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U.S. v. Microsoft: The Appeal

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from: Ken Auletta
to: Tom Hazlett

Posted Thursday, March 1, 2001, at 9:05 PM ET

Dear Tom,

You say the bulls are betting Microsoft emerges victorious. How, then, explain why Michael Kinsley's Microsoft stock options are today worth roughly half their December 1999 value?

You and I have no argument over a government-imposed breakup of Microsoft. It makes little sense, is too risky, was not undertaken after due deliberation, and is unnecessary—and here perhaps we disagree—because the marketplace is already punishing Microsoft. Judge Jackson and the government assumed that they were looking at a static snapshot, when in fact we are watching a moving picture. We are rapidly moving to a post-PC world no longer dominated by Microsoft. Nor do we have an argument over whether bundling the browser in with Windows harmed consumers. We may differ over whether Microsoft's intent was to help consumers or hurt Netscape. Nevertheless, the browser was free, it made navigating the Internet easier, and in the end Microsoft produced a better browser. Score a victory for consumers. Nor do we disagree that Apple was arrogant (and stupid) when it chose not to license its innovative operating system. Nor do we disagree that capitalism involves winners and losers, pain—"creative destruction."

The Kool-Aid has rendered you too polite. You say I am "right" that "the burden is now very high" on Microsoft to get the court of appeals to overrule Judge Jackson's decision (thus hard). Then you say Jackson's decision "cannot stand up to scrutiny" (thus easy). Which is it, hard or easy? A reason Jackson's liability finding against Microsoft will not be easy to dismiss is that evidence was produced in court certifying that Microsoft was guilty of more than the mere "corporate rudeness" you suggest. Microsoft imposed restrictive contracts on companies telling them who they could and could not do business with. When IBM would not bend to its demands, Microsoft shipped to others but would not ship IBM the new Windows 95 until after the vital fall and Christmas sales season had passed. It's too boring to recount the brutal litany again. Suffice it to say that Judge Jackson's interpretation of the antitrust law, one supported by most legal scholars, says that those with a 90 percent market share may not behave as mere mortals may.

You go on to say that government antitrust intervention should "wait until the harm is evident." This is a fair argument made by those who worry that a trigger-happy government will slow down innovation and suppress enterprise. I understand that. I don't understand, however, when it leads critics to say government should just get out of the way and be a spectator while corporations battle to the death. When we attend a football or basketball game we expect a referee to blow the whistle when a foul is committed. This is what government, however imperfectly, was trying to do in the Microsoft case: serve as a referee. The Microsoft case raises serious questions about the proper role of government, and about whether 100-year-old antitrust laws are always relevant in the Internet Age. Yet one core principle doesn't change: Government has a legitimate role in trying to protect competition and the public interest.

You ask about Judge Jackson. He's a more interesting man than portrayed in a Washington courtroom this week. Listening to Microsoft's lawyers, and more than a few of the seven appeals court judges, one would think Thomas Penfield Jackson were a liberal Democratic judge. As you know, he was the first judge appointed by Ronald Reagan to the D.C. district court. As a Republican, he supported Goldwater over Rockefeller in 1964 and Reagan over Bush in 1980. His bias, to invoke a word promiscuously tossed about in Washington this week, is to favor big corporations like Microsoft and to favor less government intervention in the economy. His natural bias, as he told me, was to think well of Bill Gates and Microsoft. However, this trial convinced him that Microsoft's actions impeded rather than advanced business competition.

Microsoft asserts that when Jackson told me Gates was Napoleonic, or when he carelessly compared Microsoft to unrepentant drug dealers he once harshly sentenced, that he was revealing a bias. No question, as Jackson told me, he was offended by Microsoft's truculent behavior in a consent decree case that he adjudicated in December 1997, nearly a year before the antitrust trial commenced. But Microsoft's behavior was truculent. And when Jackson made withering comments about Gates and Microsoft was he revealing a bias or was he describing what he learned about Microsoft after presiding over a 78-day trial?

