Microsoft’s Windows holds monopoly power in the market for operating systems. After a 78-day trial, the federal court found that Microsoft repeatedly broke the antitrust laws both to maintain its Windows monopoly and to extend it to the market for Internet browsers. For Microsoft, stifling the threat posed by Netscape’s browser was critically important, precisely because the browser had the potential to become an alternative platform for software applications that could erode Microsoft’s operating-system monopoly.
But Microsoft’s illegal actions to protect its Windows monopoly went far beyond the browser war, and included coercing PC manufacturers, software developers and Internet service providers to distribute and promote Microsoft products rather than competing products that might threaten that monopoly. “Through its conduct toward Netscape, IBM, Compaq, Intel, and others,” the federal court found, Microsoft “harm[ed] any firm that insists on pursuing initiatives that could intensify competition against one of Microsoft’s core products.” As a result, the court concluded, “innovations that would truly benefit consumers never occur for the sole reason that they do not coincide with Microsoft’s self-interest.”
When a company is found to have broken the antitrust laws, the government must propose a remedy that both repairs the damage to competition caused by the illegal acts and prevents the company from committing similar violations in the future. We have recommended a remedy that would do just that. It is very similar to the one the government obtained in the 1980s against the AT&T telephone monopoly, when it was accused of violating the antitrust laws in much the same way that Microsoft did. The divestiture in the AT&T case led to an explosion of new innovation in many areas, including wireless and broadband communications, and even helped to spark the development of the Internet itself. And it has led to substantial competition in telephone services and significantly lower prices for consumers.
The central feature of our proposal in the Microsoft case is splitting the firm into an operating-systems company and an applications company. Each of the resulting companies would be free to develop products that would compete with the other’s core business. For example, a separate applications company would have the incentive to develop the best possible productivity suite, not only for Windows, but also for other computing platforms like the Apple and Linux operating systems. Indeed, much like the browser was before Microsoft stifled its platform potential through its illegal campaign, Microsoft’s Office has the potential to become a software platform that could threaten the dominance of the Windows monopoly. Our remedy thus directly redresses the harm caused by Microsoft’s illegal acts.
Our proposal would also create real incentives for the applications company to develop great programs that can be accessed directly from server networks by all kinds of new computing devices, such as information appliances, handheld devices and cell phones. That, too, will create exciting new choices for consumers.
Microsoft claims that our proposal would hinder the development of new features in Windows. But that’s wrong as a matter of fact and directly contradicted by the experience of the AT&T breakup. The Windows company would be free to exchange information about new features with the applications business, as long as that information was also made available to other software developers. And Microsoft would be free to add any new features and new products to Windows. The only thing our proposal would do in this regard is to require the operating-system company for three years after the divestiture to give PC manufacturers a choice–either to license Windows with the new products, or to license at a lower price a version in which access to those extra products could be deleted. Microsoft now offers that deletion option for about 80 features.
Choice, not a monopolist’s dictates about computing, is what customers want. Our proposal will spark competition, which will give consumers exciting new choices. That’s why our remedy is the right remedy.
