December 14, 1998


If Microsoft Loses Case, Remedies Are Thorny


In the Microsoft trial, witness after witness for the government has described the big software company's industry-standard Windows operating system as the essential utility of modern computing.

To succeed in the marketplace, they explain, a new software product must have access to Microsoft Corp.'s technology if the product is to run smoothly on top of the Windows operating system.

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Is Microsoft too powerful a player in the computer industry?

Even a rival like Netscape Communications Corp., the Internet browser pioneer, must ask for Microsoft's cooperation so that it can compete against Microsoft -- a situation created by Microsoft's broad reach across so many software and Internet commerce markets, from spreadsheets to online travel services.

The Justice Department has depicted Microsoft as unfairly using the technical leverage and market power that stems from its 90 percent share of the operating-system market to stifle competition.

"The case is fundamentally about access," said William Kovacic, an antitrust expert at the George Washington University Law School. "Microsoft is accused, figuratively, of saying again and again that you can't set foot on our bridge unless you agree to the following conditions. If not, the company is left dangling with one foot off the bridge or told to learn to swim."

Yet while the case raises the issue of access to technology, it also shows that doing anything to force Microsoft to provide access to its technology will be tricky, on both legal and practical grounds.

During the trial, Justice Department lawyers have declared Microsoft to be a monopoly at every opportunity. But they have never once called it an "essential facility" -- a legal theory that the courts have been reluctant to apply beyond regulated monopolies like railroads, electric utilities and telephone networks.

The doctrine dates to 1912, when the Supreme Court ruled against a group of railroads, led by a turn-of-the-century robber baron, Jay Gould, that denied competitors access to a bridge on the Mississippi River.

But the government will almost certainly have to deal with the issue of technology access if it wins the Microsoft case and asks the court to order remedial action.

Antitrust experts observing the trial say that at least at the U.S. District Court level, the government seems likely to win -- based on Judge Thomas Penfield Jackson's actions, from giving the Justice Department plenty of leeway to broaden its case with last-minute evidence to remarking that Bill Gates, the Microsoft chairman, "has not been particularly responsive" in his videotaped deposition.

In a related case last year, Jackson ruled against Microsoft, though he was overruled by an appeals court last June.

The Justice Department will not discuss possible remedies until the case is over. Still, the government is stepping up its efforts to try to devise an effective remedial plan. Joel Klein, the assistant attorney general who heads the Justice Department's antitrust division, has asked Timothy Bresnahan, an economics professor at Stanford University, to study the options for remedies, according to a person close to the Justice Department.

Bresnahan, known for his rigorous statistical studies of industry structure and markets, is co-director of the Stanford Computer Industry Project, a research program whose corporate sponsors include Microsoft. He will be one of several experts advising Klein on remedies. Daniel Rubinfeld, the chief economist of the antitrust division, plans to leave the Justice Department at the end of this year, but he will remain a consultant on the Microsoft case.

Yet the role of the economic and legal experts counseling the Justice Department is mainly to present a set of options to Klein. And although the White House does not get involved in the Justice Department's investigations or decisions to file suits, it could weigh in on the remedies issue.

An effort by the Justice Department, for example, to try to break up Microsoft or force the company to open up access to its operating-system technology could well be a major economic policy decision. Whether the government seeks sweeping or more limited remedies will depend on how great the finding of liability is, if any, against Microsoft.

In the trial, the subject of access to Microsoft's technology is typically raised in terms of a seemingly arcane three-letter acronym -- API, for application program interface. APIs are the software hooks that any program, from spreadsheets to games to Internet browsers, must use to run smoothly on top of the operating system, which controls the basic operations of a computer.

Nearly every government witness has discussed APIs and has tried to offer Jackson a nontechnical translation. "You can think of these interfaces as connectors, as a socket in a wall, like the ones you put a plug in for electricity," Dr. James Gosling, a vice president of Sun Microsystems Inc., explained to the judge last week.

The issue of access to Microsoft's APIs is at the root of the government's case. Because Microsoft knows where every one of those plugs is -- and how each one works -- competitors complain that it has an enormous advantage over other developers in designing software that will run seamlessly on Windows.

It was to gain access to Microsoft's APIs that Netscape says it met with Microsoft on June 21, 1995. Two days after that meeting, responding to a government inquiry, Netscape's outside counsel, Gary Reback, wrote to the Justice Department.

At the June meeting, he stated, "Microsoft indicated it would not provide this information to Netscape unless Microsoft gets an equity interest in Netscape, a seat on Netscape's board of directors, and otherwise controls Netscape's ability to compete against Microsoft."

Microsoft denied the allegation, saying that Netscape and the government had distorted a fairly routine meeting in the software business, where companies often cooperate in some areas and compete in others. "There is no proof in the record that Microsoft denied Netscape anything," said Charles Rule, a former senior Justice Department official who is an adviser to Microsoft. "The government simply doesn't have a denial-of-access case."

Tackling the issue of open access to Microsoft's technology is crucial to loosening the company's choke hold on the industry, said Ken Wasch, president of the Software Publishers Association, a trade group. "Any remedy that doesn't in some way deal with access to APIs won't have much of an impact," he said.

But those software interfaces are Microsoft's intellectual property, and having the government police the distribution of them to other companies runs the risk of becoming a regulatory nightmare. A few months ago, a senior Justice Department official said emphatically, "I don't want to get into the business of having to be the arbiter of whether Microsoft has released every new set of Windows APIs on a timely basis."

There could, however, be ways to limit the government's oversight role. Justice Department officials did take note of the announcement last week by Sun to open up the development of Java, its Internet programming language. It announced that the accounting firm Pricewaterhouse Coopers would audit the specification and would guarantee fair, impartial distribution of Java APIs.

"A behavioral remedy that requires some monitoring of access to technology does take you down a regulatory path, but it could be workable," said Carl Shapiro, an economist at the University of California at Berkeley who is a former Justice Department official.

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