Justice Department Strikes Out

The recent decision of the U.S. Department of Justice to abandon its previous strategy in the Microsoft case—to break Microsoft into separate companies for operating systems and software applications—is an unfortunate step that raises questions about the Bush administration’s commitment to antitrust enforcement.

Charles A. James, the newly appointed chief of the Justice Department’s Antitrust Division, attempted to justify this departure by arguing that consumers deserved a swift resolution to the matter, and that limitations on the software giant’s practices would be sufficient to protect competition in the software industry. That logic, however, has not been borne out by experience. Past efforts at limiting Microsoft’s monopolistic behavior through “conduct remedies”—agreements that force a company to change its practices rather than its structure—have been ineffective at spurring market competition. In 1994, after years of government investigation, Microsoft modified its licensing contract with PC makers under a settlement reached with Justice Department officials. But Microsoft quickly embarked on new efforts to evade the consent degree and to protect its operating system monopoly from offerings by Netscape and Sun, prompting the government’s antitrust suit.

The actions by Microsoft were designed to stifle possible innovations in the computer industry. As the district court found and the D.C. Circuit Court of Appeals upheld, the company feared that “middleware” such as Netscape’s browser and Sun’s Java would allow greater freedom to choose alternative operating systems with the same functionality. Microsoft’s decisions to prevent consumers from removing Internet Explorer, to require distributors to give Explorer prominent placement on the desktop, and to subvert the Java standard by building its own proprietary version were intended to support its monopoly position rather than improve the consumer experience.

The signal sent by the Justice Department is particularly disturbing in that it seems to represent a coup for Microsoft’s formidable lobbying operations. The company and its employees spent $4.7 million last year in donations to national political parties and candidates—nearly two thirds of that to money going to Republicans—and another $6 million on lobbyists, including top presidential advisor Ralph Reed. In June, the Justice Department announced that it would seek to settle a Clinton-administration suit against the tobacco industry, which donated millions to the GOP in the last election cycle. The administration should not send corporations the signal that a strong lobby or a change in the political winds can buy a get-out-of-jail-free card. The concern that the government’s decision might have been politically motivated also calls into question the department’s commitment to enforcing any conduct remedies that are placed on the company.

Given Microsoft’s resistance to any change in its business practices, the government must be prepared to take aggressive measures to ensure that the software monopoly does not abuse its power. Already, Microsoft has challenged AOL/Time Warner (the owner of Netscape) over the presence of AOL icons on its desktop. The corrections of a conduct remedy should be enforced so as to have as powerful an effect as possible in combating Microsoft’s predatory and monopolistic practices.

William Neukom, the company’s chief legal officer, will be in Washington this week, in what is reportedly an effort to present the Justice Department with settlement options. The Antitrust Division should remember its charge, and not fold its cards at the critical moment in the case’s development. There is a difference between reasonable concession and abandoning of principles, and the Justice Department cannot afford to get any closer to that line.