Punishment Short of a Breakup
The easy part of the Microsoft antitrust trial is almost over. U.S. District Court Judge Thomas Penfield Jackson has crafted a long, tightly argued and almost irrefutable factual finding that Microsoft not only enjoys a monopoly in personal-computer operating software, which is not against the law, but has abused its monopoly power, which is.
In a few weeks, Jackson will issue his conclusions of law, and there can be no doubt that he will find that Microsoft acted illegally. But then comes the hard bit: What should the government do about it?
Jackson has been overruled by appeals courts before on Microsoft issues, and there are sections of his current finding that are vulnerable to attack. But he has gone out of his way in this proceeding to make the record as bulletproof as possible. Appeal courts rarely overrule a lower court’s findings of fact, unless they are egregiously wrong. Only the judge or jury on the scene, the theory goes, has the opportunity to weigh the credibility of witnesses and the quality of their evidence. By taking the unusual step of issuing a separate ruling on the facts, Jackson, in effect, is telling the higher courts, “Here, this is what I found, and it’s very damning. You might quibble with details of my legal analysis, but you can’t look at these facts and say there’s nothing wrong here.”
The most publicized parts of Jackson’s findings--on the browser war between Netscape and Microsoft--may actually be the least convincing. The browser is the software gateway to the World Wide Web, and Jackson suggests that Microsoft unfairly competed by integrating it into its Windows operating system. In reality, Microsoft has a good case here. The software that manages printer functions and utilities like file compression also used to be sold separately, and it was a great convenience to consumers when Microsoft bundled them all into Windows. Functions like e-mail or using your checking-account software to pull a tax form off the Web are now so basic that the case for treating the browser as just another standard utility becomes more compelling by the day.
But Jackson has laid out a strong record of Microsoft wielding the monopolist’s brass knuckles, just as old John D. Rockefeller did. When Microsoft rolled out its new Windows 95 software, for instance, the IBM PC company was desperate for a license: You couldn’t sell new PCs without it. But Microsoft was miffed because IBM was still selling office and operating-system software that competed with Microsoft’s own. So it refused to grant a license in time for IBM to catch the sales boom that followed the splashy roll-out of Windows 95. It was an act of pure vengeance that cost IBM millions in sales. Only a monopolist could have indulged its pique so freely: A normal company would not have risked alienating a customer as big as IBM.
Similarly, when Intel developed Internet software that would have made its chips work better with Microsoft and non-Microsoft software alike, Microsoft insisted that the program be dropped and eventually forced Intel’s capitulation. Microsoft also applied heavy pressure on Apple to stop development of multimedia software that geekdom liked better than its own.
Only a monopolist can price products the way Microsoft does. When the company rolled out its new Windows 98 operating system, it raised the price of the old Windows version, when normal commercial logic would have lowered it. By forcing new buyers to pick the newest software, Microsoft speeded the day when the entire world would have to buy upgrades. On and on the recital goes: bullying PC makers, sabotaging Sun Microsystems, a whole list of dirty tricks to hasten the demise of Netscape. Jackson’s factual recitals leave no doubt that the company has routinely behaved far outside the boundaries of the law.
But the focus on Microsoft’s sins obscures what an enormous positive force the company has been for the computer industry. Geeks hate Microsoft software--it simply isn’t slick--but 99% of software users are not geeks. Routine tasks, like connecting to a new modem, used to be a horror for most users; now Windows does it all for you. Keeping backward compatibility with so many versions of its own software, and those of its erstwhile competitors, and so many generations of computers, is a signal accomplishment. The standardization Microsoft forced on the world has been a huge benefit: We take Microsoft formats for granted, but they’re a main reason why we can zip documents back and forth over the Internet so easily.
Microsoft was the first, and is still the only, true mass-market software company. Mass-market products always offend aficionados. But if your business mission is to sell the white bread that 90% of the world uses in its sandwiches, predictability and consistency are more important than elegance. Gourmets looking for the world’s finest French pastries go to specialty shops.
Perhaps Bill Gates’ greatest failure was his inability to understand that he could have won by playing fairly. At the end of the day, it wasn’t Microsoft’s dirty tricks that did in Netscape. It was Netscape’s sloppy software, its king-of-the-world arrogance and terminal managerial confusion. When Microsoft finally woke up to the threat posed by the Web and Internet and focused on beating Netscape, the outcome was never in doubt: The state of chaos at Netscape was that far advanced. Similarly, Sun once had a clear shot at dominating the software world, as did IBM, but neither company had a Gates at its helm, and they both squandered their opportunities.
The fecklessness of its competitors does not excuse Microsoft’s behavior. Jackson’s factual compilation shows that the company broke the law repeatedly, and it has to be punished for it. But the great good the company has accomplished, and still accomplishes, must be a consideration in fashioning a remedy, not so much for Microsoft’s sake, but for the rest of us. Enduring a half decade of disruption in the software industry just for the sake of rapping Gates on the knuckles is not worth it. “Breaking up Microsoft” has an appealing ring in the abstract, but when one considers the meat-cleaver weapons available to the Justice Department, and the ability of lawyers to string out such processes, it ceases to make sense.
Just as important, Jackson’s findings are all about last year’s wars. Nobody is interested in selling word-processor software. All the hot new markets are off the desktop--in hand-held devices, in multimedia systems, in Internet-based businesses--and Microsoft hasn’t been especially successful at any of them. The goal is not to stop Microsoft from competing, but to assure it competes fairly.
So what to do? How about a whopping big fine, to emphasize that the company did indeed break the law. Then a long probation period, during which Microsoft’s behavior has to conform to a very detailed code of behavior. Gates himself, perhaps, should be forced to give up an active management role at the company and get on with his philanthropic career. Most important, there should be a Justice Department SWAT team, comprising both computer scientists and lawyers, preferably located at the company’s headquarters, entirely devoted to policing compliance with the probation order. Then we could stop lawyering, and the industry could get back to work. *
