Antitrust And Common Sense

So many documents, arguments, amicus briefs and decisions have been generated in United States of America v. Microsoft Corporation that one could probably use them to paper the walls of Bill Gates's sprawling new manse. As of now, the last word belongs to Judge Stanley Sporkin, a latecomer to what has turned into a bizarre lovefest between the plaintiff -- the Department of Justice -- and the defendant, the planet's largest computer-software company. Sporkin's decision rambles and roars for 49 pages, mulling the question of whether Justice truly addressed the issue of Microsoft's potential violation of antitrust laws, using a monopoly position in one area of software to gain unfair advantage in others. Finally, Judge Sporkin, a former chief of enforcement for the SEC, nixed the Microsoft-friendly consent decree agreed upon between Justice and the Redmond, Wash., software giant.

Perhaps the most telling aspect of the document was the inclusion among Sporkin's sources of Philip K. Howard's book "The Death of Common Sense," a recent tome bemoaning the lack of the obvious in our legal process. Beneath the legalese in Sporkin's decision was an impassioned cri de coeur -- we're getting rooked, he seemed to be saying, because Microsoft has been competing unfairly and can now continue to do so. It's a gutsy message, but one rooted in common sense. Antitrust regulations may be impenetrable to laypeople, but cracker-barrel smarts are sufficient to get the nub of the Microsoft problem: in the software business, Bill Gates not only owns the tracks, he sells the trains. Every computer requires an operating system as the platform for the applications (spreadsheets, word processors, etc.) that run on the machines, and the MicrosoftMS-DOS/Windows combination -- the tracks -- constitutes the world's platform of choice, running on about 70 percent of all desktops. Microsoft also is the market leader in applications -- the trains. Because their trains run on Microsoft tracks, competitors like Lotus and Novell must work with Microsoft on operating-systems issues. This allows Microsoft to learn of their future plans and provides a potential cudgel for Microsoft to bludgeon them. If Microsoft makes changes to its operating system -- switches the gauge of the tracks -- it can do this in concert with the goals of its applications division.

This is why virtually every software developer with a hot new application, or an idea for an operating system on a new technology, dreads the question "What will you do if Microsoft enters your market?" Once Microsoft competes in a new arena, it brings unmatchable clout to bear, and if the first version of its product fails, it keeps trying -- a la the Terminator. Entrepreneur Jerry Kaplan's upcoming book, "Start-Up," provides a graphic, albeit one-sided, account of how this works. Kaplan's product was Pinpoint, an operating system for handheld computers. Hoping to get Microsoft to write applications that ran on Pinpoint, he showed the system to Microsoft. Months later, he was shocked to find those same engineers demonstrating Pen Windows, a strangely similar product. Kaplan also charges that Microsoft created fear and doubt among customers and investors. (Kaplan's company failed because of many factors.) After all that, Microsoft has yet to release Pen Windows.

This doesn't necessarily mean that Microsoft operates inbad faith -- indeed, much of its success has been due to hard work, good timing, technological wizardry and fortuitous ineptitude among its competitors. The problem isn't Microsoft's ambition; it's Microsoft's position. When other companies leverage their assets to beat out competing products, it's pure Adam Smith. But when that leverage comes from exploiting a monopoly, it's more like Jay Gould.

No surprise, then, that the government investigated whether Microsoft should be reined in. The task fell to Anne Bingaman, the JusticeDepartment's much-ballyhooed trustbuster. But by the time she emerged from the blizzard of documents, the trustbuster had turned into a truster. Her consent decree, agreed to by Microsoft, was limited to a few of the company's more egregious practices. Microsoft's sigh of relief could be heard clear to the Beltway.

The corporate instinct of some companies, when clocked at 90 miles per hour in a school zone and let off with a warning, would have been to crawl past the next school at the pace of a caterpillar. Microsoft put the pedal straight back to the metal, burning virtual rubber in the face of the forgiving cop. But Microsoft has never believed it has done anything wrong. "The law is the law," says Steve Ballmer, the company's sales-and-marketing chief, correctly noting that no statute prevents aggressive business practices and no regulation prevents a company from entering new markets. In short order, Microsoft engineered a $1.5 billion buyout of Intuit, whose Quicken accounting program dominated the homefinance market. Then it announced a new online service, the Microsoft Network. The moves positioned Microsoft as a potentially dominant player in electronic commerce. One day, dollar bills may be replaced with Bill Dollars, and a piece of every online transaction could go into Microsoft's bulging coffers.

The specter of one company having that sort of power bothers Judge Sporkin, who calls it "a potential threat to this nation's economic well-being." "It is clear to this Court that if it signs the decree presented to it," he writes, "the message will be that Microsoft is so powerful that neither the market nor the Government is capable of dealing with all its monopolistic practices."

Has Sporkin gone too far? In a legal sense, we'll find out after the appeal of his decision is heard. But the common-sense verdict is already in: there's too much power in Redmond.