[Congressional Record Volume 144, Number 54 (Tuesday, May 5, 1998)]
[Senate]
[Pages S4231-S4234]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
RELEASE OF WINDOWS 98
Mr. HATCH. Mr. President, I am told that this afternoon in New York
City Bill Gates and a number of other executives from throughout the
computer and software industries will be holding a press conference
urging law enforcement officials not to interfere with the release of
Windows 98.
I certainly do not begrudge Mr. Gates or others in the industry to
make their views known. That is what makes our democracy work. Indeed,
I would like nothing more than to see more enlightened debate on this
terribly important policy issue. But I cannot help but wonder how many
of these executives are on that stage because they truly want to be. It
strikes me as curious that it was only after calls from Microsoft that
many of these individuals saw fit to sign letters and make public
appearances. Indeed, I have been told that some executives in fact hope
to see the Justice Department pursue further its case against
Microsoft, but
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have chosen to join Mr. Gates on that stage today because they feel
they have little choice but do so in order not to jeopardize their
relationship with the industry's most powerful and important player. I
understand perfectly well that no one would publicly admit as much,
but, given recent developments, I do believe it is a question worth
considering.
But, I also think it is timely to review where we stand today as the
Justice Department considers whether to bring a broader suit alleging
anti-competitive or monopolistic practices by Microsoft.
I first raised the question of Microsoft's seemingly exclusionary
licensing practices last November. While we are not privy to all of the
licensing and other practices the Justice Department has been
scrutinizing, over the past few months a number of specific practices
have come to light. In particular, we have learned that Microsoft not
only tied the shipment of its browser, Internet Explorer, to its
monopoly operating system, Windows, but also engaged in a series of
licensing practices with respect to computer makers, Internet Service
Providers, and Internet Content Providers which appear designed not to
serve consumers but rather to exclude competing browser companies from
the marketplace. For a company with a monopoly in the personal computer
operating system market--and nobody other than Microsoft would dispute
that the firm has monopoly power--to use its monopoly power to exclude
potential rivals clearly raises serious antitrust concerns.
Let me point out that such seemingly predatory and exclusionary
practices raise concerns for even the most conservative, free-market
antitrust thinkers. Judge Robert Bork, one of the most brilliant and
highly respected conservative antitrust thinkers, and author of the
renowned ``Antitrust Paradox,'' just yesterday explained in The New
York Times why even he is troubled by what he has learned of
Microsoft's practices. As Judge Bork wrote:
[w]hen a monopolist employs practices and makes agreements
that exclude competitors and does so without the
justification that the practices and agreements benefit
consumers, the company is guilty . . . of an attempt to
monopolize in violation of Section 2 of the Sherman Act. When
its own documents display a clear intent to monopolize
through such means, the case is cold.
I ask unanimous consent that this article be printed in the Record.
There being no objection, the article was ordered to be printed in
the Record, as follows:
[From the New York Times, May 4, 1998]
What Antitrust Is All About
(By Robert H. Bork)
Washington.--Rarely does a prospective antitrust case roil
public passion. But since it became known that I represent a
company urging the Justice Department to challenge certain of
Microsoft's business practices, my mail has certainly livened
up. One letter writer complained that I had sold my ``sole.''
His spelling aside, that writer was at least kinder than the
one who labeled me senile.
There seems to be a widespread impression that the
Microsoft controversy should be resolved by an ideological
litmus test: liberals are bent on punishing success, and
conservatives must defend Bill Gates' company from any
application of the antitrust laws. But the question is not
one of politics or ideology; it is one of law and economics.
And that is why an outspoken free marketeer like me can be
found arguing against Microsoft.
Indeed, in Congress and among the players, liberals and
conservatives, Democrats and Republicans are found on each
side of the controversy. What, then, is the complaint of the
many companies that are urging action by the Justice
Department?
These companies--customers as well as rivals of Microsoft--
challenge some of Microsoft's business practices as
predatory, intended to preserve the company's monopoly of
personal computer operating systems through practices that
exclude or severely hinder rivals but do not benefit
consumers. Microsoft's effort to maintain and expand a market
dominance that now stands at 90 to 95 percent violates
traditional antitrust principles. Specifically, it violates
Section 2 of the Sherman Act, territory visited decades ago
by the Supreme Court.
The case, from 1951, was Lorain Journal Company v. United
States, and the Court's ruling is directly on point. The
Journal, in the Court's description of the case, ``enjoyed a
substantial monopoly in Lorain, Ohio, of the mass
dissemination of news and advertising.'' The daily newspaper
had 99 percent coverage in the town.
