Community Commentary: An Open Letter to the DoJ
Jan 02, 2002, 14:00 (34 Talkback[s])
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[ Frequent Linux Today contributor Ganesh Prasad offers his
letter to the United States Department of Justice regarding the
Microsoft Antitrust case and its resulting settlement. Though an
Australian citizen, Ganesh writes in the belief the outcome of the
case will affect computing professionals everywhere. The period for
public commentary will end January 27. Until then, comments may be
mailed to firstname.lastname@example.org -ed.
1 January 2002
I am an Australian citizen with about 15 years in the computer
industry. What happens in the US vs. Microsoft antitrust case
affects me professionally as well as personally, since I am a
fairly heavy user of computer software and technology. I would like
to comment on the settlement jointly proposed by the Department of
Justice and Microsoft. To be blunt, I believe the proposal is a
dishonest one that sells out the public interest. I will explain
why, and offer some guidelines for a fairer remedy.
1. Microsoft's main crime (not bundling, but the
prevention of bundling) has had lasting anti-competitive
effects that the settlement should address but doesn't
The argument that has most often been used against Microsoft is
the "bundling" one, the allegation that Microsoft bundled its
browser (and now its media player and instant messaging software)
with its operating system. By doing so, it leveraged its monopoly
in operating systems to enter other markets. Though this is a
classic antitrust argument, people who believe in a free market are
not convinced because the remedy does not sound right from the
standpoint of the consumer interest. Consumers enjoy greater
convenience, not less, when extra software is bundled with the
operating system they buy. That is why the harsher remedy proposed
by some of the states is also wrong. Forcing Microsoft to unbundle
such software needlessly inconveniences the consumer. It also takes
away from Microsoft's legitimate right to decide what goes into its
products and puts the courts in the avoidable position of having to
define the scope of technologies such as operating systems when
they are not technically qualified to do so. The only parties that
are benefitted by such a remedy are competitors. Doesn't this add
credibility to Microsoft's claim that its competitors are
inefficient and require government intervention to survive?
However, the prosecution has failed from the start to argue this
point with the right emphasis. What Microsoft did that seriously
disadvantaged the consumer was not so much bundling its
own browser with its operating system, but preventing computer
resellers (OEMs) from offering consumers a choice by bundling
competing browsers such as Netscape Navigator. Microsoft
threatened OEMs such as Compaq with the withdrawal of their Windows
95 license if they dared to bundle Netscape Navigator with the PCs
they sold. Given the overwhelming dominance of Windows 95 in the
operating system market at that time, a withdrawal of that license
could have bankrupted even an OEM as large as Compaq. The threat
was credible and secured the compliance of all OEMs. So certainly,
Microsoft did leverage its monopoly in operating systems to gain
entry into the browser market, and it did so both through the
relatively benign means of bundling its own browser, and by the
decidedly illegal means of preventing consumers from sampling the
wares of its competitors. Any free market advocate can readily see
the consumer harm in this latter action of Microsoft's, but the
prosecution has damaged its own case by not emphasising this
Microsoft has also had secret agreements with OEMs that prevent
them from offering consumers the choice of which operating system
to boot when they start up their computers. This is often known as
the "bootloader clause". Microsoft abused its monopoly in operating
systems by threatening OEMs and blocking, at the source,
the entry of other operating systems into the market. Consumers
have had no opportunity to know about or sample competing operating
systems. In other words, Microsoft abused its operating system
monopoly to maintain that monopoly, which is another violation of
antitrust law. The fact that no OEM except IBM dared to testify
against Microsoft during the trial is itself proof of Microsoft's
terror tactics. Their silence speaks louder than any testimony.
Microsoft's history is full of such anti-competition and
anti-consumer actions. Bristol Technology won a case against
Microsoft (over Microsoft's sudden withdrawal of support for their
Unix interoperation software Wind/U) but was awarded a laughably
poor compensation of one dollar. Caldera had a strong case against
Microsoft (over the illegal way in which Microsoft used Windows 3.1
to force consumers to buy MS-DOS rather than Caldera's DR-DOS) but
its silence was bought through an out-of-court settlement. The
consumer has been the ultimate loser in all these cases because
Microsoft's actions removed competitive choice and interoperation
The DoJ's proposed settlement shows an awareness of these abuses
and aims to prevent their recurrence, but it needs to be far
stronger and bolder. The damage to the industry has been done
systematically, over more than a decade, and significant
network externalities have been created that work to
perpetuate the Microsoft monopoly. How can this damage be reversed
by a mere forward-looking arrangement? Consumers and Microsoft's
competitors now face nearly insurmountable market hurdles
to creating a viable alternative computing environment, even though
technically good alternatives are available. Even if
Microsoft's abuses are halted, the structural and systemic forces
they have created over the past decade will continue to work in
their favour. At a time when consumers look to the government to
right these historical wrongs, the settlement that the government
proposes is inexplicably defeatist. It resigns consumers to the
status quo! One would imagine that a prosecution that has had its
argument upheld by two courts would have the momentum, confidence
and real power to broker a deal that restores genuine choice to the
consumer, not step lightly around an entrenched monopoly that was
the problem to start with.
2. A criminal should not be allowed to keep his
Microsoft's monopoly profits are the direct result of these and
other illegally anti-competitive tactics.
The antitrust case established that the absence of competition
emboldened Microsoft into charging $89 for Windows instead of $49.
In other words, consumers paid extra merely because of a monopoly
that was being illegally maintained.
