[Congressional Record Volume 144, Number 7 (Thursday, February 5, 1998)]
[Senate]
[Pages S413-S418]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                               MICROSOFT

  Mr. GORTON. Mr. President, while the Senate is conducting its morning 
business, a conference is being held in Georgetown by the Progress & 
Freedom Foundation (PFF) on an issue that has gotten a great deal of 
attention over the past few weeks. From the conference title--
Competition, Convergence and the Microsoft Monopoly--one might be 
deceived into believing these are frightening times for American 
consumers.
  Any fears about the success of Microsoft isn't coming from those who 
buy Microsoft products, but from frustrated competitors. While I don't 
dismiss the concerns expressed by anti-Microsoft factions, their 
arguments certainly lack force when consumers appear to be so 
completely uninterested in this tale.
  In fact, that's the untold story in the drama of the past several 
months--what does the consumer think of all this? How are American 
consumers being impacted? These questions are appropriate when you 
consider that the anti-trust laws of this country came into being to 
encourage competition and to protect consumers, not to settle bickering 
among business competitors.
  Unfortunately, a lot of words have been printed and broadcast on this 
subject, but we've hardly heard a peep from the people who matter 
most--the consumers. This concerns me precisely because it appears that 
so many people

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participating in this dispute have already decided who gets to wear the 
black hat, and who the white.
  At this morning's event my colleague from Utah, Senator Hatch, who 
chairs the very committee that exercises jurisdiction over the 
antitrust laws, spoke to the PFF conference about the Microsoft 
dispute. Normally, I don't keep track of where my colleagues make 
speeches and what they speak about, but because Senator Hatch has been 
quoted in the news media as taking a very hard anti-Microsoft line, I 
feel compelled to share some of his statements with my colleagues and 
rebut some of the criticism that he, and other Microsoft critics, have 
tossed out in the past several weeks about one of America's most 
visible, and successful, companies.
  On Jan. 25th, Senator Hatch spoke at length to the San Jose Mercury 
News about Microsoft and his competitors, and I was surprised by the 
tone of his remarks. The newspaper quotes Senator Hatch as saying, ``if 
Microsoft has engaged in driving out competition, and I think it has--
most everybody who's looked at it carefully believes it has--and takes 
control of (Internet standards), they're going to exercise a tremendous 
amount of control over Internet content and commerce.'' Senator Hatch 
goes on to say, ``if they're using anticompetitive practices to achieve 
that, it's wrong--and we have to do something about it.''
  In light of Senator Hatch's comments, I am concerned about how 
Microsoft is treated on Capitol Hill. Fortunately, Senator Hatch has 
promised that the Judiciary Committee has no intention of interfering 
with [the Microsoft litigation] and as our examination goes forward, we 
will work in a bipartisan manner to ensure that it continues to be fair 
and balanced. (Feb. 3 letter to Gorton/Murray)
  I appreciate this statement, but I must admit it concerns me when he 
speaks at a conference that refers to Microsoft as a ``monopoly.''
  Having said that, I would like to begin my comments on the Microsoft 
investigation by making a couple of points:
  First, the question of whether the company has violated antitrust 
laws is something of an abstract question that has been posed, not by 
American consumers, but by Microsoft's competitors. I believe that to 
be the key of this entire discussion, and why I feel so strongly that 
Microsoft is being treated unfairly. This isn't an effort led by those 
who purchase software products . . . if it were, you can be sure that 
my attitude would be much different . . . this fight was started by 
those who must compete with Microsoft, which, in my opinion, makes it 
very hard for those individuals and companies to make an argument that 
is not completely driven by their self-interest.
  Let's remember why we have anti-trust laws in this country--these 
laws weren't written to preserve unsuccessful competitors; they were 
written to encourage competition, and thereby protect consumers. And to 
date, I haven't seen one bit of evidence to support the theory that 
consumers are being hurt by Microsoft's success, or the success of any 
other company in the software industry.
  Second, as a former state attorney general, I support government 
enforcement of antitrust laws, but I cannot support the DOJ's attempts 
to restrict Microsoft's ability to produce and market the full-featured 
products its customers demand. Product design decisions should be made 
by software developers responding to consumer demand in the 
marketplace, not by governmental agencies.
  And so on behalf of the American consumer, indeed the American 
economy, I'd like to review a few facts that we simply should not 
overlook today.
  From 1990 to 1996, the number of software companies in the United 
States grew 81 percent, from 24,000 to 44,000 companies.
  During the same period, employment in the American software industry 
grew 70 percent, to more than 600,000 jobs today.