``Those factors,'' the Court said, ``made The Journal an
indispensable medium of advertising for many Lorain
concerns.'' A minor threat to The Journal's monopoly arose,
however, with the establishment of radio station WEOL in a
nearby town. The newspaper responded by refusing to accept
local advertising from any Lorain County advertiser that used
WEOL.
The Supreme Court called that an attempt to monopolize,
illegal under Section 2 of the Sherman Act. There being no
apparent efficiency justification for The Journal's
action--that is, no evidence that it resulted in an
operation whose efficiency somehow benefited consumers--it
was deemed predatory. To those who say I have altered my
longstanding position to represent an opponent of
Microsoft, I'm happy to note that 20 years ago I wrote
that the Lorain Journal case had been correctly decided.
The parallel between The Journal's action and Microsoft's
behavior is exact. Microsoft has a similarly overwhelming
market share, and it imposes conditions on those with whom it
deals that exclude rivals without any apparent justification
on the grounds of efficiency. In fact, the case against
Microsoft is stronger, for there are many documents in the
public domain that make clear that Microsoft specifically
intended to crush competition.
We may not yet know all of the exclusionary practices, but
we do know many. Here's a sampler:
Microsoft's operating system licenses have forbidden
``original equipment manufacturers''--makers of personal
computers--to alter the first display screen from that
required by Microsoft. Microsoft thus controls what the
consumer sees. This restriction also hampers consumers' use
of competing browsers to search the Internet or to serve as
an alternative platform for other programs.
Microsoft has restrained Internet service providers and on-
line services, which are forced to deal with Microsoft
because of its monopoly in the Windows system. For instance,
it has forbidden service providers to advertise or promote
any non-Microsoft Web browser or even mention that such a
browser is available. Netscape and others are denied an
important distribution channel to consumers.
Companies that provide content on the Internet, to gain
access to Microsoft's screen display, have been forced to
agree not to promote content developed for competing
platforms.
When a monopolist employs practices and makes agreements
that exclude competitors and does so without the
justification that the practices and agreements benefit
consumers, the company is guilty, as was The Lorain Journal,
of an attempt to monopolize in violation of Section 2 of the
Sherman Act. When its own documents display a clear intent to
monopolize through such means, the case is cold.
Netscape and the other companies seeking an end to these
practices are not asking the Justice Department to take any
action that would interfere in the slightest with Microsoft's
ability to innovate. The department is simply being asked to
stop Microsoft from stifling the innovations of others. The
object is to create a level playing field benefiting
consumers. That is what antitrust is about--a view that
should require no one to sell his ``sole.''
Mr. HATCH. Anyone who knows Judge Bork knows that he would never take
the position he has taken were he not convinced that it was 100 percent
consistent with the antitrust views he has long espoused.
Similarly, Daniel Oliver, former chairman of the Federal Trade
Commission under President Reagan, just published a piece in the May 4
edition of The National Review. Mr. Oliver, long known as a free-market
proponent who generally opposes all but the most justified government
intervention in the marketplace, had this to say:
If ever there was a case that raises consumer-welfare
issues, this would seem to be it. Microsoft has a 90 per cent
share of a world market; there are reasons to think that
share will endure; Microsoft has engaged in restrictive
practices; and many of those practices do not appear to have
any efficiency justifications that would benefit consumers
rather than the company. Where you find a dead body, a bloody
knife, fingerprints, and a motive, there may have been a
crime.
I ask unanimous consent that this article as well be printed in the
Record, along with a personal letter I received several weeks ago from
Mr. Oliver and from Mr. James Miller, also a former chairman of the
Federal Trade Commission and director of the Office of Management and
Budget under President Reagan.
There being no objection, the material was ordered to be printed in
the Record, as follows:
[From the National Review, May 4, 1998]
Necessary Gateskeeping . . .
does antitrust law protect consumer welfare, or punish the firms
consumers prefer?
(By Daniel Oliver)
The Department of Justice is pursuing Microsoft on
antitrust grounds, and a number of conservative writers and
organizations have gone to Microsoft's defense, including the
Wall Street Journal, Jack Kemp, Adam Thierer of the Heritage
Foundation, Thomas
[[Page S4233]]
Sowell--and National Review. They proclaim that the free
market is a better protector of consumer welfare than
government; and their visceral distrust of government
activity is welcome in this post-the-era-of-big-government-
is-over era. But for antitrust cases, which are complex and
fact-specific, the head is a better guide than the viscera.
The charges against the Justice Department's lawyers are
familiar--and all the more persuasive because government
lawyers have certainly been guilty of such things in the
past. They are accused of arrogant industrial planning,
micromanaging, trying to second-guess the market and pick
winners, supporting Microsoft's competitors rather than
competition, and going off on a leftward regulatory lurch.
