[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

[[Page S3554]]

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:


[[Page S3555]]


       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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