  The industry generated direct wages of more than $36 billion in 1996, 
and another $83 billion in related sectors of the economy.
  It generated $7.2 billion in taxes paid to federal and state 
governments, and another $7.9 billion through the ``ripple'' effect.
  Venture capital investment in new technology companies is at an all 
time high--$2.4 billion invested last year alone.
  Prices for personal computer hardware and software are constantly 
falling. Where a single Microsoft application such as Microsoft Word 
cost $399 in 1990, today consumers can acquire all of Microsoft Office 
(which includes word processing, spreadsheet, presentations, scheduling 
and other functionality) for just $499 at retail.
  If Microsoft's competitors are right, how could all of that success 
taken place? Wouldn't logic tell us that if a ``Microsoft Monopoly'' 
actually existed, prices would be higher, job growth would be lower, 
and venture capital investment would be next to nothing? Yet, the facts 
show the opposite course.
  Also, I think it's important to remind ourselves that all of these 
accomplishments took place without government regulation or 
interference.
  Let's review that again: Competition in the American software 
industry is not only healthy but vigorous. America leads the world. 
Innovation is at an all-time high. Employment is flourishing. Prices 
continue to fall for consumers and businesses alike. Productivity is 
skyrocketing. And barriers to entry for any company or individual that 
wants to compete in this industry are low.
  The principal assets required to create software are human 
intelligence, creativity and a willingness to assume entrepreneurial 
risk. All of the hallmarks of a thriving, healthy industry are in place 
in America's software industry.
  Let's return now to this question--what is the basic goal of 
antitrust law in America?
  I believe that the basic goal of our anti-trust laws is to promote 
competition, thereby insuring that consumers benefit from the 
widespread availability of goods and services at fair prices. Often 
competition is vigorous, but the fact that certain companies perform 
better than others is no reason to doubt that consumers benefit greatly 
from their success. As many courts have recognized, all companies 
should strive to do as much business as they can, even if that means 
taking business away from rivals, because it is that quest that causes 
the creation of new and better products offered to consumers at 
attractive prices.
  So, why are a handful of Microsoft's competitors so successful at 
scaring up government investigations, public policy debates and media 
scrutiny? One might argue that all of these incredible statistics that 
I've just reviewed are somehow skewed because Microsoft is really the 
only beneficiary. In other words, all of the benefits accrue to 
Microsoft. Well, that's just wrong. Once again, the facts tell another 
story:
  The top 20 companies in the industry account for only 42% of the 
total revenues from packaged software sales--demonstrating that the 
software industry is highly competitive and decentralized.
  Microsoft represents less than 4% of total worldwide software 
industry revenues. In 1996, total software industry revenues were $250 
billion; Microsoft's portion was less than $10 billion. How can there 
be a ``Microsoft Monopoly'' if Microsoft accounts for less than 4% of 
industry revenues? If such a monopoly existed, shouldn't that 
percentage be more like 60%, 70%, 80% or higher?
  But what about Microsoft's dominance in the PC software space? Well, 
a few more facts:
  In online services, Microsoft represents only 9.8 percent of the 
online services sector. America Online has 75 percent.
  Database software: Microsoft represents only 6 percent of the 
database software sector, compared to Oracle's 30 percent share.
  E-mail software: Microsoft represents only 14 percent of e-mail 
software revenues, compared to 43 percent for IBM/Lotus.
  Server operating systems: Microsoft represents only 27 percent of 
server software revenues, compared to 41 percent for Novell.
  Again, where is the monopoly? Percentages of 9.8, 6, 14 and 27 hardly 
sound like monolopies to me.
  So we're still left to ponder, why the fuss over Microsoft, given all 
of this good news? This is the question so many in the media are 
striving to answer. The New Republic recently attributed it to techno-
angst--society's

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anxiety about the Information Age and its desire to focus that angst on 
someone or some company.
  I think a more plausible answer is a coordinated PR and lobbying 
campaign by a handful of Microsoft's competitors. Two weeks ago, the 
author and management guru James Moore wrote in The New York Times:

       The courtroom drama played out in Washington in recent 
     weeks concealed what was happening backstage: a small number 
     of companies that compete with Microsoft have managed to make 
     the Federal Government an unwitting tool of their narrow 
     competitive objectives.
       These sorts of unholy alliances almost always lead to bad 
     policy. If users are better served, if the cost of software 
     is reduced and if new layers of information-industry 
     innovation are built, a strong argument can be made that the 
     public good is being achieved without Government 
     intervention.

