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Microsoft's Solution Ignores the Victims

With this background, it is interesting that Microsoft would focus on a market where it is not currently dominant rather than giving the damages to parties that have been more directly injured by its anticompetitive practices. Its main victims, supposedly, were other software companies stunted or driven out of business (anyone remember Stacker?) and consumers that have been overcharged.

Obvious Solutions Ignored

Certainly, there seem to be easy remedies that actually address and would affect Microsoft's monopoly power while providing compensation to both groups of victims. With regard to consumers, potential solutions may include: offering money to those that can show they were forced to buy unwanted Windows licenses, giving money back to OEMs (so they can lower prices on their non-Microsoft products), or giving cash to consumer groups to monitor any heavy handed tactics in the future. With regard to the software industry, individual companies that can show damages should be compensated, e.g., Netscape, or at the very least settlement money should go to the Small Business Administration (or non-government analogues) for them to help software start-ups, which would promote more competition.

The most obvious places to send any settlement money would be to these victims. Otherwise the injured parties will have no redress for the damages wrought by Microsoft. Microsoft's current proposal is a little bit like offering to give money to a for-profit orphanage run by Microsoft as a punishment for having robbed a bank. Sure, some orphans may benefit (and probably will be trained to be future bank tellers), but Microsoft still keeps most of the money and the bank gets nothing. Of course, paying damages to the software industry would likely result in greater competition by infusing capital into a sector that certainly can use it. Furthermore, paying money to an independent watchdog consumer group would tend to prevent Microsoft from freely using its monopoly power in anticompetitive ways. I'm sure Microsoft had very conscious reasons for choosing the particular market of education and ignoring the two groups most directly affected by its anticompetitive actions, and I leave it to the reader to decide for themselves what those reasons were.

Counterproposals Make for Bad Law and Will Further Reduce Competition

That's why it's so fascinating to me that with market determination being so central and critical in the world of antitrust that no one is questioning the choice of market for the settlement. I don't know of any parents that wouldn't at least question a proposed punishment for their children's wrong doings, if they were even liberal enough to allow their children to propose their own punishments in the first place. Regardless, the main counterproposals from commentators seem merely to concentrate on Microsoft settling with a full cash payment instead of supplementing the settlement with Microsoft software. The states' proposal basically would force Microsoft to license its source code and keep producing Microsoft Office for the Apple Macintosh and maybe Linux. Such suggestions seem to take one step forward and two steps back.

The step in the right direction is that Microsoft pay damages in cash. Last time I checked, this was still the United States of America and the official currency was a green-back and not a license for Windows. The step backward is that the state governments are considering requesting that Microsoft actually widen its Monopoly by having Microsoft enter new markets, either itself or through licensing, that it currently does not dominate, e.g., Linux. The states basically want Microsoft to open up its source code in return for licensing fees. Great! Now the states are basically making Microsoft's code essential. We've seen that even with supposedly open standards such as Java, HTML, etc. that individual companies are capable of steering and using those systems to proprietary effect.

One unpropitious scenario that may result from such a forced licensing system is that Microsoft technology would now become even more dominant. A significant collection of software developers on the Linux platform could be adversely affected by Microsoft bull dozing in with its Office suite; this would allow Microsoft to use Office as leverage to subvert the platform as it has often been accused of doing with the Macintosh platform. Where do you think most people (or at least most corporations) will buy their version of Office, Microsoft or some secondary licensee? And even if you buy from a secondary licensee, Microsoft still makes money on licensing fees as per the states' proposal because Microsoft would be entitled to receive a reasonable royalty for its intellectual property. It's as if the states are trying to help Microsoft spread its wares even further with this solution.

I cannot recall any settlement in antitrust history where a solution to a monopoly was to further expand existing and/or potential markets with the monopolist's products. The law seems to require quite the contrary. 15 U.S.C.A. Sect. 2. Yet at every turn, counterproposals seem to actually expand the adoption and/or reach of Microsoft's products. Microsoft suggests donating software, which would further saturate the educational market. The states suggest entry into alternative markets from which Microsoft will benefit by way of increased licensing revenues. Even merely giving cash to schools for purchasing software (as suggested by some commentators) will tend only to strengthen Microsoft because it will continue to benefit from its monopoly position.

For example, even if Microsoft gives cash to the schools, Apple, likely, still will get screwed. Assuming Microsoft gives the schools $1 billion for computers and software, Microsoft will still win market share and its actual costs will remain low. Why? The schools will hand most of Microsoft's money right back to it to buy software, and the government will also end up kicking some money back to Microsoft. Even if half the schools buy Macintosh computers (which is roughly Apple's market share in the educational market), the schools will still buy Microsoft Office. Microsoft Office costs a lot more than a license for plain old Windows. And let's face it, if Microsoft ever kills Office on the Macintosh, it will have terrible consequences for the platform; and if someone were to speculate what a nasty monopolist would do when given a chance, then one might speculate that such a nasty monopolist would kill Mac Office, which would force the remaining 4% of the computing world over to Windows. The point being, one way or the other, a large portion of any cash settlement will come back to Microsoft by way of software purchases, and Microsoft will still be able to leverage its products unfairly across markets. Furthermore, Microsoft will be able to write off the $1 billion settlement as a loss and recoup from around one third from the government. I.R.C. Sect. 162(g); Tax Reg. Sect. 1.162-22. In the end, a cash settlement still will cost Microsoft relatively little while at the same time it still will increase its market dominance, and the reason why remains the same. They are a monopoly.

Thus, such a settlement, arguably, can be viewed as just a cost of doing business to garner market share. The irony is that a monopolist is not allowed to give products away or sell them at a loss.

Setting up an end-game as beautiful as this certainly deserves adulation in the annals of business history. The lawyers at Microsoft must be dancing jigs of joy all day long at the thought that the government may actually require the company to increase its software penetration in various markets and in some cases be allowed to use tactics that otherwise would be illegal.

Microsoft's proposed settlement, which is ostensibly a punishment for anticompetitive monopolistic practices, is refreshing in its outright obnoxiousness. They deserve kudos for selling their proposal without anyone questioning the fundamentals. Microsoft has managed to frame the settlement so that people are not questioning how, where, and/or why it should be punished, but boiled things down to only a question of how much it should pay.

Continued with Part 3, "Kids Are Irrelvant"

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