- The Washington Times - Wednesday, February 23, 2000

Attorneys for both sides served up their oral arguments yesterday as Microsoft's blockbuster antitrust trial resumed. By late spring, Judge Thomas Penfield Jackson will issue his conclusions of law, which everyone expects will lambaste Microsoft. Next, barring an unlikely settlement, there will be a hearing on remedies, then final resolution, probably before winter.
Competing legal briefs are out in force. Some observers were surprised, however, when the Progress and Freedom Foundation (PFF), a generally conservative think tank, sided with Microsoft's archrivals, IBM, Oracle and Sun Microsystems. PFF wasted little time on legal nuances, but devoted fully 11 of its 32 pages to a recitation, uncritical and almost verbatim, of Judge Jackson's fact findings. Then PFF went straight for the kill Microsoft's dismemberment. That remedy, according to author Thomas Lenard, requires the least amount of regulation.
Wrong. The least and best regulation is no regulation at all. Instead, PFF crows that it has come up with the optimal solution one that answers critics of draconian remedies like divestiture. Among those critics is Judge Richard Posner, recently appointed by Judge Jackson as mediator. Judge Posner has characterized divestiture as "a Luddite solution [that] would entail the sacrifice of known and substantial economic benefits … for a conjectural improvement in performance from competition."
Whether Luddite or pro-competitive, here's how the PFF remedy would work: Like a vertical breakup, PFF would split Microsoft into an applications company A selling products like Word and Excel, and a Windows company W selling the operating system and browser. Then, like a horizontal breakup, W would be cloned into three identical companies, each of which would share equally in employees, existing contracts and intellectual property rights. Never mind that nobody at PFF or elsewhere has the foggiest idea how to share employees and contracts equally.
After the breakup, writes Mr. Lenard, if A wanted to do business with any of the Ws, it would have to do business on the same terms with all of the Ws. For a reasonable period, maybe three to five years, A and the Ws could not merge or contract exclusively with one another. Otherwise, any of the four companies could develop or acquire products of any type without restriction. That feature, contends PFF, ensures that the government won't have to monitor the marketplace. None of the three Ws will have monopoly power, so it won't matter if they bundle other products or engage in practices that would be off limits to a monopolist.
The problem with that approach is that programmers all over the globe have developed thousands of compatible programs, thanks to the standardized platform that Windows affords. If PFF were to get its way, that enormous value would disappear overnight. Government-driven fragmentation of operating-system protocols would wipe out Microsoft's most important contribution to software markets: standardization. Like the Unix operating system, Windows would end up with many variations no common platform on which software developers can build. The result would be fewer applications, increased costs of development and higher prices for consumers.
Not so, says Mr. Lenard. Network effects the desire of users to be compatible with other users and will prevent fragmentation. If the W companies want to retain their installed base of users, he insists, they won't create incompatible new features. To be blunt, that argument is nonsense. PFF did not, indeed, could not point to a single instance where competing entities, struggling to gain market share, didn't introduce unique features and functions not available from rivals. That's exactly what happened with Unix. And that's precisely the dispute now in court over Microsoft's enhancements to Sun's Java language. Before long, new features dominate old features and the standardized system disappears at least until a new leader emerges, at which time PFF will undoubtedly call for another divestiture to buy more time.
Still, bemoans PFF, we have to do something about Microsoft's applications barrier to entry. It's not profitable for developers to devote resources to developing programs for an alternative operating system that only has a small share of the market. Yet barely three pages later, Mr. Lenard announces that Microsoft was especially concerned about technologies, such as Netscape's browser and [Sun's] Java, that could support platform-independent computing and thereby erode Microsoft's market position. Those two statements cannot coexist. If developers won't write applications for other platforms, why in the world would Microsoft be concerned about those same developers flocking to a Sun-Netscape alternative?
At a minimum, before PFF designs the perfect remedy, let's be sure there's a problem to be remedied. When technology created by our most successful companies is expropriated by bureaucrats who decide how, by whom and under what conditions it is to be marketed, we shouldn't be surprised if innovation and entrepreneurship twin engines that propel economic growth sputter to a standstill.

Robert A. Levy is senior fellow in constitutional studies at the Cato Institute.

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