Antitrust Isn’t Really the Issue

Slogging through U.S. District Judge Thomas Penfield Jackson’s 412 findings of fact, all hostile to Microsoft, produces a wish to ask the judge one last question: “Do you have a point here?”

The biggest gap is the lack of any finding of palpable injury to consumers. This matters. As as we hear endlessly, the antitrust laws protect consumers, not competitors. No consumer injury, no antitrust foul.

As far as consumer injury goes, though, the most potent charge the judge can hurl at Microsoft is that the company “harmed consumers indirectly” by “distorting competition” through hardball dealing with other firms. This leads to Jackson’s final finding that Microsoft has demonstrated an intent to harm firms that threaten its markets and thereby has stifled innovation. It is also hard to take the judicial outrage seriously when, in Jackson’s view, Microsoft’s market power rests on a practice of making its products so cheap that consumers would not notice if it raised their prices.

Before reaching the thin conclusion about harm, the opinion goes into detail about Microsoft’s relations with other companies. These are complex and often acerbic. Bill Gates and his fellow billionaires do not play nice. But again: So what?

After puzzling over the judge’s opinion, the light dawns. This case is not about antitrust, which addresses businesses getting together to raise prices and restrict output. This case is about how business firms deal with each other. It raises issues that go under such names as property rights, contracts, commercial law and business torts. These are important and useful legal domains, and the behavior of Microsoft and its playmates raises interesting questions. However, they are not antitrust questions.

Rules governing relations among businesses have evolved with the changes in technologies. The rise of commercial activity in the pre-industrial West encouraged and was fostered by great creativity in the invention of legal doctrines that regularized relations among owners, merchants and bankers separated by distance and language.

The industrial and financial revolutions of the 19th and 20th centuries triggered further adaptations, further creation of workable rules to reflect the new technological dynamics of industrialism.

The goal of the system, at its best, is always to evolve legal doctrines and institutions that promote economic efficiency by enabling people to deal with minimal uncertainty and transaction costs. The rules are leavened by other factors, too, such as principles of Lockean justice and our collective sense of fair dealing. Concern about monopoly has a role; we are always reluctant to let property rights get extended too far because this gives the owner too much power.

Recent explosions in information and communications are fostering a need for another round of creativity. Old rules of intellectual property ownership are under stress, as are doctrines of contract law, state jurisdiction, warranties and many others.

Much of this stress stems from the revolutionary change in business relationships. Decades ago, “integration” was the buzzword; companies wanted everything done internally. Now, firms would rather focus on what they do best and get someone else to perform the subsidiary functions.

This pushes high-tech firms into complicated and novel relationships with each other. They are simultaneously competitors, suppliers, customers, partners, enemies and allies. We do not have a good name for this new world. “Partial integration” is sometimes used, as are “strategic partnership” and “co-opetition.” Still less do we have a complete set of legal doctrines to govern what is happening.

This is what the Microsoft case is really about. How should our codes of property and commercial dealing be adapted to this new world? The question raises many issues well worth addressing. Yet as Judge Jackson has proved, however unintentionally, filtering this enterprise through the stale constructs of antitrust doctrine will lead only to compounded folly.