Frequently Asked Questions on
the Microsoft Antitrust Case
Question: What about Judge Jackson’s “findings of fact”? Doesn’t that paint a damning picture of Microsoft’s business practices?
Answer: That depends on the standards according to which one judges what is moral and what is “damning.”
Although the findings contain a number of factual errors, the overall picture that emerges is that of a company striving to compete by offering the best product and service. Here are just a few of the relevant facts recognized, grudgingly, by Judge Jackson. All quotes are from his findings of fact.
Why, then, is Judge Jackson’s evaluation of Microsoft so damning? The key can be seen in one passage late in the findings: “Microsoft’s past success in hurting such companies [i.e., beating its competitors] … occur for the sole reason that [other companies and their products] do not coincide with Microsoft’s self-interest.” (Paragraph 412) By Judge Jackson’s standards, Microsoft should have self-sacrificially stepped aside and allowed a new competitor to displace it. But instead, Microsoft fought back and competed ruthlessly to remain the leader of the software industry. In short, Microsoft worked to protect its interests. The fact that it did so by offering value to consumers, business partners, and Internet access providers is, in this view, irrelevant.
In sum, Judge Jackson’s condemnation of Microsoft is not based on the facts of the case. Instead, they are based on his hostility toward self-interest and toward business success. This is just another reminder that the ultimate issues in this case are not factual, but moral.
[For a longer essay on this subject, see “Antitrust in Action: Judge Jackson and the Assault on Microsoft,” by Adam Mossoff]
Question: Doesn’t the AOL Time Warner merger change the whole environment of the industry, rendering the case against Microsoft moot?
Answer: The significance of the AOL Time Warner merger is not that it somehow changes everything and undermines the factual basis for the DOJ’s suit. Its significance is that it highlights the reasons why that suit, and the antitrust laws under which it was brought, were wrong to begin with.
One of the myths behind the antitrust laws is the notion that one company can become so big and so rich that no one could possibly afford to compete with it. Thus, according to this myth, such a company can charge exorbitant prices or demand crushing terms without fear of competition.
One of the facts that this myth ignores is the role of the capital markets in a free economy. So long as investors are left free from government controls, they are free to bring an unlimited amount of new capital into any given industry. Thus, for example, a software company that has built its way up to a $400 billion market capitalization over a period of twenty years (Microsoft), may suddenly face, almost overnight, a $350 billion rival (AOL Time Warner)—thanks to the free capital markets that make such a merger possible.
The basic principle is this: So long as a monopoly is not backed by the state—that is, so long as new entrants into the field are not barred by physical coercion—then any company faces potential competitors. No matter how big or rich one firm may become, there are always other large companies and trillions of dollars of investment capital available to finance them. In such an environment, therefore, the only way a company can maintain its lead is not by throwing its weight or money around, but by continuing to offer value to its customers.
The AOL Time Warner merger is merely a reminder of this fact.
Question: Is Internet Explorer really an integral part of Windows—and did Microsoft add IE to Windows just to crush Netscape?
Answer: The best answer to this question came from a Microsoft witness in the DOJ trial—Mike Devlin, president of Rational Software. Mr. Devlin explained that Microsoft's role as an operating system vendor is precisely to deliver system services to the software companies that build applications to work on its platform. Microsoft had done this with many other system services over the years, integrating new features (such as TCP/IP, and Direct X) into its operating system—and Internet Explorer was just one more service of this type.
Devlin also explained the benefits of this integration. He explained how his company was able to include Internet functionality in its product (e.g., resolving URLs, reading HTML, and so on) in the same way users were accustomed to, without having to spend time and money reproducing the same "plumbing" in its own applications. In other words, because Microsoft "componentized" IE (something Netscape was encouraged to do but never did) and integrated it with Windows, software developers could rely on those functions being there on their users' desktops, making the job of the applications developers vastly easier.
Without this advance, software companies like Devlin's would have to either leave out Internet functionality in their products, or write a thousand different (and often conflicting) programs to deliver that functionality. So, as Devlin pointed out, if Microsoft neglected to integrate new system services like IE into Windows, companies like his would find less value in Windows, and they would eventually seek out competitive products that offered the services they needed.
So in this case, as in so many
others, Microsoft is guilty of nothing more than competing—i.e., trying to
offer a better product to its customers.
