Cato Policy Analysis No. 385 November 9, 2000

Policy Analysis

Microsoft's Appealing Case

by Robert A. Levy and Alan Reynolds

Robert A. Levy is senior fellow in constitutional studies at the Cato Institute. Alan Reynolds is director of economic research at the Hudson Institute.


Executive Summary

Judge Thomas Penfield Jackson's final judgment in the Microsoft case indicates that he has fallen hook, line, and sinker for the government's flawed arguments. But the U.S. Court of Appeals for the District of Columbia Circuit is unlikely to be so accommodating. The Justice Department's case will crumble as a result of procedural errors, flawed fact-finding, wrongheaded legal conclusions, and Jackson's preposterous plan to break up the software company most directly responsible for America's high-tech revolution.

On the procedural front, Jackson expanded the scope of the trial to include charges that were not part of the government’s initial complaint, conducted the trial on an accelerated timetable that did not allow Microsoft sufficient opportunity to prepare its defense, embraced the government's proposed remedies without any hearing whatsoever, and granted media interviews, during and after the trial, in violation of judicial ethics.

Still worse, Jackson’s findings of fact do not hold up under serious scrutiny. Those findings were the shaky foundation on which he constructed his conclusions of law. And when the foundation is unsound, the resultant structure collapses. True to form, Jackson's legal conclusions about Microsoft's tying arrangements, first-screen restrictions, and so-called exclusionary contracts are quite simply incorrect.

The government's remedies, rubber-stamped by Jackson, may well be the most destructive aspect of this baseless case. If one didn't know better, those remedies would seem crafted to inflict as much damage as possible, not just on Microsoft, but on the broader high-tech marketplace.

Meanwhile, real people will be injured by this foolishness. Microsoft's shareholders—including millions of retirees and mutual fund investors—have suffered an erosion of market value measured in hundreds of billions of dollars. Company employees, like expendable chess pawns, will be deployed to advance the Justice Department's dismemberment scheme. And consumers will pick up the tab as disgruntled competitors devote their resources to politicking instead of creating innovative products. Ultimately, that political agenda will destroy what it sets out to protect. Microsoft’s rivals may get the kind of government they ask for—including oppressive regulation.

Full Text of Policy Analysis No. 385 (PDF, 20 pgs, 109 Kb)

© 2000 The Cato Institute
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