  The public good is being achieved without Government intervention. 
This cannot be overemphasized. The Progress and Freedom Foundation has 
played an important role in developing intelligent public policy with 
an eye toward limiting the role of government in markets. In 1995, PFF 
published a major study on the need to replace the FCC and 
substantially deregulate the telecommunications marketplace. Today, PFF 
is conducting a major project designed to limit government interference 
in the market for digital broadband networks. I applaud PFF's efforts 
on behalf of the free market in those industries, and am somewhat 
mystified by the organization's apparent inconsistency with regard to 
Microsoft and the software industry. Based on the organization's past, 
I simply want to encourage the Progress and Freedom Foundation to 
remain steadfast in its belief in the American marketplace.
  Now, I'd like to turn for a moment to addressing some of what I will 
call the myths out there about Microsoft. I think it's important that 
we deal with some of the less scholarly thinking and ideas up front.
  Myth #1: Microsoft is somehow going to control access and commerce on 
the Internet.
  I was amused to see a press release earlier this week from the New 
York Attorney General's Office making this claim. It's almost as though 
the PR campaign being championed by several Microsoft competitors who 
have decided these buzzwords have the most media appeal. Anyone who 
goes out onto the Internet to find the world of knowledge and 
information available there knows that no one will ever control access 
and commerce on the Internet. Such a thought is as laughable as 
suggesting one company will control all commerce and information in the 
world. The Internet is a vast information source that will continue to 
grow and expand. No company will ever represent more than a tiny 
fraction of all the commerce and all the content available on the 
Internet.
  Myth #2: Some companies are afraid to come forward with complaints 
about Microsoft because they are afraid that Microsoft will use its 
dominance in the marketplace to punish them.
  My colleague, the chairman of the Judiciary Committee, Senator Hatch, 
has made this charge himself in interviews with the news media. This is 
a serious accusation but one that is also baseless. Microsoft has gone 
so far as to give the Justice Department a letter that it can present 
to anyone and everyone doing business with the company encouraging them 
to cooperate with the DOJ on its investigation. Microsoft has been 
extremely cooperative for years with the DOJ. And it would be out of 
character for Microsoft--a company that values its partners--to make 
this an issue with them.
  Myth #3: Microsoft's license agreements with Internet Service 
Providers unfairly force ISPs to promote only Internet Explorer, and 
prohibit ISPs from even mentioning the existence of Netscape Navigator.
  Like PC manufacturers, ISPs know and understand their customers. They 
provide their customers with choice--whether it's Internet Explorer, 
Navigator or some other product. Microsoft has no exclusive 
arrangements with ISPs. This is a non-issue.
  Myth #4: Microsoft is entering into proprietary agreements with 
Content Providers to create popular websites that can only be viewed 
using Microsoft's browser.
  Let me be absolutely clear. A consumer can use any browser he or she 
wants to view any material on the Internet. A content provider may 
choose to take advantage of technology available in either Internet 
Explorer or Navigator to make their content even more compelling.
  Content providers like Warner Brothers want to reach the most 
customers. They aren't looking for exclusionary technology. They are 
looking for the best technology to serve their customers. Right now 
Warner Brothers believes that Microsoft has the best technology. There 
are other content providers that believe Netscape has the best 
technology. That's what competition is all about. This is similar to 
saying that manufacturers of VHS videocassette players entered into 
proprietary deals with Hollywood studios to force their movies on VHS 
tapes rather than Beta tapes. Just as VHS and Beta were competing 
standards, so too are Internet Explorer and Netscape Navigator. May the 
best technology win.
  Myth #5: The Justice Department is working to restore choice for 
consumers.
  This is disingenuous at best. Consumers have always had choice. 
Netscape and thousands of other software programs run wonderfully on 
Microsoft Windows. In fact, the great untold story is how Microsoft 
spends more than $65 million and 1,000 Microsoft employees to work with 
its competitors to build great software applications that run on 
Windows.
  It's important to understand these myths. Sound public policy must be 
based in fact, not competitive rhetoric.
  These are exciting times for American consumers and for American 
business. Microsoft's business model, which is focused on rapid product 
development, broad distribution at low prices and close collaboration 
with hardware and software vendors, is helping to drive demand through 
the high technology sector. We are seeing upgrades to 
telecommunications networks--telephone, cable, satellite and wireless--
the introduction of new types of devices such as hand held computers 
and automobile PCS--and the creation of innovative new software to make 
these networks and devices improve the lives of all consumers.
  New technologies and new ideas are being introduced at a dizzying 
pace--led largely by innovative and highly competitive American 
companies.
  I've spoken today about the American consumer and the American 
software industry. I'd like to conclude by talking a little about 
Microsoft. You can hardly talk about innovation and competition without 
focusing on Microsoft. It's founder, Bill Gates, is one of the true 
visionaries of the Information Age and his company has produced 
technology that will forever change the way we work, play and think.
  I have enjoyed watching this phenomenal man and his company for many 
years. And over those years, I have seen Microsoft remain committed to 
four very important business principles that have guided the company 
since its founding:
  1. Microsoft builds software that improves the quality of people's 
lives. Bill Gates' vision of Information at Your Fingertips brings 
businesses closer to their customers, voters closer to their elected 
officials, doctors closer to their patients and teachers closer to 
their students.
  2. Microsoft listens closely to its customers and focuses on how it 
can do a better job. If you want to know the true secret to Microsoft's 
success, look at its intense focus on incorporating customer feedback 
into its products.
  3. Microsoft believes that innovation is at the heart of its future. 
Microsoft will spend more than $2 billion this year on research and 
development. More than 16 percent of its revenues are dedicated to R&D. 
Its competitors, Sun and Oracle will spend about 8 percent of revenues 
on R&D.
  4. Microsoft partners with many companies, large and small, who share 
these principles. Microsoft's thousands of partners are in every state 
in America--independent software vendors who build great software 
products for the Windows operating system, PC manufacturers, solution 
providers who support and implement Microsoft technology solutions and 
many other partners.
  In conclusion, I believe that a review of the facts shows that the 
American