Four eminent economists filed an amicus curiae brief
during the remedies phase of the trial in which they showed that
Microsoft's rate of return on invested capital was 88%, while the
average in other industries was about 13%! [See
Microsoft could never have made such huge profits without its
illegal maintenance and extension of its monopoly, and therefore a
major part of its current wealth is illegally earned.
There is absolutely nothing in the proposed settlement that
addresses the issue of these ill-gotten gains, or how these will be
reimbursed to the public from whose pockets they came. This simple
omission easily amounts to billions of dollars, and by itself makes
the settlement a sellout of the public interest, even without an
assessment of its other shortcomings.
3. Ill-gotten gains should not be allowed to influence
the outcome of this case
It is disturbing to read that many states are settling because
they are running out of funds to pursue the case further as they
would like to. Meanwhile, Microsoft, with its multi-billion dollar
war chest, has no such constraints. They can outlast all their
opponents. The world is learning the cynical lesson that the
American justice system is a mere extension of the free market --
you get as much justice as you can afford to pay for.
What happened to the principle (so successfully applied in the
Al Capone case) that criminals should not be able to use their
ill-gotten gains to pay for their legal defence? Wouldn't a
scrupulous application of that principle prevent the distortion we
see here? If a convicted abusive monopolist has more funds than its
prosecutors, and that fact is forcing them to settle, can't the
monopolist's funds be frozen, or can it not be made to pay the
legal costs of its prosecutors? A simple ruling along those lines
might see Microsoft scrambling to agree to a fairer settlement, one
that will better safeguard the freedom of the consumer.
4. There is no attempt at punishment for
Though it has been established that Microsoft has repeatedly
broken the law, the settlement only defines mechanisms to prevent
future wrongdoing. What about punishment for past wrongdoing?
Are murderers let off scot free with mere provisions to prevent
future murders? What kind of example does this set? And what
confidence does this inspire in the American justice system?
Any remedy must include appropriate punishment.
5. The economy is being used as a bogeyman to prevent
It is being argued that in the current difficult economic
climate, Microsoft should not be broken up or otherwise punished,
because that will in turn affect the rest of the economy (through a
fall in the stockmarket index, a delay in the recovery of hardware
sales, more unemployment and hardship, etc.). On the contrary, the
lessons of Economics are that monopolies are always bad. They
reduce efficiency, innovation and economic activity. In other
words, Microsoft's monopoly has already affected the
economy adversely. An end to the Microsoft monopoly may result in
some churn, but that churn will be the ferment of genuine
innovation from the rest of the industry. The impact on the
stockmarket from a fall in Microsoft's share price will be more
than offset by the rising stocks of independent software companies
that can operate without fear of a monopolist's wrath. A decisive
curbing of Microsoft's stifling influence will create more
confidence in the rule of law, generate more jobs and help the
Therefore, it is dishonest and self-serving on the part of the
DoJ to suggest that this settlement proposal is the best one from
the viewpoint of the economy. Moreover, the state of the economy
should not determine whether or not a crime should be punished.
It takes a statesmanlike judge to see beyond the petty posturing
and to do the right and wise thing.
Guidelines for a fair remedy:
Any remedy in a case that has been so clear-cut in its findings
must be more assertive in its defence of consumer interests.
Regardless of specifics, such a remedy must address the
1. Recurrence: Microsoft must not be able to
continue to abuse its monopoly the way it has in the past.
2. Reimbursement: Microsoft has no right to
retain the excess profits it has earned as a result of its illegal
actions. This money should be repaid to the consumer.
3. Reparations: As Microsoft is responsible for
the current uncompetitive market in operating systems and related
applications, it must underwrite efforts to restore competition and
consumer choice. The rest of the market should not have to pay to
recover from Microsoft's abuses.
4. Reference: Microsoft must pay punitive
damages over and above its reimbursement and reparations
obligations, to serve as a warning to deter future monopolists. The
remedy must in no case send out a signal that a large enough
violator can get off lightly. Future tax dollars can be saved by
discouraging abuses instead of having to prosecute them.
The DoJ is supposed to be acting on behalf of the consumer, and
they must pursue a remedy that addresses all the above issues.
For example, a remedy that required Microsoft, among other
things, to only sell through channels that offer at least one other
operating system, could address the reparations issue and break the
structural forces perpetuating their monopoly (If an OEM requires
training to support another operating system, Microsoft may be
forced to subsidise such training).
The proposed settlement goes partway towards addressing the
issue of recurrence, but does so only half-heartedly because it
creates significant exceptions and loopholes for Microsoft to take
advantage of. It completely ignores the other three issues. An
impression is created that the DoJ is more sensitive to Microsoft's
interests than to the interests of consumers who have been
systematically robbed of both their choices and their money.
Therefore this proposed settlement must be rejected as not being
in the public interest.
History will be the judge
After the immediate tumult over this case dies down, there will
be a dispassionate analysis of all aspects of the Microsoft
phenomenon in the computer industry, and the roles of all players
will be dissected. It seems fairly certain that the Department of
Justice will be likened to a champion boxer who was paid to throw
his fight. Judge Jackson will probably be faulted for his many
indiscretions, but it may be remembered that his analysis was on
the mark, and his verdict fearless. The appeals court will probably
be remembered as being fair though it started with a reputation for
being consistently lenient towards Microsoft.
What will Judge Kollar-Kotelly be remembered for? Will she be
known as the one who meekly accepted an agreement that sold out the
public interest, because it was politically expedient to do so? Or
will she be remembered as the person who braved the prevailing
political winds to do the right thing and restore balance to a
The world is watching to see what she will do.
Copyright (c) 2002 Ganesh Prasad.
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