New York Times

October 26, 1998

NEWS ANALYSIS

Microsoft's Refrain: Where's the Harm?

By STEVE LOHR

Microsoft Corp.'s defense in the antitrust trial that began last week boils down to one question: Where's the harm?

John Warden, Microsoft's lead lawyer, never quite uttered those words. But he nonetheless posed the question in hundreds of ways in his raspy baritone drawl during three days of cross-examining the government's lead witness, James Barksdale, executive of Netscape Communications Corp.

John Warden, the lead Micrsoft lawyer, headed to court last week for sessions that included a grilling of Netscape's chief.

The Justice Department and 20 states accuse Microsoft of being a new-age monopolist, bullying other companies so that it could stifle competition in the Internet software market. Netscape, the early leader in the market for software used to browse the World Wide Web, was the main target of Microsoft's illegal campaign, the government contends.

Warden used his combative cross-examination of Barksdale as a forum for trying to make Microsoft's case. With his pointed questions, Warden sought to establish that while Microsoft was assuredly aggressive and powerful, there was scant evidence that its behavior resulted in the effects that classic antitrust doctrine deems illegal -- namely, raising prices or restricting output so that consumers suffer.

The government contends that Microsoft bundled its Internet Explorer browser with its industry-standard Windows operating system and gave the browser away free to crush Netscape. Microsoft replies that it folded its browser into its operating system as a convenience to consumers.

Warden tried to drive home the point with a sarcastic question: "Mr. Barksdale, do you think consumers would be better off if Microsoft had not given the browser away free, in your hypothetical world?"

Barksdale replied that in the long run he thought consumers would benefit if Microsoft had not made the browser free because the move had eliminated the incentives for other companies to enter the browser market with innovative products.

Still, Warden made his point: To side with the government, a court must favor a would-have-been world of hypothetically greater innovation instead of the present, which has not yet created widespread consumer dissatisfaction. Where's the harm?

From every imaginable angle of interrogation, Warden hit the same theme.

The government has contended that through exclusionary deals with computer makers and gateway services to the Internet like America Online, Microsoft made it more difficult and expensive for Netscape to distribute its browser. Microsoft's power to engage in this exclusionary behavior, the government adds, derives from the "chokehold" monopoly the company enjoys because 90 percent of all personal computers run the Windows operating system.

But isn't it true, Warden asked pointedly, that 26 million copies of Netscape's browser were downloaded over the Internet during the first eight months of this year? "I wouldn't dispute the number," Barksdale replied.

Warden then introduced internal Netscape documents showing that the company plans to distribute 159 million copies of its browser over the next 12 months. He asked Barksdale for an estimate of the number of Web sites from which computer users can download Netscape software, and Barksdale replied that there were said to be more than 20,000 such Web sites.

"Isn't it true," Warden asked, "that any home user who has a PC and an Internet connection may freely choose at no cost Netscape's Web-browsing software?"

Barksdale replied testily, and reasonably, that most people don't take the time and trouble to download software. That, he said, gives Microsoft a big advantage because of its deals making Internet Explorer the main browser offered by leading personal computer companies and America Online, which are the key distribution channels to home users.

Still, Warden's point was made. Microsoft's monopoly appears to be a pretty leaky chokehold, at least when it comes to software distribution in the Internet era. Where's the harm?

And Warden got personal with Barksdale. Microsoft's strategy against Netscape may have been to "cut off their air supply," in the memorable phrase of one senior Microsoft executive. And competing with Microsoft has been difficult, but the result could scarcely be characterized as financial ruin for Netscape and its leaders. Warden asked Barksdale to calculate the value of his Netscape shares. More than $100 million, he replied. Where's the harm?

With this line of defense, antitrust experts say, Microsoft is playing a strong hand. As William Kovacic, a visiting professor at the George Washington University Law School observes: Since the mid-1970s, when the United States began facing more global economic competition, federal courts have tended to view big companies as engines of innovation and economic efficiency that should be left alone, unless their behavior can be proved to harm consumers.

The judgment of the courts, Kovacic notes, has been that the antitrust laws should not be used to put "saddlebags on thoroughbreds."

But in its case, the government is asking the court to weigh considerations beyond the current welfare of consumers and health of the industry that Microsoft dominates.

"The Justice Department is saying that we want the race of modern capitalism to be a fast one, but we also want to make sure that the winner succeeds because he is the fastest runner not because he tripped the guy next to him," said Carl Shapiro, a professor at the University of California at Berkeley and a former senior official in the Justice Department's antitrust division.

The government has contended that in specific meetings with Netscape, Intel and Apple Computer, for example, Microsoft sought to intimidate rivals and bully its partners to help it curb competition. Look closely at what Microsoft did, the prosecutors say, and the picture that emerges is of a monopolist at work, illegally using its market power to squelch competition.

Microsoft's strategy for refuting these contentions is twofold: fiercely dispute the Justice Department's evidence by mustering any available e-mail or snippet of deposition testimony that can be used to undermine the government's interpretation of events, and constantly return to the theme that even if Microsoft behaved badly, there is little evidence to show that the economy or consumers were hurt as a result.

The linchpin of the Microsoft defense is that, yes, the company may be big, powerful and even nasty at times -- "the antitrust laws are not a code of civility in business," Warden reminded the court -- but the company presides over a sector of the economy for which it is hard to argue that the "dead hand of monopoly" is at work.

In other words, Microsoft is asking: Where's the harm?