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A L S O__T O D A Y
Let's Get This Straight
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MR. GATES, MEET MR. ANTITRUST | PAGE 2 OF 2 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - What is likely to happen in the short term? Litan: The case could very well be decided at the preliminary injunction stage -- basically, if the government wins the preliminary injunction, Microsoft will have strong incentive to settle. Alternatively, if Microsoft were to win out the preliminary injunction, and the flag is on their side, they can drag out the litigation and wait out the Justice Department. In the meantime, technology marches on and presumably they win. Shapiro: I think we'll have a quick phase of the court reviewing whether to grant the preliminary injunction. One of the smart things about the complaint by the Justice Department is that they are not seeking to block the shipment of Windows 98; they are seeking to attach conditions to which that product is sold and distributed and limitations on how they can conduct business with OEMs and content providers. That makes it easier for the judge to grant an injunction without having great fear of disrupting the market. Whether or not Internet Explorer and the operating system are separate products is central to this case. Do you think the Department of Justice is justified in defining what these products are? Froeb: Consumers want easy-to-use, they want everything to work together. That's precisely why Microsoft is bringing all this stuff onto one desktop -- to make it easy to use, to make sure components work well with each other. That's what an operating system does. Suppose you're a consumer, and something breaks down. You call up Microsoft and say, "I can't get this form to work with your operating system. I'm working with Netscape." They've carefully designed their system to solve that problem with Explorer, and all the sudden you're working with Netscape. Who's the consumer going to blame? To protect its good name, Microsoft might want to make sure that if people use their product, they use it properly -- just the way that certain vendors of equipment will force you to go to their repair people or else you void the warranty. To protect the brand name, you do things like that. You see these sorts of agreements all the time, and they're not anti-competitive in other applications. So there are certainly pro-competitive aspects of whatever Microsoft is doing. The DOJ is going in and saying that's not as important as making sure that Sun and Netscape have a place on your desktop. That really gives me pause. Shapiro: This is the beauty of what Justice has done -- they don't need to show that the operating system and browser are separate products. Today's press release says, "[Assistant Attorney General Joel] Klein stated that the preliminary injunction being sought will not require Microsoft to redesign Windows 98. Our focus in the motion for preliminary injunction is not the code, it's on their agreements to limit the distribution and promotion of competing browsers." That's a good catch phrase: It's not the code, it's the contract. That's what antitrust law knows how to deal with -- contracts. It's where Klein has put his stake in the ground. Microsoft will say, "Oh they're trying to make us redesign our product." If you look at this case, they're very carefully avoiding that. Microsoft can say it, but it's not true. Twenty attorneys general have also filed cases on behalf of their states. What effect will that have on the Justice Department case? Froeb: That's a mess. Their group is named the National Association of Attorneys General -- they're called the NAGS, and it's not a misnomer. I think it's a disaster to get the states involved in an antitrust matter. This is clearly an interstate commerce issue, which the states have no business being involved in. The only reason they do it is because it gets the attorney general in the popular press and positions him to run for political office. If I'm the state attorney general of Connecticut, how do I raise my visibility? I file suit against a prominent defendant, get my face on TV and get a lot of free advertising. It's shameless, and there's no reason for it. It really messes up commerce if anybody releasing a product in a business practice has to conform to 50 different attorneys general. Litan: The presence of the states makes it harder for the government to settle, because if it settles and the states continue litigation, the DOJ will be scrutinized by the public asking why it settled so early. It complicates the issue. This does mark a new age in state antitrust enforcement. In the past you didn't hear a lot of this kind of state action. Since the tobacco litigation, the states now see they can act as a backstop to the federal government in the direction the states want to go. This case has been compared to the IBM antitrust case, which lasted 13 years, was eventually dropped but still hurt IBM. Can you envision this case dragging out as long, and if so, what kind of impact would it have on Microsoft? Froeb: This case couldn't run 13 years. It's going to be at the most a year or two: There will soon be a next generation of software that might not even resemble anything like browsers -- there might be a totally different standard in two years. The pace of judicial decision-making is glacial, is geologic, compared to the pace of software design. Six months is a whole product cycle in software; it's one motion in a judicial case. If it goes to full trial I'm sure the case will be moot before trial comes up. It'll either get dropped, or Microsoft will say, "Yes, in 2002, we'll only offer Windows 98 with your stipulation," and it won't matter because no one will be buying it at that point anyway. The law that this case is based on is the 100-year-old Sherman Act. Do you think these old laws can be applied to the fast-moving technology industry? Froeb: The problem with the Sherman Act is that it's only a paragraph long, and it leaves to law enforcers an enormous amount of discretion. If they exercise that discretion poorly, if they're not really careful, there can be many unintended consequences. In an industry where the primary measure is innovation, not competition, it's very easy to misapply these laws. The laws are designed to take a snapshot of the industry and analyze the competition based on this static view of the world. But when the primary dimension of competition is between where we are now and what state we'll evolve to tomorrow, the laws don't do a good job at giving us much guidance on how to enforce them. Antitrust enforcement is so speculative as it is. In this case they have to say, "Here's an anti-competitive practice, and the world would be better without that practice." That adds a whole level of uncertainty to the antitrust analysis that doesn't exist when you're just looking at a static snapshot of the world. Shapiro: Silicon Valley is prone to having all sorts of breathless young people saying, "It's a brave new world, we need entirely new economics and law." I'm coming out with a book this fall called "Information Rules." It's a strategic guide that explains how the information economy is somewhat different, but that the fundamental economic principles are not as new as some people would seem to believe. And the legal principles of the 20th century seem to be applied just fine. Interfaces, compatibility -- these are not new. There is a very solid base of antitrust law that Joel [Klein] is relying on.
E-mail Janelle Brown.
Nothing must stop Windows 98! Gates tells the world that what's good for Microsoft is good for the country
Microsoft's PR machine "Innovate or die" becomes "innovate or
buy"
All
Gates, all the time From the Web to Capitol Hill, there's no escaping
Bill
They
know what's best for you Microsoft's troubles in court epitomize the
computer industry's arrogant attitude toward customers
What do you think is at stake in the Microsoft antitrust suit? Come to Table Talk's Digital Culture area and speak out.
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