Microsoft
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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