[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

[[Page S4232]]

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

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     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

[[Page S4234]]

     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.

                          ____________________