April 9, 2000

Federal Judge Makes Microsoft Gorilla Sleep in a Cage

There is a way to make an 800-pound gorilla sleep in a cage. The persuader is the Sherman Anti-trust Act.

Federal Judge Thomas Penfield Jackson dusted off the 110- year old law last week to make a monkey of Microsoft. The latter’s dominance of the computer software market gives its stock the “gorilla” classification among investors and competitors.

Upon the news, the stock market came within an inch of crashing. However, faith in gorillas was sufficient to stave off disaster. The real test of Microsoft’s place in the economic hierarchy comes next month when the judge decides how to whittle down the computer giant.

Public opinion of the Microsoft trial is mixed. The company has been a major component of the information revolution. Yet, other companies who play an equal or greater role are not sharing in the financial rewards.

Question at hand is whether Microsoft is an unfair monopoly.

The ability to compile business information rapidly, and thereby make real-time decisions, is a decisive factor in the phenomenal run of U.S. prosperity. Partisans claim credit for Reagan or Clinton. In fact, neither is responsible. The catalyst is free capitalism that lets innovators, risk takers and smart/lucky investors get rich.

Historically, the American economic engine got underway about 1845 with mass transportation (railroads) and mass communication (telegraph). The pace accelerated by trucks and planes, telephones and computers.

By 1890, egalitarians became concerned about “big business trusts,” “monopolies,” and super-rich “robber barons.” Not everyone seemed to benefit from technological advances. Both political parties nailed “anti-trust planks into their platforms.

Senator John Sherman (R, Ohio) introduced an anti-trust bill that passed 51-1 in the senate, and a unanimous 242 in the House of Representatives. President Benjamin Harrison signed it into law, but President Teddy Roosevelt used it most vigorously.

The new law prohibited “restraint of trade,” “combination trusts” and “monopolies.” These terms seemed so obvious, they were not defined in the law. Consequently, the courts – and, later, the Federal Trade Commission – have been free to interpret the act in accordance with their understandings and inclinations.

Ironically, the first trial and conviction under the act was against the American Railway Union in 1894 during the Pullman strike. Eugene Debs, president of the union, was imprisoned for contempt of court. Since then, labor unions have been exempted from the act.

Nevertheless, the Sherman Act became a corner stone against John D. Rockerfeller’s Standard Oil, and the American Telephone & Telegraph Co. Many other corporations softened their holds on particular markets through threats of prosecution. In general, the leading philosophy of the courts has been that “big is bad.”

An apparent majority of computer owners think that Microsoft and Bill Gates deserve the great wealth they created through foresight, ingenuity, risk and canny management.

Gates’ biggest sin, according to competitors and Judge Jackson, is his “preference” policy. Gates permits installation of his Windows operating system, including Netscape internet browser, as part of a manufacturing bundle only if his products are featured.

As a result, Microsoft controls 77 percent of the software market. The company is racing to solidify its share by giving away six months of free service for its Netscape browser, and by upgrading its Windows operating system.

Most intriguing in the computer market are technological changes that already were challenging the big boys.

Monitor-and-keyboard sets hooked by phone lines to giant, central “drivers” provide all the computer ability most users want -- word processing, internet browsing and e-mail -- for less than $25 a month. The sets now are being given away for a three-year hookup contract, but even the regular cost of a flat monitor and ordinary keyboard will be less than $200. Printers can be added for another $100.

Even the popular multi-use, large saving-capacity, personal computers – also needing an internet server at a monthly subscription cost -- are plunging in price. Several makes are offered at $800.

All in all, Judge Jackson seems to be whipping a lame horse. It is widely predicted he will break up Microsoft into four Baby Bill companies – a la AT&T Baby Bells. This makes one ask, “Is your telephone service better today than it was before a federal judge horned in?”

The competition of free capitalism is ruthless, but if left alone it gets the job done more efficiently without political bossism. When bureaucrats tinker with capitalism, disaster is not far behind.

PARTING SHOTS

The day after Bill Gates was found guilty of “restraint of trade,” he attended an economic conference at the White House. Before recommending China for membership in the World Trade Organization, President Clinton wanted to hear from an expert.

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One thing you learn the hard way is that there is no easy way.

Lindsey William is a Sun-Herald columnist and can be reached at linwms@lindseywilliams.org