TCS Daily


Microsoft's Nose, Technology's Face

By Sonia Arrison - June 13, 2002 12:00 AM

When future policymakers want to understand the law and economics surrounding one of the most watched antitrust cases in history, they will look to "Microsoft, Antitrust and the New Economy," a recent compilation of essays published by the Milken Institute.

The book's authors include many individuals closely involved in Microsoft's legal defense, which makes for some interesting reading. Aside from the topics one would expect, such as the basics of the case and whether or not Microsoft ever charged monopoly prices for its products, the book also includes some unexpected analyses.

One of the most enlightening chapters is by Robert Crandall of the Brookings Institution. He challenges the idea that major structural changes -- such as breaking up a company -- are an effective way to foster competition. Crandall looks at past antitrust cases where a structural remedy was applied, such as Standard Oil, AT&T, and Paramount, and shows that the government's actions did not necessarily result in a more efficient or competitive marketplace.

In the case of Standard Oil, the breakup had little effect, and in the case of AT&T, the break-up generated increased inefficiencies. In the Paramount case, it appears that the structural changes actually resulted in higher prices.

Given the government's dismal attempts at fostering competition, it's a relief that the D.C. Circuit Court of Appeals decided to reverse trial Judge Thomas Penfield Jackson's remedy to split Microsoft into two companies. The order to break up Microsoft was thrown out in part because Judge Jackson was found by the Court of Appeals to have had the "appearance of bias." And on that issue, this book includes a thoughtful and eye-opening chapter.

Judicial ethics expert Leonard Orland professor of law at the University of Connecticut, reflects on whether the appeals court should have let many of Judge Jackson's findings stand after he clearly broke the judicial canon of ethics by holding secret meetings with reporters and by making outrageously biased (and embargoed) comments during the trial.

Jackson told reporters that Microsoft Chairman Bill Gates has a "Napoleonic concept of himself and his company" and that Microsoft executives are like "gang members" who "maintained they had done nothing wrong." Such rhetoric was not exactly reassuring to Americans who hope for fair and objective consideration from their judicial system.

The appeals court did not throw out many of Judge Jackson's decisions, Orland argues, because it would have meant a costly and embarrassing duplication of effort. "No judge wants to disqualify fellow judges, to require painstaking work by judge and litigants to be redone," he wrote, "but our society depends on just such an investment in the rule of law."

Then there's a practical and revealing chapter on the relationship between the stock market and antitrust enforcement actions against Microsoft. University of Kansas professor of finance George Bittlingmayer and former FCC chief economist and Manhattan Institute scholar Thomas Hazlett put together an analysis that should be required reading for Oracle, Sun Microsystems, and the rest of the ABM (anything but Microsoft) community.

In a painstakingly detailed analysis, Bittlingmayer and Hazlett found that "government action against Microsoft appears to inflict capital losses on the computer sector as a whole." In other words, the time and money that Oracle, Sun, and AOL have spent encouraging government to harm Microsoft has also hurt them and their industry.

Of the many books about the Microsoft trial, this one deserves attention for its scholarly and innovative approach. Although all the authors are critical of the government's case, the book does not smack of irrational bias. Every one of these chapters is worth reading, not only for policymakers but also for those in the technology industry who supported the government's case. "Microsoft, Antitrust and the New Economy" may just change some minds.

Sonia Arrison is director of the Center for
Technology Studies
at the California-based Pacific Research Institute. She can be reached at sarrison@pacificresearch.org.
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