Question: Don't consumers have the right to buy Microsoft Windows without Internet Explorer? Doesn't Microsoft's bundling of their products into one package take away the consumer's right have to pay only for products he wishes to buy?
Answer: No one has a right to buy whatever he wishes; he only has the right to buy what others choose to sell to him. The terms of any trade must be agreeable to both the buyer and the seller, or a sale does not and should not take place. If you don't like Microsoft's terms, then you are free to go somewhere else; you are free to buy an Apple Macintosh, a UNIX server, and so on—or you can get Linux for free.
What would it mean, by contrast, to decree that the buyer has a right to dictate the terms on which he wants to buy a product? To do so would be an assault on the rights of the seller. It would transform the seller into a servant, there to take orders dictated by the buyer.
The property rights to Windows and Explorer belong solely to Microsoft and not to potential buyers, and certainly not to the Department of Justice. Thus, there is no right to force Microsoft to create, or sell, a product called "Windows without Explorer" if Microsoft does not regard such a product as being in its interests. To assert such a right is to grant to consumers the right to control other people's property—at the expense of the rights of those who own and produce that property.
To demand that a company provide
a product, while denying the right to set terms on its sale of that
product, is a vicious contradiction. Such a demand depends on the
producers’ willingness and ability to create a product—while denying them
the right to control or benefit from that product.
Question: Didn't damning evidence emerge during the trial tarnishing Microsoft's credibility and showing their experts to be dishonest? For example, didn't Microsoft submit a phony videotape claiming to refute Dr. Felten's Internet Explorer "removal program"?
Answer: This is a charge—much like the alleged sabotage of Apple QuickTime—which was later proved to be completely false but still lives on in the minds of the public (and some journalists) as if it were true.
Dr. Felten, a government witness, claimed to have written a program that completely removed Internet Explorer from Windows without any negative impact on Windows—allegedly refuting Microsoft's claim that the two products are integrated. Microsoft replied that Felten had not in fact removed all of Internet Explorer and that his program had indeed damaged Windows.
Microsoft sought to prove its rebuttal by showing about a dozen ways in which either IE was still available after running Felten's program, or Windows had been damaged by the program. Since the Judge would not allow a live demonstration in the courtroom, Microsoft produced a videotape showing what it said was a machine Felten's program had been run on. The videotape did show that Internet Explorer could still be accessed quite easily, and that parts of Windows did indeed appear to be broken.
Rather than attempt to refute the points made in the videotape demo, however, the government attacked the credibility of the videotape. They discovered that one computer screen in the demo had a different number of desktop icons than another screen, showing that Microsoft had filmed two different machines to make the demo.
The courtroom gasped and the judge was aghast, shocked that Microsoft would doctor evidence. That was how it was reported in the press and that's how it has been remembered ever since.
But the story wasn't over. The Microsoft witness, Jim Allchin, realized that the demo had been made by Microsoft employees who apparently didn't understand the difference between evidence and demonstration. To save time, they had used two machines for the demo and edited the footage together—a common tactic for trade show demonstrations.
But as Mr. Allchin said on the stand, the demonstration still portrayed actual facts. To prove this, he volunteered to work that night to make a new videotape for the judge, using a brand new machine and in the presence of Justice Department representatives. The judge agreed. The next day, Allchin came back to court and showed the new videotape, which both the DOJ and Dr. Felten had watched him make. All but one of the points Microsoft claimed in the first videotape were demonstrated—and the only reason that point couldn't be shown was that it required specialized equipment which was not available on such short notice.
So Microsoft was sloppy in presenting its evidence—but it did not lie; it was immediately able to prove its claims. And the government never once addressed the fact that Microsoft had just refuted the testimony of Dr. Felten. They merely cried foul play—and the press wrote it that way.
This incident is typical of the
government's approach to this case, which has consistently been focused on
creating courtroom drama—and flashy headlines—rather than presenting
Question: Isn't it "unfair" for one company to "leverage" its success in one area to help it succeed in other areas? Isn't it unfair, for example, for Microsoft to leverage the dominance of Windows in order to sell more copies of applications such as web browsers?
