[Congressional Record Volume 146, Number 54 (Thursday, May 4, 2000)]
[Senate]
[Pages S3553-S3555]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
PROPOSED ``REMEDIES'' IN THE MICROSOFT ANTITRUST CASE
Mr. GORTON. Mr. President, I would like to take a few minutes to talk
about the proposed remedies submitted last Friday by the U.S.
Department of Justice and 17 States in the antitrust suit against
Microsoft. As my colleagues know, the Department of Justice and the
States have asked the court to break Microsoft into two separate
companies, and to require significant Government regulation of the two
companies.
Let's begin by reviewing the charges in the case. First, the
Government has alleged that Microsoft entered into a series of
agreements with software developers, Internet Service Providers,
Internet content providers, and online services like AOL, that
foreclosed Netscape's ability to distribute its Web browsing software.
Despite claims by Government lawyers and outside commentators that this
was the strongest part of the Government's case, the trial court--even
Judge Jackson--disagreed. The court ruled that Microsoft's agreements
did not deprive Netscape of the ability to reach PC users. Indeed, the
trial court pointed out the many ways in which Netscape could, and did,
distribute Navigator. Direct evidence of this broad distribution can be
found in the fact that the installed base of Navigator users increased
from 15 million in 1996 to 33 million in late 1998--the very period in
which the Government contends that Microsoft foreclosed Netscape's
distribution.
The second charge involves what the Government alleged was the
unlawful ``tying'' of Internet Explorer to Windows. The Government
argued that this ``tying'' was one of the primary means by which
Microsoft foreclosed Netscape's ability to distribute Navigator. The
trial court agreed with the Government, finding that Microsoft violated
Section 1 of the Sherman Act in its design of Windows 95 and 98. The
court's conclusion is astounding in two respects. First, as I
mentioned, the trial court determined that Microsoft had not deprived
Netscape of distribution opportunities. Second, and even more
important, the trial court's conclusion is in direct contradiction to
that of the District of Columbia Circuit Court of Appeals. In June,
1998--before the antitrust trial even began--that court of appeals
rejected the charge that the inclusion of Internet Explorer in Windows
95 was wrongful. In its June, 1998 decision, the appeals court stated
that ``new products integrating functionalities in a useful way should
be considered single products regardless of market structure.'' Despite
the fact that trial courts are obliged to follow the rulings of
appellate courts, the trial court in the Microsoft case has singularly
failed to do so.
In its third charge, the Government alleged that Microsoft held a
monopoly in Intel-compatible PC operating systems, and maintained that
monopoly through anticompetitive tactics. The trial court agreed, and
determined that there were three anticompetitive tools employed by
Microsoft: (1) the series of agreements that the trial court itself
held did not violate antitrust law; (2) the inclusion of Internet
Explorer in Windows, which the Appellate Court already determined was
not illegal; and (3) a random assortment of acts involving Microsoft's
discussions with other firms, such as Apple and Intel--none of which
led to agreements. In relying on these three factors, the trial court
seems to have concluded that, while Microsoft's actions, taken
individually, might not constitute violations of antitrust law, the
combination of these lawful acts constitutes a violation of law. This
approach to antitrust liability has generally been rejected by courts,
in part because it fails to provide guidance allowing businesses to
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understand their legal obligations. Such a rule effectively chills
desirable competitive conduct.
Finally, the trial court agreed with the Government's allegation that
Microsoft unlawfully attempted to monopolize the market for Web
browsing software. This conclusion is directly at odds with the court's
own previous finding. In the findings of fact released in November of
last year, the trial court found that Microsoft's conduct with respect
to Netscape was aimed at preventing Netscape from dominating Web
browsing software--not at gaining a monopoly for Microsoft. Under
antitrust law, a firm cannot be found liable for attempted
monopolization unless it specifically intends to monopolize the market.
Seeking to prevent somebody else from acquiring a monopoly is not
attempted monopolization.
To summarize, one of the Government's charges was dismissed by the
trial court; another flouts a specific decision of the appellate court;
and the remaining two simply provide no legal basis as antitrust
violations. I am highly confident that the appeals court will once
again recognize the fundamental flaws in the trial court's decision and
find in favor of Microsoft.
In the meantime, however, let's examine the ``remedy'' proposed by
the Department of Justice and 17 States for these fictional violations.
First, and most obvious, is the Government's proposal to break
Microsoft into two separate companies. Under the Government plan,
Windows would be retained by the new ``Operating Systems Business,''
while the remainder of Microsoft, including its office family of
products on its Internet properties, would be moved into a new
``Application Business.'' The Department of Justice plan effectively
prohibits these two companies from working together for a period of 10
years and effectively freezes fundamental components of the operating
system from improvement, thereby crippling in this fast-moving world of
technology the very technology which is one of the principal bases of
our present prosperity.
As outrageous as the proposal to break up Microsoft is, the
heavyhanded regulations the Government proposes to impose on Microsoft
are at least as outrageous.
Mr. President, at this point I ask unanimous consent that an article
by Declan McCullagh, published in the April 29, 2000, edition of Wired
News be printed in the Record.
There being no objection, the article was ordered to be printed in
the Record, as follows:
Government Wants Control of MS
(By Declan McCullagh)
Bellevue, WA--If Bill Gates was unhappy with early reports
of the government's antitrust punishments, he's going to be
plenty steamed when he reads the fine print this weekend.
In two lengthy filings on Friday, government attorneys said
they eventually hope to carve up Microsoft into two huge
chunks. But until that happens, their 40KB proposal would
impose extraordinarily strict government regulations on what
the world's largest software company may and may not do.
