The New York times

November 9, 1998

 

NEWS ANALYSIS

Disarming a Giant: U.S. Case Stresses Anticompetitive Pattern by Microsoft

By STEVE LOHR

As its antitrust trial moves into the fourth week, Microsoft Corp. finds itself trying to deflect a flood of charges of threats and bribes. The litany of shameful misconduct, according to the government, was directed not only at Microsoft's rivals but just about everyone in the industry -- including personal computer makers, Internet service suppliers and others.

The Justice Department's story line is that, time after time, the digital-age monopolist showed up in the doorway, brandishing a club in one hand while offering price discounts and marketing support with the other. It is, as an antitrust expert said, an "800-pound gorilla" case. It is certainly entertaining. But is it a strong legal case?

No, Microsoft insists, as it asks "where's the body?" -- where, in other words, is evidence that consumers are being hurt by the company's tough business tactics.

That is a real hurdle for the prosecution, particularly because the personal computer industry where Microsoft is so powerful is not flashing the conventional warning signal of consumer distress -- rising prices.

But that hurdle is by no means insurmountable, antitrust experts say. What the government must do, they say, is to marshal enough evidence of anticompetitive behavior by Microsoft to convince the court that there would be more innovation, more competition and probably lower prices if the company were forced to change its ways. For example, the next government witness is to be Steven McGeady, an Intel vice president, who will testify that Microsoft prodded the big chip maker to step back from developing Internet and multimedia software and from supporting Netscape Communications.

The prosecution's case is largely about the future -- the loss of opportunities, the government says, in a field at the forefront of a new economy. "It does require a court to make an inference, to decide that the corporate behavior in question simply has to have negative effects," said William Kovacic, a visiting professor at George Washington University Law School. "But since the Standard Oil case, courts have been willing to make inferential leaps into the future if they are persuaded that the bad conduct is serious enough."

Indeed, the Supreme Court's ruling in 1911 to uphold the breakup of Standard Oil was one of the biggest judicial leaps into the future. Standard Oil, in its defense, had argued cogently that kerosene prices had declined since the 1880s and that the company, led by John D. Rockefeller, was an engine of industrial innovation, wealth creation and job generation. "Standard Oil's pitch was why tamper with success, just as Microsoft is warning today," Kovacic said.

In Microsoft's view, the government "simply doesn't have the evidence to make its big-is-bad case," said Charles Rule, a former senior Justice Department official who is now an adviser to Microsoft.

"All of these alleged anticompetitive meetings," Rule said, "amount to Microsoft basically informing another software company that it plans to compete vigorously in some new field and telling that company you can consider joining us. Saying you're going to compete like heck is not a violation of the nation's antitrust laws."

The Justice Department and 20 states suing Microsoft recognize that they must present an array of damaging evidence to overcome the company's defense -- that rivals may be hurt by its actions but consumers are not. Since the trial began, the government has used piles of e-mail it has subpoenaed to make its case.

In his opening statement, David Boies, the Justice Department's trial lawyer, showed an e-mail message from an executive at Hewlett-Packard to a Microsoft executive. The message protested restrictions Microsoft had placed on personal computer makers, barring them from making changes on the first screen that appears on computers when Microsoft's Windows operating system starts up.

Microsoft had said its contract restrictions were to insure a "uniform consumer experience," but the government says that the curbs were intended to restrain the distribution deals that its rival in the Internet browser market, Netscape, could strike with PC makers.

The Hewlett-Packard executive wrote that his company was "very disappointed" with Microsoft's restrictive contracts. "From the consumer perspective," he said, the restrictions are "hurting our industry and our customers."

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After displaying the e-mail message in court, Boies declared: "This is not a better-product, consumer-driven approach, your honor. This is a monopolist, able to ignore the demands and the complaints and the protest of their customers."

The government's early witnesses have repeatedly advanced the argument that the future of computer software innovation would be brighter if Microsoft were held in check. James Barksdale, Netscape's chief executive, testified that he thought there would be more innovation and more competitors in the browser market if Microsoft had not bundled its browser, the Internet Explorer, with its industry-standard Windows operating system and given the browser away free -- essentially removing the commercial incentive for entrepreneurs to invest in the browser market.

And last week, Avadis Tevanian Jr., a senior vice president at Apple Computer, described a series of threats from Microsoft. The company, he testified, succeeded in getting Apple to make Internet Explorer the main browser on Macintosh computers, and Microsoft also tried to force Apple to step back from the new market for multimedia software. Market muscle and deep pockets -- not innovative smarts -- are the forces that make Microsoft a winner in new software markets, Tevanian asserted.

With its industry witnesses, the government is arguing that Microsoft bullied companies into deals that reduce competition and do not result in any discernible consumer benefit. Thus, the government adds, these deals must hurt consumers, even if there is little immediate evidence of harm.

"The government is closing in on what is critical -- a loss of consumer choice and prices that are higher than would be the case if there were unrestricted competition," said Stephen Axinn, an antitrust litigator who is a partner of Axinn, Veltrop & Harkrider in New York.