Answer: Consider what this principle would mean. It would mean that no company can ever gain any advantage from the success it has earned. But this would clearly destroy any company to which it was applied consistently. A company wouldn't be allow to benefit from the money it makes from a successful product, since that money allows it to hire more and better employees and to spend more on marketing. It wouldn't be allowed to benefit from its experience, since that experience helps its executives to make better decisions. It wouldn't be allowed to benefit from its reputation for quality, since that reputation makes customers more likely to buy its products. All of these things are forms of "leverage."
To concretize this idea fully, try applying it to other areas of life. Should a student with an excellent academic record be allowed to "leverage" that success to improve his chances of admission to college? Should the writer of a best-selling novel be allowed to "leverage" that success to boost the sales of his next book? Should a man with a spotless credit report be allowed to "leverage" that success to get a lower rate on a new card? Of course they should. In each of these cases, the "leverage" was earned.
To condemn the use of "leverage" would mean enforcing a crushing egalitarianism, under which everyone is treated equally regardless of what he has achieved. Dullards would be given the same chance as geniuses, hacks would be treated no better than Shakespeares, deadbeats would be given the same trust as diligent bill-payers. And Microsoft, which has earned its place on the desktops of the world, would—under the terms of one government demand—be forced to put on that desktop the icon of a competitor who did not earn that position.
Far from being "fair," such a
system would be an enormous injustice.
Question: You talk about protecting the "producers," "creators," and "innovators" against government control. So why are you defending Microsoft? The company is not innovative; instead it has stolen all of its ideas from others (e.g., Apple and Netscape). Doesn't Microsoft just represents the triumph of aggressive marketing over technically superior products?
Answer: This question is partly based on a factual error, partly on an economic error, and ultimately on a philosophical error.
The factual error is the acceptance of the widespread smear that Microsoft is not innovative. In fact, Microsoft was one of the first software companies to establish a research and development program. And, as just one example, Bill Gates is almost single-handedly responsible for backing the emergence of CD-ROMs, an innovative step described in detail in Randall Stross's book, The Microsoft Way.
It is true that Microsoft itself did not invent the graphical user interface or the web browser or a number of other features it has since incorporated into Windows. But innovation does not mean using only those ideas developed by a company's own designers. It does not mean embracing the "not invented here" syndrome—the stagnant refusal to accept anything not produced by a firm's in-house engineers. Innovation means recognizing a good idea when you see it and matching it with one's own best efforts.
The economic error is the view of innovation as a matter of "superior" technical performance measured in a vacuum. But innovation is in fact much broader. Indeed, Microsoft's "marketing power," which this question implicitly derides, is part of what makes it innovative. As an example, consider the reason for the triumph of the Windows graphical user interface over the Macintosh operating system. The Macintosh system represented a huge technical step up—but it also required a business to discard all of its existing hardware, lose all of its previously stored data, and commit to buying both hardware and software exclusively from one vendor. In that context, Windows was in fact the superior product; it made the graphical user interface into an affordable innovation.
The philosophical error is to assume that mere "marketing," or habit, or some other form of irrationality can, in the free market, have the power to suppress innovation. In fact, the free market is, by its nature, the ultimate system for driving innovation. It is a system that punishes anyone who rejects valuable new ideas, whether they are fooled by marketing hype or simply resent all change, by decreasing their profits. At the same time, the free market rewards those who embrace innovation; the resulting increase in productivity results in profits. The innovators make more money and take more market share—forcing the anti-innovators either to go out of business or play catch-up.
It is only under statism—where
the status quo is subsidized and protected from competition—that
inefficient industries remain stagnant for decades. But, as the fall of
communism has demonstrated, even a system supported by government force
cannot survive when its victims begin to realize how much better off they
would be under freedom.
Question: You say you are in favor of the free market—but can't big corporations, such as Microsoft, interfere with free competition? Can't they force employees, distributors, and suppliers to accept their terms? So isn't government force, such as antitrust prosecution, necessary to protect individuals from this "economic force"?
Answer: As a private corporation, Microsoft has no power to force anyone. The entire case against Microsoft (and, indeed, the entire case for the antitrust laws) is based on the equation of economic power with political power. The difference between these two forms of power must be kept strictly in mind—for it is a difference with life-and-death consequences.
