- The Washington Times - Friday, June 9, 2000

Even before the Microsoft antitrust fiasco began, U.S. District Judge Thomas Penfield Jackson had faithfully echoed the government's melody in every chorus, although doing so often required suspending any subversive inclination toward common sense. So it came as no surprise when on Wednesday he rubber-stamped Assistant Attorney General Joel Klein's outlandish scheme to redesign and regulate Microsoft into oblivion.

For a company said to have no serious competition, Microsoft certainly has a lot of deadly serious competitors. It is no secret that politically influential executives from competing companies were brazenly solicited by the government for their advice about appropriate "remedies." The first to be called just happened to be the stars of Gary Rivlin's delightful book, "The Plot to Get Bill Gates." Judge Jackson even publicly praised "an excellent brief" from some of Microsoft's most conspicuously self-interested competitors.

And in the last few days, reporters rushed to interview executives from Microsoft's competitors, asking how relieved they must feel at the prospect of the government shackling a notoriously efficient competitor.

Unfortunately for Judge Jackson and Mr. Klein, remedies so artfully designed to placate Microsoft's commercial rivals are those least likely to please a federal appeals court. The reason is simple: Few of the remedies in the Klein-Jackson plan have any coherent relationship to the judge's ruling about how Microsoft broke the law. It is doubtful that either Judge Jackson or Mr. Klein view the breakup drama as anything more than a temporary ploy to divert attention from extraordinarily elaborate and intrusive regulations that could endure for 10 years, once the breakup ruse is jettisoned by a higher court.

During the trial, executives from more than a dozen companies blamed their troubles on Microsoft. Prosecutors talked fast and loose, and still do, about a "broad array of anti-competitive acts." When all that blue smoke cleared, however, Judge Jackson found Microsoft guilty of hindering only two software products "namely, Netscape Web browser and Sun's implementation of the Java technology." Aside from Microsoft's dealings with Netscape and Sun, no other "conduct" was declared illegal in the judge's findings. The rest was nothing more than whining by rivals who would rather lobby than compete. The narrowness of the judge's claim of illegality mainly Microsoft's audacity of offering a browser for free poses a formidable dilemma for those hoping to seize this tantalizing opportunity to loot and shackle Microsoft in as many ways as they can.

Proponents of "structural" remedies have long claimed that inviting government lawyers and Microsoft competitors to redesign the company would be a less-bad alternative to specific prohibitions of specific acts. A normally sober legal scholar at the Manhattan Institute, Peter Huber, even came up with the peculiar argument that a breakup might somehow ward off private lawsuits. But we now know that the government wants both elaborate regulations and a breakup. If the breakup scheme fails on appeal, which is more than likely, then their long list of rules and regulations would endure for a decade. Maybe that's the whole idea.

These "conduct remedies" involve letting computer makers redesign as many varieties of Windows as they like. They could even have another operating system boot up automatically and still call it Windows, so long as they leave a little icon to help you find Windows. If so, who owns the trademark? The remedies also involve giving rival software companies a guided tour to all trade secrets that make Windows tick, preventing allegedly discriminatory discounts on Windows licensing and banning exclusive contracts.

The trouble is that these and most other remedies have no intelligible connection with any specific offenses in the judge's conclusions of law. Microsoft was found innocent of exclusionary contracts, for example, and guilty only of including a free browser with Windows and of offering software developers a quicker version of Java. As Mr. Gates might put it, with justification, Microsoft was found guilty of competitive innovation.

The government's proposed division of the company into two is even less related to any findings of legal liability than its extremely sinister but whitewashed "Provisions in Effect Until Full Implementation of the Plan of Divestiture" (meaning 10 years, they must know, because divestiture will never survive serious scrutiny). The divestiture plan separates Office and other applications from all versions of Windows, including Windows 2000 and CE both carefully unmentioned at the trial because they have a very modest market share. A breakup would tie the company in knots for years, and cause a mass exodus of talent. But it would do nothing to remedy even a single impropriety identified by the judge, nor to reduce the perfectly legal dominance (popularity) of Windows or Office. Mr. Klein's brave talk about a breakup "promoting innovation" is just talk and has nothing whatsoever to do with any specific claim of illegal behavior, pathetic as those claims will prove to be on appeal.

Curiously, the government's plan would leave ownership of the Internet Explorer copyright in the hands of a separate applications company. That means the browser now built into Windows could never again be improved except by paying royalties to the applications company or to Netscape/AOL. Also, any such "middleware" (an undefinable word that can include every improvement to Windows) must be somehow removable and also separately priced. Separate pricing means a computer maker would have to pay a higher fee for Windows if it included a new browser. But that same company could pay less by simply skipping the Windows browser and replacing it with Netscape, which would still be free. That means stacking the deck heavily in favor of rivals such as Netscape, which could easily undercut the government-regulated minimum price for Windows "middleware." For similar reasons, this price regulation posing as a remedy would virtually prohibit future "middlware" innovations in Windows, such as voice recognition or virus protection.

The government and its allies have offered two key excuses for the breakup scheme, neither of which even came up during the trial. One is that the politically influential software lobby claims that having some undefined inside information about Windows is what makes MS Office the favorite of software reviewers and customers. The problem with that story, like several other post-trial arguments, is that no evidence was offered to support it in the findings of fact or conclusions of law. Since the government obviously insists on continually introducing new arguments and self-described "evidence" (selective excerpts from e-mails) at this late date, the only fair and legal way to do that is to have a new trial not to rely on innuendo and press leaks. In the United States, defendants have a right to confront their accusers in court.

The second rationale for separating Windows from Office involves a brand new theory one that completely reverses the government's previous fixation on Netscape and Java in favor of rival operating systems, such as Linux and Solaris, that had been dismissed as totally insignificant until now. The new theory is that a separate MS Office software company would supposedly have a stronger incentive to create versions of Office to run on these non-Windows operating systems. This is a solution in search of a problem. Microsoft has provided Word and Excel for Mac since 1985, which proves conclusively that access to Microsoft applications does not determine which operating system consumers prefer. Ironically, next year's Max OS-X, which will be far more user-friendly than Linux, is likely to be the biggest threat Windows 98 ever faced despite the government's outlandish claim that "Apple products" are "not in the same market" with Windows. Apple, Sun and Palm were magically excluded when the government fabricated Microsoft's market share.

Unlike Microsoft Office, Corel's entire Word Perfect Office is not available for the Mac. Neither is Sun Microsystems' Star Office. But both software suites are available for Linux and they are free. Microsoft stands accused of predatory pricing for tossing in some trivial browsing software, while its rivals are giving away entire office suites. Corel has downloaded 1.5 million free copies of WordPerfect for Linux, and Sun has downloaded as many free copies of Star Office for several systems (Star is also preinstalled on eMachines). Such super-tough competition for a market that accounts for only 4 percent of all home computers explains why IBM like Microsoft sees no chance of profits from offering a Linux version of Lotus Smart Suite.

The pretense that a separated Office company would invest years of research and hundreds of millions of dollars to produce software for a difficult operating system the government used to dismiss as "a joke" is the only concrete benefit the government can name for its breakup plan. Yet a new version of Office for Linux, to compete with free software from Corel and Sun, would be no more commercially viable for a Microsoft spinoff than it is for Lotus.

The clearest revelation from the otherwise conjectural conclusions of law is that Judge Jackson really hates being reversed on appeal. He must be painfully aware that those remedies least connected to his conclusions of law the breakup scheme being only the most obvious example among many will also be the most easily overturned.



Alan Reynolds is director of economic research at the Hudson Institute and senior editor of the institute's quarterly, American Outlook.

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