TCS Daily

Will Justice`s Controlled Burn of Microsoft Also Torch Silicon Valley?

By James V. DeLong - May 29, 2000 12:00 AM

The Department of Justice plans a controlled burn of Microsoft. At a hearing last week, Judge Jackson showed his eagerness to strike the match. And, just like the U.S. Park Service at Los Alamos, neither Justice nor the judge seems to understand the system with which they are tampering or have any interest in heeding adverse weather predictions.

At the hearing the judge made clear that he regards the whole matter as easy. He sees no need to grant time for the parties to develop more information on remedies (on a proposal based on fragmentary information and possibly more far-reaching in its perils than the Standard Oil break-up of 1912). Jackson`s only reservation about the DOJ proposal is that it may not go far enough. He praised briefs by competitors advocating a trisectomy as "excellent," and asked the lead DOJ lawyer whether the government had adequately considered this option.

Reading the pile of affidavits and briefs filed by the government on the appropriate remedy is a scary experience. Numerous academics speculate on the incentives that will face abstract "applications" and "operating systems" companies, and how these companies will react. There are lots of words like "unreasonable," or "excessive," or "anti-competitive," slippery adjectives of no fixed meaning. Hard facts are missing, such as information on real companies and real markets, and particularly on the actual companies involved in the computer business, including Microsoft's competitors, customers, and complements. These remain ciphers, passive players assumed incapable of intelligent strategic response, able to do nothing but react blindly to the rudimentary forces posited by the academics.

Let us emphasize one basic fact. No one fully understands the high tech industry. Bill Gates does not understand it. He was surprised initially when control of the operating system turned out to be crucial. IBM, for whom he developed it, was even more surprised; they let Gates keep the OS because they thought they controlled the chip, and that was what counted. Gates was surprised again by the Internet, and the massive ship that Microsoft had become had to swerve sharply.

Gates is mega-rich more because of his abilities to react quickly than because of his predictive powers. And the same is true of his fellow high-tech moguls, any of whom could have had Gates' place had they possessed the foresight.

Warren Buffett does not understand the industry either, but he, having considerable judgment, knows how little he knows. Commenting on the Microsoft case, he told Red Herring: "I am no technology expert . . . [but] if I were running the government I would be very careful about screwing up anything that has been that important and that huge a winner."

If Gates and Buffett and the people in the business do not fully understand it, a safe bet is that Jackson, Klein, and DOJ's assorted minions understand it even less. But they have no hesitation about deciding that they can set a little fire and soon the forest, which has in their view been choked by the underbrush of monopoly, will teem with competitive life.

At Los Alamos, the weather service predicted high winds, only to be ignored by the Park Service. The role of weatherman in the Microsoft case goes to Secretary of the Treasury Lawrence H. Summers.

In a speech on May 10 entitled "The New Wealth of Nations," Summer pondered some of the implications of the new technological world. He pointed out a problem in a world in which information-based goods involve "very large fixed costs and much smaller marginal costs": One of its characteristics might be "that the only incentive to produce anything is the possession of temporary monopoly power-because without that power the price will be bid down to marginal cost and the high initial fixed costs cannot be recouped. So the constant pursuit of that monopoly power becomes the central driving thrust of the new economy. And the creative destruction that results from all that striving becomes the essential spur of economic growth."

Summers` musing may be right or it may be wrong; there is room for argument. But it is a serious idea, and it is not part of the world view of either the Department of Justice or the judge. And if it is right, then it could create a gale that drives their controlled burn out of all control.


James V. DeLong, ( is Vice President & General Counsel of the National Legal Center for the Public Interest in Washington, D.C. His opinions are his own, and not those of the Center.

TCS Daily Archives