Nasty medicine
W A S H I N G T O N , D C
The hearing on how to punish Microsoft is
about to start. It could be just the start of
the endgame.
NEXT week, the marathon antitrust case against
Microsoft enters its closing phase. On May 24th, unless the
software firm persuades the judge, Thomas Penfield
Jackson, to accept a postponement, the hearing on how to
punish Microsoft for abusing its monopoly will start. In theory, further courtroom drama will now be limited. But, given the feelings on both sides, more fireworks cannot be ruled out.
The Department of Justice (DOJ) and the 17
states arguing against Microsoft have proposed
remedies that include dividing the firm into two
more or less equal halves?an operating-system
(Windows) company and an applications (Office
and Internet Explorer) company. While not
automatically ending the Windows monopoly,
this would, they contend, strike at its main
defence, the ?applications barrier to entry?,
because the applications company would ensure
that all its products worked with Windows rivals,
enhancing the attractiveness of competing
operating systems (see article). The plaintiffs
have also called for conduct remedies, in two
broad categories: to limit Microsoft?s worst
excesses during the appeal phase of the case,
which could take well over a year, and to
restrain, for a limited time, the successor
Windows company from engaging in the same
sort of illegal behaviour as Microsoft.
For its part, Microsoft, obliged by the court to
come up with its own proposals, has put new
wrapping paper on the parcel of promises
extracted from it by the court mediator, Judge
Richard Posner, during the recent abortive
settlement negotiations. These include: allowing
PC makers to conceal the Internet Explorer icon
on the desktop, and letting them feature rival
applications; offering equal contracts to computer
makers, whether or not they use the software of
rivals; and making it easier for independent
software developers to write programs for
Windows by releasing more of its inner
workings. But Microsoft continues to deny any
wrongdoing and reserves the right to withdraw
even these modest offerings.
Microsoft?s general counsel, Bill Neukom, whose
legal tactics have so far achieved little, argues
that, because the government?s plan is so
Draconian and goes far beyond the evidence
presented in the trial, the hearing should be
delayed until the end of the year. Mr Neukom
claims that time is needed to recruit expert
witnesses and analyse the impact on the software
industry and the economy (apocalyptic, he
claims). The DOJ retorts that Microsoft?s request
is a ?transparent effort to delay...a remedy for its
illegal acts as long as possible.?
In part, that is because Bill Gates hopes that a
victory for George W. Bush in November could
lead to the case being dropped. The DOJ
dismisses this as wishful thinking?things have
gone too far for that, it believes. But Microsoft is
also hoping that, by slowing things down, it can
continue to run its business unfettered, as its new
operating system, Windows 2000, makes inroads
into the higher end of computing, and its new
Internet strategy, known as Next Generation
Windows Services (NGWS), is rolled out. That is
precisely why the DOJ?s antitrust chief, Joel
Klein, is praying that Judge Jackson sticks to his
earlier resolve to keep things moving. Since he
knows that the case will go to appeal, Judge
Jackson has not only opposed attempts to drag
things out in his court, but also suggested a
procedure for getting a fast track to the Supreme
Court.
The odds are, therefore, that the judge will issue
his ruling on remedies before the end of July.
Whether he accepts the plaintiffs? proposals
remains uncertain. But, for all Mr Neukom?s
protests, it is hard to disagree with Mr Klein?s
view that his plan cleaves closely to the court?s
findings that Microsoft repeatedly and
systematically broke the antitrust laws, both to
maintain its Windows monopoly and to extend it
to web browsers. Given the seriousness of
Microsoft?s violations and the judge?s belief that
these had a chilling effect on innovation, it would
be surprising if he took a different view.
As well as hoping to persuade Judge Jackson that
a break-up would re-establish competition and
have the great merit of being self-policing, Mr
Klein is eager to see conduct remedies put in
place now, which is within the court?s power.
Without them, he fears that Microsoft is
preparing to use the same old tactics to gain an
unfair advantage in markets at the opposite end
to its PC monopoly?industrial-strength servers
and handheld devices such as personal digital
assistants (PDAs).
The DOJ believes it has evidence that Microsoft is
planning versions of Office and other software
that will run properly only on computer networks
powered by the server edition of Windows 2000.
Indeed, Microsoft?s critics say that the idea of
NGWS is to create a family of Internet
applications that are designed to work exclusively
with Windows, extending from servers to PCs to
PDAs and Internet mobile phones. The
government cites an e-mail sent by Mr Gates in
July 1999 that showed a willingness to change
Office applications to favour devices that run on
Windows, even if that damaged the interests of
customers who rely on the ubiquitous Palm Pilot.
This is an extraordinary insight into Microsoft?s
refusal to restrain itself even under the most
intense antitrust scrutiny.
This kind of behaviour and power, in the DOJ?s
view, makes Microsoft a unique company
controlling a unique bottleneck. It has concerns
about other recent Internet developments, such
as the patenting of web business models and
processes, or the potential for abuse by dominant
business-to-business exchanges. But the DOJ
dismisses the fear that a victory against
Microsoft will be the prelude to an assault on
other high-tech titans such as Cisco, Intel, Sun
Microsystems or Oracle. None, it is convinced,
not even a firm as dominant as Intel, which has
had previous run-ins with antitrust enforcers,
remotely resembles Microsoft.
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