- The Washington Times - Monday, May 15, 2000

As experts debate the government's proposed remedies in the Microsoft case, it is important always to bear in mind how strong Microsoft's case will be on appeal.
Fundamentally, it is impossible to argue that a company that has denied a monopoly to a competitor and has injected competition where there was none is guilty of anything under the antitrust laws. It is impossible to argue that a company that has made an unprecedented investment in innovation to the benefit of consumers is guilty of anything under the antitrust laws. And it is impossible to argue that a company that has significantly increased access and use of the Internet is guilty of anything under the antitrust laws. But even if the case could be upheld, the types of remedies being discussed by the government are unwarranted, overbroad, and harmful to consumers.
The case against Microsoft, which was predicated on harm in the Internet browser market, is substantially moot. The browser war is over, not because Microsoft won, but because it lost. It is over not because Microsoft offers an inferior browser. It doesn't. It is not over because the number of users who choose to use Internet Explorer is down. It isn't. It is over because AOL is going to switch back to the "new and improved" Netscape as soon as its current agreement with Microsoft is over at the end of the year, and nothing Microsoft can do will stop Netscape from becoming the browser of choice for the most influential player on the Internet.
Speaking of Netscape, it is interesting to note that Judge Thomas Penfield Jackson's conclusion on tying relied heavily on the fact that Microsoft's innovative decision to componentize its browser (that is, build it into the operating system) was not derived from "technical necessity or business efficiency." It is very strange then that Netscape's new browsing product (that is supposedly the "next" generation of browsers) is componentized, just like Internet Explorer has been for years. So much for the court's conclusion on lack of justification.
The improvement in Navigator to catch it up with Explorer is critical to understanding the court's central finding. Judge Jackson found in his principal ruling that Microsoft innovated too much, spent too much on marketing, expanded output too much, and gave up too many profits by not charging as much for Internet Explorer and related tools as it otherwise could have obtained. The court's legal conclusion was that such investments could not be justified except as they maintained Microsoft's monopoly in operating systems.
This turns the antitrust laws on their head, however, to suggest that, by charging little for products when trying to enter a new market and forcing competitors to innovate and reduce fees, Microsoft has harmed competition, hurt consumers, and violated the law. The government's and the court's theory, not explicitly stated, must be that the benefit to Microsoft of expanding the number of Internet users and the subsequent increase in computer purchases by promoting the Web through Internet Explorer was less than the forgone profits that could have been made if it charged consumers as much as Netscape wanted to do in a world of slow-growing Internet use. That is patently wrong.
In this context, it is obvious the government's proposals for a remedy are overreaching. By proposing both a breakup of the company and conduct remedies, the government has shown its real agenda is redesigning the computer industry and not addressing the harm that Microsoft has actually been found to have done.
For example, though there was no evidence at trial that Microsoft priced Windows at monopoly prices (though it certainly would be permissible to do so), the government's proposal greatly restrains Microsoft's pricing behavior. Under the proposal, the government suggests pricing of different functionalities of Windows based on the number of bytes of software code used to implement the feature. "Payment by the byte" is unheard of in the industry because it produces financial incentives to make important features bulkier. As with many of the remedies proposed, the government may have had some justification to ask for injunctive relief to prevent pricing Windows differently in order to punish manufacturers (a finding actually made by the court) but they fail to show why the much broader remedies are justified or even necessary.
The lack of clarity of the government's proposal is also a significant concern. For example, the proposed definition of "Middleware Product," the product that the remedies are supposed to encourage to be potential competitors for the Windows operating system, includes any software that provides functionality similar to that "provided by Middleware offered by a competitor to Microsoft." So what is Middleware? Middleware is Middleware. It can mean nearly any software that communicates with any other software, including an application suite such as Microsoft Office. Application of these confused definitions, which go to the heart of the proposed remedies, would cause innovation at Microsoft whether in one or two pieces to grind to a complete halt, exactly the result that Microsoft's competitors have hoped for.
I would argue that, though many people have viewed the recent judgment against Microsoft as a victory for the government, it is really, at least for now, a victory for Microsoft's powerful competitors. Companies such as Sun, Oracle and Netscape have encouraged this litigation because it was an opportunity to harm Microsoft's ability to become competitive in new markets, such as Internet browser software, back office server products, and productivity applications.
Because Microsoft has "harmed" its competitors by innovating into their areas of business, slashing prices and dramatically increasing output, it is not surprising that the government's proposed remedies are focused on benefiting Microsoft's competitors. But the antitrust laws are intended to protect consumers and competition, not competitors.
Thanks in part to Microsoft, this country is enjoying the most productive economic boom in its history. Neither Microsoft nor the new economy generally needs any help from government intervention and regulation.


C. Boyden Gray, former counsel to President George Bush and a partner at the law firm of Wilmer, Cutler & Pickering, represents the Association for Competitive Technology.

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