Judge Deals Microsoft a Bad Hand

It has been three, almost four long years for Bill Gates. In 1997 his company, Microsoft, was charged by the U.S. Department of Justice for breaking antitrust laws and effectively acting as a monopoly.

In a shocking May 2000 decision, Judge Thomas Penfield Jackson ordered the breakup of Microsoft into two companies.

According to Jackson, one of the two companies would handle the operations of the Windows operating system while the other would focus on all other computer applications. Now, almost an entire year later, nothing has been settled as the case has reached the U.S. Court of Appeals and it may even reach the U.S. Supreme Court if there are more appeals to follow.

The government’s case against the software giant was erroneous from the beginning, and its solutions would have had little effect. The only reason the ruling went the way it did was that the judge was obviously biased against Gates.

Jackson, in breaching judicial conduct by extensively commenting on the case afterward, compared Gates to Napoleon. “”I think he has a Napoleonic concept of himself and his company,”” Jackson stated, “”an arrogance that derives from power and unalloyed success ….””

This animosity is evident and seems unfit for a person who is supposed to be unbiased. It almost looks as if the judge has some type of vendetta against Gates from the way Jackson is insulting him. This biased attitude is more than enough reason for the seven judges on the panel to throw out the case.

The solution offered by the government, and accepted by the judge, is ineffective in curbing Microsoft’s dominance or its monopolistic envelopment, if one even believes it to be a monopoly. The wisdom behind breaking up the company into the proposed fashion must be questioned. Right now, nearly 90 percent of the world’s computers use the Windows operating system.

Will dividing the company into two take Windows off half of that 90 percent? Would it somehow promote people to use other operating systems? Perhaps yes, but definitely not enough to make any real difference.

The government’s take on this is reminiscent of how it dealt with AT&T. The government simply broke AT&T into five separate and competitive companies. The key here is that these companies competed against one another and as any economics student knows, competition brings down prices; thus the monopoly is successfully defeated.

What makes the case of Microsoft different is that the two companies would not compete against one another. One side focuses on the operating system while the other handles the computer applications that depend on Windows. How will this achieve any semblance of competition, especially in the market for operating systems in which Windows would still dominate? It must be wondered if the U.S. Department of Justice even knows.

Another itch the government wants scratched is the bundling of Microsoft’s Web browser, Internet Explorer, into Windows. The prosecutors’ claim that by bundling Internet Explorer with Windows, deleting the browser would cause Windows to run inefficiently, is simply preposterous. This may seem elementary, but are they not Microsoft’s products? Shouldn’t they be allowed to bundle whatever programs they want?

If this is the case, then having “”Minesweeper”” preinstalled in Windows would infringe on antitrust laws, as it prohibits people from playing “”Counter Strike.”” By adding the e-Views disk to the business forecasting book for Economics 178, the publishers are not allowing students to choose between e-Views and Excel. Admittedly these examples are drawing from extremes but the point is adequately made: Having Internet Explorer preinstalled in Windows does not keep a user from using other browsers, like Netscape for example.

The only substantial footing the government has in this case is its claim that Microsoft used “”bully”” tactics, or “”a web of exclusionary contracts and other restrictions,”” as the Wall Street Journal put it. Whenever a new engine would be developed, it is said Microsoft’s lawyers would swoop down like vultures, attempting to buy the rights to it.

The government claims this practice stifles innovation, typical of old-economy companies. But as “”The Economist”” argues otherwise, “”In many other instances involving new technologies, a degree of temporary monopoly may be part and parcel of innovation.”” Former Treasury Secretary Larry Summers suggested in a recent speech that the pursuit of monopoly power could become “”the central driving thrust of the new economy ….””

And what exactly is a “”temporary monopoly””? In summary, it is argued that in the new economy, technology such as software requires huge fixed costs but trivial marginal costs. This allows a firm to monopolize a sector once it can get past the fixed costs. The trivial marginal costs allows for a unique type of competition that the old-economy does not have.

The result is a “”fragile monopoly”” where a single company can dominate for a time but is toppled by rivals. This allows a new company to take its place before it too is toppled. “”In Internet browsers … Netscape’s early dominance was supplanted by Microsoft,”” the Wall Street Journal reports. As it quotes from one of the seven judges on the panel, “”‘It really looks like one monopoly replacing another.'””

All economic theories aside, the main question remains: Is Microsoft a monopoly? If using bully tactics is enough to indict Gates’ company as a monopoly, then so be it. But then again, there aren’t any critics calling Wal-Mart a monopoly.

Unfortunately, Microsoft and the antitrust boom is a long-lasting legacy of the Clinton administration. As if Bill Clinton has not marred our nation enough, he has left behind eight years of intense antitrust scrutiny, many of which are, like this particular case, uncalled for.

According to “”The Economist,”” antitrust lawsuits arose four times more during the Clinton administration than during the Reagan years. In his attempt to salvage a legacy for himself because of his failures elsewhere, Clinton decided to be an antitrust watchdog, attempting to portray himself as the new Theodore Roosevelt. But Roosevelt was president in a time when the Industrial Revolution was coming to an end. We live in a time when our technological advances can hardly be fathomed.

The new economy has only begun and companies’ roles in it, even a company as dominant as Microsoft, are uncertain. A decision against Microsoft by the appeals court can only hamper this advancement.