However, even if all those charges against the Justice
Department were true, there could still be a case against
Microsoft that would benefit consumers.
The central problem the critics of the Justice Department
have to deal with is that Microsoft probably has ``market
power''--or the ability to threaten consumer welfare. (Market
power is determined by looking at market share and a
company's ability to maintain it.) Microsoft has
approximately 90 percent of the world market for PC operating
systems. In a large market--the world--90 percent is huge.
But the critics are reluctant to concede the importance--or
even the existence--of Microsoft's large market share. One
critic claims the appropriate market in which to measure
Microsoft's share is the entire $570-billion computer
industry, of which Microsoft controls only a small portion.
Alternatively, he suggests that the appropriate market is all
software, of which Microsoft produces only 4 percent. In
antitrust whoever defines the market controls the debate. If
you define the market broadly enough, no one company will
ever seem to have enough power to harm consumer welfare.
Some of the Justice Department's critics maintain that
Microsoft's large market share is irrelevant by claiming that
barriers to entry into the software business are low, and
that we can expect competitors to come along and unseat
any incumbent monopolist.
The software industry, however, is characterized by
extremely low marginal costs. Unlike the second automobile
off an assembly line, the second copy of a new software
program costs virtually nothing to produce--which gives
established companies a tremendous advantage over their
competitors. In addition, what economists call ``network
effects'' make entry into the software business difficult.
The more people there are who use a particular computer
system, the more valuable that system will be--and the more
difficult it will be for the producer of a new product to get
it accepted by the ``installed base'' of consumers using both
the established product (the operating system) and the
ancillary products (software written for that system). The
unprecedented economies of scale resulting from low to no
marginal cost for production combined with network effects
make the ``natural'' barriers to entry into the software
market substantial.
The fact is, Microsoft seems to have a monopoly (i.e.,
market power), and that should be a source of concern to
consumers--not because Bill Gates might turn out to be an
evil genius, but because he will be inclined to behave like--
a monopolist.
Microsoft may have earned its monopoly in operating systems
by providing a product preferred by most customers. But can
we say the same thing about its share of, say, the word-
processing market? In 1995, WordPerfect was the most popular
word-processing program, with 60 per cent of the market.
Today WordPerfect is down to 13 per cent, and Microsoft's MS
Word has about 80 per cent. That's a remarkable shift of
consumer preferences.
How did Microsoft do it? Did consumers find it difficult to
run WordPerfect on Microsoft's operating system? Suppose,
hypothetically, that Microsoft used its monopoly position in
operating systems to make WordPerfect work less perfectly,
with the intention, and result, of driving people from
WordPerfect to Microsoft's own word-processing product. It
shouldn't take a left-winger to spot the consumer harm.
Consumers would be denied real choice.
The point is not that Microsoft has misused its position,
but that if Microsoft is in a position to misuse its
position, consumers, and their champions at the Justice
Department, should be concerned.
The current concern is that Microsoft might use its
position in the operating-systems market to: (1) monopolize
access to Internet content; (2) monopolize the market for web
browsers; or (3) maintain its current share of the operating
systems market by making sure that other web-browser products
will not, when combined with Internet applications, amount to
an alternative operating system. If Microsoft succeeds in any
of those endeavors, consumers will be harmed by not being
free to choose other products.
Bill Gates ``scoffs'' at rivals' charges of anti-
competitive behavior and ``bristles'' at the mention of the
word monopoly. But the evidence suggests that Microsoft has
routinely engaged in sharp-elbow practices that seem designed
to preserve or extend its monopoly. Under repeated
questioning at a Senate hearing in March, Gates finally
conceded--for the first time publicly--that Microsoft puts
restrictions in its contracts that bar some of the websites
featured in its Internet software from promoting Netscape or
being included in Netscape's rival listing. Microsoft has
also required computer manufacturers to pay license fees for
products even if they didn't install them. Once they have
paid for the Microsoft product, they will have less incentive
to pay for a competing product. That makes it more difficult
for competitors to sell to the computer manufacturers.
The Justice Department's action is designed to assist
competition and innovation. A software geek with a new idea,
or the investors he goes to for seed capital, may rightly
fear that, even if he can get to production, his product will
be duplicated by Microsoft and then bundled into its
operating system. While he might develop property rights that
would be protected by the intellectual-property laws, he is
not likely to have the cash to assert those rights against
monopoly-rich Microsoft.
There are three policy options for dealing with monopolies:
outlaw all monopolies; allow monopolies to function
completely unfettered; or allow monopolies to exist but with
some limitations on what they can do. U.S. public policy has
selected the third option in the belief that it will produce
more consumer welfare than the others.