In "The Dollar and the Gun" (The Objectivist Forum, June 1983), philosopher Harry Binswanger defines the difference between these two forms of power:
The only power Microsoft has to induce customers to give it money is the value of its products. If Microsoft started to produce an inferior product, or even if it chose not to update Windows to incorporate new features, it would eventually lose the market; equipment manufacturers and consumers would seek out a better operating system. By contrast, the only power that the government (and those of Microsoft's competitors who are calling for government interference) has to offer is a threat: "We'll dictate what can go into the Windows operating system—and you'd better toe the line or we'll throw you in jail."
In the case of Web browsers—the specific issue in the current court case—the equation of the dollar to the gun becomes utterly absurd. Microsoft is seeking to gain predominance in the Web browser market by giving its product away for free. To talk of giving a product away for free as an act of force is a frightening instance of Orwellian "doublespeak."
The consequence of this
"doublespeak" is truly disastrous: In answer to the pseudo-force of
showering consumers with free products, the antitrust case against
Microsoft threatens to introduce the genuine coercion involved in
government regulation of operating systems.
Question: If we don't get rid of "monopolies" like Microsoft, how else can we make it possible for new products and innovations to succeed? If the government doesn't take action, aren't we stuck with Windows forever?
Answer: Morally, no one has the right to employ government force to eliminate products he doesn't like. The fact that some people think the Macintosh operating system, or Linux, or some other product, is superior does not give them the right to use the government to enforce their preferences by suppressing Microsoft's products.
But they do have the right to buy competing products—and no private company, no matter how pervasive its "monopoly"—can prevent that. The only permanent monopolies are those supported by government force (e.g., the Postal Service). Private companies, by contrast, are only as good as their last product, and without the ability to exclude competitors by force of law, they face a constant threat from anyone with a new, innovative product.
This fact can be seen in the rapidly changing state of the computer industry, which, even in the course of this one trial, has rendered the government's case moot.
The foundation of the trial is the premise that Microsoft has a monopoly in desktop client operating systems which renders it all-powerful. For example, there is allegedly an "applications barrier to entry"; that is, new operating systems allegedly can't break into the market because everyone prefers to write applications for the dominant OS.
But, in just a few years, the Internet has changed everything, rendering Microsoft's dominance in operating systems obsolete.
For example, almost no new applications target the Windows operating system; they target the World Wide Web. That is, they are designed to work, not just on one operating system, but on any system capable of accessing the Internet. This means that any client that can run an HTML browser—be it Apple, Solaris, Linux, Windows, a Palm Pilot, WebTV, etc.—can supplant Windows. Hence the rise of the Linux operating system; in a world where all you need is a browser, why not go with an operating system you can get for free, and which you believe is better?
These developments are simply
proof of the fact that freedom from government intervention is the only
protection needed against "monopolies" that would allegedly stifle
Question: What about all the lawsuits against Microsoft, claiming that it tampered with other operating systems (the Sun suit), or that it purposely made its programs conflict with other operation systems (the Caldera suit), or any number of smaller suits claiming that Microsoft stole programs from other companies. Can all these suits be a coincidence? Don't they prove that Microsoft engages in underhanded tactics to keep its market dominance?
Answer: This is another example of the bias against successful businesses. Whenever Microsoft is sued by anyone, it is assumed to be in the wrong—regardless of the merits of the case.
Take the Sun suit. Microsoft claims that the alterations it made to Sun's Java program were within the bounds of its contract with Sun. But Sun claims that Microsoft's alterations violated its intellectual property rights.
Which side is right? As with many such cases, new territory is being forged, and the answers are not obvious. Indeed, the judge in the Java suit has ruled both for and against Microsoft on different occasions. So the answer is not cut and dried. It is a technical matter for the courts to decide and it is premature for outsiders to judge. Yet many people feel that they automatically know the answer: Microsoft must be wrong. Why? Because it is Microsoft.
The same is true for dozens of other intellectual property cases. The facts of these cases are not cut and dried; it is often difficult to tell what is an infringement of copyright, and what is a legitimate attempt to compete by creating functions similar to those offered by one's rivals. So it should be no surprise that the largest software manufacturer would be involved in such lawsuits; nor should it be a surprise that Microsoft wins some of these suits and loses others. But the merits of these cases is irrelevant to the Microsoft-bashers; instead, they latch on to these cases as evidence for their pre-conceived hatred of Microsoft.
