Breaking Microsoft's Monopoly

The decision by U.S. District Judge Thomas Penfield Jackson to find Microsoft guilty of violating antitrust laws was a positive step in freeing the computer industry from the anticompetitive tactics of the software giant. After the exhaustive trial and the clear findings of fact issued last November, the public can feel confident that the facts stand fully behind Jackson's decision. Yet justice will not have been fully served until the court specifies an appropriate remedy and the verdict is allowed to stand on appeal.

The language of the decision is unequivocal. Although it is not illegal to dominate a market--for reasons of quality or otherwise--it is illegal to abuse that monopoly power to shut down potential competitors or to gain monopolies in new markets. Microsoft's efforts to this end, Jackson ruled, constitute "a deliberate assault upon entrepreneurial efforts" that had the potential to benefit consumers. In this way, Microsoft placed "an oppressive thumb" on the scales of competition, using its power to tilt the market in its favor.

Microsoft's repeated use of the term "innovation" to describe its business practices in its response to the verdict verges on the comical. The evidence at trial showed that the company paid vast sums and "renounced many millions more in lost revenue every year" to decrease the market share of Netscape Navigator--spending that "can only represent a rational investment if its purpose was to perpetuate the applications barrier to entry." Concluded Jackson: "Microsoft's decision to tie Internet Explorer to Windows cannot truly be explained as an attempt to benefit consumers and improve the efficiency of the software market generally, but rather as part of a larger campaign to quash innovation that threatened its monopoly position."

Microsoft's vaunted "innovation" was often no more than creativity in imagining new ways of damaging competitors. To eliminate the danger from Java, a platform-independent product of competitor Sun Microsystems, Microsoft created a Windows-only version of Java, designed its programming software so that developers would "unwittingly" write Windows-only software and used technical information about Windows as a bargaining chip to force other companies to distribute its version of Java rather than Sun's more compatible version. "These actions," Jackson wrote, "cannot be described as competition on the merits, and they did not benefit consumers."

Now that Microsoft has been found guilty, the first step is for Jackson to find an appropriate punishment. All of the available remedies have benefits as well as costs. A "conduct remedy," in which Microsoft would continue to operate but would be under court order to refrain from certain practices, would be the least drastic measure but would raise the danger of continuous judicial monitoring of the software industry. Possible "structural remedies" include such as breaking up the company into separate divisions or licensing the Windows software to a number of different providers; both would provide a one-time solution rather than an endless loop of litigation.

However, breaking up the company might not solve the problem if one branch retained the operating system monopoly. Microsoft has already expressed interest in incorporating additional functionality, such as speech recognition, into its operating system, and other companies would still be at risk. Licensing Windows to multiple independent providers, while encouraging creative additions to the operating system by many companies, raises the danger of a "version fork" and the creation of mutually incompatible operating systems. Despite these risks, a strong structural remedy seems more appropriate to the offense and more likely to restrain anticompetitive action by Microsoft in the future.

The greatest risk, however, is that a hard-won legal victory may be undone for political reasons. With the appeals process assuredly lasting well past the November elections, there is a danger that a different Administration would be willing to settle the case on overly generous terms. Such a mistake would enable Microsoft to continue its pattern of monopolistic dominance and give solace to all law-breaking corporations with the funds to prolong a legal battle beyond the next election cycle.

Luckily, however, many states have joined in the suit and could persevere despite a lax Administration. Furthermore, the decision will provide grist for class-action suits filed by individuals. There is, therefore, good reason to hope that Microsoft's abusive monopoly will eventually be restrained.