U.S. v. Microsoft: Time for a Reality Check

September 11, 1999 • Commentary

Here it is, the centerpiece of the government’s crusade against Microsoft, verbatim from its 800‐​page proposed “Findings of Fact” deposited with federal judge Thomas Penfield Jackson on August 10: “Microsoft substantially impeded the most effective channels of distribution … and, ultimately, effectively eliminated Netscape as a platform threat.” Does anyone, even within the sequestered halls of the Justice Department, really believe that rubbish?

According to the government’s proposed findings, Microsoft barred Netscape from access to Windows customers, principally by negotiating exclusionary “tying” contracts that require personal computer manufacturers (OEMs) to include Microsoft’s Web browser, Internet Explorer, when they sell the Windows operating system. That claim is preposterous. More than 150 million copies of Netscape’s browser were delivered in 1998 alone. Over 65 million Internet users start up at Netcenter, which is the second most visited site on the Web after Yahoo; Microsoft is a distant third. Over 400,000 Web sites link to Netscape’s home page — more than twice the number of links to Microsoft’s home page. Netscape still controls 42 percent of the browser market and will soon control an additional 16 percent through its new partner, America On‐​Line, which paid more than $10 billion to acquire Netscape, a four‐​year‐​old company purportedly mangled by Microsoft.

At the same time that Netscape was complaining about being foreclosed from the market, it was touting its growing market penetration to its future partner, AOL. Despite pronouncements by both companies — in court and to journalists — that their three‐​way alliance with Sun Microsystems was not a threat to Microsoft, internal documents said exactly the opposite. The troika intends to develop a new, de facto operating system — yet another sign, for anyone who cares to look, of an explosive marketplace the contours of which change with every day’s newspaper.

Meanwhile, Microsoft’s dominance is threatened on five fronts: First, Sun’s Java programming language, if it’s ever fully operational, promises an environment in which applications run both on stand‐​alone PCs and across the Internet without compatibility problems. Second, browsers have already overlaid, and may eventually displace, major parts of Windows. Third, low‐​cost network computers, with software downloaded from the Internet, could transform PCs into high‐​speed communications devices. Fourth, hand‐​held computers and other consumer electronics devices have radically altered the nature and function of the operating system. Fifth, mushrooming electronic commerce has shifted profit opportunities from the operating system to Internet portals, where Microsoft is far behind.

Even on Microsoft’s home turf — the operating system market, which the company supposedly rules — alternatives to Windows are available, including MacOS, Unix and Solaris. Apple, with 13 million customers, has reported sharply rising iMac sales of which nearly half are to new users or Microsoft converts. Perhaps most significant, upstart Linux has become a palpable threat; it’s now loaded on an Intel platform by more than 100 dealers worldwide and serves an estimated 10 million users. Among the PC makers who offer Linux are giants IBM, Compaq, Hewlett‐​Packard and Dell. Those companies, along with Oracle, Intel and Netscape, have also invested in Linux distributors — one of which, Red Hat, enjoyed an astonishing 300% jump in stock value on August 11, when it first came to market, bucking a sharp downturn for other Internet stocks.

Could it be that the stock market knows something that has eluded Joel Klein and his minions? One can only conjecture about the rationale for this pathetic lawsuit. Some observers believe that DOJ must provide the American public with dramatic evidence of its effectiveness in order to justify the $30 million to $60 million already expended on the Microsoft litigation, not to mention the Clinton administration’s proposed budget increase of 17 percent for the Antitrust Division. Hence, we are treated to a high‐​profile case with sensational remedies as the exit strategy, played to the media and focused not on substantive legal issues but on public ridicule of a company and its chief executive.

In civil litigation — when private parties, adverse to one another, seek private remedies with redress to the injured party and not the state — we neither have nor do we need strict protection against abusive government. When the state stays out, the risk of abuse is diminished; but when the state is a party, as it is in this case, we must insist on scrupulous adherence to the rule of law — not pandering to the press, not courtroom histrionics, not preferential treatment of favored constituents and not public harassment of a company whose only offense was to prevail over its competitors by creating better value for consumers. Let’s hope Judge Jackson has the vision and good sense not to mutate antitrust into a corporate welfare program for disgruntled competitors.

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