Many other lawsuits have even less merit.
Take the Caldera suit. This case is based on a preposterous allegation: the claim that, in the early 1990's, if not for the underhanded tactics of Microsoft, DR-DOS might have unseated MS-DOS and Microsoft. This claim is nothing short of fiction; DR-DOS was never a major player in the operating-system market. Moreover, by the time of the events cited in this suit, Windows was well on its way to being the standard, and DOS—whether MS-DOS or DR-DOS—was on its way to obsolescence.
Moreover, there has never been any evidence that Microsoft did anything to prevent Windows from working with DR-DOS. The most prominent evidence cited by Caldera was the claim that, when Windows was run on DR-DOS, it sent the user a message warning that he was using an unsupported version of DOS and that Microsoft could not be responsible for how Windows would operate. But Microsoft had every right to make that disclaimer—especially at a time when MS-DOS provided Windows with key functionality.
But the "evidence" is even flimsier than that. The message in question appeared only in a limited-distribution beta release of Windows; it was never included in the final version that was shipped to customers.
Caldera's suit provides the real example of a morally reprehensible attack on a rival business: Your competitor beats you in the marketplace, fair and square—so you try to make back your losses by going to court. Indeed, Caldera was not even the developer of DR-DOS; the company didn't even exist then. It bought DR-DOS—and thus the right to sue Microsoft—well after DR-DOS had already failed.
In the current trial, evidence has been presented showing that the business plans of several Microsoft competitors (including Netscape and Sun) listed, as one "competitive" tactic, the attempt to tie up Microsoft with lawsuits. And the logical extreme of this tactic is the Bristol lawsuit, in which a tiny company filed an antitrust suit against Microsoft asking for huge damages. The jury rejected Bristol's request—awarding it only $1—after an internal memo was discovered describing Bristol's entire corporate strategy as the "we-sue-Microsoft business plan."
Who, then, is guilty of underhanded business tactics? Microsoft—or the companies that use the government as a club to beat up Microsoft when they can't best it in open competition on the free market?
And what do all of these suits
rely on? They rely on the bias against successful businesses. They rely on
the fact that everyone—the computer industry, the Justice Department, the
press, the public—will automatically assume that Microsoft is in the
wrong, regardless of the merits of the case.
Question: How can you refer to a big, powerful corporation as being "persecuted"? Why do businessmen need someone to defend them—as if they didn't have enough money to do it themselves?
Answer: To answer this question, we need only look at the Microsoft antitrust case. Who is arrayed against Microsoft? A coalition of anti-business leftists and self-appointed "consumer advocates"; a cabal of jealous competitors who have hired high-powered lawyers and lobbyists to promote a government attack on Microsoft; and then there is the Attorney General and the Justice Department, with virtually unlimited resources at their command; there is the Congress, where both Democrats and Republicans support the attacks on Microsoft; there is a federal judge who is ignorant of the technical issue in this case and who does not regard the issue of individual rights as relevant to the antitrust laws; finally, there is the press, which alternates between portraying Microsoft as a malevolent Big Brother and portraying the case as too complicated or technical for the layman to take sides.
Who is on the side of Microsoft? There is Microsoft itself—and us. Furthermore, Microsoft's efforts are widely dismissed on the grounds that it is merely protecting its own interests. In the code of modern American politics, it is the victim of government intervention who is considered to have the least right to speak in his own case.
If the majority of businessmen spoke up consistently in defense of their own rights, and the rights of other businessmen, then an organization like ours would be unnecessary. But the tragic aspect of the growth of government controls is that the victims do not understand the justice of their own cause. Part of our goal is to help businessmen to grasp this fact.
In the meantime, who will speak up for the rights of businessmen? Today, even the lowest specimen of humanity—especially the lowest specimen of humanity—can count on support from numerous sources. A homeless drug addict has a dozen different organizations, agencies, shelters, rehab programs, and the like devoted to his aid. A Nazi who burns a cross on his front lawn knows he can call the ACLU to protect his rights. But what if a peaceful, responsible, productive businessman—even a hero of American business—finds himself under attack? Who can he call?
That is our purpose. In her essay "America's Persecuted Minority: Big Business," Ayn Rand called for a "civil liberties union for businessmen." That is one of the functions of the Center for the Advancement of Capitalism.
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