When I asked Judge Jackson why he talked to me his answer is worth noting: He said that he had agreed to talk on condition that I use what he said only for my book, which would be published after the case had left his courtroom. He further went on to say that anyone who had read his decisions in the Microsoft case knew he found Gates and much of Microsoft's testimony not credible. What he was doing with me, he said, was trying to speak for history. He was doing something judges rarely do: opening the doors and helping reveal how a judge acts and thinks in an historic case. Whether he should have talked to me is a decision that will be made above my pay grade.

In our first four-hour session, Judge Jackson told me that his two contemporary political heroes were Barry Goldwater and John McCain. He admired them because they spoke bluntly. Later, when Jackson said some of the inflammatory things he did about Gates and Microsoft and the "supercilious" judges on the court of appeals, I understood that he was trying to be true to himself and speak the truth. Perhaps he should not have. Surely the court of appeals believes he should have kept his mouth shut and will likely remove him from the case if they send it back to the district court. But as Microsoft once claimed that Bill Gates was being demonized during the trial, so now Microsoft demonizes Judge Jackson. This effectively shifts the subject under discussion; it does not, I think, erase the antitrust issues raised by Microsoft's behavior.

Best,
Ken Auletta

dialogues
entries
1234
from: Ken Auletta
to: Tom Hazlett

Posted Thursday, March 1, 2001, at 9:05 PM ET
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Ken Auletta is author, most recently, of World War 3.0: Microsoft and Its Enemies. Thomas Hazlett is a senior fellow at the Manhattan Institute. He formerly served as chief economist of the Federal Communications Commission.
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Reader Comments From The Fray:


[Notes from the Fray Editor: Josh Pollack says "Fairly or not, anything that appears on Slate in regard to the Microsoft case is tainted." (And we still let you keep that star Josh…) Naturally we disagree anyway, but Fray postings are not written by us, and are not tilted or tainted, so read them all. A good discussion on the issues of law--and on Slate's coverage--starts here.]


Mr Auletta uses a nice sports metaphor--the government as referee, blowing a whistle on seeing a hard foul--to summarize his common sense approach. But he misunderstands the nature of this game: neither he nor the government lawyers can really understand what "rules" are best in this ever-changing contest. Our eyes and ears should not be on the players, but on the fans. Protecting competition (consumers) ain't the same thing as protecting competitors.

--Steve Walters

(To reply, click here.)


Regarding Microsoft's tying of Internet Explorer with their Windows operating system: While it is debatable what this has done for consumers, I want to point out that, historically speaking, tying is usually viewed by the Courts as an exclusionary practice, and thus illegal under the Sherman Act. From the International Salt decision in 1947 when Justice Jackson wrote "tying agreements serve hardly any purpose beyond the suppression of competition" through the 1980s, tying was viewed as a per se illegal action. Justice O'Conner in 1984, though, wrote a very insightful concurring opinion in Jefferson Parish Hospital v. Hyde where she argued that some economic reasoning was needed when the tying was obviously benefiting consumers, and since then, there has been much debate on the question of tying.

I do not think Judge Jackson "got it wrong" on the tying issue, and it seems to me that you are faulting him for not being short-sighted. Perhaps Microsoft's bundling of the browser with the OS is advantageous to consumers today, but Microsoft has, in effect, created an enormous barrier to entry which could drive out all competition in the browser market for the Windows operating system, and this is detrimental to the consumer. Less competition means less innovation and less response to consumer preference, and I think this is what Jackson was objecting to in his findings of fact. Tying is an incredibly complex issue, and I do not think you should criticize this brilliant man because of his differing perspective

--Gabra

(To reply, click here.)


 Two points regarding Ken Auletta's comments.

He gives what would have been a good zinger a year ago--Microsoft stock is worth roughly half its December 1999 value, so how can stock market bulls be confident of a Microsoft victory. Unfortunately for Ken, this zinger loses most of its sting when you consider that many high-tech stocks have lost much of their value over the past year.

Secondly, he tries to excuse Judge Jackson's intemperate remarks by implying that he was really doing it for the sake of history. Since this is a historic case, certainly many people are interested in Judge Jackson's thoughts on the trial. However, this doesn't explain why he didn't simply wait until after the case was completely disposed with--he could then make all the comments he wanted without compromising himself.

--James Ayube

(To reply, click here.)

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