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It's Time for Congress to Reevaluate Antitrust

The following written testimony was submitted to the US Senate Committee on the Judiciary for its hearings on the proposed Microsoft antitrust settlement

By Nicholas Provenzo
Chairman
The Center for the Advancement of Capitalism

On behalf of the Center for the Advancement of Capitalism, I respectfully submit my testimony to the US Senate Committee on the Judiciary regarding its hearing on business competition in the Internet age and the proposed final judgment resolving U.S. v. Microsoft Corporation (Civil Action No. 98-1232) and State of New York ex. rel Attorney General Eliot Spitzer, et al., v. Microsoft Corporation (Civil Action No. 98-1233). On behalf of the Center and its supporters, I thank the committee for the opportunity for me to present our views for its consideration.

The mission of the Center for the Advancement of Capitalism is to promote the social welfare of the nation by presenting to policy makers, policy analysts and the public a moral foundation for individualism and economic freedom based on the rational analysis of humanity and human nature. Specifically, we seek to apply Ayn Rand’s philosophy of Objectivism to the understanding of human action and human relationships.

As advocates for a free, capitalist system, we argue that human life requires thought and productivity. We argue that minds and bodies must be left free of coercion, that all human interaction must be voluntary, and that the initiation of physical force must be banished from human relationships. We see a proper government as the agent of its citizens, charged with one primary mission: the defense of its citizens against the initiation of physical force. Understanding and adhering to these principles has been of unprecedented benefit to the American people. The unshackling of producers, free to live and work towards their own happiness has led to the greatest era in human history, the age of modern capitalism, affluence, and freedom.

In stark contrast to the principles of the free market, the Congress enacted the antitrust laws which serve only to violate the rights of successful producers. It is our position that the Sherman Antitrust Act of 1890, the Clayton Act of 1914, the Federal Trade Commission Act of 1914, the Robinson-Patman Act of 1936, and the Hart-Scott-Rodino Act of 1976 represent the principle that the government must supervise all transactions and all relationships and impose its preferences on its citizens by force. In the name of protecting and supervising competition, the antitrust laws systematically restrict the most successful competitors from competing and enjoying their success. Fundamentally, the antitrust laws improperly equate the regulatory power of an unlimited government with the economic “power” of a dynamic market leader.

A prime example of these fallacies is the current Microsoft antitrust case. The Center has opposed the case from the outset, seeing it as an abridgement of the freedom of production and trade and an interference with the right to acquire and possess property. We disagree with the essential factual basis of this case—that Microsoft’s integration of its Internet Explorer Web browser with its Windows operating system was a coercive act against Microsoft’s competitors and customers. Instead, we see a company that according to its evaluation of the marketplace saw the commercial value of product integration and acted accordingly. In exercise of Microsoft’s right to control its property, the firm set terms for the sale of that property that it believed was in its own self-interest. Microsoft’s subsequent commercial success after this integration affirms the wisdom of Microsoft’s actions—Microsoft’s customers themselves chose to reward the firm with increased sales and increased market share. Rather than serve as an impediment to the free market, Microsoft’s actions exemplified them. Rather than demonstrate the need for government supervision of the free market, the attack on Microsoft demonstrates its dangers.

When the Microsoft antitrust case went to the US Court of Appeals for the District of Columbia Circuit for appeals proceedings, the Center served as an amicus curie on the case. Our amicus brief relied on two major arguments in opposing the government’s case: 1.) that the antitrust laws fail to provide clear and concise guidance necessary to avoid sanctions under the law; and 2.) that the antitrust laws require the government to initiate force and violate the rights of successful companies.

First, antitrust law can provide no certain guidance for a company acting in good faith. The courts have attempted to apply antitrust standards with different results, resulting in a highly inconsistent body of case law. A prime example of the arbitrariness of antitrust laws is the way the government defines a firm’s “market share.” Microsoft sells perhaps 50% of the applications software in the United States, while 90% of PCs include Microsoft software. Which is the “relevant market share”? Does Microsoft not have 100% of the market share for Microsoft software? Under commonly held antitrust standards, the government can define "market share" however it wishes, with limited predictability. 

