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Microsoft Is Wrong; It's That Simple

February 27, 2001|TIMOTHY F. BRESNAHAN | Timothy F. Bresnahan, a senior fellow in the Stanford Institute for Economic Policy Research, served as chief economist of the antitrust division of the U.S. Department of Justice from 1999 to 2000

The government got it right on Microsoft, and so did U.S. District Judge Thomas Penfield Jackson in his finding that the company is guilty of multiple violations of the antitrust laws and should be split into two pieces.

Microsoft's appeal, in which oral arguments finish today, claims that Judge Jackson's findings of fact are wrong; that it doesn't have a monopoly and didn't do any of those bad things to preserve it. Microsoft also claims that, even if it were to admit that every word in the findings is correct, Jackson was confused on the law and, despite his scathing criticisms of the company, should have found that it behaved legally.

The core case against Microsoft is quite simple. It has a monopoly PC operating system, Windows. Technologies from the Internet, notably the browser and Java, threatened to introduce competition. Microsoft tried to make its own version of those technologies good enough to defeat the new threats but failed, mostly because the company took too long to wake up to the Internet.

Afraid of losing its monopoly, Microsoft set out to bribe or bully an enormous number of third parties to prevent widespread distribution and usage of the new technologies. It set out to block free choice of the innovative technologies by PC customers. Ultimately, this anti-competitive and anti-innovation campaign succeeded, the Internet-based threats fell away and Microsoft persists to this day with a monopoly in PC operating systems.

If that sounds like it should be illegal, it is. Preventing widespread use of valuable new technologies just because they threaten an existing monopoly position should be illegal for good economic reasons. Entrepreneurial innovation and change are critical to the continued growth of the U.S. economy, and snuffing them out to preserve an existing position is the worst kind of violation of the antitrust laws.

To win on appeal, Microsoft will argue in a number of ways that this view of the situation was all wrong. Microsoft's lawyers will argue that the company's actions did no harm to consumers. But Bill Gates wrote in an internal memo that Microsoft should fear widespread usage of Netscape's browser because "one scary possibility being discussed by Internet fans is whether they should get together and create something far less expensive than a PC which is powerful enough for Web browsing." The lawyers will argue that Microsoft's browser won fair and square.

But Microsoft marketer Cameron Myhrvold testified that he was very concerned that the company not "lose all those side-by-side user choices." He was talking about forcing Internet service providers to distribute Microsoft's Internet Explorer browser, or IE, when users wanted Netscape. But he might as well have been talking about forcing software vendors to use IE instead of Navigator, or of forcing PC manufacturers to distribute IE, or of bribing or bullying many other companies in the highly collaborative PC business to favor IE over Navigator when customers wanted the competitive product.

Microsoft's lawyers will say that tying IE to Windows was "just an operating system improvement" and that the link had nothing to do with competition with Netscape because the decision was made before Netscape was founded. They will have some trouble explaining Microsoft Vice President Jim Allchin's memo, three years later, that said the two products had to be tied together because Microsoft was about to lose the browser war and "we have to use Windows--this is the one thing they don't have." They will have a ton of trouble explaining why Apple--which makes its own operating system--was forced to take this "operating system improvement" on threat of being put out of business.

Microsoft's lawyers will argue that all they did was "compete too hard." But Microsoft tried to pay off Netscape not to compete with them. So much for "competing too hard."

Finally, Microsoft will argue that splitting into an operating system company and an applications company is punitive and shows the government doesn't understand the computer business. It's not punitive, it just restores the competitive forces Microsoft extinguished when it killed off the independent browser and Java. And here's a quote from someone who probably understands the computer business and about how competition and innovation arose in what he called the "PC model": "Specialized companies give customers a choice in each of the infrastructure layers: chips, computer systems, system software, business applications, networking." That was Bill Gates in happier times.

The government got this one right, acting to protect competition and innovation.

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