Hard Drive on Microsoft: Whether or Not This Government Antitrust Charge Sticks, Justice Should Prevail
Shapiro, Andrew L., The Nation
In a few weeks, Justice Department lawyers will go before Federal Judge Thomas Penfield Jackson in Washington and argue that Microsoft is in contempt of a 1995 antitrust consent decree, by which the company settled a government antitrust suit and agreed not to engage in certain practices. Justice claims that Microsoft has breached that agreement by forcing computer makers who license its Windows operating system to also license its Web browser, Internet Explorer. On its face, this would appear to be little more than an obscure dispute about software. And yet, no matter who wins, this latest round of United States v. Microsoft has the potential to be much more: a call to arms for renewed antitrust enforcement and a grassroots campaign for democratic values in the digital arena.
The government's ongoing scrutiny of Microsoft is quickly becoming its most serious antitrust matter since the 1984 breakup of AT&T, and is arguably a litmus test of how corporate power will be reconciled with consumer rights in the information age. Antitrust is so talismanically focused on competition that it is easy to forget that the purpose of this body of law is not to protect companies but consumers. Usually, this means preventing unfair monopolies. Sometimes, though, as in the case of utilities, it means having one closely regulated firm dominate the market. Either way, at the heart of antitrust is the idea that government must save capitalism from its own excesses in order for markets to work at all.
Over the past few decades, antitrust has been ignored by regulators, winnowed by the courts and ridiculed by Chicago-school free marketeers such as Robert Bork. Yet there have been signs recently that the Clinton Administration is trying to make antitrust relevant again. And none too soon. Microsoft is leveraging its market power -- using predatory pricing and strong-arm tactics -- to expand into almost every part of the new online communications and commerce sphere [see Shapiro, "Memo to Chairman Bill," November 10]. It has the natural advantage of what economists call "network effects," which cause certain successful communications products to get an artificial boost, ultimately dominating the market and locking in customers. This prevents competing, perhaps superior, products from getting a fair shake. (If lots of people have VHS-format video players, for example, it makes sense for you to buy VHS instead of Betamax. Unlike Windows, though, no one owns the VHS standard.)
Microsoft's rapaciousness was laid bare in a recent internal memo: "We are challenging...newspapers, travel agencies, automobile dealers, entertainment guides, travel guides, Yellow Page directories, magazines and over time many other areas." No wonder the company is perceived to be a threat by companies ranging from I.B.M. to Times Mirror to Bank of America. Nathan Myhrvold, chief technology officer, has acknowledged that the company wants to get a cut of every online transaction. With $9 billion in cash, it can afford to bet on any number of paths for the future -- PC, cable, wireless, etc. (Bill Gates himself has invested heavily in Teledesic, a $10 billion satellite venture.) The company even makes an interactive Barney doll, for god's sake.
Despite all this, Justice's current action is no sure thing. The consent decree prohibits Microsoft from forcing computer makers who license one product, such as Windows, to license any other product, such as Explorer. But a key clause states that the agreement does not prevent Microsoft from "developing integrated products." Justice argues in its brief that Windows 95 and Explorer are distinct, pointing to the fact that they have been, and to an extent still are, developed and sold separately. Microsoft says that's irrelevant since "integrated" implies the combining of two discrete things and many Windows features existed as separate software before and after being incorporated. To resolve this dispute, Judge Jackson will be cast in the role of digital metaphysician, forced to ponder what, after all, an operating system is. …