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software industry is healthy, vigorous, innovative and continually 
improving the lives of American consumers. Microsoft is one of many 
aggressive and innovative companies in this industry. Its leadership is 
an asset for the nation. Its leadership is also not guaranteed. In any 
dynamic, innovative industry such as software, your position in the 
market is only as strong as your last product release. The competitive 
threats to Microsoft are real.
  As PFF, the participants at its conference, and many of my colleagues 
know all too well, it is the marketplace, not government regulation 
that will ensure continued innovation and consumer benefits.
  Mr. HATCH. Mr. President, I ask unanimous consent that an address I 
gave to the Progress and Freedom Foundation be printed in the Record.
  There being no objection, the address was ordered to be printed in 
the Record, as follows:

    Address of Sen. Orrin G. Hatch before the Progress and Freedom 
                      Foundation February 5, 1998

                      Antitrust in the Digital Age

       Good morning. It is a true pleasure to be with you this 
     morning and to be included in such a distinguished group of 
     leading economic and antitrust thinkers. I know that, given 
     the early hour, some of you no doubt are looking for some 
     eye-opening comments. Well, I hate to disappoint, but, let's 
     not kid ourselves folks, this is antitrust we're talking 
     about, so I hope you've had your coffee.
       Seriously, though, I would like to applaud the Progress and 
     Freedom Foundation for convening this symposium, as well as 
     those who have focused their intellectual energies on the 
     topics to be discussed today.
       It is, I believe, no overstatement to say that the so-
     called Digital Revolution is one of the most important 
     economic developments of our age, one which promises to 
     fundamentally change our economy, our business, and our daily 
     lives.
       Just when I have finally mastered how to set the clock on 
     my VCR, I discover that it won't be long before I'll be 
     watching movies off the Internet, not my VCR. Now I'm really 
     beginning to understand that ``virtual reality'' means 
     something more than simply getting up in the morning.
       These rapid changes present numerous challenges to 
     policymakers who are seeking to understand what, if any, role 
     the government should play both in the transition to our new 
     digital economy and in the new economy itself. These changes 
     present challenges to policymakers who are seeking to ensure 
     that, where there truly is a productive role for government, 
     this role is both limited and effective.
       While of course the Digital Revolution impacts numerous 
     policy areas, I believe that, ranking high among those is the 
     task of understanding the proper role of antitrust in high-
     technology markets. I promise to keep my comments brief this 
     morning, but thought I would spend a few minutes discussing 
     why I believe it is important for antitrust policymakers, law 
     enforcers, and intellectuals to engage in a serious 
     examination of market power and structure, and the proper 
     role for antitrust enforcement, in the Digital Age.
       Make no mistake about it--these are difficult issues. 
     Anyone who suggests that the answers are easy cannot be 
     taking the issues very seriously. But anyone who suggests 
     that these are not serious policy issues, worthy of debate 
     and study, has, for one reason or another, chosen to ignore 
     reality.
       But, the difficulty of the questions should not deter us 
     from seeking answers. And, especially given the breathtaking 
     pace by which technology is advancing, it is imperative that 
     we search all the more diligently and assertively.


