Microsoft Compromise
Last November, when federal mediator Richard Posner began negotiations to try to forge an out-of-court settlement between Microsoft and government lawyers suing the computer giant for antitrust violations, the two sides could not have been further apart. The government said it would settle for nothing less than what Connecticut Atty. Gen. Richard Blumenthal called a “drastic and far-reaching†remedy, the breakup of Microsoft into several “Baby Bills.†Microsoft CEO Steve Ballmer, in turn, declared any government breakup of the software giant would be “reckless and irresponsible.â€
In recent days, however, Microsoft has tried to thwart a possible court ruling against it Tuesday by agreeing to accept terms that would change Microsoft’s conduct but not break it up.
That’s good news.
It would be reckless for government bureaucrats to artificially--and probably ineptly--divide Microsoft into chunks at the very time when technological change, market and cultural forces are compelling media, computer, information and entertainment companies to converge. The Justice Department would face a daunting task to persuade Congress and the American people that government should dismantle a company whose stock has been crucial to the success of the U.S. economy.
This is not to say that the government should settle for the most limited solution now on the table, which would seek to prevent Microsoft from favoring some computer makers over others by charging different prices for its Windows operating system.
The goal of an out-of-court settlement should be to revive free-market competition in the software industry that, as trial transcripts have shown, Microsoft has tried to stifle.
The most pragmatic way to do that would be to require Microsoft to license its software, making its now-secret “source codes†available to programmers, who could then customize and improve on it. Access to Windows for innovators outside Microsoft’s orbit would allow improvement, competition and lower software prices. Not least, it would get rid of much of the clunkiness that consumers complain about in Windows.
Innovation would thrive if software developers, rather than being prohibited from independently writing programs for Windows, which runs 90% of the world’s PCs, were able to to design programs for their customers that are compatible with Windows and its licensed programs.
Having Microsoft disclose its source code would by no means end the company’s monopoly. But that has never been the goal. Rather, it has been to discourage the company from using its monopoly power to exclude rivals and stifle competition.
Some of the 28 state attorneys general involved in the talks are apparently balking at the federal government’s newfound notion that Microsoft’s monopoly power can be restrained through means other than breakup. Their opposition, along with Microsoft’s, could still easily derail Posner’s efforts to reach a settlement.
That result would hurt both sides. For the Justice Department, it would mean delaying sanctions until well after November, when Republican presidential candidate George Bush, who opposes sanctions, could be elected. For Microsoft, it would mean allowing Judge Thomas Penfield Jackson to rule that Microsoft has broken antitrust laws. Jackson has said that unless he hears from either Posner or jointly from both sides that a solution is in sight, he would issue his ruling Tuesday. A ruling against Microsoft would usher in a tidal wave of financially damaging lawsuits against Microsoft.
Both sides need to realize the value of an imperfect solution compared to a seemingly perfect solution that has little chance of coming to pass.
