Microsoft's three-release script: Lose big before Judge Jackson, get a split on appeal, then win it all back in the Supreme Court.
MS Lawyer, Rel.1.0
By Peter Huber
THE FIRST CHAPTER IN THE MICROSOFT TRIAL IS due out imminently, and may even beat this column to press. True to the traditions of the software industry, it won't be a finished product--it will just set out Judge Thomas Jackson's findings of fact.
They won't be pretty. They will define markets (narrowly), pronounce market shares (high) and describe a Microsoft in army boots, marching across the dead and wounded. Expect some brutish detail: a Starr Report with cutthroat nerds standing in for the tootsies.
A month or so later, the parties are scheduled to propose conclusions of law. Early next year Judge Jackson issues Rel. 1.1, his findings of liability. An immediate appeal at that point is technically possible, though unlikely. Another wait, then Release 1.3 sets out a grand remedy.
The remedy can't involve money--the government has not brought that kind of case. So it will have to be an injunction. Microsoft will be ordered to eschew certain specified army-boot tactics, or quarantined from entering certain markets, or directed to share some of its code, or spin off a division, or (conceivably) bust up its whole company, along Standard Oil or American Telephone & Telegraph lines. My guess (if the case gets this far): A medium order of eschewing, with a small side of sharing or spinning, but no bust.
Anyone inclined to speculate on trial futures should read a very discerning paper published last year by economist Timothy Bresnahan: "New Modes of Competition: Implications for the Future Structure of the Computer Industry." pff.org It's the best I've seen on the dynamics of competition in the software industry, its failings, and what government might sensibly hope to do about them. Bresnahan, by the way, recently signed on as chief economist to the Justice Department's Antitrust Division.
Microsoft must surely recognize, at this point, that its legal software has been trounced by the competition. No surprise there. As American Enterprise Institute economist Thomas Hazlett points out, Microsoft's first release is always a buggy mess. Its second is adequate. Its third, triumphant. So Microsoft may be consoling itself with a three-release script of its own: Lose big before Judge Jackson, get a split on appeal, then win it all back in the Supreme Court. Three rounds are, indeed, almost certain, if the remedy spelled out in the first round amounts to anything much at all.
For its part, the Justice Department must know that time is its worst enemy. The remedy is supposed to save the future--but the facts of 1999 are going to look pretty stale to the Supreme Court of 2002. Microsoft can still grow and prosper, on the strength of its brand, code, customer base and legions of talented programmers. But for all that, the Wintel desktop has peaked. Everyone from Redmond to Silicon Valley knows it. Henceforth, capabilities migrate out onto servers and the Web. By the time the High Court sees this case, Microsoft's hegemony will be history.
Which is why it shouldn't ever see it. The only useful thing that can emerge from the trial at this point is precisely what Judge Jackson's three-release process is crafted to encourage: settlement. If a settlement does emerge--no certainty, given the size of the egos at the table--it will establish a first, serious set of Queensberry rules for competition in software markets. They'll bind only Microsoft, but in fact they'll establish norms of competition for the industry as a whole. All other cyber enterprises will take note. Cable companies, for example, which are now bundling router and server software with services and applications in higher tiers of the Web. And on-line service providers like AOL, which are trying much the same with the key software interfaces that they can influence in the higher tiers of the Internet's endless tiers.
As Bresnahan's paper suggests, Microsoft-like monopolies may well emerge, and perhaps should, in other layers of the software economy. The best pro-competitive policy, perhaps the only one that makes any sense, is to keep open a few major, critical interfaces, if you can find them--while not wasting time with all the little ones, which are fated to close in any event.
My wishful guess: a settlement by early next year, focused mainly on the desktop-Internet divide and written cleanly enough to save us all from the agony of endless reruns in Judge Jackson's courtroom.
Peter Huber, a Manhattan Institute senior fellow, is the author of Law and Disorder in Cyberspace (Oxford Press, 1997); E-mail: pwhuber@bellatlantic.net. Home page: www.pwhuber.com.
Peter Huber, a senior fellow at the Manhattan Institute, is the author of Law and Disorder in Cyberspace (Oxford Press, 1997); E-mail address: pwhuber@bellatlantic.net. Home page: pwhuber.com.
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