Tuesday, April 4, 2000

“Government has to come in and discipline [Microsoft] until the rest of the world catches up,” says Scott McNealy of Microsoft rival Sun Microsystems. On Monday, federal District Judge Thomas Penfield Jackson did just that, albeit using other words. “The court concludes that Microsoft maintained its monopoly power by anticompetitive means,” he said, “and attempted to monopolize the Web browser market.”
The U.S. Justice Department, which brought the antitrust suit against Microsoft, assorted states’ attorneys general, trial lawyers and, not least, Microsoft’s competitors, say the company “tied” its popular Windows operating system to “browser” software that allows users to explore cyber space. That strategy effectively and, the judge agreed, illegally enabled the company to extend its dominance in Windows to the browser market. What made it all the worse, the judge said, is that Microsoft gave its browser away for free. If only the company had charged consumers for the product, it might not be in this trouble.
It’s an odd way to treat a company whose benefit to consumers Judge Jackson himself had recognized in his purported “findings of fact” released last year. Not only did he say then that Microsoft’s Internet browser forced competitor Netscape to improve the quality of its own browser. By providing it at no additional cost, he said, Microsoft increased public familiarity with the software and reduced the cost to consumer of obtaining it. But such benefits mattered less to Judge Jackson, and the Department of Justice officials who brought the antitrust suit against Microsoft, than the “crimes” it committed while providing such aid to computer users.
Now comes the penalty phase of the trial, in which Judge Jackson and officials at the Justice Department’s office of software engineering try to sort out the best form of discipline for Microsoft. Is the solution to impose some sort of behavioral regime on the company that would require it to get the approval of some new Bureau of Browser Controls before proceeding with product innovation? Or would it be better to break up the company, force its new separate parts to compete against each other and let the free market do the work?
Apparently neither outcome is terribly desirable from the perspective of the market. The Nasdaq index, heavy on high-tech stocks, suffered the worst pounding in its history in a nearly 8 percent free-fall. Ironically, Microsoft’s high-tech competitors helped bear the brunt of the decline as investors contemplated a software industry run by the likes of Associate Attorney General Joel Klein.
If consumers and investors don’t have much to look forward to under such a regime, trial lawyers certainly do. Having feasted on tobacco companies, the plaintiff’s bar has fallen all over itself to get to the court house to sue Microsoft, ostensibly in the name of computer users. Having Judge Jackson’s name on an order finding Microsoft guilty of violating antitrust laws makes their case that much easier.
The irony is that by the time this case has worked its way through the “remedy” phase and a lengthy appeals process, both the industry and Microsoft may look very different than what the Justice Department saw when it originally brought suit. Industry analysts, to say nothing of Microsoft, are well aware of the company’s up-and-coming competitors. Ultimately, they will “discipline” Microsoft better than any Bureau of Browser Controls could.

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