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Microsoft owns MS-DOS, the operating system used in about 80 percent of the world's personal computers (PCs). The operating system is a central program that coordinates the computer's operations. All other programs, or "applications," must be compatible with the operating system. Microsoft also created Windows, which combines MS-DOS with a system of graphics designed to help the user more easily navigate among different applications. MS-DOS and Windows have been installed on more than 100 million computers worldwide. It is no surprise that one company should dominate the market for operating systems. One of the most important needs in computing is compatibility--having every computer be able to run the same programs. This serves the function of integrating computer systems all over the world, allowing them to share programs and data easily. This integration may be convenient for the millions of PC users who rely on MS-DOS and Windows. But it is precisely such integration that is forbidden by America's antitrust laws. Allowing one company to own the operating system used by most of the world's computers is considered to give it an "unfair" advantage over its rivals. The antitrust investigation against Microsoft was initiated in 1990 by the Federal Trade Commission (FTC). It focused primarily on Microsoft's adoption in 1988 of a per-unit licensing agreement for MS-DOS. Most computer manufacturers install MS-DOS and Windows on new PCs before they leave the factory. Microsoft offered these manufacturers a steep discount on the licensing fees they pay to install MS-DOS, but in exchange it required them to pay, not for every computer on which they install the operating system, but for every computer they make, whether it includes MS-DOS or not. In recent years, an increasing number of manufacturers have agreed to this contract because the difference between the number of computers they make and the number on which they install MS-DOS is not large. In fact, it was the increasing number of manufacturers who accepted per-unit licenses that prompted the renewal of the antitrust case against Microsoft in 1993. The FTC had dropped its investigation in August, when its commissioners could not agree on whether to bring charges, but the case was immediately reopened by the antitrust division of the Justice Department. The new administration's antitrust chief, Anne Bingaman, charged that per- unit licensing was an attempt to establish an operating-system monopoly, because it offered PC makers a strong incentive to install MS-DOS exclusively. Microsoft's dominance in operating systems, the Justice Department also charged, gives the company an advantage in developing and selling the applications that run on that system. Microsoft does share information on its operating systems with competing firms. It has a strong interest in doing so. The value of an operating system is largely dependent on the number and variety of applications it can run. As more companies write programs for MS-DOS and Windows, more users will decide to adopt these operating systems. Microsoft's alleged crime, however, is that it gives its own applications programmers more information about MS-DOS, and that it does not reveal all the features of its operating systems to rival software companies. The Justice Department argues that these competitive advantages allow Microsoft to offer lower-quality products at higher prices, without fear of competition. In fact, no company can afford to offer a poor product to its customers or to refuse to innovate, no matter what competitive advantages it may start with.
Far from operating without competition, Microsoft operates in a world of intense competitive pressure, not only from actual competitors, but from potential competitors. One need not look far to find a historical example. In the early 1980s, the computer industry was dominated by IBM--so much so that its main rival, Apple, cast it as "Big Brother" in a famous advertisement aired in 1984. IBM manufactured both PCs and larger, more powerful mainframe computers, as well as much of the software for these computers. At the time, it set the standards for most of the computer industry. But IBM believed that the future of computing lay in mainframes. As PCs grew in power, however, many businesses were able to replace expensive mainframes with PCs or networks of PCs. As a result, Microsoft and microprocessor maker Intel became the new leaders of the computer industry. Microsoft has maintained its position through constant innovation. It has produced a half dozen major upgrades of MS-DOS in the past 14 years, and this month Microsoft is scheduled to release Windows '95, the fifth version of Windows. But Windows '95 is merely considered a transition to the company's most advanced operating system, Windows NT. This operating system is designed to control not only personal computers, but also mainframes and networks of PCs. Advocates of the antitrust laws claim Microsoft's dominance in operating systems will allow it to stagnate, offering inferior products at higher prices. The exact opposite is true. Microsoft dominates operating systems only because it has chosen not to stagnate. Most people seem to grasp these facts; there has been little popular enthusiasm for the case against Microsoft. The public is too busy buying the company's products to scream for relief from it. This attitude has even reached many academics in the antitrust field. In a New York Times article on the settlement, business columnist Peter Passell described the "lack of a passionate response from antitrust economists and lawyers." "[T]imes have changed," he notes, "and so have the trustbusters. Many now fear that the Government will do more harm than good when it tries to play market referee, especially in high-technology industries." Sensing that it would be difficult to successfully press the case against Microsoft, Anne Bingaman chose to offer the company a deal. In July of 1994 Microsoft signed a "consent decree" agreeing to end per-unit licensing for MS-DOS. In exchange, the Justice Department chose not to pursue its other charges against the company. Microsoft's founder and Chairman, Bill Gates, viewed this as a minor concession. The Justice Department had portrayed per-unit licensing as a powerful instrument for monopolizing the market. Gates realized that it was not crucial to his company's success. With this relatively minor change in Microsoft's business practices, he could avoid the potentially disastrous consequences of losing an antitrust case: having his company broken up into two or three smaller companies, and paying crippling treble damages to any would-be competitor who claims he was excluded from the market. The settlement may have been acceptable to Microsoft, to the Justice Department, and to the public--even the editorial board of the New York Times approved. But one man stood in the way: Federal Judge Stanley Sporkin. Under the Tunney Act, passed in 1974, all antitrust settlements must be reviewed by a federal judge, who is to decide whether the settlement is in the "public interest." In February, Judge Sporkin rejected the Microsoft consent decree.
