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


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 Netscapefrom access to Windows customers, principally by negotiating exclusionary"tying" contracts that require personal computer manufacturers (OEMs) toinclude Microsoft's Web browser, Internet Explorer, when they sell theWindows operating system. That claim is preposterous. More than 150million copies of Netscape's browser were delivered in 1998 alone. Over 65million Internet users start up at Netcenter, which is the second mostvisited site on the Web after Yahoo; Microsoft is a distant third. Over400,000 Web sites link to Netscape's home page -- more than twice thenumber of links to Microsoft's home page. Netscape still controls 42percent of the browser market and will soon control an additional 16percent through its new partner, America On-Line, which paid more than $10billion to acquire Netscape, a four-year-old company purportedly mangled byMicrosoft.

At the same time that Netscape was complaining about being foreclosed fromthe market, it was touting its growing market penetration to its futurepartner, AOL. Despite pronouncements by both companies -- in court and tojournalists -- that their three-way alliance with Sun Microsystems was nota threat to Microsoft, internal documents said exactly the opposite. Thetroika intends to develop a new, de facto operating system -- yet anothersign, for anyone who cares to look, of an explosive marketplace thecontours 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, promisesan environment in which applications run both on stand-alone PCs and acrossthe Internet without compatibility problems. Second, browsers have alreadyoverlaid, 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 radicallyaltered the nature and function of the operating system. Fifth,mushrooming electronic commerce has shifted profit opportunities from theoperating system to Internet portals, where Microsoft is far behind.

Even on Microsoft's home turf -- the operating system market, which thecompany supposedly rules -- alternatives to Windows are available,including MacOS, Unix and Solaris. Apple, with 13 million customers, hasreported sharply rising iMac sales of which nearly half are to new users orMicrosoft converts. Perhaps most significant, upstart Linux has become apalpable threat; it's now loaded on an Intel platform by more than 100dealers worldwide and serves an estimated 10 million users. Among the PCmakers who offer Linux are giants IBM, Compaq, Hewlett-Packard and Dell.Those companies, along with Oracle, Intel and Netscape, have also investedin 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 asharp downturn for other Internet stocks.

Could it be that the stock market knows something that has eluded JoelKlein and his minions? One can only conjecture about the rationale forthis pathetic lawsuit. Some observers believe that DOJ must provide theAmerican public with dramatic evidence of its effectiveness in order tojustify the $30 million to $60 million already expended on the Microsoftlitigation, not to mention the Clinton administration's proposed budgetincrease of 17 percent for the Antitrust Division. Hence, we are treatedto a high-profile case with sensational remedies as the exit strategy,played to the media and focused not on substantive legal issues but onpublic ridicule of a company and its chief executive.

In civil litigation -- when private parties, adverse to one another, seekprivate remedies with redress to the injured party and not the state -- weneither have nor do we need strict protection against abusive government.When the state stays out, the risk of abuse is diminished; but when thestate is a party, as it is in this case, we must insist on scrupulousadherence to the rule of law -- not pandering to the press, not courtroomhistrionics, not preferential treatment of favored constituents and notpublic harassment of a company whose only offense was to prevail over itscompetitors by creating better value for consumers. Let's hope JudgeJackson has the vision and good sense not to mutate antitrust into acorporate welfare program for disgruntled competitors.