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To: Daniel Schuh who wrote (18617)	4/19/1998 7:18:00 PM
From: Gerald R. Lampton	Read Replies (1) \| Respond to of 24154

Microsoft's existence depends on enforcement of intellectual property laws. Just like you and me, it has to obey the others, too -- it doesn't get to pick and choose. Funny that you should mention intellectual property laws in the context of antitrust. In trying to find the Cato Institute article referred to in Post 18614, "Policy and Path Dependence," I ran across the following in an article which discusses the Microsoft Consent Decree case at length and argues that tying arrangements such as the Windows/IE tie should be legal: "Some would argue that when a tying product is patent-protected, government should intervene to prohibit the tie-in if above-normal profits in the tied product market are thought to constitute excessive compensation for the research and development that patents are intended to reward. But that would mean government regulation of profits on everything from patented drugs to machinery to you name it -- a horrifying prospect worth avoiding at all cost." cato.org The article is somewhat dated in light of DOJ's ruminations about bringing a broader antitrust case and is definitely biased, but it is worth reading for a summary of the events surrounding the Consent Decree.

To: Daniel Schuh who wrote (18617)	4/21/1998 5:42:00 PM
From: Eugene Goodman	Read Replies (2) \| Respond to of 24154

Krugman and the Cato article say the the Theory of Increasing Returns is the basis of the DOJ law suit. I quote from the Cato article: Taking one specific case, path dependence arguments have been used to support antitrust actions against Microsoft. A white paper by Gary Reback and a group of coauthors, with assistance from Brian Arthur, uses path dependence arguments to claim that Microsoft's successes in the personal computer software market are due not to Microsoft's ability to provide consumers with handy solutions to their problems, but instead are caused by consumers' inabilities to escape from a path controlled by Microsoft. Reback, et al. chillingly portray the ominous end of that path: "It is difficult to imagine that in an open society such as this one, with multiple information sources, a single company could seize sufficient control of information transmission so as to constitute a threat to the underpinnings of a free society. But such a scenario is a realistic (and perhaps probable) outcome." The theory is important to the DOJ because they are breaking new ground. Microsoft does not have a controlling market share. They do not hurt the consumer by charging high prices. The DOJ law suit is based on what might happen if the government does not help. Microsoft will get a 70 % [isn't this what Netscape has now?] or higher market share, then they raise their prices and screw the helpless consumer. Since none of this is has happened, an economic theory is essential to predict the future. [Good luck. it will be a first] If the theory is flawed so is their law suit. If I remember correctly, none of this stuff is in the Sherman Act. Anti-trust is based on prior case law. This gives the Act flexibility and durability so that the trustbusters can focus on consumer protection, vertical or horizontal integration, price fixing or take a 12 year vacation as as it seems they did under Reagen and Bush. Anti-trust law is not immutablle so Microsoft will only know to what extent they have broken the law after the DOJ, the court and Microsoft come to an agreement. Gene