Sporkin objected that the decree was too soft on Microsoft. He objected that it dropped too many of the charges against Microsoft and that it did not charge the company with other antitrust violations alleged by its competitors. But Sporkin's other objections were more telling. He complained that the agreement did not provide for a "compliance monitor"--a government official assigned to monitor Microsoft's activities and report any potential violations of the agreement to the court. In addition, Sporkin complained that the agreement would allow Microsoft to make a one-time concession, then continue to operate with no further controls on its activities. Such controls are necessary, he argued, to make up for Microsoft's past advantages. "Simply telling a defendant to 'go forth and sin no more' does little to address the unfair advantages it has already gained." Sporkin's complaint is that the settlement will allow Microsoft to function without further supervision by his court. What Sporkin wants is to gain control over Microsoft's operations-- to force the company to seek his approval for every move it makes in the future. This demand calls on a long tradition in the enforcement of antitrust laws. In the past, judges have often used consent decrees to obtain veto power over a company's future actions--to determine what products or services it may offer and into what markets it may move. The most famous example is the consent decree that broke apart AT&T in 1982. Federal Judge Harold Greene--whose office is just down the hall from Sporkin's--still administers that agreement 13 years later. AT&T and the "Baby Bells" (the regional phone companies created in the breakup) must seek his permission to enter new markets--a requirement that has slowed down attempts by these companies to compete in the cable-TV and cellular telephone markets. The telephone companies have asked Judge Greene to lift the consent decree, pointing out that the last 13 years have seen massive changes in the telecommunications industry, but the judge has refused to relinquish his control. Until recently, IBM operated under similar supervision. A 1956 consent decree required that the company separate its computer hardware business from its computer services business. The agreement dates from the era when IBM dominated the market for "tabulating machines"--precursors to the electronic computer--and the paper punchcards on which these machines stored data. Federal Judge David Edelstein administered the decree for 39 years until an appeals court ended his reign earlier this year. These men have stepped beyond the role of federal judges and established themselves as the permanent regulators of major companies--or, in the case of Judge Greene, of a whole industry. In refusing to approve the Microsoft settlement, Judge Sporkin was attempting to join their ranks. How did these judges gain the authority to appoint themselves as regulators? In A History of American Law, Stanford Law Professor Lawrence M. Friedman sums up the legal essence of the antitrust laws: "Vague language in a statute is, in effect, a delegation by Congress to lower agencies, or to the executive and the courts; it passes the problem"--and the authority--"along to these others." In the 20th century, most such laws have delegated power to the executive. Congress has passed laws to enforce broad and undefined goals such as "worker safety," and then handed executive- branch agencies the power to translate these goals into specific rules and directives. In the case of the antitrust laws, the power to regulate has been given, not to the executive, but to the courts. The Sherman Act of 1890, the first antitrust law, makes it illegal for any person or corporation to engage in "restraint of trade" or "an attempt to monopolize" trade. Because these terms are left undefined, it is up to the courts to determine what they mean. Thus, the specific content of antitrust law has been written, not by Congress, but by federal judges. The current view of what is legal under the antitrust laws is determined by "case law"--by the collected decisions of judges in antitrust cases. But no judge is bound by the case law. He can arrive at an entirely different ruling, based on nothing but his own feeling of what is in the "public interest." The Tunney Act delegated even more power to the courts. It deprived prosecutors of the authority to negotiate a settlement without approval from a federal judge. Thus, companies such as Microsoft can no longer escape the arbitrary power of a judge by making a deal with prosecutors. Since the "crimes" created by the antitrust laws are undefined--and undefinable--so is the conduct necessary to atone for these crimes, or to avoid further transgressions. If there is no objective way to determine what was "restraint of trade" in the past, there is no way to determine what will constitute "restraint of trade" in the future. The only answer is for a judge to monitor and control the company's actions for the indefinite future, through the judicial administration of a consent decree. On June 16, a federal appeals court denied Judge Sporkin's ambition to regulate Microsoft. The court voted to overturn his rejection of the company's settlement and to remove him from the case. This decision, however, was based on a very narrow objection. In demanding that the Justice Department pursue further charges against Microsoft, the appeals court ruled, Sporkin had overstepped his authority. A judge may only try a case; he may not initiate one. This ruling does not address the nonobjective nature of the antitrust laws, nor does it address the arbitrary power of judges over all other aspects of an antitrust case. It does nothing to end the power of federal judges to regulate from the bench.
As a result, Microsoft may once again find itself under the arbitrary rule of a federal judge. In April, the Justice Department filed suit to stop Microsoft's merger with Intuit, maker of the most popular brand of personal-finance software. Rather than face months of delays by fighting the suit, Microsoft abandoned the merger. The Justice Department is now considering a suit to stop Microsoft's plans to include in Windows '95 software that would allow the user to access Microsoft Network, the company's new on- line service. Windows '95 is already being manufactured and will be shipped to retailers by August 24. As of July 28, the Justice Department announced that it was still considering the suit-- leaving Microsoft to guess whether its production of Windows '95 will be judged illegal after the fact. The court's rebuke of Judge Sporkin was only a temporary victory. Like every other company in America, Microsoft still lives under the arbitrary rule of the antitrust laws.
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