In other words, the prescribed course of action under antitrust law is clear neither to the judges who apply the law nor to the companies who are enjoined to follow it. Where there is no clear law-abiding course of action, the courts should hold the law void for vagueness. The courts have failed in this responsibility, so it is the responsibility of Congress to act. Proper laws must be objectively defined so that citizens know ex ante which actions are proscribed by the government.

Second, and more fundamentally, laws must be derived objectively from the principle of individual rights, permitting only retaliation against those who have initiated force or fraud. If the purpose of government is the protection of individual rights, then the laws must also be directed only at persons who initiate force against others. Otherwise, the government exceeds its role as defender of the rights of the citizens and becomes the supervisor of the citizens, imposing its will by force. In antitrust law, the government abandons entirely the sphere of protecting rights and enters the sphere of supervising citizens and prescribing outcomes. Today, in the case of the Microsoft antitrust litigation, the government seeks to prescribe an outcome which legitimizes its prior violation of Microsoft’s rights. While we respect the desire of the parties to seek a resolution to this case, particularly that of Microsoft, which has had to endure a 3 ½ year crusade against its property rights and its right to conduct its business in a profitable manner, we are wary of any settlement that legitimizes any aspect of this unjust assault against a successful, innovative business.

We consider the case against Microsoft to have been defective at every level, from the fundamental claim that the entrepreneurial actions of a successful business are a threat to others, to the claim that a monopoly can exist where there is no legal barrier to entering a market, to the claim that the citizens of the United States are too ignorant or incompetent to exercise their individual power of choice when in the marketplace. We consider it a failure that the courts saw no distinction between the earned success of a business in the free market and the coercive power of the government, and we consider it a failure that the court did not ultimately throw out the case against Microsoft. 

Considering that the Microsoft antitrust case was initially brought not at the insistence of individual consumers or with Microsoft's business partners, but at the insistence of Microsoft's unsuccessful competitors, this entire case reeks of business failures asking the government for patronage. Failed businesses must not be allowed to set the rules for the markets in which they failed.

Some claim that Microsoft's integration of Internet Explorer with Windows is not integration, but tying. The Center argues that the question is irrelevant. Like any business, Microsoft exists to sell its products to its customers at a profit. It has a right to judge the marketplace and determine what its products are and are not. If Microsoft is unresponsive to its customers' demands, it loses market share and economic success. If Microsoft is responsive, it enjoys commercial success. If Microsoft chooses to give its product away, that is its right. There is no coercion in this process and no need for government supervision and intervention. Unsatisfied customers are free to substitute alternatives as they are available. What they do not have is a right to demand that Microsoft provide them with alternatives, to demand that Microsoft not compete with alternatives, or to demand that Microsoft act against its own self-interest.

Accordingly, we reject the notion that the recent proposed settlement between Microsoft and the government serves the public interest, or that any punishment of Microsoft for its business practices will be of benefit to any consumer. Eroding Microsoft’s property rights serves no one. We hold that no antitrust case, including the Microsoft case, can withstand rational scrutiny.

We expect, given the historical support of the Senate for antitrust legislation, that many of our arguments will be met with a critical eye, even perhaps a skeptical eye. We make these arguments to the Senate, however, because we believe that its members will see the importance of examining antitrust on a fundamental level. We think, given the stock market losses of over $80 billion as a result of the course of the Microsoft antitrust prosecution, that the Senate has an urgent need to reevaluate antitrust, from the Sherman Act to contemporary case law. For too many years, it has been held as axiomatic that antitrust serves to protect the competition and consumers. In fact, however, antitrust has failed to promote the American system of free competition. The history of antitrust law shows that these laws inevitably draw the government into a role of supervising markets and prescribing outcomes through consent decrees, rather than protecting free markets, free competition, and individual rights.

We encourage the Senate to begin a debate over the arbitrary and unjust provisions of the antitrust laws and for an end to the practice of persecuting businessmen for their success.

—Nicholas Provenzo is Chairman of the Center for the Advancement of Capitalism.

 

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