                     I. Antitrust and Free Markets

       While there has always been, and probably will always be, 
     considerable debate about the proper role of antitrust 
     enforcement, it is important to note here something that just 
     about everybody agrees with: some degree of antitrust 
     enforcement is important to protecting our free market system 
     and the consumers that system is meant to benefit.
       Thus, most who, like myself, trumpet the free enterprise 
     system, also recognize that proper antitrust enforcement 
     plays an important role in protecting free markets. Let me 
     repeat that. Proper antitrust enforcement plays an important 
     role in protecting free markets.
       From Adam Smith to Robert Bork, free market, free-
     enterprise proponents have long recognized as much. So let me 
     debunk the myth that economic conservatives do not believe in 
     antitrust. To the contrary, we believe strongly in 
     antitrust--so long as the role of antitrust is understood 
     properly and not overextended.
       Properly conceived, the role of our antitrust laws is to 
     maximize consumer welfare--allowing the marketplace to work 
     its will so that the products consumers want can be produced 
     in an efficient fashion and offered at competitive prices. 
     The basic premise is that antitrust protects ``competition'' 
     in the marketplace, and that a competitive marketplace 
     enhances consumer welfare. In a properly functioning 
     competitive market, consumer choice dictates which products 
     will be produced and sold, and competition among firms 
     determines who will make them and at what price. Consumer 
     welfare is maximized, and society's ``pie'' is larger.
       At the same time, though, our society and our antitrust 
     laws recognize that markets will not always operate freely 
     and achieve their objective of maximizing consumer welfare. 
     The reality is that, in some circumstances, private market 
     power can distort the workings of the marketplace and, as a 
     consequence, can hurt consumer welfare by raising prices, 
     restricting consumer choice, or stifling innovation. This is 
     where antitrust steps in.
       As Judge Bork has written, proper antitrust enforcement 
     actually ``increase[s] collective wealth by requiring that 
     any lawful products . . . be produced and sold under 
     conditions most favorable to consumers . . .. The law's 
     mission is to preserve, improve, and reinforce the powerful 
     economic mechanisms that compel businesses to respond to 
     consumers.'' That's an important point--preserving ``economic 
     mechanisms that compel businesses to respond to consumers.'' 
     [The Antitrust Paradox at 91 (1993).]
       The $64,000 question, though--or, perhaps in today's 
     context I should say the $300 billion question--lies in 
     defining what actually injures consumer welfare, calling for 
     antitrust enforcement. For it is not enough to say that any 
     reduction in the amount of rivalry in a particular industry 
     reduces competition, injures consumers, and should be stopped 
     by antitrust laws. The very nature of competition and 
     capitalism is for firms to beat each other in the 
     marketplace. While this process--competition--certainly 
     benefits consumers, its natural outcome is that the firms who 
     succeed do so at the expense of other firms. [See id. at 49.]
       Antitrust law certainly cannot be about punishing winners 
     or protecting losers. The goal is not simply to identify 
     practices that reduce competition or rivalry. Rather, it is 
     to identify when the exercise of market power impedes markets 
     from operating freely and, as a consequence, hurts consumers.
       Where such situations can be identified, antitrust has the 
     additional burden of identifying effective remedies that 
     actually benefit consumers and are not more costly than the 
     so-called anticompetitive practices identified in the first 
     place. This sounds pretty simple, but it is not, especially 
     when you are dealing with highly complex, fast-moving 
     marketplaces such as high technology.
       But it is my hope that those participating in this 
     symposium today will help those of us in policymaking or 
     enforcement positions arrive at the right answers. For 
     getting the answers right is, I would argue, more important 
     now than ever, especially with respect to these markets which 
     will be the key to our economy for years to come.