If ever there was a case that raised consumer-welfare
issues, this would seem to be it. Microsoft has a 90 per cent
share of a world market; there are reasons to think that
share will endure; Microsoft has engaged in restrictive
practices; and many of those practices do not appear to have
any efficiency justifications that would benefit consumers
rather than the company. Where you find a dead body, a bloody
knife, fingerprints, and a motive, there may have been a
crime.
Objecting to the Microsoft case is tantamount to saying we
shouldn't have any antitrust laws at all. That may not be
intellectually scandalous, but it is certainly a minority
position, and not the position of the Chicago School or the
people who served in the Reagan Administrations--or even one
dictated by common sense.
____
March 19, 1998.
Hon. Orrin Hatch,
U.S. Senate,
Washington, DC.
Dear Senator: As the two chairmen of the Federal Trade
Commission during the Reagan Administrations, whose
responsibility it was to enforce the antitrust laws, we want
to applaud your investigation into whether those laws are
adequate to deal with competition issues in our information
technology economy.
A number of prominent conservatives have criticized you, as
well as the Justice Department which has brought a case
against Microsoft, on two grounds: that the free market will
protect consumers' interests; and that government
intervention will in no event be beneficial.
We disagree with these criticisms in the instant case.
Although we are and have been extremely skeptical of
government intervention in the economy--as is evidenced by
the innumerable statements we have made over the years--we
believe government does have a role to play in keeping
markets free and that the Microsoft situation deserves
serious review.
Whether Microsoft has ``market power''--a technical term--
which raises antitrust concerns is, of course, a separate
question. Microsoft clearly plays a dominant role in the
market for computer software systems. Moreover, as you
discovered--with some difficulty--at the Senate Judiciary
Committee hearing on March 3rd, Microsoft appears to have
engaged in certain practices designed to restrict the
activities of its competitors. On the other hand, Microsoft's
dominant role in the PC operating systems market may not
imply monopoly power and in any event may evanesce within a
few years. This is an empirical matter, and an informed
judgement awaits further information and analysis.
The purpose of this letter is not to write a brief against
Microsoft. It is only say what we think should be obvious:
that the Microsoft situation raises serious concerns about
the vigor of competition in the market for PC operating
systems. After all, Microsoft is not the corner drug store,
or the local bakery. It is a world wide company, with a
market value greater than IBM and General Motors combined,
doing business in this country's, and perhaps the world's,
most important industry. The extent of competition in this
industry should be of vital concern to your committee as you
contemplate the efficacy of the antitrust laws to protect the
interests of consumers.
Those who profess to be unconcerned by Microsoft's position
and behavior may say they are followers of the Chicago School
of economics--which is a shorthand way of expressing great
skepticism about antitrust enforcement and government
intervention into the economy.
We share those concerns, as is evidenced--to repeat--by the
myriad public statements we have given over many years. But
in our judgement, not to be concerned by Microsoft is neither
good public policy, nor does such an attitude reflect an
accurate understanding of the Chicago School.
Finally, we want to address what we think is a strawman
issue: that government (the Justice Department and the Senate
Judiciary Committee) is only acting in response to the
whining of Microsoft's competitors who are attempting to get
from politicians what they have been unsuccessful in
obtaining in the market place. We know from experience that
such protestations are not an accurate
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guide to the competitiveness of the market. But even if the
current inquiry is prompted by the efforts of Microsoft's
competitors, this motivation bears little relation to the
facts of the case. Microsoft either is or is not behaving
properly, and the antitrust laws either are or are not
adequate for current circumstances wholly independently of
what Microsoft's competitors are trying to accomplish.
For that reason we applaud your investigation, wish you
every success, and offer to help in any way we can.
Yours sincerely,
James C. Miller III.
Daniel Oliver.
Mr. HATCH. There are those who object that the Government should not
interfere with the dynamic hi-tech marketplace. I agree with those who
espouse a natural, instinctive skepticism toward any Government
intervention in the marketplace. But enforcement of the antitrust laws
may be all the more important if innovation in the most important,
fast-growing sector of our present and future economy is being
suffocated under the thumb of a company both willing and able to
exploit its monopoly power.
The media campaign surrounding the public release of Windows 95 was
accompanied by a theme song. As I recall, it was the Rolling Stones'
hit song Start Me Up. For innovators seeking to compete with Bill
Gates, for PC makers who feel that they have little choice but to steer
clear of any actions that might upset their relationship with
Microsoft, and for consumers, beholden to Microsoft for software
products, I wonder whether the theme song for Windows 98 shouldn't be
another Rolling Stones hit--Under My Thumb.
Mr. President, I yield the floor.
The PRESIDING OFFICER. The Senator from North Dakota.
____________________