violated the nation's antitrust laws, Ms. Reno declared, "Thanks to this ruling, consumers who have been harmed can now look forward to benefits."
Next, the Justice Department and 19 states who sued Microsoft will propose to the court what sanctions should be taken against the company. Before that happens, however, consider how consumers and the computing world have fared since 1995, when the government case against Microsoft began.
The average price of a personal computer has dropped sharply, while PC's have grown more powerful and versatile. The industry has generated growth, jobs and wealth -- even created, some say, a New Economy that is the envy of other nations.
So why was this costly and sweeping antitrust suit filed against Microsoft nearly two years ago? The answer, according to the government and many antitrust experts, is twofold: to enforce the law and to support innovation.
That is a new rationale for antitrust action, one adapted to the New Economy. In the Standard Oil era, monopoly-busting was about price-fixing. Now, the government claims, monopolies constrain technological change. So the Microsoft case marks what may be an important step in how government and the courts deal with the Internet economy in the future.
The traditional half of the government case was simply a litany of anti-competitive practices: that Microsoft illegally tied its Internet browser to its industry-standard Windows operating system, and then used exclusionary contracts and threats to force computer makers and Internet service providers to shun the products of rivals like Netscape Communications, the pioneer in Internet browsing software.
It was the economic theory underpinning the government's case that was novel. That theory leaned heavily on new thinking about how modern high-technology markets work. In traditional antitrust cases, high prices typically signal a gouging monopolist. There was, in fact, evidence presented that the price of Windows, which runs the basic operations of nearly 90 percent of PC's, would be lower if the company had competition. And industry analysts estimate that the pretax profit on Microsoft's Windows business is an astronomical 90 percent.
Still, Windows accounts for only about 5 percent of the total price of most PC's sold today. So even if Windows prices are slightly higher than they should be, it is not something that consumers would notice. (Microsoft said it raised prices on Windows because it has added all kinds of features in recent years.)
But price seems a less reliable signal of monopolistic abuse than it would be with, say, an oil producer or steel maker, because the cost of producing copies of a software program is virtually zero. Microsoft merely licenses its computer code to PC makers, who then install it. Whether Microsoft sells 100 million or 200 million copies, its costs are all in developing the code to begin with.
"The ground rules have changed economically in cases like this and we realized that in bringing the Microsoft case," said Daniel Rubinfeld, the chief economist of the Justice Department's antitrust division until the end of 1998. "And innovation, much more than price, is what the Microsoft case is about."
The new economics of software, according to the government, mean a dominant company like Microsoft can shape innovation and curb competition with a new weapon -- its technology standard. Windows is the gateway through which all the hardware and software used in the vast majority of personal computers must pass. Microsoft, the government charged, denied rivals early access to its technology, while rewarding its industry friends with cooperation. That raised the barrier to entry, in cost and difficulty, to challengers.
The Microsoft case, according to Mr. Rubinfeld, now a professor at the University of California at Berkeley, marks the beginning of a growing debate over government policy in markets that rely on innovation, software and the Internet. These markets, he says, tend to naturally evolve toward one or two dominant companies (think Cisco in routers for Internet data or eBay in online auctions). They control the technology standards in their markets. What balance should be struck between protecting their intellectual property and insuring that newcomers get a fair chance to compete?
"The goal of policy," said Robert E. Hall, an economist at Stanford University, "is to make sure you hold the door open to the next Netscape, to new entrants who bring innovation to the market."
After hearing the evidence in the antitrust case, Judge Thomas Penfield Jackson found last week that "Microsoft mounted a deliberate assault on entrepreneurial efforts that, left to rise or fall on their own merits, could well have enabled the introduction of competition" to Microsoft's markets.
In his fact-finding document last November, Judge Jackson concluded with an impassioned embrace of the innovation theory of consumer harm. At the end of more than 200 pages examining Microsoft and its conduct, he wrote, "The ultimate result is that some innovations that would truly benefit consumers never occur for the sole reason that they do not coincide with Microsoft's self-interest."
Microsoft plans to appeal Judge Jackson's ruling, and the company's chairman, William H. Gates, bridles at its damning depiction of his company. "This ruling turns on its head the reality that consumers know: that our software has helped make PC's accessible and more affordable to millions of Americans," he said.
Microsoft insists that the very acts the government claimed were anticompetitive, like folding browsing software into Windows, resulted in bringing the Internet to the PC-using masses. That was real innovation, Microsoft believes, which deserves praise, not prosecution.
It is interesting to speculate how things might have turned out had Microsoft not, in Judge Jackson's phrase, placed "its oppressive thumb on the scale of competitive fortune."
The most rapid innovation and most venture-capital investment in recent years, experts note, have been in Internet computing, outside Microsoft's stronghold in the personal computer business. Innovation in Internet software, they note, might have gone even faster had Microsoft's actions not hobbled Netscape.
In the PC industry, they add, the most innovative company recently has been the reinvigorated Apple Computer since its cofounder Steven P. Jobs returned and took over in 1997. Again, Apple is largely outside Microsoft's control because it uses its own Macintosh operating system, instead of Windows.
"It's hypothetical, but the argument is that sure things are great in the high-tech economy, but they might have been even better," observed David Yoffie, a professor at the Harvard Business School. "All these things on the Internet would have happened anyway, but they would have happened faster and the quality would have been better without Microsoft's anti-competitive acts."
OPEN WINDOWS: The New Math of Monopoly
By STEVE LOHR
The New York Times, April 9, 2000
nytimes.com |