       II. The Importance of Antitrust to the Digital Revolution

       The stakes are high, because ill advised antitrust policy, 
     whether it is overly aggressive or overly timid, could have 
     drastic consequences for the future of our economy. I would 
     like to spend the rest of my time this morning explaining why 
     I think understanding and implementing appropriate antitrust 
     policy for the digital marketplace is a singularly important 
     policy issue.
       1. First is the very simple fact that high technology 
     represents the most important sector of our economy. High 
     technology is the single largest industry in the United 
     States, leading all other sectors in terms of sales, 
     employment, exports, and research and development. [American 
     Electronics Association. ``Cybernation,'' 1997.]
       Perhaps more importantly, high technology is the key to the 
     development of our future economy. Not only will 
     technology continue to be one of the driving forces behind 
     our economy's growth, but it also will drive the 
     development of the Internet, the ``Information Highway,'' 
     which, by all accounts, will fundamentally alter the way 
     we do business.
       Even Congress, which has traditionally been an institution 
     of Luddites, is getting into the swing of things. 
     Communication and accountability to our constituents is much 
     improved by web sites and e-mail. Although, come to think of 
     it . . . we may want to rethink this e-mail thing. Now we get 
     feedback instantly--not even a grace period.
       The future direction of the Internet will be shaped in no 
     small part by events occurring in today's marketplace. A 
     handful of developments in today's marketplace could, I 
     believe, have tremendous impact on the Internet, electronic 
     commerce, and information technology as a whole, for years to 
     come.
       2. Which brings me to my second, somewhat related reason 
     for suggesting that antitrust enforcement in high technology 
     is a vitally important policy issue. We are currently in the 
     midst of important structural shifts in the computing world.
       Given the unique nature of high technology markets, it is 
     with respect to precisely such technological paradigm shifts 
     that healthy competition and effective antitrust policy is 
     most important. Allow me a moment to elaborate on this point, 
     which I believe is a fundamental and important one.
       As many economists and capitalists alike have come to 
     recognize--including, I might note, many of today's 
     participants, and software industry leaders such as Bill 
     Gates--the economic dynamics in so-called ``network'' markets 
     such as the software industry often allow individual firms to 
     garner unusually large market shares in particular segments.
       Most who have studied such markets closely, agree that the 
     cyclical effects of network

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     effects or increasing returns can translate early market 
     leads into rather large market dominance, if not de facto 
     monopolies, as well as a significant degree of installed base 
     lock-in. This in itself is not anti-competitive when it 
     results from proper market behavior.
       While lock-in effects and single firm dominance of 
     particular sectors certainly render a market less than 
     competitive, and consequently has costs in terms of consumer 
     welfare, it also produces an important positive effect.
       When one firm dominates the market for a product which 
     serves as a platform--a product to which other software 
     developers will write their programs--that firm creates a de 
     facto standard, a uniform platform. Software developers thus 
     are not faced with the cost, in terms of time and resources, 
     to develop applications that run across a variety of 
     platforms. This can lead to significant boosts in 
     productivity and innovation.
       Indeed, this is precisely what we have seen with respect to 
     Microsoft's successful establishment of the Windows monopoly, 
     which, by creating a uniform platform for software 
     developers, has had a tremendous effect in the recent boom in 
     software applications and the software industry generally. 
     Even those who are concerned about Microsoft's exercise of 
     its vast market power must enter this efficiency gain in the 
     ``plus'' column of their consumer welfare calculation. The 
     fact of the matter is that Microsoft and the success of 
     Windows has been an important ingredient in the innovation 
     and wealth creation our software industry has produced over 
     the past decade or so.
       So, if a single firm's domination of a particular sector at 
     a particular point in time might be the result of perfectly 
     rational market behavior, and indeed may have some economic 
     benefits, where do we go from here? Does this mean that 
     antitrust is useless, irrelevant, or even counterproductive 
     in high technology markets? To some extent, perhaps. On 
     balance, the antitrust machinery in Washington, D.C. probably 
     shouldn't concern itself with every technology market which, 
     at a particular point in time, is dominated by a particular 
     firm to an unusual, even unhealthy extent.
       Where antitrust policy should focus, I would propose (with 
     a large footnote to the Judiciary Committee testimony of 
     Professor Joseph Farrell, and other economists who have 
     studied these markets), is on the transition from one 
     technology to the next--on so-called paradigm or structural 
     shifts in computing.
       While it may be likely and even, to a degree, useful, to 
     have a particular firm dominate a particular segment at any 
     point in time, it is dangerous, unhealthy, and harmful to 
     innovation and consumer welfare where that firm can exploit 
     its existing monopoly to prevent new competitors with 
     innovative, paradigm shifting technologies, from ever having 
     a fair shot at winning and becoming the new market leader or 
     de facto standard.
       This is especially the case where a single firm exercises 
     predatory market power to prevent healthy competition over a 
     series of structural computing shifts. Where this is so, one 
     would imagine that investors and innovators would find other 
     things to do with their time and money than to try to compete 
     with the entrenched firm to establish an important new 
     technology. Innovation is chilled, and the consumer suffers.
       The critical question, then, is how a dominant or monopoly 
     firm exercises its market power, even if fairly and naturally 
     obtained, with respect to the new guy that comes down the 
     pike offering an innovative, potentially paradigm shifting 
     technology. Does this new firm, offering a new technology 
     that may compete with, replace or otherwise threaten the old 
     firm's entrenched monopoly, have a legitimate opportunity to 
     compete in the marketplace?
       To borrow a phrase recently attributed to Professor Carl 
     Shapiro, do innovative start-ups get a ``market test,'' or 
     are they ``killed in the crib before they get a chance to 
     become a core threat?'' [Steve Lohr with John Markoff, ``Why 
     Microsoft is Taking a Hard Line with the Government?'' The 
     New York Times, January 12, 1998 at D1.]
       In high-technology markets displaying a high degree of 
     single-firm dominance, this is perhaps the most important 
     question for antitrust policymakers and enforcers:

