[Congressional Record Volume 146, Number 108 (Thursday, September 14, 2000)]
[Senate]
[Pages S8565-S8566]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                          MICROSOFT LITIGATION

  Mr. BENNETT. Mr. President, I wish to call to the attention of my 
colleagues an article that appeared on September 1 in the Washington 
Post, written by Charles Munger, who is the vice chairman of Berkshire 
Hathaway, on the issue of the Microsoft litigation and the impact that 
will have in the marketplace.
  As I have considered this particular issue, as I pointed out to my 
colleagues, I come to the Senate unburdened with a legal education but 
with a background in business. Here is a businessman commenting on the 
implications of this litigation in a way that I think others might find 
interesting.
  I ask unanimous consent that it be printed in the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

               [From the Washington Post, Sept. 1, 2000]

                    A Perverse Use of Antitrust Law

                         (By Charles T. Munger)

       As best I can judge from the Microsoft antitrust case, the 
     Justice Department believes the following: that any seller of 
     an ever-evolving, many-featured product--a product that is 
     constantly being improved by adding new features to every new 
     model--will automatically violate antitrust law if: (1) it 
     regularly sells its product at one all-features-included 
     price; (2) it has a dominant market share and (3) the seller 
     plays ``catch-up'' by adding an obviously essential feature 
     that has the same function as a product first marketed by 
     someone else.
       If appellate courts are foolish enough to go along with the 
     trial court ruling in the Microsoft case, virtually every 
     dominant high-tech business in the United States will be 
     forced to retreat from what is standard competitive practice 
     for firms all over the world when they are threatened by 
     better technology first marketed elsewhere.
       No other country so ties the hands of its strongest 
     businesses. We can see why by taking a look at America's own 
     history. Consider the Ford Motor Co. When it was the dominant 
     U.S. automaker in 1912, a small firm--a predecessor of 
     General Motors--invented a self-starter that the driver could 
     use from inside the car instead of getting out to crank the 
     engine. What Ford did in response was to add a self-starter 
     of its own to its cars (its ``one-price'' package)--thus 
     bolstering its dominant business and limiting the inroads of 
     its small competitor. Do we really want that kind of conduct 
     to be illegal?
       Or consider Boeing. Assume Boeing is selling 90 percent of 
     U.S. airliners, always on a one-price basis despite the 
     continuous addition of better features to the planes. Do we 
     really want Boeing to stop trying to make its competitive 
     position stronger--as it also helps travelers and improves 
     safety by adding these desirable features--just because some 
     of these features were first marketed by other manufacturers?
       The questions posed by the Microsoft case are (1) What 
     constitutes the impermissible and illegal practice of 
     ``tying'' a separate new product to a dominant old product 
     and (2) what constitutes the permissible and legal practice 
     of improving an existing one-price product that is dominant 
     in the market.
       The solution, to avoid ridiculous results and arguments, is 
     easy. We need a simple, improvement-friendly rule that a new 
     feature is always a permissible improvement if there is any 
     plausible argument whatever that product users are in some 
     way better off.
       It is the nature of the modern era that the highest 
     standards of living usually come where we find many super-
     successful corporations that keep their high market shares 
     mostly through a fanatical devotion to improving one-price 
     products.
       In recent years, one microeconomic trend has been crucial 
     in helping the United States play catch-up against foreign 
     manufacturers that had developed better and cheaper products: 
     Our manufacturers learned to buy ever-larger, one-price 
     packages of features from fewer and more-trusted suppliers. 
     This essential modern trend is now threatened by the Justice 
     Department.
       Microsoft may have some peculiarities of culture that many 
     people don't like, but it could well be that good software is 
     now best developed within such a culture. Microsoft may 
     have been unwise to deny that it paid attention to the 
     competitive effects of its actions. But this is the course 
     legal advisers often recommend in a case such as this one, 
     where motives within individuals at Microsoft were mixed 
     and differed from person to person. A proper antitrust 
     policy should not materially penalize defendants who make 
     the government prove its case. The incumbent rulers of the 
     Justice Department are not fit to hold in trust the 
     guidance of antitrust policy if they allow such 
     considerations of litigation style to govern the 
     development of antitrust law, a serious business with 
     serious consequences outside the case in question.
       While I have never owned a share of Microsoft, I have long 
     watched the improvement of its software from two vantage 
     points. First, I am an officer and part owner of Berkshire 
     Hathaway Inc., publisher of the World Book Encyclopedia, a 
     product I must admire because I know how hard it was to 
     create and because I grew up with it and found that it helped 
     me throughout a long life.
       But despite our careful stewardship of World Book, the 
     value of its encyclopedia business was grossly and 
     permanently impaired when Microsoft started including a whole 
     encyclopedia, at virtually no addition in price, in its 
     software package. Moreover, I believe Microsoft did this 
     hoping to improve its strong business and knowing it would 
     hurt ours.
       Even so, and despite the huge damage to World Book, I 
     believe Microsoft was entitled to improve its software as it 
     did, and that our society gains greatly--despite some damage 
     to some companies--when its strong businesses are able to 
     improve their products enough to stay strong.

[[Page S8566]]

       Second, I am chairman and part owner of Daily Journal 
     Corp., publisher of many small newspapers much read by 
     lawyers and judges. Long ago, this corporation was in thrall 
     to IBM for its highly computerized operation. Then it was in 
     thrall to DEC for an even more computerized operation. Now it 
     uses, on a virtually 100 percent basis, amazingly cheap 
     Microsoft software in personal computers, in a still more 
     highly computerized operation including Internet access that 
     makes use of Microsoft's browser.
       Given this history of vanished once-dominant suppliers to 
     Daily Journal Corp., Microsoft's business position looks 
     precarious to me. Yet, for a while at least, the 
     pervasiveness of Microsoft products in our business and 
     elsewhere helps us--as well as the courts that make use of 
     our publications--in a huge way.
       But Microsoft software would be a lousy product for us and 
     the courts if the company were not always improving it by 
     adding features such as Explorer, the Internet browser 
     Microsoft was forced to add to Windows on a catch-up basis if 
     it didn't want to start moving backward instead of forward.
       The Justice Department could hardly have come up with a 
     more harmful set of demands than those it now makes. It it 
     wins, our country will end up hobbling its best-performing 
     high-tech businesses. And this will be done in an attempt to 
     get public benefits that no one can rationally predict.
       Andy Grove of Intel, a company that not long ago was forced 
     out of a silicon chip business in which it was once dominant, 
     has been widely quoted as describing his business as one in 
     which ``only the paranoid survive.'' If this is so, as seems 
     likely, then Microsoft should get a medal, not an antitrust 
     prosecution, for being so fearful of being left behind and so 
     passionate about improving its products.

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