The United States v. Microsoft Featured

10:03am EDT July 22, 2002

This fall, the U.S. Department of Justice hauled Microsoft Corp., the world's largest supplier of computer software, into court in the biggest antitrust lawsuit in a generation. Government prosecutors charge that Microsoft uses its dominant position to block new entries into software markets, sabotages products to damage competitors, and engages in other anti-competitive practices. Microsoft counters that it's simply delivering better and more complete products to consumers, and that a government victory would dictate what features manufacturers could include in new products. In our Point-Counterpoint, both sides present their cases, and you decide.

Wendy Goldman Rohm is author of "The Microsoft Files" (Times Books, 1998), a critical account of the company's business practices in the late 1980s and 1990s.

Why should Microsoft be prosecuted by the Department of Justice?

They have engaged in a habitual pattern of predatory acts. The evidence that Justice has collected is rather [large] and very solid. These include the use of contracts that resulted in the restraint of trade, bullying other companies and restraining trade by threatening people from doing business with competitors. And this is nothing new, actually. My book documents a decade's worth of this type of behavior.

Why is Microsoft's Internet Explorer Web browser central to the case? Or, in fact, is it?

It's not central - that's Microsoft's spin. This is a much broader and massive anti-trust suit, including a whole laundry list of illegal behavior. Microsoft has tried to spin the press to believe that the earlier ruling on the contempt suit, which involved tying Internet Explorer to Windows 95 and 98, in some way dealt a blow to the current case, when the two cases have nothing to do with each other. The contempt suit was in regard to the 1994 settlement with Justice, which regarded contracts and also the practice of product tying, which was prohibited.

The current suit, however, if you read the lawsuit, is not about bundling Internet Explorer. It's about quite a long list of anti-competitive behavior, including bribing or paying off companies in order to get them to stop doing business with [Microsoft competitors]. The Justice Department has called this "reverse bounties." It's fascinating, because that's exactly what John D. Rockefeller did in the oil market earlier in the century. What Rockefeller did at the beginning of the century, Gates is now doing at the end of the century in a totally different market.

What are the stakes in this case for small and growing businesses?

If Justice proves its case and Microsoft is forced to stay in line with the anti-trust laws of this country, the market promises to be much more of a healthy place for small businesses, and innovation and competition will thrive much more than it has. The software and computer industries have been an absolutely stellar part of the economy, and in that sense Microsoft has contributed greatly to standards and growing the industry, which is similar to what Rockefeller did to the oil industry, which would have been undeveloped without him.

Microsoft has both been beneficial to standards and has also harmed standards. For example, what it's trying to do by taking over Sun's Java [programming language] and making it a Windows standard versus an open standard, which is the basis of Sun's private lawsuit against Microsoft. That is an effort on the part of Microsoft to perversely use standards to keep everyone in its own technology camp. So again, it's a double-edged sword: Microsoft has created standards and helped the massive proliferation of use of computers. However, Microsoft continues to bully other companies to adopt its version of technologies that were once open to the marketplace, such as Java. Microsoft always seems to have a predatory edge, even in the area of taking over standards.

What would be the consequences of defeat for the Department of Justice?

I think that would be a very sad day in the industry. It basically means that Microsoft will be free without restraint to bully other companies, steal other people's technology and snuff out competition. And I can't imagine that happening.

I think Microsoft will continue to be a great company even if Justice wins its case and makes them stop doing certain things. The benefits to small companies will be enormous, I believe. The market stands to benefit greatly from Microsoft stopping its predatory behavior.

Nigel Burton is director of Small Business and Value-Added Provider Programs at Microsoft Corp. in Redmond, Wash.

Why should Microsoft be held harmless by the Department of Justice's prosecution?

While we respect the government's role in maintaining a healthy economy, we do not believe there is any legal or factual basis for the government's case. The government's actions raise serious concerns about the over-regulation of the software industry and government interference in the design of high technology products. The software industry is one of the most competitive and dynamic industries in our global economy. Customers have benefited from this competition through rapid innovation, low barriers of entry for new companies, and low prices. This industry has driven America's economic revival, and government intervention and over-regulation will only harm the industry and ultimately, our customers.

Why is Microsoft's Internet Explorer Web browser central to the case? Or, in fact, is it?

The fundamental issue in this case is whether American companies have the freedom to innovate and improve their products for customers. Our customers have been overwhelmingly consistent in their feedback that Internet technologies should be included in our operating system. It is critical that customers, not government, should decide what features should be integrated into our products. The integration of Internet Explorer into Windows makes it easier for people to access and use the Internet, easier for software developers to use powerful IE technologies in their products, and even easier for competitors' products, such as Navigator, to run even better on Windows.

In June 1998, the U.S. Appeals Court unanimously overturned a lower court's preliminary injunction against Microsoft's integration of Internet Explorer with Windows 95, stating that Microsoft "clearly" demonstrated "benefits to its integrated design." The appeals court decision affirms the central principle Microsoft has been defending, that every company should have the right to develop better products for customers. The appeals court specifically explained that "antitrust scholars have long recognized the undesirability of having courts oversee product design, and any dampening of technological innovation would be at cross-purposes with antitrust law." Once the [trial] court has reviewed all of the facts on this point, we are confident they will agree that Microsoft's decision to build Internet functions into Windows provides real benefits to our customers.

What are the stakes in this case for small and growing businesses?

There are about 2.2 million independent software developers in the United States who design products to work with Windows. A majority of these are in small and growing businesses. In addition to these software developers are hundreds of thousands of system integrators, Web companies, and computer training and education businesses engaged in activities related to Windows.

New government regulation is not necessary to ensure the health of the software industry-the software industry is already growing at 2 1/2 times the rate of the overall economy. The number of American software firms has nearly doubled in the past six years, and software industry employment is projected to double in the next seven years, from 600,000 today to 1.2 million. Government regulation of the software industry will only hamper the efforts of a leading sector of American business.

What could be the co nsequences of defeat for Microsoft?

These lawsuits seek to transfer to government regulators the power of deciding what new features go into software products, instead of leaving that choice to customers and the marketplace. If the government heads down the path of over-regulation, it will have serious economic consequences for thousands of computer and software companies, and it will slow the process of delivering better and better high tech products to small businesses in every industry.

We believe this case needs to be resolved as quickly as possible, to eliminate any uncertainty in the broader industry and reaffirm that every American company has the right to innovate and continually improve its products. We will continue to listen to our customers and partners to really understand what they want from our products and services. This industry is so competitive that no one, including Microsoft, can afford to be complacent.

Microsoft added the following comments on Wendy Goldman Rohm's accusations:

"In our response, we have addressed the fundamental issues at stake in the government antitrust lawsuit. Ms. Rohm's accusations do little more than rehash old issues that were thoroughly and completely investigated by the U.S. Government's two antitrust law enforcement agencies during the early 1990s-the Federal Trade Commission and the Department of Justice. After five years of investigation, the FTC took no action, and the DoJ rejected all of these accusations and settled on a narrow contract issue."