       To what extent are innovators who offer potentially 
     fundamental changes to the nature of computing given a fair 
     ``market test,'' and just what practices by the entrenched 
     firm should be considered anticompetitive or predatory 
     efforts to foreclose the opportunity for such a genuine 
     market test?

       I believe this is precisely the question--or one of the 
     questions--presented by Microsoft today and is one of the 
     reasons why Microsoft in particular inescapably invites 
     scrutiny in the course of assessing competition policy in 
     this digital age.
       Of course, while antitrust policy in the Digital Age 
     encompasses more than scrutiny of a particular firm, the fact 
     remains that Microsoft in particular does raise a handful of 
     questions, given its dominance of the desktop, together with 
     its admitted effort to coopt important paradigm shifts and, 
     in the process, extend its dominance to a number of new 
     markets.
       The Internet generally and, more specifically, the 
     potential promise of browser software, and object-oriented, 
     ``write once, run anywhere'' software, represent important 
     and possibly critical developments for the computer industry. 
     Both the possibility of a new, browser-based platform and 
     interface, and the possibility of a programming language that 
     is genuinely platform independent, able to interoperate with 
     any type of operating system, could fundamentally change the 
     nature of computing.
       Among other things, both of these developments, likely 
     representing the next generation in computing, introduced a 
     serious threat to Microsoft's desktop dominance. As we all 
     now know, Microsoft has clearly come to recognize as much.
       Thus, with respect to both the so-called ``browser wars'' 
     and the battle between Java (Sun's essentially open 
     programming language) and ActiveX (Microsoft's proprietary 
     alternative to Java), we see Microsoft in a fever pitched 
     battle to control two potentially fundamental technological 
     developments and to prevent new technologies, developed by 
     other firms, from undercutting the current desktop monopoly 
     Windows enjoys.
       I am confident that nobody from Microsoft would dispute 
     this assertion. Nor should they. Microsoft has all the right 
     in the world not to be asleep at the switch and allow a 
     fundamental, structural technology shift from undermining its 
     current dominance of the software market. Its shareholders no 
     doubt would demand as much.
       At the same time, this is precisely where the practices of 
     a currently dominant firm, such as Microsoft, must be 
     scrutinized, and where the appropriate rules of the road must 
     be clarified and enforced. Tying arrangements, free product 
     offerings, licensing or marketing practices that are 
     effectively exclusionary--these and other practices may be 
     entirely appropriate in most instances.
       But the question that, in my view, must be addressed is 
     whether such practices, when engaged in by an entrenched 
     monopolist with respect to paradigm shifting innovations, 
     have the predatory effect of foreclosing innovators from 
     getting a fair market test. Where they do, I would suggest 
     that we have a significant market imperfection which impedes 
     innovation, and in the process hurts both the industry and 
     the consumer.
       The questions that I believe law enforcers and policymakers 
     must address are first, how to identify when particular 
     practices have such an effect; and, second, whether our 
     current antitrust regime adequately guides industry as well 
     as the courts and the enforcers to reach the right answer in 
     a timely fashion. These are some of the questions I plan to 
     give close scrutiny in the coming months, and which I hope to 
     learn more about from today's presenters and panelists.
       Answering these questions, and coming up with the proper 
     policy and/or enforcement solutions, is more important now 
     than ever. The market battles being waged today are likely to 
     have significant consequences for the Digital Age tomorrow.
       3. Which brings me to my third and final reason why I 
     believe sound antitrust policy is so critically important to 
     the Digital Age: because it could prove critical to the 
     growth of a free and open Internet.
       Interfaces. In the proper hands, software interfaces are 
     everything. To oversimplify somewhat grossly, software 
     interfaces refer to certain critical external links or hooks 
     in a software program that permit other programs to 
     communicate, and therefore interoperate, with the first 
     program. Because interfaces are the key to interoperability, 
     and interoperability is the key to software markets, 
     relentlessly aggressive, savvy companies with vast resources 
     can be quite successful at translating the control of a 
     critical interface into control of the markets on either side 
     of the interface.
       And the ultimate interfaces are the interfaces to Internet 
     access and content.
       Microsoft has made no secret of the fact that it has made 
     dominating the Internet space a corporate priority. And I 
     credit them for it. Any genuine free-marketeer, any genuine 
     capitalist, must admire the efforts the company has recently 
     taken to go after what Microsoft itself has called the huge 
     ``pot of gold'' the Internet represents.
       Like many, I cannot help but admire and applaud Microsoft's 
     drive to pursue this vision. Whether it be a no-holds barred 
     approach to competing with alternative browser vendors, 
     seeking to control Web software programming and tools markets 
     with proprietary products, buying the intellectual property 
     of WebTV, making large investments in the cable industry 
     while vying to control the operating systems of cable set-top 
     boxes, linking Internet content to the Windows desktop, or 
     any other of a handful of aggressive steps to control the 
     groundwells, plumbing and spigots of the Internet, one can 
     hardly question Microsoft's ambition to dominate the Internet 
     space, or their business savvy in getting there.
       Just how much control over the Internet Microsoft will 
     exercise is anyone's guess, and I certainly do not pretend 
     that I know the answer. But many certainly do believe that 
     this is what Microsoft is out to achieve, in effect a 
     proprietary Internet, and that the answer lies in the outcome 
     of market battles which are being waged right now. For 
     controlling the key Internet interfaces is a critical step to 
     controlling much of the Internet itself.
       This, then, is my third reason for why properly calibrated, 
     vigilant antitrust enforcement is all the more imperative 
     today. In the end, the marketplace should be permitted to 
     choose whether it wants a proprietary Internet. I think I 
     know what the answer would be. But I can assure you that, if

