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Hard Drive on Microsoft

By Andrew L. Shapiro

The Nation

December 8, 1997

In a few weeks, Justice Department lawyers will go before federal judge Thomas Penfield Jackson in Washington and argue that Microsoft is in contempt of a 1995 antitrust consent decree by which the company settled a government antitrust suit and agreed not to engage in certain practices. Justice claims that Microsoft has breached that agreement because it has forced computer makers who license its Windows operating system to also license its web browser, Internet Explorer. On its face, this would appear to be little more than an obscure dispute about software. And yet, no matter who wins, this latest round of United States v. Microsoft has the potential to be much more: a call to arms for renewed antitrust enforcement and for a grassroots campaign for democratic values in the digital arena.

The government's ongoing scrutiny of Microsoft is quickly becoming its most serious antitrust matter since the 1982 breakup of AT&T, and is arguably a litmus test of how corporate power will be reconciled with consumer rights in the information age. Antitrust is so talismanically focused on competition that it is easy to forget that the purpose of this body of law is not to protect companies but consumers. Usually, this means preventing unfair monopolies. Sometimes though, as in the case of utilities, it means have one closely regulated firm dominate the market. Either way, at the heart of antitrust is the idea that government must protect capitalism from its own own excesses in order for markets to work at all. Over the last few decades, antitrust has been ignored by regulators, winnowed by the courts and ridiculed by Chicago-school free marketeers such as Robert Bork. Yet there have been signs recently that the Clinton Administration is trying to make antitrust relevant again.

And none too soon. Microsoft is leveraging its market power--using predatory pricing and strong-arm tactics--to expand into almost every part of the new online communications and commerce sphere [see "Memo to Chairman Bill," November 10]. It has the natural advantage of what economists call "network effects," which cause certain successful communications products to get an artificial boost, ultimately dominating the market and locking in customers. This prevents competing, perhaps superior, products from getting a fair shake. (If lots of people have VHS format video players, for example, it makes sense for you to buy VHS instead of Betamax. Unlike Windows, though, no one owns the VHS standard.)

Microsoft's rapaciousness was laid bare in a recent internal memo: "We are challenging ... newspapers, travel agencies, automobile dealers, entertainment guides, travel guides, Yellow Page directories, magazines and over time many other areas." No wonder the company is perceived to be a threat by companies ranging from I.B.M. to Times Mirror to Bank of America. Nathan Myrhvold, chief technology officer, has acknowledged that the company wants to get a cut of every online transaction. With $9 billion in cash, it can afford to bet on any number of paths for the future -- PC, cable, wireless, etc. (Bill Gates himself has invested heavily in Teledesic, a $10 billion satellite venture.) The company even makes an interactive Barney doll, for god's sake.

Despite all this, Justice's current action is no sure thing. The consent decree prohibits Microsoft from forcing computer makers who license one product, such as Windows, to license any other product, such as Explorer. But a key clause states that the agreement does not prevent Microsoft from "developing integrated products." Justice argues in its brief that Windows 95 and Explorer are distinct, pointing to the fact that they have been, and to an extent still are, developed and sold separately. Microsoft says that's irrelevant since "integrated" implies the combining of two discrete things and many Windows features existed as separate software before and after being incorporated. To resolve this dispute, Judge Jackson will be cast in the role of digital metaphysician, forced to ponder what, after all, an operating system is. My hunch is he'll agree with Microsoft that this is something that should be decided by software developers and consumers, not by the court.

That's not to say that Justice's claim is without merit. The consent decree was meant in part to prevent Microsoft from using the licensing process to protect its operating system (OS) monopoly, and there is substantial evidence that it is trying coercively to do so. Microsoft controls upwards of 90 percent of the OS market. But, as Justice notes, the Windows hegemony faces a new threat from browser software made by Netscape and others that might do away with the need for an OS, and particularly from Java, the "platform independent" programming language developed by Sun Microsystems. Because it is mostly an open, nonproprietary standard, Java has quickly developed a following and is poised to become the lingua franca of the Web. By forcing Explorer on PC users, Microsoft is undoubtedly trying to foil the momentum of Java and other new Windows competitors.

