- The Washington Times - Friday, May 12, 2000

The Justice Department has called for breaking up Microsoft into two companies. One would own Windows, the company's ubiquitous operating system, the other its Office software (including the widely used Word, Excel and PowerPoint programs). But before the court takes another step in this move to micromanage the U.S. software industry, someone should ask who have been the winners and losers in this, the biggest American antitrust case in two decades.

The most obvious losers have been investors. Following Judge Jackson's decision, Microsoft's stock plunged 14 percent, wiping out $80 billion of the company's value in a single day. But Microsoft shareholders had plenty of company on the downside. The ruling also pummeled the Nasdaq, driving the technology-heavy index down by nearly 350 points its largest one-day point drop in history.

Attorney General Janet Reno and Assistant Attorney General Joel Klein, who led the government's charge against Microsoft, rushed forward to claim that consumers will be the big winners. But stripped of all the blustery rhetoric about Microsoft's "predatory, exclusionary, and unlawful" actions, the government's case was gossamer thin. In fact, the Justice Department presented no evidence during the trial that consumers actually suffered tangible harm with the entirely hypothetical exception of users who demanded operating systems that offered no way to navigate the Web.

In his findings of fact, Mr. Jackson himself admitted that Microsoft's inclusion of a free Web browser with Windows "increased general familiarity with the Internet and reduced the cost to the public of gaining access to it, at least in part because it compelled Netscape to stop charging for Navigator. These actions thus contributed to improving the quality of Web browsing software, lowering its costs, and increasing its availability, thereby benefiting consumers."

Before Microsoft entered the browser market, Netscape charged consumers as much as $50 for Navigator. Presumably, the judge could order Microsoft to start charging for its Internet Explorer, but it is hard to see how such a move would benefit consumers. One way or another, then, consumers will likely suffer immediate losses and, with the judge's ruling weakening Microsoft as a competitive force, it's easy to imagine them as major losers in a less innovative software market.

An indisputable winner has been Netscape, the company that goaded the government into its antitrust action against Microsoft, claiming that Microsoft was out to crush it. That was before Netscape was scooped up by Internet giant America Online for a cool $10 billion a hefty price to pay for a company destroyed by monopolists. Today, about one-third of all users surf the Web on Netscape Navigator. The company's Netcenter is among the Web's most popular sites, positioned for taking full advantage of its traffic to generate advertising dollars. America Online is now ready to roll out a much-anticipated new version of Netscape, assuring another round of browser wars and this time against a weakened, distracted Microsoft.

One huge irony here is that AOL's investors along with those of Microsoft's other competitors also lost billions as those stock prices too have plummeted since Mr. Jackson's ruling.

While both the government and Mr. Jackson acknowledged that Microsoft's attempt to corner the browser market was unsuccessful, they zeroed in on Microsoft's bundling of its browser with Windows as anticompetitive "tying." If this ruling stands, all Internet browser suppliers will become losers, because bundling has been standard procedure among software manufacturers for years.

In 1995 three years before the Justice Department launched its jihad against Microsoft IBM began shipping the latest version of its OS2 operating system with a free Web browser. By the start of the Microsoft trial every operating system came "bundled" with a Internet browser, including those developed by Apple, Sun and Red Hat's Linux system. If the courts take the government's bundling arguments seriously, antitrust litigators will have enough work to keep busy for years, making them the biggest winners of all.

But the biggest loser has already been the force that drives our economy the force of innovation. While the appeals process promises to drag out for years, the Justice Department will likely seek an injunction to restrict Microsoft's ability to add new features to its software or to market its software aggressively. In other words, the Microsoft case has produced an American legal first: a government-imposed moratorium on innovation.

So here's the payoff from the Microsoft case and the government's determination to break up a company largely because it was successful: Investors lose hundreds of billions, while consumers face slower innovation and higher prices. Good enough, I suppose, for government work.

Grover Norquist is president of the American Shareholders Association, a project of Americans for Tax Reform.

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