[[Page S418]]

     one company does exert such proprietary control over the 
     Internet, and the Internet does in fact become a critical 
     underlying medium for commerce and the dissemination of news 
     and information, rest assured that we will be hearing calls 
     from all corners for the heavy hand of government 
     regulation--for a new ``Internet Commerce Commission.''
       It seems far better to have antitrust enforcement today 
     than heavy-handed regulation of the Internet tomorrow.
       So, let me suggest to those of you who abhor the regulatory 
     state that you give this some thought. Vigilant and effective 
     antitrust enforcement today is far preferable than the heavy 
     hand of government regulation of the Internet tomorrow.


                            III. Conclusion

       In closing, I would like to come back to what I said at the 
     outset. These are difficult, but very important, policy 
     issues. Because of what is at stake, effective and 
     appropriate antitrust policy is critical to our digital 
     future. Antitrust policy that errs on either side--be it too 
     aggressive or too meek, could have serious consequences. But 
     because of the uniqueness, and the complexity of high 
     technology markets, discerning the proper role for antitrust 
     requires some fairly hard-headed analysis.
       Those who dismissively say that technology is complicated 
     stuff that changes like quicksand are in a sense correct. 
     But, is the answer, as has been suggested by some politicians 
     and other new-found friends of Microsoft here in Washington, 
     simply to throw up our hands and move on to other, easier, 
     and less sensitive issues? Hardly.
       Rather, let me suggest that the answer is to make sure that 
     the rules of the road are the right ones, and that the 
     referees do a good job enforcing them, when and where it is 
     appropriate. Antitrust policymakers and enforcers should not 
     shirk their duties just because the task is a hard one.
       I have a great degree of confidence that the current head 
     of the Antitrust Department is up to the task, and, as 
     Chairman of the Committee with antitrust and intellectual 
     property jurisdiction, I plan to do what I can to ensure that 
     the rules are being applied both fairly and effectively. We 
     in Congress not only can, but in my view must, ask the 
     questions and help ensure the right answers.
       Toward this end, I would like again to thank the Progress 
     and Freedom Foundation, and those who have dedicated the time 
     and intellectual effort to these difficult questions, for 
     taking a very productive step in this process of 
     understanding and implementing a sound, effective role for 
     antitrust policy in the Digital Age. I expect that we all 
     will learn a great deal from what I trust will be a vibrant 
     and energetic discourse throughout the remainder of the day.

  Mr. GORTON. Mr. President, I want particularly to thank my friend 
from Nevada for agreeing to let me proceed.
  The PRESIDING OFFICER. Under a unanimous consent request, the Senator 
from Nevada is recognized for up to 15 minutes.
  Mr. REID. I say to my friend from Washington, it was a pleasure to 
yield that time and to listen to his statement, which was typically 
much like the Senator from Washington; it was very thorough and 
educational for me.
  Mr. President, I ask unanimous consent that following my statement, 
the Senator from California be recognized for 10 minutes.
  The PRESIDING OFFICER. Without objection, it is so ordered.

                          ____________________