This would appear to be a classic example of illegal anticompetitive behavior. But Judge Jackson will probably not look favorably on the government's attempt to turn what is essentially a contract dispute into a full-scale antitrust litigation. Moreover, Microsoft will argue that its "monopoly" can no longer be assumed if Netscape and Java pose such a distinct threat. In this round, then, Justice is unlikely to get the relief it seeks -- preventing Microsoft from requiring Windows 95 licensees to take Explorer. Even if it did, the remedy would probably be moot soon because Microsoft intends to integrate a browser into future versions of its OS, such as Windows 98. To prevent this, Justice would probably have to initiate an entirely new antitrust lawsuit, which would take years and then still might not succeed, given today's weak antitrust precedents.

All of which sounds like Microsoft wins and the consumer loses; but it's not so simple. While Assistant Attorney General Joel Klein and his colleagues at the Antitrust Division will never admit it, hauling Microsoft into court now is as much a strategic and public relations move as a legal one. Antitrust officials at Justice and the F.T.C. have been trying for years to rein in this giant, with little success. The brilliant thing about using the consent decree is that Justice can keep Microsoft on the defensive, raise consumer awareness about the company's cutthroat tactics, and encourage industry to come forward with evidence of unfair dealing. Legal purists may not like it. But these hardball tactics can work.

Since Justice announced its charge on October 20, reports of other shady practices by Microsoft have surfaced; Senator Orrin Hatch has held hearings; and Ralph Nader convened a two-day conference in Washington that drove Gates into a tizzy (he ranted to shareholders about a "witch hunt"). Though the event would have been better had Gates accepted Nader's invitation to participate, a few interesting ideas were proposed. Antitrust expert Lloyd Constantine suggested amending the Sherman Act to make leveraging monopoly power from one market into another a clear violation of the statute. Economist Garth Saloner argued that standards made dominant through network effects should not necessarily remain proprietary. And Jamie Love of the Consumer Project on Technology said that government could use its purchasing power to keep markets competitive. There was even a little levity, as attorney Gary Reback recounted the story of what happened after Microsoft bought the Funk & Wagnalls encyclopedia for a cd-rom edition: the entry on Gates describing him as ruthless morphed into one reporting that "he is known for his personal and corporate contributions to charity and educational organizations."

Hearings and conferences are just a first step toward educating ourselves about the ways in which Microsoft and other large companies are threatening much of the Net's potential. Microsoft's tendency to restrict content and bolster Big Media is antithetical to the healthy chaos of cyberspace and should be opposed. The Java-Windows battle highlighted by Justice also demands our attention. Arcane as these debates may seem, we must become familiar with the way in which these tools affect our interaction with information and the world at large. As Steven Johnson writes in his fascinating new book Interface Culture, technologies in the digital age "serve as buffers, translators, tour guides." As such, we need to seek out those interfaces that best reflect our political aspirations. If Java allows for more user control and flexibility than Windows, then perhaps it deserves our support (see But there are other standards, like Linux, that are even less proprietary than Java. The cyberpolicy groups that mobilized netizens on free speech and privacy should organize a campaign to inform us about these issues and to keep competition online fair and robust.

It would be nice if there were a simple solution to this quandary--nationalize Windows? break-up Microsoft?--but there isn't. What we can do now is press antitrust authorities at the state, federal, and international levels to scrutinize Microsoft's practices (as we do the same ourselves); explore the possibility of strengthening antitrust laws to compensate for the regressive rulings of the last few decades and the challenges of the digital era; and actively support interfaces and standards that are as open and democratic as possible. Judge Jackson may not find Microsoft in contempt. But if the company fails to changes its ways, the consumers of the world eventually will.

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