Settlement Implications For Microsoft

The settlement that Microsoft and the U.S. Department of Justice presented to Judge Colleen Kollar-Kotelly last Friday is good for the parties and represents a reasonable reflection of their strengths and weaknesses under the D.C. Circuit opinion of last June.While the states still want to haggle, in the end they will probably sign on rather than take responsibility on their own shoulders to continue the litigation. Some Microsoft rivals will moan and whine. (After all, according to Wired magazine, Sun, Oracle and Netscape spent millions lobbying Justice to bring the case, and they may feel they did not get their money's worth.) But the odds are high that the judge will accept the settlement after the legally required proceeding to determine whether it comports with the public interest, and the case will be over.All of which should produce a profoundly ambivalent reaction in any friend of the free market.On the plus side, ending this politically motivated, competitor-driven, intellectually incoherent case is an unequivocal good. The D.C. Circuit tossed out its worst features, which were the government's contention that Microsoft should be prevented from integrating new features into Windows and the breakup order. All that was left was a narrow finding that Microsoft had acted illegally in some of the ways in which it protected its market power over the operating system used to run Intel chips on personal computers.The remedies that the government could obtain on this narrow charge would be slight, probably far less stringent than those to which Microsoft has now agreed. Nonetheless, Microsoft is a key part of the national economic infrastructure, and the continuation of the case added unnecessary uncertainty to an unsettled situation. So resolving it is a fine thing.But there is much on the negative side as well.The rhetoric that accompanied DOJ's announcement was full of references to Microsoft as a lawbreaker and to the stern justice being meted out. In fact, the economic and legal theories behind the case were never well defined. No one could possibly tell whether Microsoft was a lawbreaker because no one knew what the law was. And they still don't.When the case started, the government seemed to intend a low-key, perhaps even thoughtful, inquiry into adapting antitrust law to the computer economy. Then, once Microsoft agreed to a truncated fast-track procedure, Joel Klein and David Boies turned it into a show trial designed to show that Gates and company are nasty people.To see this trial lawyer mind-set continue under the new administration is distressing. The reaction is deepened by the assumption of the press that the trial staff of the antitrust division is a bunch of disinterested professionals. They are litigators, for heaven's sake, whose identities are bound up in bringing big cases against powerful opponents. They are not guardians of the economy, and an important job of DOJ political appointees is to keep such attack dogs from running rabid.Another negative is the government's infatuation with the idea that successful new economy enterprises should be turned into public utilities. In dealing with telecommunications and broadband deployment, the government insists that companies investing in new facilities must make them available to competitors at below cost rates. The system can be described as privatizing the risks and socializing the gains, and the unsurprising result has been a slowdown of investment in creating last-mile connections.The Microsoft settlement applies same philosophy to Windows, treating it as a common carrier onto which competitors must be allowed to hang their products. Perhaps this is a good idea. Certainly Microsoft people say a large part of their success is due to their determination to be a platform on which outside developers can build. But the government assumption that it, not the developer community, should define the terms of these bargains is a problem. Recreating the telecom fiasco in the software industry is not a good idea.The final negative is the underlying belief of everyone — the state attorneys general, Microsoft's competitors, and DOJ — that the government should be able to adopt an industrial policy toward the high-tech world as long is it calls it a remedy for an antitrust violation.The federal and state governments brought a legal case, and the D.C. Circuit threw out most of it. No remedy not tightly linked to the bit that remained would withstand appellate review. The willingness of everyone to treat this as a game of “gotcha,” in which the government gets carte blanche because it prevailed on a small fragment of its case, not as a serious legal enterprise, bodes ill for the future of the rule of law in the technology sector.And that is the biggest negative of all.James V. DeLong is senior fellow for the Project on Technology & Innovation at the Competitive Enterprise Institute.<?xml:namespace prefix = o ns = “urn:schemas-microsoft-com:office:office” />

Copyright © 2001 The Washington Times