TCS Daily

Advice for Consent

By Thomas Lipscomb - February 19, 2008 12:00 AM

U.S. District Court Judge Colleen Kollar-Kotelly decided ten days ago to extend the Department of Justice consent decree of 2002 for another 18 months. The judge was responding to a group of states led by California and New York which had joined the DOJ in the original suit. The suit was brought in 1998 intended to reveal and restrain what were asserted as monopolistic practices by Microsoft which advantaged Microsoft products to the detriment of competitors. The suit succeeded and was upheld on appeal.

The judge felt the extension was necessary in view of Microsoft's continuing failure to file documents material to the court's oversight of Microsoft's compliance in a timely manner. And certainly many who have had legal differences with Microsoft have found the glacial rate at which Microsoft surfaces documents in discovery is legendary. Judge Kollar-Kotelly had already complained about it several times as the case was being tried before her.

But in this case, DOJ recommended against the extension. It is easy to understand why. The digital world of 2008 is radically different from the way the competitive environment appeared a decade earlier when the suit was filed. And DOJ's famous 2002 consent decree is about as irrelevant as decisions made in favor of billions of dollars invested prematurely in fiber optics just prior to the announcement of the breakthrough of DSL technology which enabled high data rates over simple twisted pair transmission at far lower cost.

In 1998, Attorney General Janet Reno was so angry at Microsoft's "monopolistic practices" she was seriously considering using "prior restraint" to prevent the release of Microsoft's Windows 98 because of the bundling of the Internet Explorer web browser and other utilities.

But today, with every phone and cable company and dozens of internet providers from Earthlink to AOL providing free browsers and companies like Firefox competing head to head with Internet Explorer, the idea that Microsoft's monopolistic dominance might require an extension of the 2002 consent decree is patently ridiculous. If anything Congress might consider lifting the consent decree as an irrelevancy today, just as it lifted the consent decree leading to the 1984 ATT breakup. James Goodale, former vice-chairman of the New York Times Company, currently head of the digital practice group at Debevoise Plimpton, is frankly puzzled by the extension of the Microsoft consent decree.

The classic example of a fine consent decree is Judge Harold Greene's 1984 ruling breaking up the ATT monopoly. The mandated change to an ATT and seven regional operating companies created a burst of wealth for all of them and their shareholders, not to mention vastly improved service for their customers, which is still growing. The dynamic result dwarfed the original "Ma Bell" AT&T which many feared had been mistakenly destroyed at the time.

But that consent decree did not attempt to make choices in a rapidly moving marketplace or favor politically approved winners in a technological competition for which the law had little institutional understanding. It opened up possibilities for new structures and more competition without attempting to micromanage markets or technology innovation. Ira Magaziner, Clinton's internet czar, wisely kept government away from making premature regulatory or tax decisions in a world in which the competing technologies were changing faster than the legal system could understand.

As an analogy, consider a spaceship arriving at a galaxy 10 light years away, only to find the star and its planets at the destination had vanished into a supernova by the time the ship had been launched. The visual image simply took so long to reach earth at the speed of light that there was no way of knowing the target had disappeared by launch time.

Not only was extending the 2002 consent decree a mistake, it is a mistake not to lift the consent decree entirely. The judge may still be angry at slow discovery provision of documents, but when the documents asked for are as irrelevant in the current market as the notion of any danger of a Microsoft browser monopoly, the public interest trumps judicial pique. The issue of delayed discovery is serious, but penalties may be applied separately from the issue of extending the period of the consent decree.

And the 2002 consent decree has already had two unforeseen consequences. The first is obvious enough. It has provided respectable cover for European Union assaults on Microsoft, Google and other American companies which might otherwise be seen for what they really are: violations of the General Agreement on Trade and Tariffs in favor of European competitors which the Chief Trade Representative, Ambassador Susan Schwab, should be addressing. In a world in which more than 60% of the United States GDP comes from digital products and services, a stronger role is required to assert the rights of the growth sector of American industry.

And secondly, it has taught American technology companies to play a dangerous variation of game theorist Eric Berne's "Let's you and him fight" from his bestselling Games People Play.

Microsoft used its influence to entangle rival Google in regulatory difficulties with its acquisition of DoubleClick. And now Google is returning the favor by raising its "concern's" about Microsoft's attempt at a hostile takeover of Yahoo. Both these giants are fighting for advantage in the booming internet advertising marketplace and trying to use governmental authorities to do it. But the battle should rage in the marketplace, not in courtrooms or regulatory hearings.

Things happen so fast in digital technology no legal system can keep abreast of them. When Janet Reno was initiating her suit against Microsoft in 1998, two graduate students at Stanford were just beginning to form a company they had given the ridiculous name of Google.

Now Google is competing toe to toe with Microsoft which is trying to survive by buying Yahoo so it can go from a number three competitor with Google in the marketplace to a powerful second.

In this world it is time for government to go back to its traditional role as a referee that keeps the game honest and get out of the role of intervening where it is likely to make more mistakes that penalize American competitive advantage instead of enhancing it.

The author is Senior Fellow, Information Technology and Telecom, the Heartland Institute.

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