Showdown in the Microsoft Case

Remember the Microsoft case? You know, the one where Judge Thomas Penfield Jackson ruled to breakup the premier software firm on the planet? Well the appellate process starts Monday, February 26, and the odds are reasonable that the bulk of Jackson's irrational decision will be vacated.

Here's why. Jackson swallowed uncritically the government's argument that Microsoft's tying of its browser and operating system harmed competition and violated antitrust law. Unfortunately, Jackson's opinion flew directly in the face of the same D.C. Circuit Court currently hearing the appeal that unambiguously ruled, in 1998, that Microsoft's technological integration provided "plausible benefit" to consumers and was perfectly legal. Tying the browser and software may well harm certain competitors but it doesn't harm competition or consumers. Convincing the Circuit Court that they were 180 degrees mistaken on this issue will be an impossible sell, even for the slickest government attorney.

But it gets worse. Many of Judge Jackson's so-called "findings of fact" and economic inferences appear on examination, to have no basis in reality. Take the "fact" endorsed by Judge Jackson that Microsoft's share of the market in operating systems was 95% and rising, clearly establishing that they were a "monopoly." Wrong. The lower court relied upon a definition of the "relevant market" that was incorrect since it excluded arbitrarily all of the computers and networking software made by Apple, Sun, Novell, and a host of other companies. In addition, counting only licensed software systems allowed Judge Jackson to exclude incorrectly all operating systems sold at retail, those downloaded directly from the Web, and all "naked" computers shipped without any operating system at all. These factual errors narrowed severely the relevant market and turned Microsoft into a "monopolist." The Circuit Court will likely conclude that Microsoft's actual market share is less than 70% and falling, and that there is no "monopoly" and no monopolization.

Jackson also seriously erred in his finding that the many thousands of applications written for Windows created an insurmountable "applications barrier " to entry. Again, the facts and inferences are very suspect. The simple observable "fact" that there ARE viable competitive systems like Apple and Linux refutes Jackson's "insurmountable" inference on its face. These systems compete with Microsoft's even though the number of applications is far fewer. This fact has allowed economist Richard McKenzie to conclude that it may take several hundred applications, surely not many thousands, in order to be a viable competitor with the Microsoft system. But, again, if potential rivals can leap over these so-called "insurmountable" barriers, then there is no Microsoft monopoly and Jackson is in error.

The D.C. Circuit must also reverse if only because of Judge Jackson's extraordinary behavior in the "remedies" phase of the case. Jackson's quick and total acceptance of the Department of Justice's break-up plan and other remedial remedies is probably without modern precedent. Equally insulting and without precedent, was his concluding sneer that Microsoft was not entitled to any due process in fashioning a remedy since "…the case is over. They lost." Incredible. Where's the ACLU when you need them?

I have always argued that antitrust law violates conventional notions of efficiency and justice and should be repealed by Congress. If this case doesn't make my point nothing will. The best that the D.C. Circuit can do at the moment is repeal Jackson's irrational ruling and restore some semblance of justice and economic sanity in the software industry.

February 23, 2000

Dom Armentano is professor emeritus in economics at the University of Hartford and author of Antitrust: The Case for Repeal (Mises Institute, 1999). He lives in Vero Beach, Florida.