For instance: Microsoft wouldn't be able to sell computer
makers discounted copies of Windows, except for foreign
language translations, but would be ordered to open a
``secure'' lab where other firms may examine the previously
internal Windows specifications. Microsoft wouldn't be able
to give discounts to hardware or software developers in
exchange for promoting or distributing other company
products. For instance, Microsoft would be banned from inking
a discount deal with CompUSA to bundle a copy of Microsoft
Flight Simulator with a Microsoft joystick.
Microsoft would have to create a new executive position and
a new committee on its board of directors. The ``chief
compliance officer'' would report to the chief executive
officer and oversee a staff devoted to ensuring compliance
with the new government rules. If Microsoft hoped to start
discarding old emails after its bad experiences during the
trial, it wouldn't be able to do so. ``Microsoft shall, with
the supervision of the chief compliance officer, maintain for
a period of at least four years the email of all Microsoft
officers, directors and managers engaged in software
development, marketing, sales, and developer relations
related to platform software,'' the government's proposed
regulations say.
Microsoft would have to monitor all changes it makes to all
versions of Windows and track any alternations that would
slow down or ``degrade the performance of'' any third-party
application such as Internet browsers, email client software,
multimedia viewing software, instant messaging software, and
voice recognition software. If it does not notify the third-
party developer, criminal sanctions would apply.
State and federal government lawyers could come onto
Microsoft's campus here ``during office hours'' to ``inspect
and copy'' any relevant document, email message, collection
of source code or other related information.
The same state and federal government lawyers would be
allowed to question any Microsoft employee ``without
restraint or interference.''
Mr. GORTON. Mr. President, Mr. McCullagh did an excellent job of
outlining these extraordinary regulations. I will highlight a few.
Under the Department of Justice proposal, the Government would
require Microsoft to create an entirely new executive position, as well
as a new committee on its corporate board of directors, the function of
which would be to ensure the company's compliance with the Government's
new regulations.
The Department of Justice would require Microsoft to ``maintain for a
period of at least 4 years the e-mail of all Microsoft officers,
directors, and managers engaged in software development, marketing,
sales, and developer relations related to Platform Software.''
Under the proposed remedy, Microsoft would also be required to give
the Government ``access during office hours'' to inspect and demand
copies of all ``books, ledgers, accounts, correspondence, memoranda,
source code, and other records and documents in the possession or under
the control of Microsoft'' relating to the matters contained in the
final judgment. Not only that, the Government, ``without restraint or
interference'' from Microsoft, could demand to question any officers,
employees, or agents of the company.
Together with the other sanctions, these proposals would guarantee
that every Microsoft competitor would know everything the two
Microsofts plan long before the plans became reality. Mr. President,
that is a death sentence.
The function of relief in an antitrust case is to enjoin the conduct
found to be anticompetitive and to enhance competition. Any objective
review of the ``remedies'' proposed by the Department of Justice and
States, however, can only lead to the conclusion that the Government is
not seeking relief from anticompetitive behavior but to punish
Microsoft with unwarranted sanctions for allegations by threatening its
very existence.
There is no question that the Department of Justice initiated this
antitrust action at the behest of Microsoft's competitors. Those
competitors have said they sought Government intervention because it
would be ``too expensive'' to pursue private litigation. This
unjustified case has been too expensive--way too expensive--but not in
the way the competitors envisioned. In the 10 days following the
breakdown of settlement talks, there was a $1.7 trillion loss in market
capitalization. The damages from that huge loss were not limited to
Microsoft--a broad range of companies, including many of Microsoft's
competitors, were affected. More importantly, so, too, were millions of
American investors.
As one would expect, the millions of Americans who hold Microsoft
shares have taken a bath in recent weeks. The day after the trial court
issued its ``Findings of Law'' on April 3, Microsoft stockholders lost
$80 billion in assets. The decline in Microsoft stock helped fuel a
349-point slide in the NASDAQ, the biggest 1-day drop in the history of
the exchange. The pain wasn't limited to individual Microsoft
shareholders, however. At least 2,000 mutual funds and countless
pension funds include Microsoft shares.
I find it curious that the Vice President of the United States
criticizes as the ``risky scheme'' tax proposals in this body that
would reduce taxes by $12 billion in 1 year and $150 billion in 5
years. Yet the very administration that he supports has caused a loss
in the pockets of very real American citizens of far in excess of that
amount.
The ``risky scheme'' is the Microsoft lawsuit and we have now
suffered damages from that risk. It is unfortunate that those who were
so anxious to bring the heavy hand of Government into this incredibly
innovative and successful industry didn't listen to some of the more
cautious voices, such as that of Dr. Milton Friedman, who warned early
on to be careful what you wish. Dr. Friedman recently reinforced that
sentiment in a statement to the National Taxpayers Union:
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Recent events dealing with the Microsoft suit certainly
support the view I expressed a year ago--that Silicon Valley
is suicidal in calling Government in to mediate in the
disputes among some of the big companies in the area of
Microsoft. The money that has been spent on legal maneuvers
would have been much more usefully spent on research in
technology. The loss of the time spent in the courts by
highly trained and skilled lawyers could certainly have
been spent more fruitfully. Overall, the major effect has
been a decline in the capital value of the computer
industry, Microsoft in particular, but its competitors as
well. They must rue the day they set this incredible
episode in operation.
One of the biggest tragedies of this case is that it has all been
done in the name of consumer benefit. So far, the only real harm to
consumers I have seen has come from the resources wasted on the case
itself and from the market convulsions that resulted from the mere
specter of the Government's punitive relief proposal.
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