Could Microsoft Still Face Breakup?

Saumya Roy, Medill News Service

WASHINGTON, D.C.-- A Microsoft breakup isn't off the table, say antitrust analysts. Besides the penalties sought by nine states in a separate deal in the ongoing federal antitrust case, the court hasn't yet approved the proposed settlement with the Department of Justice and other state plaintiffs.

What's more, structural remedies could come up in a discussion of whether Microsoft properly notified the court that it had lobbied Congress on its proposed settlement, according to former independent counsel Ken Starr. The former special prosecutor spoke here Wednesday at a Cato Institute forum on the Microsoft antitrust case, along with other experts on both sides of the matter. He did not elaborate on his charge.

Antitrust laws are intended to protect entrepreneurs' right to innovate, Starr said, answering a frequent complaint of those who oppose antitrust action, saying it stifles market innovation.

"This case is not about market share, but about restoring competition in the market," Starr said. Companies can grow market share using pricing and product innovation, but antirust laws prohibit certain other actions, he said. In Microsoft's case, Starr said the company attained a monopoly in the market through competitive means, but abused its position by attaching Internet Explorer to its successful Windows platform, effectively blocking distribution channels for other browsers.

"When Microsoft realized that they were not going to win the browser war, they decided to make technical changes in a way that they believed 'running any other browser will be a jolting experience,'" he said.

A Fair Fight?

Microsoft has its supporters among the panelists, however.

"Microsoft wins because they have had better product reviews and are consistently cheaper than their competition," said Jonathan Zuck, president of the Association of Competitive Technology. He also rejects the charge that Microsoft unfairly throttled its competition.

"Netscape's share went from zero to 85 percent while Microsoft was indulging in so-called monopolistic practices," Zuck added. "Netscape then dropped market share because it stopped having the best product."

Robert Levy, a senior fellow of the Cato Institute, agreed. "Antitrust law debases the idea of private property," Levy said. He contends that only the developer of a software application has rights over the product.

"Government regulates [because it thinks] the market is flawed, but this is a paternalistic attitude, because it is consumers rather than the government or Department of Justice who should decide which software is bought or used," Levy said.

Antitrust laws were based on a static view of the market, as they punish companies for adopting practices that successfully carve out market share, Levy added. He suggested that companies could legitimately use whatever practices they need to claim a larger share, because consumers could reject inferior products and practices.

Assessing the Market

Companies who don't listen to their customers won't last in the quickly changing, highly competitive high tech market, several panelists said.

"[Product] switching costs are not high, and market share changes fast," Zuck said.

But another panelist noted the power of an entrenched product. "Microsoft has a high market share, and there are high entry barriers in the market, so it can discourage innovation and prevent entry," Jeffrey Eisenach, president of the Progress and Freedom Foundation, told the forum.

Both Zuck and Levy also caution that regulating a developing field like technology could have an adverse impact on the industry's capability to innovate and create new software.

So is the Microsoft antitrust case strictly politics? Zuck said he believes the case has acquired strong a strong political tone, answering a query by Robert Novak about the continuing prosecution by the state attorneys of nine states.

"Microsoft's competitors are using Washington to compete," Zuck said. "They are using Washington to change the market from consumer-centric to regulator-centric," he said.