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Jewish World Review July 11, 2001 / 20 Tamuz, 5761

Doug Bandow

Doug Bandow
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Consumer Reports

Lawyers at play -- IT may not be the end, but it may be the beginning of the end. The Bush administration should use the dramatic reversal of the court-ordered break-up of Microsoft to end the case.

In 1998, the U.S. Justice Department and 19 state attorneys general filed an antitrust case against the software giant. Last year District Court Judge Thomas Penfield Jackson decided to split Microsoft in two.

The company appealed. Now a seven-member Court of Appeals panel has unanimously tossed Jackson off the case, accusing him of violating the judicial code of conduct in "deliberate, repeated, egregious and flagrant" ways.

The justices also overturned the government's central contention, that the "tying" of the Windows operating system and the browser software was an illegal restraint of trade. Moreover, the court rejected the claim that Microsoft had attempted to monopolize the browser market.

However, the appellate justices did accept Judge Jackson's factual determination that Microsoft was a monopoly and had "behaved anti-competitively" to maintain its power. Still, appellate courts traditionally only overturn "clearly erroneous" factual determinations. Moreover, the justices said they found a connection between Microsoft's practices and Windows domination "only through inference," and therefore suggested that break-up was "not an appropriate remedy."

Both sides could yet appeal to the U.S. Supreme Court, but both are also talking settlement. And the appellate court decision has shifted the balance toward Microsoft.

The best solution would be for the Bush administration to drop the case in exchange for some token concessions.

Unfortunately, antitrust law has never made much sense. Economically illiterate lawyers convince equally ignorant judges to apply irrelevant and often stupid legal precedents to complex businesses. The result has frequently been less competition.

Use of these laws in a relatively stable industrial economy is dubious enough. Applying old law to today's information economy makes no sense. As the appellate justices opined, six years seem "like an eternity in the computer market."

Microsoft gained its clout through a mixture of luck and skill. A competitor rejected IBM's offer to fund development of the DOS operating system. Microsoft's Excel spreadsheet outperformed market-leader Lotus 1-2-3.

The company pushed down software prices and gained a reputation for better service and support than its competitors. Indeed, Oracle CEO Larry Ellison complains that Microsoft gives away software, an obvious boon to consumers.

The only monopoly possessed by Microsoft came legally, through its government-granted copyrights. It has been a tough competitor, but arbitrary legal restrictions on its practices are likely to make the entire software market less robust.

Moreover, though Microsoft is still the dominant player, it is not unbeatable. The company faces diverse competition, from not only long-time rival Apple's iMac, but also from Linux and Unix.

The AOL-Netscape merger created another serious competitor. Indeed, AOL, not Microsoft, has gained the edge in making links with Internet providers.

Even some of Microsoft's fiercest adversaries now sense weakness. Mitchell Kertzman, the CEO of Liberate Technologies, no longer supports a break-up: Over the past year, he told the Wall Street Journal, "I was seeing Microsoft showing signs big companies show - they were losing key people, they were unable to get their products out into markets."

Other entrepreneurs prefer to put their efforts into software development than into lawsuits. Chuck Hirsch, a managing director of Seattle's Madrona Venture Group, observes: "If there are people in the valley telling you that Microsoft has such a heavy hand that nothing can get out the door that's competitive, that's ludicrous." He says Microsoft, no matter how good, "can't do everything," leaving opportunities for others.

The antitrust case was outdated when it was filed three years ago. It is even less relevant today. Microsoft has changed its software license terms, for instance. It has dropped plans to create automatic Web links in its upcoming Windows XPprogram.

The most important difference may be that Bill Clinton and Al Gore, who worked assiduously to raise money from Microsoft's competitors, are no longer in office. The Bush administration can start afresh. There would no better signal to American business than that the antitrust laws will no longer be used to promote political aims in ways that stifle technological advance.

Even if the Justice Department makes the right decision, the state attorneys general might demur. And private lawsuits are sure to cascade against Microsoft. But there is still no excuse for the Bush administration not to drop the case.

Markets are not perfect. Expecting judges and politicians to improve them is a fantasy, however. Ending the case against Microsoft would benefit consumers the world over.

JWR contributor Doug Bandow is a senior fellow at the Cato Institute. Comment by clicking here.


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